IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
December 19, 2008
No. 06-30702
Charles R. Fulbruge III
Clerk
UNITED STATES OF AMERICA ex rel. SCHUMANN RAFIZADEH,
Plaintiff-Appellant-
Cross-Appellee,
v.
CONTINENTAL COMMON, INC.;
BASIC PROPERTY MANAGEMENT;
REGIS PROPERTY MANAGEMENT;
TRANSCONTINENTAL REALTY, INC.,
Defendants-Appellees-
Cross-Appellants.
Appeals from the United States District Court
for the Eastern District of Louisiana
Before JONES, Chief Judge, REAVLEY and SMITH, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Schumann Rafizadeh sued under the False Claims Act (“FCA”), 31 U.S.C.
§ 3729(a), alleging that the defendant property owners and managers (collective-
No. 07-51188
ly “Continental”) overcharged two Louisiana departments on lease agreements.1
Both sides appeal, and we affirm.
I.
The Louisiana Departments of Social Services (“DSS”) and Health and
Hospitals (“DHH”) (collectively the “Departments”) maintain office leases with
Continental. Louisiana and the United States jointly fund the Departments,
with the federal government providing at least 64% of the funding. To secure
funding, the Departments submit annual budgets to the United States.
Rafizadeh alleges that Continental overcharged the Departments under
the lease agreements by overestimating the usable space in the office buildings
the agencies occupy. Continental was aware that the United States largely
funded the Departments. In his complaint, Rafizadeh insists that Continental
submitted false claims to the Departments, “causing [them] to present same to
the United States Government for payment thereof.”
Continental moved to dismiss under Federal Rule of Civil Procedure 9(b)
for failure to plead fraud with particularity and under Federal Rule of Civil Pro-
cedure 12(b)(6) for failure to state a claim on account of inadequate pleading of
presentment. The district court dismissed with prejudice under Rule 12(b)(6),
and Rafizadeh appeals.2
Continental then moved for attorneys’ fees, contending that the suit was
frivolous and vexatious. The district court denied the motion, and Continental
cross-appeals.
1
The United States declined to intervene.
2
In briefing before the district court and this court, Rafizadeh asserts that the lease
payments were “incorporated in the budgets” presented to the United States for payment. Re-
view of a dismissal is typically limited to the facts as stated in the complaint. See Morin v.
Caire, 77 F.3d 116, 120 (5th Cir. 1996) (“The review of such a motion is limited to the plaintiffs’
complaint.”) (citing Jackson v. City of Beaumont Police Dep’t, 958 F.2d 616, 619 (5th Cir.
1992)). Accordingly, we do not consider whether alleging incorporation of a false claim in a
budget alone satisfies the pleading requirements of Rule 9(b).
2
No. 07-51188
II.
We review a dismissal under Rule 12(b)(6) or Rule 9(b) de novo. See Unit-
ed States ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 328 (5th Cir. 2003). On re-
view of dismissal, “the allegations in the complaint must be liberally construed
in favor of the plaintiff, and all facts pleaded in the complaint must be taken as
true.”3 To survive dismissal under Rule 12(b)(6), “the non-moving party must
plead ‘enough facts to state a claim to relief that is plausible on its face.’”4 For
complaints pleading fraud and malice, Rule 9(b) creates a heightened pleading
requirement that “the circumstances constituting fraud or mistake shall be stat-
ed with particularity.” FED. R. CIV. P. 9(b).5 Rule 9(b)’s pleading standards gov-
ern a FCA complaint. See Doe, 343 F.3d at 328.
The district court dismissed for failure to plead “presentment of the inflat-
ed invoices to the United States.” Rafizadeh alleges the court erred in conclud-
ing that the complaint did not adequately plead presentment under 31 U.S.C.
§ 3729(a)(1) and that 31 U.S.C. § 3729(a)(2) requires a showing of presentment.
III.
A.
