United States Ex Rel. Bahrani v. Conagra, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
PU BL ISH
October 12, 2006
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

UNITED STATES O F A M ERICA, ex
rel., A LI B AHRANI,

Plaintiff-A ppellant,

v. No. 04-1407

CONAG RA, INC.; CONAG RA
FO O D S, IN C.; C ON A G RA H IDE
DIVISION ; CO NA GR A B EEF
COM PANY; and M ONTFORT, IN C.,

Defendants-Appellees.

U N ITED STA TES O F A M ER ICA,

Amicus Curiae.

A PPEA L FR OM TH E U NITED STA TES D ISTR IC T C OU RT FO R TH E
D ISTR IC T O F C OLO RA DO
(D.C. No. 00-K-1077(PAC))

G. Bryan Ulmer, III, The Spence Law Firm, LLC, Jackson, W yoming (George
Harold Parker, Jr., Dedolph & Parker, LLC, Fort Collins, Colorado, with him on
the briefs), for the Plaintiff-Appellant.

Darrel G. W aas, Otten, Johnson, Robinson, Neff & Ragonetti, P.C., Denver
Colorado (Patricia C. Campbell, Otten, Johnson, Robinson, Neff & Ragonetti,
P.C.; Edward G. W arin, M cGrath, North, M ullin, & Kratz, P.C., L.L.O., Omaha,
Nebraska; and Carol C. Payne, Vinson & Elkins, L.L.P, Dallas, Texas, with him on
the brief), for the D efendants-Appellees.
Peter D. Keisler, Assistant Attorney General, Douglas N. Letter, A ppellate
Litigation Counsel, M ichael D. Granston and Alan E. Kleinburd, Attorneys, Civil
Division, United States Department of Justice, W ashington D.C., for amicus
curiae, the United States of America.

Before H E N RY, M cKA Y, and T YM KOVICH, Circuit Judges.

H EN RY , Circuit Judge.

Ali Bahrani filed this reverse false claims action against his former

employer Conagra, and its related corporations, which are engaged in exporting

meat products and animal hides. He alleged that employees at Conagra’s Greeley,

Colorado office routinely altered export certificates issued by the United States

Department of Agriculture (USD A) in order to avoid obtaining replacement

certificates for which the company should have paid a fee, in violation of the

reverse false claims provision of the False Claims Act, 31 U.S.C. § 3729(a)(7).

M r. Bahrani maintained that by altering the export certificates, Conagra employees

“used . . . a false record or statement to conceal, avoid, or decrease an obligation

to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7).

The district court granted summary judgment to Conagra, reasoning that

Conagra’s alleged “obligation” to obtain the replacement certificates was not

“quantifiable and existing before the allegedly fraudulent acts taken to avoid it.”

See U nited States ex rel. B ahrani v. Conagra, Inc., 338 F. Supp. 2d 1202, 1207 (D .

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Colo. 2004). W e disagree with the district court’s reasoning. The record indicates

that, as to a certain class of errors and omissions in export certificates— those

deemed “major” or “significant”— the USDA required Conagra to obtain

replacement certificates and pay the accompanying fee. In our view, that

requirement is sufficient to constitute an “obligation” under § 3729(a)(7). Because

we are not persuaded by Conagra’s arguments that we affirm on alternative

grounds, we vacate the district court’s grant of summary judgment and remand for

further proceedings.

I. BACKGROUND

W e begin w ith an overview of U SDA regulations governing export

certificates. Then, we summarize M r. Bahrani’s allegations, the applicable

provision of the False Claims Act, 31 U.S.C. § 3729(a)(7), and the grounds for the

district court’s grant of summary judgment to Conagra. W e view the record in the

light most favorable to M r. Bahrani. See Terra Venture, Inc. v. JDN Real Estate

Overland Park, L.P., 443 F.3d 1240, 1243 (10th Cir. 2006).

A. USDA Export Certificates

To facilitate and promote foreign trade and to protect the food supply, the

USDA provides certificates to companies that export animal products. These

export certificates are part of a comprehensive scheme administered by the Food

3
Safety and Inspection Service (“the Food Inspection Service”), which regulates

meat exports, and the Animal Plant Health Inspection Safety Service (“the Animal

Inspection Service”), which regulates hide exports. See 9 C.F.R. §§ 130, 156, 307,

322.2, 350, 351, 390. The regulations are authorized by the Federal M eat

Inspection Act, 21 U.S.C. §§ 601-695, the Poultry Products Inspection Act, 21

U.S.C. §§ 451-471, and the Agricultural M arketing Act, 7 U.S.C.§§ 1621-27.

Under the Food Inspection Service regulations, exporters are required to

obtain certificates from USD A inspectors for each shipment. Each certificate has

a unique serial number and states the shipment’s destination, the exporter, the

consignee, and the number and kinds of products it contains. 9 C.F.R. § 322.2.

The destination may affect the content of the certificates: some countries require

more information than the Food Inspection Service does, and, in those instances,

the USD A provides exporters with certificates that comply with those other

countries’ requirements.

The Animal Inspection Service regulations contain a similar provision

addressing certificates for exports of animal hides. 9 C.F.R. § 156.3. In contrast

to the Food Inspection Service regulations, the Animal Inspection Service

regulations do not require a certificate for every shipment. However, some foreign

countries do require certificates, and the Animal Inspection Service regulations

provide that exporters shipping hides to those countries may obtain a certificate

from an inspector.

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 The Food Inspection Service and the Animal Inspection Service both charge

fees for the certificates. The Food Inspection Service’s export certificate fee is

based upon the time expended by its inspectors for providing information over and

above the minimum certification requirements set forth by federal law. See 9

C.F.R. §§ 307.4–307.6, 322.2, 391.1–391.3. In contrast, the Animal Inspection

Service charges a flat fee (currently $32). See id. § 130.20. The purpose of the

fee is to reimburse the government for the costs incurred.

Occasionally, an exporter may discover inaccuracies in an export certificate

after it has been issued by a U SDA inspector. There may be typographical errors

or more substantive deficiencies involving matters such as the grade of beef or the

destination of the product. In those instances, the inspectors’ practice has been to

make corrections on the original certificate themselves, authorize those corrections

to be made by the exporters, or to issue a new certificate. The Food Inspection

Service’s regulations expressly provide for such new certificates. See id. §

322.2(c) (setting forth the requirements for “in lieu of” certificates). The Animal

Inspection Service’s regulations do not contain a similar provision. However, the

record indicates that, in certain instances, its inspectors do issue replacement

certificates when the original certificates are inaccurate. Although there is not a

separate provision addressing the payment of fees for these “in lieu of” and

replacement certificates, the parties do not dispute that the regulations authorize

the Food Inspection Service and the Animal Inspection Service to charge fees for

5
them.

The regulations do not set forth a standard for determining when these “in

lieu of” and replacement certificates are required. However, both parties have

submitted affidavits— from USD A officials and a Conagra employee— agreeing

that these certificates are required when the original certificate contains significant

errors or omissions. See Aplt’s App. vol. I, at 101 (affidavit of Dr. M ark T.

