IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 5, 2008
No. 06-31238 Charles R. Fulbruge III
Clerk
United States of America, ex rel, ROBERT DANIEL MARCY,
on behalf of the United States of America, c/o James Letten & John Ashcroft
Plaintiff - Appellant
v.
ROWAN COMPANIES INC; NEWFIELD EXPLORATION GULF COAST,
INC, formerly known as EEX Corporation; NEWFIELD EXPLORATION CO;
REMINGTON OIL & GAS CORP
Defendants - Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
Before BARKSDALE, DENNIS, and SOUTHWICK, Circuit Judges.
SOUTHWICK, Circuit Judge:
Robert Daniel Marcy challenges the district court’s dismissal of the qui
tam action that he brought on behalf of the United States under the False
Claims Act. We affirm the judgment of dismissal.
FACTS
On December 2, 2003, Robert Marcy filed suit against Newfield Exploration
Gulf Coast, Inc., Newfield Exploration Company, Rowan Companies, Inc., and
Remington Oil and Gas Corporation (“Defendants”). Marcy alleges that, while
No. 06-31238
employed on Defendants’ Midland offshore drilling unit, he was ordered by
Defendants to illegally dump oil, oil waste, solid waste, grease, paint, and other
hazardous substances into the Gulf of Mexico at night. Marcy contends that
Defendants’ actions violated the Federal Water Pollution Control Act (“FWPCA”)
and the Act to Prevent Pollution from Ships (“APPS”), that Defendants
intentionally failed to report the discharge of oil or hazardous substances as
required by those two enactments, and that Defendants intentionally omitted a
record of the discharges both from the “Oil Record Book” (in violation of 33
C.F.R. § 151.25) as well as from the weekly-filed Mineral Management Service
activity reports, hereinafter referred to using their form number as the “MMS
133 reports” (in violation of Department of Interior regulations).
Marcy maintains that Defendants fraudulently avoided civil fines and
other penalties under several statutes, including the FWPCA and the APPS, the
Oil Pollution Act of 1990 (“OPA”), and the Outer Continental Shelf Lands Act
(“OCSLA”). Marcy also alleges that these actions occurred in violation of the
terms of the oil and gas lease granted to Defendants by the United States
pursuant to OCSLA, which requires that Defendants operate in compliance with
OCSLA, all other applicable statutes, and “regulations or orders intended to
protect persons, property, and the environment on the Outer Continental Shelf.”
Finally, Marcy alleges that because Defendants breached the lease but continued
operations, they fraudulently retained oil and gas, oil and gas royalties, and
profits owed to the United States.
Marcy contends that the Defendants’ conduct constitutes a violation of the
False Claims Act. Marcy refers us to these subsections of the Act:
Any person who . . . (2) knowingly makes, uses, or causes to be
made or used, a false record or statement to get a false or fraudulent
claim paid or approved by the Government . . . or (7) knowingly
makes, uses, or causes to be made or used a false record or
statement to conceal, avoid, or decrease an obligation to pay or
transmit money or property to the Government . . . is liable to the
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No. 06-31238
United States Government 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)(2) and (a)(7). After investigating Marcy’s allegations, the
United States filed notice of its election to decline intervention.
Each Defendant filed a motion to dismiss, arguing that Marcy failed to
state a claim under the False Claims Act and that he did not allege fraud with
sufficient particularity under Federal Rule of Civil Procedure 9(b). The district
court granted the motions to dismiss, concluding that Marcy failed to state a
claim under the Act. The court declined to address the arguments regarding the
particularity of the pleading. After motions for reconsideration and to amend
the complaint were denied, Marcy appealed.
DISCUSSION
Marcy asserts that his complaint adequately pled his cause of action. Our
review of this issue is de novo, accepting as true the factual allegations that are
well-pled and construing them favorably towards the plaintiff. United States ex
rel. Willard v. Humana Health Plan of Texas, 336 F.3d 375, 379 (5th Cir. 2003).
Those factual allegations must support a claim to relief that is plausible on its
face and rises above mere speculation. In re Katrina Canal Breaches Litigation,
495 F.3d 191, 205 (5th Cir. 2007).
Because the two sections of the False Claims Act that Marcy employs have
different requirements, we examine each separately.
