In the United States Court of Federal Claims
No. 13-924L
(Filed: August 18, 2017)
NOT FOR PUBLICATION
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GADSDEN INDUSTRIAL PARK, LLC, False Claims Act; Reckless
disregard of truth or falsity.
Plaintiff,
v.
THE UNITED STATES,
Defendant.
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OPINION
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Plaintiff Gadsden Industrial Park, LLC (“GIP”) initiated this as a fifth
amendment takings claim. It asserted that the government, operating through
the Environmental Protection Agency (“EPA”), took plaintiff’s personalty
located at a former steel mill site during a CERCLA (Comprehensive
Environmental Response, Compensation, and Liability Act1) operation. The
former mill operator had gone into bankruptcy, and GIP later acquired
approximately 25 miles of railroad track traversing the site from an entity
which had purchased the assets from the bankruptcy estate. Defendant was
permitted to amend its answer to assert a fraud counterclaim, in which it
contends that counsel for GIP made materially false statements to the EPA in
asserting GIP’s demand for compensation for the track it alleged was taken.
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42 U.S.C. §§ 9601-9675 (2012).
On January 30, 2017, defendant filed a motion for summary judgment
on GIP’s affirmative claim, and plaintiff later indicated its intent not to dispute
the motion. Accordingly, the court granted defendant’s motion for summary
judgment on March 31, 2017 but deferred entry of final judgment due to the
pendency of the counterclaim. We then set the matter for trial, which was held
on June 30, 2017. At the conclusion of trial, the court announced its decision
to deny the counterclaim for the reasons outlined herein.
BACKGROUND
GIP is a limited liability company formed by the Casey family, which
operates a business in Pennsylvania, Casey Equipment, which primarily buys
and sells equipment and parts associated with the steelmaking industry. Don
Casey, founder of Casey Equipment, is the managing partner of GIP, an
independent entity formed for the sole purpose of owning and operating an
industrial park in Gadsden, Alabama. He testified at trial.
The land and buildings which form the principal assets of GIP were
purchased directly or indirectly out of the bankruptcy estate of Gulf States
Steel, which, along with its predecessors, had operated a steel mill in Gadsden,
Alabama for decades. The track at issue in plaintiff’s claim is part of a much
larger system of track. GIP purchased 420 acres of land underlying most of
the track from an overall site of approximately 761 acres. It also acquired
track on an adjoining parcel of land that it did not purchase (referred to
hereafter as the “excluded property”). The excluded property was the site of
multiple piles of slag and waste material which accumulated during the life
of the steel mill. There were at least six spur lines leaving the main mill site
that terminated on the excluded property. The spur lines are denominated HS-
1, HS-2, and HN-1 through HN-4 and run roughly parallel to each other in an
east-west direction and all tie into a main line running north-south. Only HS-1,
HS-2, and HN-1, which are predominately on the excluded property, are at
issue in this case. In addition to purchasing track on the excluded property,
plaintiff obtained the right to mine the slag piles there.
The 25 miles of track, only a portion of which is at issue here, was
originally purchased from the bankruptcy estate by the Williams Family
Limited Partnership (“WFLP”) in 2001. WFLP quickly entered into the
business of storing railcars on the track. After GIP purchased the underlying
real estate for much of the track, WFLP began splitting some of its revenue
from its railcar storage business with GIP. In December of 2005, GIP
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purchased, among other things, all of the railroad track that WFLP owned and
soon after continued to use it to store railcars. At the time of trial, GIP was still
engaged in the railcar storage business.
The bankruptcy and subsequent disposition of Gulf States Steel’s assets
coincided with the EPA’s attempt to pursue an environmental cleanup at the
site under the authority of CERCLA. As part of the environmental cleanup,
CMC, Inc., a contractor for the EPA, was tasked with reducing the size of the
north and south slag piles on the excluded property. Harsco Corporation,
another EPA contractor, processed the material from the piles, which involved
using a magnet to separate out ferrous metallic material that could be sold as
recyclable scrap. In separate litigation, plaintiff is pursuing claims against the
United States regarding its asserted rights in that material. See Gadsden
Industrial Park, LLC v. United States, Fed. Cl. No. 10-757. After the
recyclable scrap was removed by Harsco Corporation, large amounts of
nonmarketable material remained, some of which ended up covering portions
of the spur lines that GIP believed it owned.2
During its clean up efforts on the excluded property, EPA removed
portions of HS-1 and HS-2 and covered part of HN-1. Prior to this time, GIP
had not used these spur lines as part of its railcar storage business. GIP had,
however, used the nearby HN-2 and HN-3 spur lines to store railcars before
EPA arrived on site. GIP’s site manager, Jerry Stephens—who, with the
exception of a period of nine months, had worked on the Gulf States Steel site
since 1966—notified Mr. Casey about the removal and burial of the HS-1, HS-
2, and HN-1 rails. Mr. Casey, who was based out of Pittsburgh, then asked
Mr. Stephens to measure the amount of track that was taken or covered. Mr.