M ina, M r. Bahrani’s expert, stating that new certificates are required for “major”

changes); Aple’s Supp. App. vol. II, at 375 (affidavit of Brad Schmeh, Conagra’s

expert, stating that new certificates are required in “situations where the customer

needs an entirely different shipment or if the w eights used for the hides are

completely wrong as opposed to one digit being incorrect or transposed”); id. at

385 (affidavit of M ariana Lambert, Conagra’s Letter of Credit M anager, stating

that new certificates are required for “changes to the product information, which

would include changes to the number of pelts or pieces, the type of hide, or the

weight . . . [or] significant changes to the identification information, including

entirely different container numbers or significant changes to the port of loading

or port of discharge”); id., at 475 (affidavit of D r. Claude N elson, Conagra’s

expert, stating that new certificates are required when “the customer needs an

entirely different shipment, or if the weights used for the hides are completely

wrong or the consignee is different from on the original certificate, as opposed to

one digit being incorrect or transposed”); id. at 278 (affidavit of D r. Robert

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Fetzner, Conagra’s expert, stating that new certificates are not required if the

changes are “minor”).

B. M r. Bahrani’s Allegations

From 1996 to 1998, M r. Bahrani worked as a document coordinator at

Conagra’s Greeley, Colorado facility. According to M r. Bahrani, when Conagra

employees discovered errors and omissions in export certificates, they routinely

altered the original certificates or forged new certificates, rather than obtaining “in

lieu of” or replacement certificates. Based on his personal experience and

information from co-workers, M r. Bahrani maintained that Conagra employees

altered more than 200 export certificates per w eek, and that they followed this

practice at the company’s Greeley facility and at other locations for at least ten

years preceding the commencement of this action. According to M r. Bahrani, by

altering the original certificates, Conagra employees avoided the fees that the

company would have been required to pay for new certificates. Thus, he asserted,

he w as entitled to damages under the reverse false claims provision of the False

Claims Act, 31 U.S.C. § 3729(a)(7).

C. The False Claims Act

Congress passed the original False Claims Act in 1863 “to combat rampant

fraud in Civil W ar defense contracts.” S. Rep. No. 99-345, at 8, reprinted in 1986

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U.S.C.C.A.N. 5266, 5273 (1986). “The Supreme Court has given the statute an

expansive reading,” Am. Textile M frs. Inst., Inc. v. The Limited, Inc., 190 F.3d

729, 733 (6th Cir. 1999), observing that it “covers all fraudulent attempts to cause

the Government to pay out sums of money.” United States v. Neifert-W hite Co.,

390 U.S. 228, 232-33 (1968).

In order “to enhance the Government’s ability to recover losses sustained as

a result of fraud against the Government,” S. Rep. No. 99-345, at 1 (1986),

reprinted in 1986 U.S.C.C.A.N. 5266, the Act was amended in 1986. The

“grow ing pervasiveness of fraud necessitate[d] modernization of the G overnment’s

primary litigative tool.” Id. at 2, 1986 U.S.C.C.A.N. at 5266.

Section 3729(a)(7), the reverse false claims provision at issue in this case, is

one of these new “litigative tool[s].” It provides that any person who

knowingly makes, uses, or causes to be made or used, a
false record or statem ent to conceal, avoid, or decrease an
obligation to pay or transm it money or property to the
Government,

is liable to the United States G overnment for a civil penalty
of not less than $5,000 and not more than $10,000, plus 3
times the amount of damages which the Government
sustains because of the act of that person[.]

31 U.S.C. § 3729(a)(7) (emphasis added). This section was added “to provide that

an individual who makes a material misrepresentation to avoid paying money

owed the Government would be equally liable under the Act as if he had submitted

a false claim to receive money.” S. Rep. No. 99-345, at 18, 1986 U.S.C.C.A.N. at

8
5283. Section 3729(a)(7) is described as a “reverse false claims” provision

“because the financial obligation that is the subject of the fraud flows in the

opposite of the usual direction.” United States ex rel. Huangyan Imp. & Exp.

Corp. v. Nature’s Farm Prods., Inc., 370 F. Supp. 2d 993, 998 (N .D. Cal. 2005).

The provision may be enforced either by the Attorney General or by a private qui

tam relator suing on the government’s behalf. 31 U.S.C. § 3730(a), (b)(1).

Congress did not provide a definition of an “obligation” under § 3729(a)(7).

However, despite the fact that “[i]n the abstract, an obligation can be legal, moral

or social,” see United States ex rel. S. Prawer & Co. v. Verrill & Dana, 946 F.

Supp. 87, 93-94 (D. M e. 1996), courts have defined the term more narrowly. This

circuit has stated that the plaintiff is required to allege that the defendant “had ‘an

existing legal obligation to pay or transmit money or property to the government.’”

Kennard v. Constock Res. Inc., 363 F.3d 1039, 1048 (10th Cir. 2004) (quoting

United States v. Pemco Aeroplex, Inc., 195 F.3d 1234, 1236-37 (11th Cir. 1999))

(emphasis added) (other internal quotation marks omitted).

There is widespread agreement that the making or using of the false record

or statement is not sufficient in itself to create an obligation under § 3729(a)(7).

Am. Textile M frs., 190 F.3d at 736 (stating that “[w]here an obligation arises if

and only if a defendant makes a false statement or files a false claim . . . an action

under the False Claims Act will not lie”). Instead, the obligation must arise from

some independent legal duty. See id. (“[W ]hatever the scope of the phrase

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‘obligation to pay or transmit money or property to the Government,’ a plaintiff

may not state a reverse false claim unless the pertinent obligation attached before

the defendant made or used the false record or statement.”) (internal citation

omitted); United States v. Q Int’l Courier, Inc., 131 F.3d 770, 773 (8th Cir. 1997)

(“To recover under the False Claims Act, we believe that the U nited States must

demonstrate that it was owed a specific, legal obligation at the time that the

alleged false record or statement was made, used, or caused to be made or used.”);

Huangyan Imp. & Exp., 370 F. Supp.2d at 1000 (characterizing § 3729(a)(7)

obligations as “existing debts” and adding that, under the Sixth Circuit’s reasoning

in American Textile M anufacturers, “the emphasis is not so much on the timing of

the obligation as on its source” ).

M oreover, the fact that the making or using of a false statement or record

might result in a fine or a penalty is insufficient to establish a § 3729(a)(7)

obligation. United States ex rel. Bain v. Georgia Gulf Corp., 386 F.3d 648, 657

(5th Cir. 2004) (stating that § 3729(a)(7) “does not extend to the potential or

contingent obligations to pay the government fines or penalties which have not

been levied or assessed (and as to which no formal proceedings to do so have been

instituted) and which do not arise out of an economic relationship between the

government and the defendant (such as a lease or a contract or the like”)); Am.

Textile M frs., 190 F.3d at 738 (stating that § 3729(a)(7) does not apply to

“contingent obligations[,] includ[ing] those arising from civil and criminal

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penalties that impose monetary fines after a finding of wrongdoing: as opposed to

quasi-contractual obligations created by statute or regulation” and those that

“attach only after the exercise of administrative or prosecutorial discretion, and

often after a selection from a range of penalties”); Q Int’l, 131 F. 2d at 773

(stating that § 3729(a)(7) does not apply to “attempts to avoid potential fines or

sanctions”); Huangyan Imp. & Exp., 370 F. Supp. 2d at 1000 (stating that

“potential obligations--fines, penalties and the like--that are contingent upon the

exercise of some discretion or intervening act by the government are not properly

the subject of a suit under [§ 3729(a)(7)]”).