A. Section 3729(a)(2) – knowingly make false claim for payment.
The False Claims Act is the government’s primary litigation tool for
recovering losses sustained as the result of fraud. Avco Corp. v. United States
Dep’t. of Justice, 884 F.2d 621, 622 (D.C. Cir. 1989). Under Section 3729(a)(2),
the Act creates liability for “[a]ny person who . . . knowingly makes, uses, or
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No. 06-31238
causes to be made or used, a false record or statement to get a false or fraudulent
claim paid or approved by the Government.”
A threshold issue is whether any “claim” was made for purposes of Section
3729(a)(2). The Defendants, engaged in the physical extraction of natural
resources belonging to the United States, did not request or demand money or
property from the United States. They were taking property through their
drilling operations as permitted by contract, i.e., their leases. Defendants
contend that because the allegedly inaccurate Oil Record Logs and MMS 133
reports do not certify compliance with the lease, these documents could not serve
as false certifications under the Act.
In response, Marcy argues that even though this is not a typical False
Claims Act violation, the Act nonetheless applies. Marcy’s theory is that the
mineral lease was a contract in which the lessee received permission to take
government property subject to the lease terms. The purpose of the weekly-
submitted MMS 133 reports and the Oil Log Book was allegedly in part to assure
the government of a lessee’s compliance with lease terms. Marcy contends that
dumping of oil and trash necessarily violates the lease and must be documented
in both of these records. Because it was not, Marcy argues that Defendants
falsely and impliedly certified that they were in compliance with the lease.1 The
benefit Defendants received from this false certification was maintaining the
right to take the property of the United States as provided by the lease.
We do not decide whether Marcy has properly identified a claim for
purposes of Section 3729(a)(2). Resolving that issue would necessarily require
us to determine whether implied certifications may be claims under the Act.
This Court has previously deferred that question, and we do so again today. See
Willard, 336 F.3d at 381-82; United States ex rel. Stebner v. Stewart &
1
Marcy also argues that the Defendants impliedly certify their compliance with the
lease every time they act to take the government’s oil and gas under its authority.
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No. 06-31238
Stephenson Servs., Inc., 144 F.App’x 389, 394 (5th Cir. 2005) (unpublished).
Instead, we resolve this appeal based on the requirement of materiality for any
claim made. A material claim is one that is required to be made in order to
receive the relevant government benefit. United States v. Southland
Management Corp., 326 F.3d 669, 679 (5th Cir. 2003) (en banc) (Jones, J.
concurring).
In a recent and similar precedent, the plaintiff filed a qui tam action
against Humana Health Plan for selectively choosing participants for Humana’s
HMO both in violation of Humana’s contract with federal agencies to provide
health care services to Medicare beneficiaries as well as in violation of other
federal regulations. Willard, 336 F.3d at 379. This Court dismissed the claim,
noting that the plaintiff had failed to “allege facts that would show that [the
government] conditioned its payment to Humana on any implied certification of
compliance . . . .” Id. at 382.
We have also concluded that when “the government has conditioned
payment of a claim upon a claimant’s certification of compliance with, for
example, a statute or regulation, a claimant submits a false or fraudulent claim
when he or she falsely certifies compliance with that statute or regulation.”
United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d
899, 902 (5th Cir. 1997). These “false certifications of compliance create liability
under the FCA when certification is a prerequisite to obtaining a government
benefit.” Id.
Marcy contends that the Willard materiality standard does not govern,
arguing instead that we should apply the standard articulated by a panel of this
Court in United States v. Southland Management Corp., 288 F.3d 665 (5th Cir.),
reh’g en banc granted, 307 F.3d 352 (5th Cir. 2002). The initial 2002 Southland
opinion determined that a violation of the Act occurred if the false certifications
had a “natural tendency to influence or were capable of influencing” the decision
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No. 06-31238
of the governmental entity. Southland, 288 F.3d at 676. However, the
Southland panel opinion upon which Marcy relies was automatically vacated
when it was reheard en banc. See 5th Cir. R. 41.3; Southland, 326 F.3d at 678
n.2 (Jones, J. concurring) (grant of en banc rehearing vacated panel decision).
Accordingly, the 2002 Southland panel opinion is not precedent. Marcy did not
find anything worth mentioning for today’s issues in the en banc, final opinion
in the case. Southland, 326 F.3d 669.