A party is liable if it “knowingly presents, or causes to be presented, to an
officer or employee of the United States Government . . . a false or fraudulent
claim for payment or approval.” 31 U.S.C. § 3729(a)(1). To plead a false claim
successfully under this section, a plaintiff must state the factual basis for the
fraudulent claim with particularity and cannot rely on speculation or conclusion-
3
EPCO Carbon Dioxide Prods., Inc. v. JP Morgan Chase Bank, NA, 467 F.3d 466, 467
(5th Cir. 2006) (citing Lowrey v. Tex. A&M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997)).
4
S. Scrap Material Co., LLC v. ABC Ins. Co. (In re S. Scrap Material Co., LLC), 541
F.3d 584, 587 (5th Cir. 2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, ___, 127 S. Ct.
1955, 1974 (2007)).
5
See generally 2 JAMES W. MOORE ET AL., MOORE’S FEDERAL PRACTICE § 9.03[1] (Lexis-
Nexis 3d ed. 2008).
3
No. 07-51188
al allegations. See United States ex rel. Thompson v. Columbia/HCA Healthcare
Corp., 125 F.3d 899, 903 (5th Cir. 1997). Because the linchpin of an FCA claim
is a false claim, “the ‘time, place and contents of the false representations, as
well as the identity of the person making the misrepresentation and what that
person obtained thereby’ must be stated in a complaint alleging violation of the
FCA in order to satisfy Rule 9(b).”6
Rafizadeh’s complaint alleges that “[d]efendants knowingly submitted
false and inflated claims for rental invoices to [the Departments],” which caused
them to present the same to the United States “for payment thereof, in accord-
ance with the federal government’s commitments to fund the Agencies’ budgets.”
This pleading is lacking in the particularity demanded by Rule 9(b). Rafizadeh
does not describe what statements were contained in the budget, who prepared
it, or what role it played in securing funding from the federal government. See,
e.g., Doe, 343 F.3d at 329. The complaint does not satisfy Rule 9(b).7
B.
A party can also violate the FCA if it “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.” 31 U.S.C. § 3729(a)(2). Rafizadeh argues
that § 3729(a)(2), unlike § 3729(a)(1), does not require presentment. The district
court disagreed, citing United States ex rel. Totten v. Bombardier Corp., 380 F.3d
6
Doe, 343 F.3d at 329 (quoting United States ex rel. Russell v. Epic Healthcare Mgmt.
Group, 193 F.3d 304, 308 (5th Cir. 1999)). The Rule 9(b) standard can be relaxed where “the
facts relating to the alleged fraud are peculiarly within the perpetrator’s knowledge.” Russell,
193 F.3d at 308 (citing Thompson, 125 F.3d at 903). We will not exempt a plaintiff from Rule
9(b) requirements, however, where the documents containing the requisite information are in
the possession of, and presumably available from, other sources. See id. The United States
and the Departments possess the documents pertinent to Rafizadeh’s claim, so the documents
are obtainable, and a relaxation of the Rule 9(b) requirement is inappropriate.
7
Although we affirm based on Rule 9(b) instead of Rule 12(b)(6), which the district
court used, the Rule 9(b) deficiency was argued to the district court, and the issue was properly
preserved for review.
4
No. 07-51188
488 (D.C. Cir. 2004).
After the district court entered judgment, the circuit split regarding pre-
sentment under § 3729(a)(2) was resolved in Allison Engine Co. v. United States
ex rel. Sanders, 128 S. Ct. 2123 (2008). Even though Ҥ 3729(a)(1) requires a
plaintiff to prove that the defendant ‘present[ed]’ a false or fraudulent claim to
the Government, the concept of presentment is not mentioned in § 3729(a)(2).”
Id. at 2129. The Court agreed with Rafizadeh’s general contention that present-
ment is not required under § 3729(a)(2). Id. at 2129-30.