There are two primary reasons w hy potential fines and penalties are not §

3729(a)(7) obligations. First, to apply the statute in that context would unduly

broaden it. See Am. Textile M frs., 190 F.3d at 739 (noting the “incredible scope”

of “permitting suits against any person who makes a false statement to the federal

government that he did not commit a statutory or regulatory violation that might

have led to the imposition of a fine, payment of liquidated damages, imposition of

a tax, or forfeiture of property”). Second, the discretion vested in prosecutors and

other government officials to determine w hether to seek fines or penalties renders

the alleged “obligation” contingent and thus beyond the reach of the statute. See

Bain, 386 F.3d at 657; Am. Textile M frs., 190 F.3d at 739.

Q International illustrates the kind of obligation that is not encompassed by

§ 3729(a)(7). To take advantage of differences between domestic and

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international postage rates, the defendant corporation transferred bulk mail from

the United States to Barbados for the purpose of remailing the letters individually

back into the United States (a practice known as “ABA remail”). The United

States Postal Service charged Barbados’s postal service as little as one-tenth of the

amount that it charged for the same first-class delivery of mail within the United

States.

The Eighth Circuit held that no actionable “obligation” was involved.

“[T]he statutes and regulations that the United States cites might well support a

judgment that one or more of the defendants engaged in illegal and fraudulent

activity, but those statutes and regulations do not create a legal duty for the

defendants to pay domestic postage.” Q Int’l, 131 F.3d at 773.

Similarly, in American Textile M anufacturers, a national trade association

alleged that a corporation had mislabeled Chinese products as coming from Hong

Kong or M acau. The plaintiff contended that the mislabeling violated several

statutes prohibiting the use of false documents and imposing penalties. According

to the plaintiff, “each customs violation created an obligation to pay money to the

government” and “the allegedly-false entry documents served to ‘conceal, avoid,

or decrease’ the obligations.” 190 F.3d at 734 (quoting § 3729(a)(7)).

In rejecting the plaintiff’s assertion that, by mislabeling the goods, the

defendant corporation avoided an “obligation,” the Sixth Circuit first noted that

the alleged obligation did not exist before the defendant made the allegedly false

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statements. The court also characterized the alleged violations of the statutes at

issue as “[c]ontingent obligations”— those that “will arise only after the exercise

of discretion by government actors.” Id. at 738. Nevertheless, the Sixth Circuit

did suggest that a statute or a regulation might create a § 3729(a)(7) “obligation,”

“at least w here the statute or regulation imposes an obligation essentially

contractual in nature, such as the imposition of the requirement that those using

the Postal Service pay the appropriate rate.” Id. at 737-38 (internal quotation

marks omitted).

In contrast to Q International and American Textile M anufacturers, United

States v. Pemco Aeroplex, Inc., 195 F.3d 1234 (11th Cir. 1999) (en banc), involves

an “obligation” sufficient to support a reverse false claim action. A contract

between the government and an aircraft maintenance company required the

company to advise the government when it was holding property in excess of the

requirements of the contract and to make appropriate arrangements to dispose of

it— for example by agreeing to purchase the property or to return it to the

government. In a reverse false claims action, the government alleged that the

maintenance company had submitted an inventory sheet with false information that

led the government to undervalue the purchase price that the company should pay

for airplane wings. Reversing a panel decision, the en banc court held that the

company had “a contractual obligation to account for the full value of any excess

government property” sufficient to support a reverse false claim action under §

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3729(a)(7). Id. at 1237. The fact that the parties had not agreed on a specific

purchase price for the wings was not dispositive. Id.

These decisions establish a dichotomy between “existing debts,” w hich are

covered by the statute, and “contingent penalties,” which are not. See Huangyan

Imp. & Exp., 370 F. Supp. 2d at 1000. Here, in M r. Bahrani’s reverse false claims

action against Conagra, we must decide how to characterize an exporter’s

obtaining “in lieu of” and replacement certificates and paying the accompanying

fee.

D. The District Court’s Decision

In granting summary judgment to Conagra, the district court concluded that

the statutes and regulations invoked by M r. Bahrani did not establish that the

company was obligated to pay for “in lieu of” or replacement certificates: “None

of the statutory or regulatory provisions cited in Bahrani’s argument or in his

supplemental filings . . . establishes that an exporter is required to obtain a

replacement certificate every time a change to an existing certificate is made.”

Bahrani, 338 F. Supp. 2d at 1207. M oreover, the court said, even if the

regulations required Conagra to obtain new certificates when it discovered errors

and omissions, “the act of altering the certificate (rather than requesting a

replacement) is not an actionable reverse false claim because that obligation arises

only as a result of that act and did not exist before.” Id. (citing Am. Textile M frs.,

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190 F.3d at 738-39). Finally, the fact that USDA inspectors could exercise their

discretion not to require “in lieu of” or replacement certificates indicated that

Conagra’s “obligation” was a contingent one, and thus not covered by §

3729(a)(7). Id. at 1207-08.

II. DISCUSSION

On appeal, M r. Bahrani challenges the district court’s conclusion that

Conagra’s failure to obtain “in lieu of” and replacement certificates did not

constitute an “obligation” under § 3729(a)(7). He also argues that the district

court erred by not considering one of his allegations.

Conagra defends the district court’s analysis of what constitutes a §

3729(a)(7) obligation and argues in the alternative that the court’s grant of

summary judgment should be affirmed because (1) its employees merely corrected

certificates and did not make false statements; (2) the allegedly false certificates

were not presented to the government; and (3) M r. Bahrani was not an “original

source” of the allegations against Conagra.

W e review the grant of summary judgment de novo. Holt v. Grand Lake

M ental Health Ctr., Inc., 443 F.3d 762, 765 (10th Cir. 2006). Summary judgment

is appropriate when there is no genuine issue of material fact and the

moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).

The court must examine the record to determine whether any genuine issue of

15
material fact is in dispute, and must construe the facts and reasonable inferences

drawn therefrom in the light most favorable to the nonmoving party. Holt, 443

F.3d at 765. “If there is no genuine issue of material fact in dispute, we determine

whether the district court correctly applied the substantive law.” Simms v. Okla.

ex rel. Dep’t of M ental Health & Substance Abuse Servs., 165 F.3d 1321, 1326

(10th Cir. 1999).

A. M r. Bahrani’s Arguments

W e begin with M r. Bahrani’s challenges to the district court’s grant of

summary judgment. He maintains that: (1) the U SDA regulations require

exporters to obtain new certificates and pay the accompanying fees when changes

must be made after the certificates are signed; (2) by making changes to the

original certificates, Conagra employees avoided an existing “obligation” under §

3729(a)(7); and (3) contrary to the district court’s reasoning, the discretion vested

in USDA officials does not establish that the fees for new certificates are

contingent obligations outside the scope of § 3729(a)(7). M r. Bahrani also argues

that (4) the district court failed to consider his independent claim that Conagra’s

employees also violated § 3729(a)(7) by failing to return original certificates to

the USD A when changes were necessary. W e consider each argument in turn.