In essence, Marcy alleges that Defendants fraudulently maintained their
right to take government property under the lease by failing to report their
violations of certain laws and regulations. However, the lease between
Defendants and the United States provides that if “Lessee fails to comply with
any of . . . the terms of this lease, the lease shall be subject to cancellation.” That
language means that cancellation is only an option; nothing in the lease requires
cancellation or otherwise denies benefits to the Defendants in the event of a false
certification. Indeed, the same section of the lease provides that the government
may exercise “other remedies” available against Defendants. Cf. Willard, 336
F.3d at 382-83 (noting the government’s alternative options).
Because the environmental requirements that Marcy references were not
prerequisites to continuation of the lease, Marcy fails to state a claim under
Section 3729(a)(2).
B. Section 3729(a)(7) – knowingly conceal obligation to pay.
In a reverse False Claims Act suit, there is no improper payment by the
government to a defendant, but rather there is an improper reduction in the
defendant’s liability to the government. This provision of the Act entitles a
plaintiff to recover against a defendant who “knowingly makes, uses, or causes
to be made or 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).
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No. 06-31238
The nature of Defendants’ “obligation to pay” and whether it is sufficient
to trigger liability under the Act are the central concerns here. Marcy contends
that through the fraudulent certification, Defendants avoided fines and other
penalties that would have been imposed under the Clean Water Act (CWA) and
other applicable environmental laws had the government known of Defendants’
environmental violations.2 Defendants’ potential liability, Marcy claims, is an
“obligation to pay” under 31 U.S.C. § 3729(a)(7) that Defendants avoided by their
false certifications.
Some courts have held that in order to create liability under (a)(7), the
obligation must be fixed and definite at the time of the false claim. American
Textile Mfrs. Inst., Inc. v. The Limited, Inc., 190 F.3d 729, 735 (6th Cir. 1999)
(“ATMI”) (“To recover under the False Claims Act . . . the United 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”
and “[t]he obligation cannot be merely a potential liability.”); United States v. Q
Int’l Courier, Inc., 131 F.3d 770, 774 (8th Cir. 1997) (False Claims Act requires
a “fixed sum that is immediately due”; a potential penalty is insufficient). Under
that understanding of the Act, reverse false claims did not occur when the
Defendants failed to report environmental violations.
This Court has taken a somewhat different approach. In the key
precedent, a plaintiff (Bain) brought a reverse False Claims Act claim against
his employer Georgia Gulf, claiming that Gulf had violated certain
environmental laws and submitted false records to the EPA to hide those
2
Another Marcy argument is this: 1) a provision of OCSLA allows the Secretary of the
Interior to reduce or eliminate any royalty owed to the United States by Defendants, and 2)
application of that provision is conditioned upon Defendants’ continued compliance with the
lease, which includes all applicable environmental regulations. Marcy contends that
Defendants’ statutory violations caused them to incur an obligation to transfer oil and gas
and/or their royalties back to the United States. The Section 3729(a)(7) analysis that follows
applies to this allegation as well.
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No. 06-31238
violations. United States ex rel. Bain v. Georgia Gulf Corp., 386 F.3d 648 (5th
Cir. 2004). Unlike here, however, that defendant corporation was not operating
under a contract with the government. Id. at 657. Like Marcy, Bain argued that
the possibility of future environmental liability was the “obligation to pay” that
the employer avoided by the submission of false records to the EPA. Georgia
Gulf argued that an obligation had to be fixed and determined to state a claim
under (a)(7).
The federal government, participating as amicus, proposed an
intermediate position. It suggested that a fixed and definite obligation was not
always necessary for (a)(7) liability. But, the government emphasized, a
potential obligation has to arise out of the contractual or other close relationship
between a defendant and the federal government. Id. at 657-58.
The Bain court determined that it did not need to decide, in the detail
urged by the parties, the reach of an (a)(7) claim. Instead, Bain held this:
[T]he reverse false claims act 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) under which the
government provides some benefit to the defendant wholly or
partially in exchange for an agreed or expected payment or transfer
of property by (or on behalf of) the defendant to (or for the economic
benefit of) the government.