The Court did, however, clarify what a plaintiff is required to prove under
§ 3729(a)(2). He must show “that the defendant made a false record or state-
ment for the purpose of getting ‘a false or fraudulent claim paid or approved by
the Government.’” Id. at 2130. If the defendant “makes a false statement to a
private entity and does not intend the Government to rely on that false state-
ment as a condition of payment, the statement is not made with the purpose of
inducing payment of a false claim ‘by the Government.’” Id. “[A] plaintiff assert-
ing a § 3729(a)(2) claim must prove that the defendant intended that the false
record or statement be material to the Government’s decision to pay or approve
the false claim.” Id. at 2126.
“Of course, Supreme Court decisions apply retroactively and prospectively
to all cases on direct appeal whenever applied to the litigants before the Court.”
Deffenbaugh-Williams v. Wal-Mart Stores, Inc., 188 F.3d 278, 282 (5th Cir. 1999)
(citing Harper v. Va. Dep’t of Taxation, 509 U.S. 86, 97 (1993)). Generally, we
would remand to provide Rafizadeh with a chance to plead the facts relevant to
Allison Engine’s § 3729(a)(2) standard.8 Remanding here would be fruitless,
however, because Rafizadeh’s claim falters under Rule 9(b) regardless of whether
8
See, e.g., Deffenbaugh-Williams, 188 F.3d at 282 (“When law changes in unanticipated
ways during an appeal . . . this court will generally remand for a new trial to give parties the
benefit of the new law and the opportunity to present evidence relevant to that new stan-
dard.”).
5
No. 07-51188
it meets the newly-announced § 3729(a)(2) requirements. Despite the fact that
§ 3729(a)(2) does not require presentment, a relator alleging a § 3729(a)(2) viola-
tion must still show the “who, what, when, where, and how of the alleged fraud”
under Rule 9(b).9 Rafizadeh has failed to meet several of the Rule 9(b) require-
ments: “what” statements were in the budget, “who” prepared it, and “how” it
was used to get government funds. Thus, the claim fails under Rule 9(b) regard-
less of whether Rafizadeh satisfies Allison Engine.
IV.
Continental cross-appeals the denial of its motion for attorneys’ fees under
31 U.S.C. § 3730(d)(4)10 and 28 U.S.C. § 1927.11 Under both of these sections, we
review for abuse of discretion.12 Generally, “the trial judge is in the best position
to review the factual circumstances and render an informed judgment as he is
intimately involved with the case, the litigants, and the attorneys on a daily ba-
9
Doe, 343 F.3d at 328 (internal quotation marks and citation omitted). See, e.g., United
States ex rel. Marlar v. BWXT Y-12, L.L.C., 525 F.3d 439 (6th Cir. 2008) (stating that although
“‘presentment’ is not required for actions under [§ 3729(a)(2)] . . . we have repeatedly held that
proof of a false claim is required . . . .”) (citations omitted).
10
Section 3730(d)(4) reads as follows:
If the government does not proceed with the action and the person bringing
the action conducts the action, the court may award to the defendant its reason-
able attorneys’ fees and expenses if the defendant prevails in the action and the
court finds that the claim of the person bringing the action was clearly frivolous,
clearly vexatious, or brought primarily for purposes of harassment.
11
Section 1927 reads as follows:
Any attorney or other person admitted to conduct cases in any court of the
United States or any Territory thereof who so multiplies the proceedings in any
case unreasonably and vexatiously may be required by the court to satisfy per-
sonally the excess costs, expenses, and attorneys’ fees reasonably incurred be-
cause of such conduct.
12
See CenterPoint Energy Houston Elec. LLC v. Harris County Toll Road Auth., 436
F.3d 541, 550 (5th Cir. 2006) (citing Sw. Bell Tel. Co. v. City of El Paso, 346 F.3d 541, 550 (5th
Cir. 2003)).