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1. The USDA regulations

M r. B ahrani first challenges the district court’s conclusion that the USDA

regulations do not create a § 3729(a)(7) obligation to obtain “in lieu of” or

replacement certificates. He maintains that “every time Conagra alters, changes or

corrects USDA export certificates it avoids paying set and established monetary

fees to the government.” Aplt’s Br. at 47 (emphasis in original). In support of

this argument, he relies on Food Inspection Service Directive 9000.1 and the

affidavit of a former USD A veterinarian, Dr. M ark M ina.

According to M r. Bahrani, Directive 9000.1 provides that “a certifying

official can only initial minor erasures or alterations before signing the

certificate.” Id. at 42. (internal quotation marks omitted). He continues, “The

certifying official has only this one opportunity to approve minor alterations after

which any discretion he may have had to approve changes is forever extinguished.

There are no provisions allowing the certifying official to approve and initial

changes after the certificate is signed.” Id. at 42-43.

Like the district court, we are not persuaded by M r. Bahrani’s reading of the

Directive. The relevant sections provide:

IX. Export Certificates

A. The certifying official receives the appropriate completed
export certificate and a copy of the certified application from the
exporter. The certifying official verifies that the information on the
certificate is the same as the information on the application. If the
certifying official has concerns about the information on the application

17
 or the certificate, he or she contacts the inspection program employee
who signed the application or the exporter to address any concerns.

B. Before signing the certificate, the certifying official:

1. Checks the certificate for accuracy and corrections.

2. C hecks for attachments and lines-out any unused
space.

3. Unless not acceptable to a foreign country, initials
minor erasures or alterations . . . .

X. Replacement Certificates

A. A certificate replacing an original certificate is a re-
certification of the product’s condition at the time of the
initial export certification. A replacement certificate for a
lot does not represent the lot’s current condition. A
replacement certificate may be issued in situations, such as,
but not limited to:

1. The original certificate did not carry the required
information.

2. The original certificate carried incorrect information.

3. The name of the consignee or exporter has changed.

4. The certificate has been lost.

B. The replacement certificate must be dated with the same
date as that shown on the original certificate.

....

Aplt’s App. vol. I, at 53-54. Although Directive 9000.1 provides a nonexclusive

list of circumstances in which new certificates may be issued, we can find no

language that establishes a standard for determining when an exporter is required

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to obtain a replacement certificate or that bars a USD A inspector from making

corrections to a certificate after it has been signed.

The other authority invoked by M r. Bahrani— Dr. M ina’s affidavit—

similarly does not support the theory that new certificates are required every time

a correction must be made. Dr. M ina does state that:

Because of the need to maintain the integrity of the U SDA export
certificates for both animal meats and byproducts (including hides), any
change, correction, or alteration made to a U SD A export certificate after
it has been signed by a USD A official is serious and improper. It does
not matter what information is changed by a third party (non-U SD A
official) after the export certificate is signed, just the fact that someone
other than the USD A has injected himself/herself into the documentation
process creates a breach of integrity in the export documentation
process. Any third party changes, including but not limited to changes
to correct typographical errors, to spell out an abbreviated word, to
change an address from a post office box to a street address, or to
change a weight, container, or identification number where some
numbers are transposed, are strictly forbidden, serious and improper.

Id. at 102-03 (emphasis added).

Nevertheless, Dr. M ina does not state that exporters are required to pay a

fee every time that changes must be made to a certificate after it has been signed

by a USD A inspector. Although he opines that “[n]o USD A employee has the

authority to give a third party permission to make any changes to export

certificates after they have been signed by USDA employees,” id. at 101 (emphasis

added), Dr. M ina further states that “[t]he proper procedure for making changes is

to inform the certifying official (inspector or DVM ) of the changes that need to be

made and the certifying official will initial the change, or if the changes are major,

19
he will issue a replacement or in lieu of certificate at the request of the exporter.”

Id. (emphasis added). Thus, no statement from Dr. M ina indicates that the

exporter is required obtain a new certificate and pay a fee when the changes are

minor.

Like the district court, we therefore do not agree w ith M r. Bahrani’s

expansive reading of the USDA statutes and regulations. “None of the . . .

authorities cited in [M r. Bahrani’s] argument . . . establishes that an exporter is

required to obtain a replacement certificate every time a change to an existing

certificate is made.” Bahrani, 338 F. Supp. 2d at 1206 (emphasis added). In

particular, if a certificate requires a minor change, there is no indication that the

exporter is required to obtain a new certificate and pay the accompanying fee.

Although an exporter’s making such minor changes to a certificate might subject it

to potential fines and penalties for altering a government certificate, see 21 U.S.C.

§§ 611, 676; 7 U.S.C. § 1622(h), these potential fines and penalties are not §

3729(a)(7) obligations. See Bain, 386 F.3d at 657; Am. Textile M frs., 190 F.3d at

738; Q Int’l, 131 F. 2d at 773; see also Aplt’s Br. at 38-39 (acknowledging that the

statutes that establish penalties for impermissibly altering or using altered

certificates do not themselves establish § 3729(a)(7) obligations).

Nevertheless, we disagree with the conclusion draw n by the district court

from its rejection of M r. Bahrani’s interpretation. The fact that new certificates

are not required “every time a change to an existing certificate is made,” Bahrani,

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338 F. Supp. 2d at 1206, does not foreclose the possibility that new certificates

(and the accompanying fees) are required in some instances. As we have noted,

those instances are described in similar ways by a variety of witnesses. Dr. M ina

states that new certificates are required when the changes are “major.” See Aplt’s

App. vol. I, at 100. Conagra’s witnesses state that new certificates are required

when “the customer needs an entirely different shipment or . . . the weights used

for the hides are completely wrong as opposed to one digit being incorrect or

transposed[;]” Aple’s Supp. App. vol. II, at 475; and when there are “changes to

the product information, which would include changes to the number of pelts or

pieces, the type of hide, or the weight . . . [or] significant changes to the

identification information, including entirely different container numbers or

significant changes to the port of loading or port of discharge[;]” id. at 385.

This agreed description of the circumstances in which the USD A requires

exporters to obtain new certificates is a plausible one. It adopts a

principle— materiality— that has been w idely employed in various circumstances,

including False Claims Act actions. See, e.g., United States ex rel. A+ H omecare,

Inc. v. M edshares M gmt. Group, Inc., 400 F.3d 428, 442 (6th Cir.) (holding that

“false statements or conduct must be material to the false or fraudulent claim to

hold a person civilly liable under the [False Claims A ct]”), cert. denied, 126 S. Ct.