Id. at 657 (emphasis omitted). The Bain court noted that the alleged
government fines for pollution were wholly speculative. The court then
explained that the claim failed because such fines would arise from the general
environmental laws, not any particular contractual relationship between the
government and the defendant:
Georgia Gulf, in common with all others, was obligated to obey the
law, including the Clean Air Act and the regulations pursuant
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No. 06-31238
thereto, and if it did not it could be subjected (as alleged in the
amended complaint) to “statutory fines and penalties”, but the mere
contingent potential that such fines or penalties might be (but had
not been) sought and imposed does not constitute “an obligation to
pay or transmit money or property to the Government” within the
meaning of section 3729(a)(7).
Id. at 658.
Bain controls our result. First, the obligation to pay asserted by Marcy
was potential and contingent for precisely the same reasons that existed in Bain.
Marcy argues that an (a)(7) reverse false claim occurred when Defendants
allegedly failed to comply with a requirement under the Federal Water Pollution
Control Act to report immediately upon becoming aware of a relevant polluting
discharge. 33 U.S.C. § 1321(b)(5). However, even when a statute requires
immediate action from a violator, the government still must choose whether to
impose a penalty. Other courts have held that when potential fines depend on
intervening discretionary governmental acts, they are not sufficient to create
“obligations to pay” under the False Claims Act. United States ex rel. Huangyan
Imp. & Exp. Corp. v. Nature’s Farm Prods., Inc., 370 F. Supp. 2d 993, 1000 (N.D.
Cal. 2005) (“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)]”); United
States ex rel. Graves v. ITT Educ. Servs., Inc., 284 F. Supp. 2d 487, 508 (S.D.
Tex. 2003) (“a government contractor’s potential liability for fines or sanctions
that might be imposed at some indefinite point in the future, in some indefinite
amount, is not an ‘obligation to pay’ under section 3729(a)(7).”).
Moreover, the potential liabilities that Marcy claims are the relevant
payment obligations did not arise out of the lease with the government. All
polluters face the prospect of liability for violations of environmental laws,
regardless of whether they contract with the federal government or not. If such
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violations were enough to create a reverse False Claims Act claim, it would
broaden the scope of the Act far beyond present interpretations. ATMI, 190 F.3d
at 739 (“If the reverse false claims provision encompasses the defendant’s
actions, it has incredible scope, 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.”).
Marcy’s allegation that Defendants submitted the false certification to
avoid potential environmental liability is legally insufficient to make a reverse
false claim under Section 3729(a)(7).
C. Motion to Amend
Federal Rule of Civil Procedure 15(a) provides that leave to amend shall
be freely given “when justice so requires.” A district court has the discretion to
consider numerous factors in evaluating whether to allow amendment, including
the futility of amending, the party’s repeated failure to cure deficiencies by
previous amendments, undue delay, or bad faith. Foman v. Davis, 371 U.S. 178,
182 (1962). We review the denial of a motion to amend for abuse of discretion.
Cambridge Toxicology Group, Inc. v. Exnicios, 495 F.3d 169, 177 (5th Cir. 2007).
After the district court dismissed his claims, Marcy filed a motion to
amend in order to add to the complaint the fact that the United States
Department of Justice would seek indictments against at least one of the
Defendants after investigating Marcy’s illegal dumping allegations. Marcy also
alleged that Defendant Rowan had agreed to enter into a felony plea agreement,
and that Marcy had been asked to testify before a grand jury in the future.3
3
Marcy also claims in his brief on appeal that he could have alleged that the
government would have necessarily cancelled its lease with Defendants had it known of their
violations. Among other reasons, we reject that basis because Marcy did not raise this claim
before the District Court, and cannot raise it for the first time on appeal.
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No. 06-31238
The relevant time for evaluating the nature of Defendants’ obligation to
pay is when they made or used the false statements. Bain, 386 F.3d at 657 (the
statement must “reduce the amount of a then matured and owing fixed
obligation”); ATMI, 190 F.3d at 736 (government must have been “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”). The government’s pursuit of
charges against individual Defendants occurred well after the false certifications
alleged by Marcy in the complaint. Accordingly, the facts Marcy wished to add
would not have assisted him in stating a reverse False Claims Act claim.
Because Marcy had no right to make a futile amendment, the district court did
not abuse its discretion in denying Marcy’s motion.
Similarly, on appeal Marcy filed a motion for this Court to take judicial
notice of convictions for environmental violations arising from these facts.
Because those convictions did not create specific financial and other legal
obligations until long after the time relevant here, we deny the motion.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
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