Casey also asked Mr. Stephens whether the rail lines at issue had ever been
used. Mr. Stephens told Mr. Casey that the spur lines had been used in the
past. At trial, Mr. Stephens explained that his answer to Mr. Casey’s question
2
In separate litigation in the United States District Court for the Northern
District of Alabama, GIP pursued a conversion claim against CMC, Inc. and
Harsco Corporation for the same rail that it alleges in this action that the
government took. On August 5, 2016, the district court issued a memorandum
opinion ruling against GIP, holding that the track at issue was a fixture and
that, under Alabama state law, a claim for conversion could not be brought for
a fixture. Gadsden Industrial Park, LLC v. CMC, Inc. 2016 WL 4158138
(N.D. Ala. 2016).
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was with respect to all the spur lines on that part of the property, not just the
spurs that are at issue. Mr. Stephen’s further explained at trial that, for roughly
a two-year period in the early 2000s, the spur lines at issue were used by a
company referred to as “Regional” to load railcars with scrap from the piles in
an apparent effort to recycle the material for the benefit of the bankruptcy
estate.
On July 19, 2013, after speaking with Mr. Casey, counsel for GIP wrote
a letter to Susan Capel, associate regional counsel for EPA, claiming that the
agency’s CERCLA activities had “converted” approximately one mile of track
on the excluded property. The letter asserts that
GIP owned a number of spurs which GIP used to store railroad
cars. The installed track therefore possessed inherent value, but
it also possessed additional value as it was being used. GIP is
entitled to have the track replaced as it was, or alternatively is
entitled to the full value of the track as installed. GIP’s
estimates to replace the track . . . reflect roughly $240,000 for
the material, and $120,000 for installation. That amounts to
roughly $360,000. There will also be grading needed for the re-
installation of the track. We estimate that grading will cost
another $3,800.
DX 6 at 13.3 Defendant contends that the assertion by counsel that the spurs
were used to store railroad cars was false. Plaintiff concedes that this
statement is inaccurate to the extent that it suggests the spurs for which
compensation was being claimed were then being used to store railroad cars.
When she received this letter, Ms. Capel emailed counsel for GIP,
questioning GIP’s use of the track, among other things. When GIP’s counsel
relayed the EPA’s concerns to Mr. Casey, Mr. Casey made no further inquiry.
When asked at trial why he did not follow up with Mr. Stevens, Mr. Casey
testified as follows:
I’m busy. I get probably 50 emails a day. I had phone calls,
interruptions. So I sort of have to balance my time. If I think
3
“DX” refers to admitted exhibits offer by defendant; “PX” refers to admitted
exhibits offered by plaintiff.
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something’s an emergency or something’s very important, I do
it. If I think it’s not so important, I don’t do it. . . . [i]n this case,
I didn’t see [it as] necessary . . . to recall Jerry.
Trial Transcript (“Tr.”) 159-60. Mr. Casey further testified that he still wanted
the track replaced after he learned that GIP was not using the tracks to store
railcars at that time.
On August 26, 2013, GIP’s counsel responded to Ms. Capel with a
second letter, repeating the claim that GIP used the spur lines at issue:
You previously stated your belief that GIP did not use any of the
track that is now covered, since you believed that the track had
been completely covered ‘for decades’. That, too, is not correct.
GIP did use all three lines. I am advised that perhaps Gulf
States Steel had previously covered the ties. However, I am told
that the rail was definitely not covered prior to the EPA’s
involvement on-site, and indeed was operable, and being
operated by GIP.
Id. at 15 (emphasis in the original). Plaintiff concedes that the assertion of
current use of the spurs was inaccurate.
On May 1, 2015, the government filed an amended answer to include
its counterclaims under the False Claims Act, 31 U.S.C. §§ 3729-3733 (2012).