727 (2005); Harrison v. W estinghouse Savannah River Co., 176 F.3d 776, 784 (4th

Cir. 1999) (stating that “[l]iability under each of the provisions of the False

21
Claims Act is subject to the further, judicially-imposed, requirement that the false

statement or claim be material” and that “[m]ateriality depends on whether the

false statement has a natural tendency to influence agency action or is capable of

influencing agency action”) (internal quotation marks omitted). Accordingly,

although the parties may dispute whether a particular change in a particular

certificate is significant enough to require issuance of an “in lieu of” or

replacement certificate, we conclude from this record that there is a certain class

of changes that do require such certificates. See Excel Corp. v. United States

Dep’t. of A gric., 397 F.3d 1285, 1296 (10th Cir. 2005) (stating that “we must

defer to both formal and informal agency interpretations of an ambiguous

regulation unless those interpretations are plainly erroneous or inconsistent with

the regulation”) (internal quotation marks omitted). Therefore, in examining the

parties’ other arguments, we consider whether Conagra’s alleged failure to obtain

new certificates in those instances (w here there were “major” or “significant”

changes) constituted the avoiding of an “obligation” under § 3729(a)(7).

2. O bligations Under § 3729(a)(7)

M r. Bahrani next challenges the district court’s conclusion that, even if the

USD A regulations require exporters to pay for “in lieu of” and replacement

certificates (a proposition we accept to the extent that the changes are “major” or

“significant”), that “obligation” is outside the scope of § 3729(a)(7). The

22
government has filed an amicus brief in w hich it agrees w ith M r. Bahrani’s

position.

According to the government, two kinds of obligations may be the subject

of a reverse false claims action under § 3729(a)(7):

(1) “[t]here may be a fixed obligation, spelled out by a judgment, contract,

statute, or regulation, that imposes a duty on the person to pay money or transmit

property to the government. This fixed obligation may be liquidated as with a

judgment, or it may be unliquidated but easily determinable[;]” Amicus Br. at 10;

and

(2) there are other obligations that are “not yet ‘fixed’ in all particulars”;

these “obligations” may be present “by virtue of the relationship between the

government and the person who owes the government money or property.” Id.

For example, such obligations may exist “[w]hen the person and the government

have a contractual, grantor-grantee, licensor-licensee, fee-based, or similar

relationship.” Id.

The government maintains that, accepting M r. Bahrani’s contention that the

USD A regulations require exporters to pay for new certificates when the original

certificates contain errors or omissions, the fees for the new certificates fall

within this second category of actionable § 3729(a)(7) obligations.

In response, Conagra notes that, at the time that an exporter determines that

a certificate contains errors or omissions, no payment is due the USD A. Instead,

23
payment is due only after (1) the exporter notifies the USD A of the errors and

omissions that need to be changed; (2) the USD A determines that “an in lieu of”

or replacement certificate is required; and (3) the USD A charges the established

fee. According to Conagra, these additional stages in the process indicate that,

when its employees made changes to the original export certificates, there was no

“obligation” to pay the fee for “in lieu of” or replacement certificates.

Conagra also advances several policy arguments challenging M r. Bahrani’s

and the government’s reading of the statute. It contends that the purpose of the

fees at issue is to reimburse the government for the cost of providing certification.

Yet, by allegedly failing to request “in lieu of” and replacement certificates, the

company did not cause the government to provide any services for w hich it should

have been reimbursed. Because the False Claims Act was enacted to protect the

government from financial losses, allowing M r. Bahrani to pursue his claims

would be inconsistent with the purpose of the statute. M oreover, Conagra

concludes, to allow M r. Bahrani to invoke the statute here would lead to an

unwarranted expansion of reverse false claim actions. Absent proof of loss to the

government, anyone challenging a failure to comply with a regulatory scheme

could file suit.

W e begin with the timing of the payment for export certificates. Like the

government, we think that it is significant that § 3729(a)(7) refers to “an

obligation” and not “a fixed obligation.” W e agree that there are instances in

24
which a party is required to pay money to the government, but, at the time the

obligation arises, the sum has not been precisely determined.

The obligation addressed by the Eleventh Circuit in Pemco Aeroplex, 195

F.3d at 1237-38, provides an illustration. There, the aircraft maintenance

company and the government had agreed that the government could elect to sell

excess property to the company. However, at the time that the company made the

allegedly false statements about the property’s values, the specific amount of the

company’s obligation had not yet been determined. Nevertheless, “[t]hat the

maintenance company offered to purchase the property and that a specific

purchase price had not yet been agreed upon at the time [the company] submitted

the inventory form are not the touchstone. . . . [S]ubmitting the inventory form

was just part of fulfilling [an] ongoing contractual obligation.” Id.; contra Q

Int’l, 131 F.3d at 774 (stating that “[a] debt, and thus an obligation under the

meaning of the False Claims A ct, must be for a fixed sum that is immediately

due”).

Additionally, to require a fixed monetary obligation as a prerequisite for a

reverse false claims action would be inconsistent with the broad remedial purpose

of the False Claims Act. See Neifert-W hite, 390 U.S. 228, 233 (1968) (noting

that “this remedial statute reaches beyond ‘claims’ w hich might be legally

enforced, to all fraudulent attempts to cause the Government to pay out sums of

money”). M oreover, other provisions of the statute have been construed to allow

25
actions to proceed even though the specific amount of the claim was not yet

determ ined at the time the false statement was made. See, e.g, Shaw v. AAA

Eng’g & Drafting, Inc., 213 F.3d 519, 530 (10th Cir. 2000) (affirming a judgment

for the plaintiff in a False Claim Act action under 31 U.S.C. § 3729(a)(1)-(2) that

was based upon the submission of fraudulent work orders and concluding that

“[s]imply because the production quantities recorded on the work orders did not

determine the exact amount of the settlement does not eradicate a connection

between the work orders and the [amount received by the defendant under the

government contract]”). W e therefore conclude that the fact that the fees for “in

lieu of” and replacement certificates are not paid when the an exporter determines

that the initial certificate contains errors or omissions does not foreclose recovery

under § 3729(a)(7).

Although a § 3729(a)(7) “obligation” need not be for a precise amount in

order to be actionable, we do agree with the district court and Conagra that the

obligation must arise from a source independent of “the allegedly fraudulent acts

taken to avoid it.” Bahrani, 338 F. Supp. 2d at 1207. That conclusion comports

with the Sixth and Eighth Circuit decisions in A merican. Textile M anufacturers

and Q International, both of which concluded on the facts before them that no

obligation existed independently of the alleged false statements themselves. See

Am. Textile M frs., 190 F.3d at 738-41 (concluding that, under the statutes at

issue, the defendant’s obligations arose only after the defendant made false

26
statements and “only because the government ha[d] prohibited an act”); Q Int’l,

131 F.3d at 773 (holding that, when the defendant engaged in the challenged

practice of “ABA remail,” it had no “obligation” to pay full domestic postage,

even though the practice might have violated other statutes).

However, unlike the district court, we view the alleged obligations at issue

in American Textile M anufacturers and Q International as distinguishable from

the obligation to pay fees for “in lieu of” and replacement certificates when major

or significant changes are necessary. Here, it is not Conagra employees’ making

of corrections on the original export certificates that creates the obligation to pay

the fee. Instead, that obligation arises from an independent source— from the

determination that the original certificate contains a major or significant error or

omission and that an “in lieu of” or replacement certificate and payment of the

accompanying fee are necessary. It is the discovery that these changes are

necessary that creates the obligation. In our view , the circumstances are

analogous to a motorist who attempts to avoid an annual fee by unlaw fully

altering the expiration date on a license plate. In that instance, it is not the

altering of the plate that generates the fee but rather an independent event— the

end of the yearly period.