6
No. 07-51188
sis,” so our review of fee decisions is especially deferential.13
Continental argues that Rafizadeh’s vague factual allegations, which it
claims seek to skirt the presentment requirement, show the complaint to be friv-
olous. An action is not frivolous if existing law or a reasonable suggestion for its
extension, modification, or reversal supports the action. Cf. Farguson v. MBank
Houston, N.A., 808 F.2d 358, 359 (5th Cir. 1986).
Although Rafidezeh’s allegations are not pleaded with sufficient particu-
larity under Rule 9(b), he tendered a good-faith argument that presentment is
not required for § 3729(a)(2) actions. The district court did not abuse its discre-
tion in finding that the qui tam claim was not frivolous.
“An action is ‘clearly vexatious’ or ‘brought primarily for purposes of har-
assment’ when the plaintiff pursues the litigation with an improper purpose,
such as to annoy or embarrass the defendant.” Pfingston v. Ronan Eng’g Co.,
284 F.3d 999, 1006 (9th Cir. 2002) (citations omitted). But, “the award of fees
under the false claims act is reserved for rare and special circumstances.” Id. at
1006-07. Continental contends that Rafizadeh’s suit is vexatious, because it is
the fourth suit between the parties, and the original complaint raised issues that
had been litigated elsewhere.
Despite the fact that the first amended complaint raised issues regarding
Louisiana public bid law, the second amended complaint raised only the non-
frivolous qui tam action, which had not been an issue in the earlier state suits.
The district court is better suited than are we to determine whether these addi-
tional allegations so inflated the costs of litigation as to constitute harassment.
Continental also seeks attorneys’ fees, costs, and expenses from Rafiza-
deh’s counsel for filing a motion for a preliminary injunction to prohibit Contin-
ental from selling the property at issue. In denying that motion, the district
court found that Rafizadeh had failed to establish any of the four relevant fac-
13
Skidmore Energy, Inc. v. KPMG, 455 F.3d 564, 566 (5th Cir. 2006) (citing Thomas
v. Capital Sec. Servs., Inc., 836 F.2d 866, 873 (5th Cir. 1988) (en banc)).
7
No. 07-51188
tors. Nonetheless, the court considered Continental’s request for attorneys’ fees
regarding that motion and found that the motion was not clearly vexatious.
In CenterPoint, 436 F.3d at 550-51 (5th Cir. 2006), we remanded a request
for attorneys’ fees where the district court had made no findings on the fee mo-
tion. Here, the findings are not extensive, but the court did address fees in a
separate order and found that “the Court cannot say that this litigation was
clearly frivolous, clearly vexatious, or brought primarily for purposes of harass-
ment under 31 U.S.C. § 3730(d)(4).” These findings, although not intricately de-
tailed, are far from the summary order issued in CenterPoint and are a sufficient
explanation for the denial of fees. This suit is not clearly vexatious.14
In summary, because Rafizadeh failed to plead with the particularity re-
quired by Rule 9(b), the dismissal of his §§ 3729(a)(1)-(2) claim is AFFIRMED.
On cross-appeal, the denial of attorneys’ fees is likewise AFFIRMED.
14
Continental also alleges that Rafizadeh was on notice, via a letter from the Louisiana
Division of Administration, that the factual allegations about over-billing were false; Continen-
tal points out that Rafizadeh gave a newspaper interview to the New Orleans Times-Picayune
in which he threatened “revenge” against Continental. Although these allegations are troub-
ling, the district court did not abuse its wide discretion in finding that the suit was not clearly
vexatious or brought primarily for harassment.
8
No. 07-51188
REAVLEY, Circuit Judge, specially concurring:
I concur in this judgment because the district court properly ruled that the
complaint failed to state a legal claim. The judge there ruled two years prior to
Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008), and
did so correctly. I see no Rule 9(b) defect. The manner of payment by the United
States is stated: it is a federal grant for a percentage of the state agency’s
budget. But that fails to allege a claim under the False Claims Act as decided
by the Supreme Court.
9