On May 19, 2017, the court issued an order granting two motions in limine
filed by GIP, which, inter alia, had the effect of reducing the government’s
ability to pursue two false claims—one for each letter—to just one.
DISCUSSION
For the court to find GIP liable for a civil penalty under the False
Claims Act, the government must show by a preponderance of the evidence
that “(1) [GIP] presented or caused to be presented to an agent of the United
States a claim for payment; (2) the claim was false or fraudulent; [and] (3)
[GIP] knew the claim was false or fraudulent . . . .” Young-Montenay, Inc. v.
United States, 15 F.3d 1040, 1043 (Fed. Cir. 1994). Under the False Claims
Act, GIP will be found to have acted knowingly if it acted with actual
knowledge, in deliberate ignorance of the truth or falsity of the information it
presented, or in reckless disregard of the truth or falsity of the information it
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presented. 31 U.S.C. § 3729(b)(1). Here, the government only argues that
GIP recklessly disregarded the falsity of claims it made in the two letters it sent
EPA in the summer of 2013. Specifically, the government focuses on GIP’s
assertions that it was using the spur lines in connection with its railcar storage
business.
As we stated on the record at the conclusion of trial, we are unable to
find that GIP acted in reckless disregard to the falsity of the claim that it used
the spur lines at issue to store railcars. We are satisfied that GIP’s statement
regarding the current storage of railcars, which plaintiff admits was incorrect,
stems from a miscommunication between Mr. Casey and Mr. Stephens—both
of which we found to be highly credible witnesses. The incorrect statement
found its way into the letter after Mr. Casey asked Mr. Stephens whether the
spur lines had been used. Mr. Stephens, considering all the spur lines on the
eastern, excluded portion of the property and not just those at issue, answered
that the track had been used and that the track was usable. As he explained at
trial, Mr. Stephens did not distinguish in his answer between types of use or
specific tracks. HS-1, HS-2, and HN-1, the tracks at issue here, had indeed
been used to carry off scrap by a company mining the slag piles as recently as
2002. Also, the nearby HN-2 and HN-3 rail spurs were used to store railcars
up until EPA arrived on site. In Mr. Stephens’ mind, all five spur lines were
suitable for storage, and that suitability ended when three of the tracks were
covered or pulled up. While GIP’s statement was not literally true, it would
have been immaterial to the company; the track had been useable and no
longer was. We cannot say that the incorrect statement that GIP was then
presently storing cars on HS-1, HS-2, and HN-1 stemming from this
miscommunication was made with reckless disregard for the truth.4
Accordingly, we hold that GIP did not violate the False Claims Act.
GIP’s second letter, sent after Ms. Capel pushed back on the assertions
made in the initial letter, presents a closer question. Unquestionably, Mr. Casey
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We note that Mr. Stephens testified that GIP is currently using what is left of
HS-1 and HS-2 to store railcars and that what is left of HN-1 is also in use
today. According to Mr. Stephens, railcars were not stored on the track at
issue at the time of the letters because GIP did not have enough cars to cause
a need to put them there. Even though the spur lines at issue were not used at
the time of the letters, we are satisfied that GIP wanted to make use of all rail
it believed it owned in order to increase their capacity.
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should have followed up directly with Mr. Stevens after Ms. Capel challenged
the veracity of GIP’s initial statements. However, we cannot say that his failure
to do so rose to the level of recklessness. Mr. Casey knew that GIP stored a
number of railcars across the property and, relying on his initial conversation
with Mr. Stevens, assumed that the track at issue was being used as part of
GIP’s larger operation. Because GIP was not at full capacity at the time, Mr.
Casey’s understanding was incorrect. However, even though the spurs were
not being used at the time, it was GIP’s desire to use the spurs if the need for
more storage capacity arose, and it has in fact done so. Mr. Casey viewed it as
a single operation in which the track is fungible. His desire was to have the
track replaced in order to increase the capacity of his railcar storage business
to the level that he believed he purchased from WFLP. Under the
circumstances, Casey’s assumption that he knew as much as he needed to
know about GIP’s use of the track does not rise to the level of reckless fraud.
CONCLUSION
Because we find that plaintiff’s statements, though inaccurate, did not
rise to the level of recklessness, defendant’s counterclaim must be dismissed.
The Clerk of Court is directed to dismiss both the complaint and defendant’s
counterclaim and enter judgment accordingly. No costs.
s/Eric G. Bruggink
ERIC G. BRUGGINK
Senior Judge
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