As to Conagra’s contention that the alleged false statements have not

resulted in a loss to the government, we note that “there is no requirement in the

text [of § 3729(a)(7)] that the Government have an ongoing interest in the funds

27
or that the G overnment itself suffer a loss.” Kennard v. Comstock Resources,

Inc., 363 F.3d 1039, 1047 (10th Cir. 2004), cert. denied, 125 S. Ct. 2957 (2005).

Indeed, the legislative history of the reverse false claims provision indicates that

the kind of false certification alleged by M r. Bahrani falls within its scope:

The cost of fraud cannot always be measured in dollars and
cents, however. GAO pointed out in its 1981 report that fraud
erodes public confidence in governm ent’s ability to efficiently
and effectively manage its programs. Even in cases where there
is no dollar loss, for example where a defense contractor
certifies an untested part for quality yet there are no apparent
defects–the integrity of quality requirements in procurement
programs is seriously undermined.

S. Rep. No. 99-345, reprinted in 1986 U.S.C.C.A.N. 5266, 5268 (emphasis

added); see also United States v. Hughes, 585 F.2d 284, 286 n.1 (7th Cir. 1978)

(“A false claim is actionable under the Act even though the United States has

suffered no measurable damages from the claim.”); Fleming v. United States, 336

F.2d 475, 480 (10th Cir. 1964) (“Proof of damage to the Government resulting

from a false claim is not part of the Government’s case under the Act”).

3. USD A Discretion

W e also disagree w ith the district court that the discretion afforded USDA

officials to determine whether to issue new certificates and charge the

accompanying fees renders the obligation contingent and thus outside the scope of

§ 3729(a)(7). The district court based its narrow reading of the statute on

28
American Textile M anufacturers. and Q International. Both cases concluded that

a potential penalty that could only be assessed after a government official

exercised discretion was not an actionable § 3729(a)(7) obligation. In the Sixth

Circuit’s view, if such potential penalties constituted “obligations,” “reverse false

claims liability would attach to any person making any false statement to conceal

avoid, or decrease his potential criminal liability under a law that lists among a

range of penalties the imposition of a fine.” Am. Textile M frs., 190 F.3d at 739.

In addition to greatly expanding the scope of the False Claims Act, that

interpretation would require courts to speculate as to whether in a given case, a

government official would pursue an action to recover a penalty and whether such

penalties would actually be assessed. Id. at 740; see also Q Int’l, 131 F.3d at 774

(reasoning that “[a] potential penalty, on its own, does not create a common law

debt”).

Here, the fees for “in lieu of” and replacement certificates are best

characterized as user fees; they are not penalties. The fees must be paid in

limited circumstances, and they are thus distinguishable from the general

obligation to comply with statutes and regulations outside the scope of §

3729(a)(7). See Am. Textile M frs., 190 F.3d at 737-38 (stating that “Congress

may well have intended reverse false claims liability to extend to obligations

created by statute or regulation, at least where the statute or regulation imposes an

obligation essentially contractual in nature” but not deciding that question).

29
Thus, we are not convinced that an undue expansion of liability under the reverse

false claims provision will follow by characterizing as an “obligation” the

payment of the fees for new certificates when major or significant changes are

required.

W e acknowledge that there is some discretion in play here. Although the

parties do not discuss the process in much detail, Conagra has submitted an

affidavit from a former USD A official stating that if a certificate “needs to be

changed in some way after it is issued, the inspector in charge has discretion

under 9 C.F.R. § 322.2(c) to allow the exporter to make the change directly or,

instead, to require the issuance of a new or replacement certificate.” See Aple’s

Supp. App. vol. I, at 277 (affidavit of Dr. Robert Fetzner). M oreover, the official

continues, “[i]f a new or replacement certificate is required, the inspector has

discretion to charge a fee or not[,]” and “a fee would be charged only if the

inspector determined it w as necessary.” Id. at 277-78.

Nevertheless, we are not convinced that this alleged discretion takes the

obligation to pay the fees outside the scope of § 3729(a)(7). Some discretion

inheres in a wide variety of government decisions. For example, government

officials may have discretion as to whether to insist on a party’s performance

under a contract or whether to file a breach of contract action if a party does not

perform. However, a contractual obligation falls within the scope of §

3729(a)(7). See Pemco A eroplex, 195 F.3d at 1237 (concluding that a “specific,

30
ongoing obligation during the life of the contract” was covered by § 3729(a)(7));

Am. Textile M frs, 190 F.3d at 741 (“§ 3729(a)’s definition of ‘obligation’

certainly includes those arising from . . . breaches of government contracts”).

Here, evidence submitted by both M r. Bahrani and Conagra indicates that

w hen export certificates required “significant” or “major” changes, the USDA

required exporters to obtain “in lieu of” or replacement certificates. It was at that

point— when the changes became necessary— that the obligation arose. The fact

that USDA officials may have some subsequent discretion whether to actually

charge the authorized fee does not mean that the “obligation” is a contingent one

outside the scope of § 3729(a)(7). W e therefore agree with the government that

“the need for some further governmental action or some further process to

liquidate an obligation does not preclude a reverse false claims action.” Amicus

Br. at 12 n.2; see also id. at 14 (stating that “if, as alleged by [M r. Bahrani], the

regulations did not permit such alterations [of export certificates], but required

the issuance of a new certificate and payment of an additional fee, then any . . .

acts of USD A officials in either waiving the fee or refusing to enforce it could not

[render the fee] . . . discretionary or contingent.”).

That conclusion is supported by the terms of the statute, which address

“conceal[ing], reduc[ing], or avoid[ing] an obligation[,]” but do not specify the

result of those efforts. Thus, in determining whether a false statement is material

under § 3729(a)(7), the inquiry “focuses on the potential effect of the false

31
statement when it is made, not on the actual effect of the false statement when it

is discovered.” A+ H omecare, 400 F.3d at 445 (emphasis added) (internal

quotation marks omitted). The fact that a government official may subsequently

waive an established fee does not negate the “potential effect” of a false record or

statement.

4. Failure to Return O riginal Certificates

M r. Bahrani also maintains that the district court erred by not addressing

his allegation that Conagra employees violated § 3729(a)(7) by failing to return

the original certificates to the U SDA after they discovered that changes w ere

necessary. He cites a regulation that states that original certificates superseded by

“in lieu of” certificates, “shall, if available, be surrendered to the inspector in

charge.” 9 C.F.R. § 322.2(c). By making changes on the original certificates

instead of returning them, he continues, Conagra employees avoided an obligation

to “transmit . . . property to the Government.” 31 U.S.C. § 3729(a)(7).

W e are not persuaded that the district court erred in failing to consider this

theory. First, we agree with Conagra that M r. Bahrani did not adequately advance

this allegation in the district court proceedings. W hen the district court asked for

supplemental briefing from the parties on the question of the legal basis of

Conagra’s “obligation” under § 3729(a)(7), M r. Bahrani did not argue that this

alleged duty to return original certificates under the USD A regulations constituted

32
an independent claim. See Rios v. Ziglar, 398 F.3d 1201, 1209 (10th Cir. 2005)

(holding that the “[f]ailure to raise an issue in the district court generally

constitutes waiver”). Indeed, in explaining his view of Conagra’s “obligation,”

M r. Bahrani even made the following statement: “If something changes which

renders the original USD A certificate useless to Conagra, they can do several

things. They can throw it away; shred it; put it in a file never to see the light of

day, or return it to the USDA.” A plt’s A pp. vol. II, at 370. It was not until his

motion for reconsideration that M r. Bahrani sought to advance an independent

claim based on Conagra’s failure to return original certificates, see id., at 422,

and this eleventh-hour presentation is insufficient to preserve that claim. See

Steele v. Young, 11 F.3d 1518, 1520 n.1 (10th Cir. 1993).

In any event, had M r. Bahrani timely raised such an argument in the district

court, we are not convinced that these erroneous certificates constitute the kind of

“property” within the scope of § 3729(a)(7). M r. Bahrani cites no authority to

that effect, and applying the statute in this fashion would stretch it far beyond its

intended purpose.

B. Conagra’s Alternative Arguments for Affirmance

1. Alleged Lack of Evidence Regarding False Statements to the G overnment

Conagra maintains that the district court’s grant of summary judgment

should be affirmed on the alternative ground that its employees did not make false

33
statements to the government. In support of this contention, Conagra advances

two arguments. First, it contends that because employees made corrections to the

certificates, there were no false statements involved. Second, Conagra asserts, its

employees lacked the intent to defraud necessary to satisfy the scienter

requirements for a reverse false claims action. It maintains that “corrections to

the original but inaccurate certificates were authorized.” Aple’s Br. at 44.

W e are not persuaded by these arguments. As to the contention that

Conagra’s employees were correcting the export certificates, we note that it is not

merely making the corrections to the certificates that may be actionable under the

False Claims Act. Rather, it is the making of those corrections over the signature

and certification of a U SDA official who has not actually seen or approved those

changes.

Conagra’s alleged reliance on USDA officials to approve corrections to

original certificates similarly does not establish that its employees lacked the

necessary intent to violate the statute. Section 3729(a)(7) requires proof that the

defendant “knowingly” made, used, or caused to be made a false record or

statement to avoid an obligation. To act “knowingly” means that “a person, with

respect to information--(1) has actual knowledge of the information; (2) acts in

deliberate ignorance of the truth or falsity of the information; or (3) acts in

reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b).

“[N]o proof of specific intent to defraud is required.” Id.; see also United States

34
ex rel. Aakhus v. Dyncorp, Inc., 136 F.3d 676, 682 (10th Cir. 1998) (discussing

the “knowingly” requirement under § 3729(a)(7)). As w e have explained, it is

only the making of “major” or “significant” changes without obtaining “in lieu

of” or replacement certificates that establishes an actionable obligation under the

statute. Evidence in the record indicates that in some instances Conagra

employees made such changes without USD A approval and thus avoided the

obligation to pay a fee for “an lieu of” or replacement certificate. See Aplt’s

App. vol. I, at 75 (testimony from M r. Bahrani that a C onagra employee told him

that she changed the grade of beef from “no grade” to “choice”). That evidence

supports M r. Bahrani’s allegation that Conagra employees had the requisite

intent. M oreover, the question of whether the employees acted “knowingly”

concerns their knowledge at the time they made the major changes without

applying for new certificates. That USD A officials may have approved minor

changes or may have even waived the fees for some major changes does not

resolve the question of Conagra’s employees’ state of mind when the employees

made the changes.

2. Lack of presentment to the United States

Conagra also argues that the district court’s grant of summary judgment

should be affirmed on another alternative ground: that even accepting M r.

Bahrani’s allegations as true, Conagra employees never made any false

35
representations to the United States government (because the export certificates at

issue were presented only to foreign governments).

In support of this argument, Conagra invokes a statement in Kennard v.

Comstock Resources, 363 F.3d 1039, 1048 (10th Cir. 2004): that § 3729(a)(7)

“squarely encompasses the fraud on the government that occurs when a person or

entity makes false statements to the United States to avoid [an obligation].”

(emphasis added). Conagra also cites a district court case, W ilkins v. Ohio, 885

F. Supp. 1055 (E. D. Ohio 1995), in w hich the court dismissed a reverse false

claim action on the grounds that the plaintiff had not alleged that false

information was presented to the government. The court there relied on

legislative history. See id. at 1064 (“The Senate Report supports the conclusion

that in order to have a ‘reverse false claim,’ the government has to be made aware

of the false statement, misrepresentation or misleading omission in some fashion,

i.e., there has to be a ‘claim.’”). Conagra cites two unpublished cases that make

similar statements about presentment to the government. See Aple’s Br. at 46

(citing Stevens v. M cGinnis, No. C-193-442, U.S. Dist. Lexis 22109 (S.D. Ohio

Aug. 27, 1996) and Atkinson v. Pa. Shipbuilding Co., No. 94-7316, 2000 U.S.

Dist. Lexis 12081, at *80 (E.D. Pa. Aug. 24, 2000)).

In our view , these cases do not provide m uch support for Conagra’s

argument. This circuit’s statement in Kennard — that § 3729(a)(7) “squarely

encompasses the fraud on the government that occurs w hen a person or entity

36
makes false statements to the United States to avoid [an obligation],” 363 F.3d at

1048 (emphasis added)— does not restrict the scope of the statute to only those

instances in which statements are so made. M oreover, the district court cases

invoked by Conagra are not precedential and do not concern the kind of

regulatory scheme at issue here, one that involves the provision of government

services in exchange for payment of a fee.

Additionally, as M r. Bahrani argues in his reply brief, nothing in the

language of § 3729(a)(7) indicates that presentment to the government is required.

Other sections of the false claim statute do require presentment. See, e.g., §

3729(a)(1) (establishing liability for one who “knowingly presents, or causes to

be presented, to an officer or employee of the U nited States G overnment or a

member of the Armed Forces of the United States a false or fraudulent claim for

payment or approval”) (emphasis added); see also United States. ex rel. Koch v.

Koch Indus., 57 F. Supp. 2d 1122, 1144 (N.D. Okla. 1999) (“The bad act under

(a)(1) is the presenting of a false claim. The bad act under (a)(7) is the making or

using of a false statement or record. There is no “presentment” language in §

3729(a)(7).”) (emphasis added).

W e agree that § 3729(a)(7) does not require presentment to the United

States government, and Conagra is thus not entitled to summary judgment on that

ground either.

37
3. O riginal source requirement as to “meat-related” claims

As a final alternative ground for affirming the district court’s grant of

summary judgment, Conagra contends that M r. Bahrani is not an “original

source.” Conagra limits its argument to the part of the case that concerns

certificates for meat products.

Conagra’s argument is based upon 31 U.S.C. § 3730(e)(4)(A) & (B), which

provide:

(4)(A ) N o court shall have jurisdiction over an action
under this section based upon the public disclosure of
allegations or transactions in a criminal, civil, or
administrative hearing, in a congressional, administrative,
or G overnment Accounting Office report, hearing, audit,
or investigation, or from the new s media, unless the action
is brought by the Attorney General or the person bringing
the action is an original source of the information.
(B) For purposes of this paragraph, “original source”
means an individual who has direct and independent
knowledge of the information on which the allegations are
based and has voluntarily provided the information to the
Government before filing an action under this section
which is based on the information.

31 U.S.C. § 3730(e)(4)(A) & (B) (emphasis added).

At the summary judgment stage, application of this statutory language

involves a four-part inquiry: (1) whether the alleged “public disclosure” contains

allegations or transactions from one of the listed sources; (2) whether the alleged

disclosure has been made “public” within the meaning of the False Claims A ct;

(3) w hether the relator’s complaint is “based upon” this public disclosure; and, if

38
so, (4) w hether the relator qualifies as an “original source.” U nited States ex rel.

Fine v. M K-Ferguson Co., 99 F.3d 1538, 1544 (10th Cir. 1996). The burden is on

M r. Bahrani to show that he is an original source.” United States ex rel Stone v.

Rockwell Int’l Corp., 282 F.3d 787, 800-02 (10th Cir. 2002). However, a court

should address the first three public disclosure issues first. Id. Consideration of

the original source requirement is necessary only if the court answ ers the first

three questions affirmatively. M K-Ferguson, 99 F.3d at 1544.

Here, Conagra contends, the first two elements of the original source

defense are clearly established. M r. Bahrani reported his allegations to the

government in August 1999. However, prior to that time, these allegations had

been publically advanced in litigation, a government investigation, and media

reports.

In particular, in April 1999, in the “Kim litigation” in the Central District

of California, the defendants asserted counterclaims against Conagra alleging

improper alteration of meat export certificates. According to Conagra, M r.

Bahrani cooperated with the Kim defendants and their counsel, even to the point

of appearing voluntarily as a witness on their behalf. These allegations were

disclosed in a government investigation. The defendants in the Kim litigation

provided copies of allegedly altered export certificates to the USD A, which

caused the government to launch an extensive investigation into Conagra’s

practices. Finally, the allegations made in the Kim litigation were widely

39
published in the media.

As to the third element, whether the relator’s complaint is “based upon”

this public disclosure, Conagra notes that “[e]ven qui tam actions only partially

based upon publically disclosed allegations or transactions may be barred.”

United States ex rel. Grynberg v. Praxair, Inc., 389 F.3d 1038, 1051 (10th Cir.

2004), cert denied, 125 S. Ct. 2964 (2005). “The test is whether substantial

identity exists between the publically disclosed allegations or transactions and the

qui tam complaint.” Id. (internal quotation marks omitted). Here, Conagra

contends, “Bahrani’s meat-related claims closely mirror the allegations made in

the Kim [l]itigation which spawned the Government’s investigation and numerous

media reports.” A ple’s Br. at 51. According to Conagra, the identical issues are

addressed in this law suit, “namely whether the changes made to export

certificates were approved by the USD A or whether Conagra was required to

obtain replacement certificates.” Id.

Because these first three elements are satisfied, Conagra continues, M r.

Bahrani must establish that he was an “original source.” That means that (1) he

must have had direct and independent knowledge of the information on which the

allegations are based and (2) he must have voluntarily provided such information

to the government prior to filing suit. United States ex rel. Hafter D.O. v.

Spectrum Emergency Care, Inc., 190 F.3d 1156, 1160-61 (10th Cir. 1999).

Here, Conagra maintains, M r. Bahrani did not have direct and independent

40
knowledge of his meat-related claims because he worked in the Hides Division at

Conagra, not the M eat Products Division. M oreover, Conagra argues, M r.

Bahrani derived his knowledge from information made public from the Kim

litigation in California. For example, M r. Bahrani’s Second Amended Complaint

alleges that the alterations to meat export certificates began in 1991. However, he

did not begin working for Conagra until 1996, and has submitted no evidence

showing that he has any personal knowledge of relevant events preexisting his

employment. Conagra contends that M r. Bahrani “apparently used 1991 because

it was [on] that date that the Kim defendants claimed the alleged improper

practices began.” Aple’s Br. at 53. Also, Conagra notes, during the course of

this litigation, M r. Bahrani disclosed many documents that he had obtained from

the Kim litigation.

Finally, Conagra asserts, M r. Bahrani’s knowledge of meat-related export

certificates was “second-hand.” Id. at 54. M r. Bahrani did not state that he

personally altered meat certificates, nor, according to Conagra, did he know the

procedures related to meat certificates, or the significance of any alterations that

he did observe.

Upon review of the record, we are not persuaded by this alternative

argument for summary judgment. Assuming, without deciding, that Conagra has

established the first three elements of the inquiry, we conclude that M r. Bahrani

has submitted sufficient evidence to support his contention that he is an original

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source. In particular, he has offered an affidavit stating that he personally

observed the alteration of export certificates while he worked for Conagra and

that he heard a supervisor authorizing such changes. W hen viewed in the light

most favorable to M r. Bahrani— the party opposing summary judgment— these

statements support his contention that he had “direct and independent knowledge

of the information on which [his] allegations are based” and that this knowledge

was “gained by [his] own efforts and not acquired from the labors of others.”

Grynberg, 389 F.3d at 1052 (internal quotation marks omitted). Additionally, M r.

Bahrani has also offered evidence indicating that he voluntarily disclosed these

observations to USD A investigators in August or September 1999, before he filed

this action. See Aple’s Supp. App. vol. I, at 237.

Accordingly, to the extent that M r. Bahrani’s allegations are based upon

personal observations that he disclosed to investigators, Conagra is not entitled to

summary judgment on this issue.

III. C ON CLU SIO N

As applied to these circumstances, we read § 3729(a)(7) more narrowly

than M r. Bahrani but more broadly than Conagra. Like the district court, we are

not persuaded that every change to a signed export certificate made by a Conagra

employee creates an “obligation” under the statute. However, to the extent that

Conagra employees made “major” or “significant” changes without applying for

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“in lieu of” or replacement certificates, they avoided an obligation under §

3729(a)(7).

W e emphasize that the appropriate inquiry is certificate-specific. Because

of their interpretations of the regulatory scheme, both M r. Bahrani and Conagra

have advanced arguments that pertain to all changes to original export

certificates, no matter how extensive. In our view, however, whether a given

change to an original certificate triggers a § 3729(a)(7) obligation depends upon

the nature of the change— whether it is “major” or “significant” and thus requires

a new certificate. Although many of the unauthorized changes alleged by M r.

Bahrani appear to be minor, there is evidence that at least some of them fell

within the “major” or “significant” class. Further development of the record is

required to determine the extent to which Conagra employees made “major” or

“significant” changes without obtaining “in lieu of” or replacement certificates

and paying the accompanying fee.

Because Conagra’s alternative arguments in support of the district court’s

grant of summary judgment lack merit, we therefore V ACATE the district court’s

grant of summary judgment and REM AND for further proceedings consistent with

this opinion.

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