United States Ex Rel. Customs Fraud Investigations, LLC v. Victaulic Co.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________

No. 15-2169
____________

UNITED STATES ex rel.
CUSTOMS FRAUD INVESTIGATIONS, LLC.,
Appellant

v.

VICTAULIC COMPANY

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(E.D. Pa. No. 5-13-cv-02983)
District Judge: Honorable Mary A. McLaughlin

Argued on February 11, 2016

Before: FUENTES, KRAUSE and ROTH, Circuit Judges

(Filed: October 5, 2016)
Anna C. Haac
Jonathan K. Tycko [Argued]
Tycko & Zavareei
1828 L Street, N.W.
Suite 1000
Washington, DC 20036

Suzanne I. Schiller
Mako, Gold, Katcher & Fox
401 City Avenue
Suite 901
Bala Cynwyd, PA 19004
Counsel for Appellant

Michael S. Raab
Henry C. Whitaker [Argued]
United States Department of Justice, Civil Division
950 Pennsylvania Avenue, N.W.
Washington, DC 20530
Counsel for Amicus Appellant

Stephen S. Asay
Jeetander T. Dulani
Thomas C. Hill [Argued]
Pillsbury, Winthrop, Shaw & Pittman
1200 17th Street, N.W.
Washington, DC 20036

Brian R. Tipton, Esquire
Florio Perrucci Steinhardt & Fader
235 Broubalow Way
Phillipsburg, NJ 08865
Counsel for Appellee

2
 OPINION

ROTH, Circuit Judge:

Customs Fraud Investigations, LLC (CFI), the relator
in this qui tam action, appeals the District Court’s dismissal
of its complaint with prejudice and the court’s denial of CFI’s
subsequent motion for leave to amend its complaint. We hold
that the District Court erred in denying CFI’s motion to
amend its complaint on futility grounds. Consequently, we
will vacate that order and remand this case for further
proceedings.

I.

Victaulic Co., the defendant in the District Court and
the appellee in this matter, is a Delaware corporation with its
headquarters in Easton, Pennsylvania. It is a global
manufacturer and distributor of pipe fittings. CFI, a limited
liability company based in Maryland, is made up of former
insiders from the pipe fitting industry. According to CFI,
although none of its employees worked for Victaulic, CFI’s
principals have worked on numerous trade investigations
involving pipe and tube products and have provided direct
support to senior officials at the U.S. International Trade
Commission and the U.S. Department of Commerce on issues
in the industry.

3
 To better understand CFI’s allegations, it is helpful to
explain the regulatory environment in which Victaulic
operates. Pipe fittings, such as those Victaulic manufactures,
are the subject of specific, non-discretionary import
regulations set forth in the Tariff Act of 1930.1 Pipe fittings
must, with limited exceptions, be marked with the English
name of the country of origin by means of one of five
methods.2 Only if it is technically or commercially infeasible
to mark an article by one of the five enumerated methods may
a pipe fitting be marked in another manner. Under no
circumstances may an article of foreign origin be completely
unmarked.3 If an importer releases unmarked or improperly
marked goods into the stream of commerce in the United
States, the importer owes a duty of 10 per centum ad valorem
on the improperly marked goods.4 This duty, known as a
“marking duty,” is deemed to have accrued at the time of
importation and must be paid in addition to any other duty
imposed by law.5

This is not to say, however, that an importer may bring
improperly marked goods into the United States merely by
paying a marking duty. Instead, if improperly marked goods
are imported and discovered by customs officials, an importer
has three options: (1) re-export the goods, (2) destroy them,
or (3) mark them appropriately so that they may be released
from the custody of the United States for sale in the domestic

1
19 U.S.C. § 1304(c).
2
Id. § 1304(c)(1).
3
Id. § 1304(c)(2).
4
19 U.S.C. § 1304(i).
5
Id.

4
market.6 Customs officials at United States ports of entry are
unable to inspect every import; they rely primarily on the
importers themselves to self-report any duties owed and any
goods that are unmarked or improperly marked. In those
instances where improperly marked goods enter the stream of
commerce in the United States, the marking duty is due,
retroactive to the time of importation.7 Imposition of the duty
is non-discretionary since, by statute, such duties “shall not be
remitted wholly or in part nor shall payment thereof be
avoidable for any cause.”8 In setting forth this regulatory
scheme, Congress specifically noted that marking duties
“shall not be construed to be penal” and are to be considered
similar to any other customs duty owed.9

The gravamen of CFI’s allegations is that Victaulic
has, over the past decade, imported millions of pounds of
improperly marked pipe fittings without disclosing that the
fittings are improperly marked. Since this improper marking
was not discovered by customs officials, Victaulic avoided
paying marking duties on these fittings. As support for its
claims, CFI’s complaint alleged that Victaulic imported
approximately 83 million pounds of fittings from overseas
between 2003 and 2013 and a miniscule fraction of
Victaulic’s pipe fittings for sale in the U.S. bear any
indication of their foreign origin, with an even smaller
percentage bearing country of origin markings compliant with
the applicable statute. According to the complaint, “Victaulic

6
Id.
7
Id.
8
Id.
9
Id.

5
is able to successfully (albeit unlawfully) import its unmarked
pipe fittings into the United States by knowingly failing to
pay or disclose to the CBP [Bureau of Customs and Border
Protection] the marking duties the company owes . . . by,
among other things, falsifying its entry documents and
otherwise concealing the foreign source of its pipe fittings
such that CBP will not detect the company’s fraud.”

These actions, according to CFI, give rise to the
present qui tam action under the so-called “reverse false
claims” provision in the False Claims Act (FCA).10
Typically, a claim under the FCA alleges that a person or
company submitted a bill to the government for work that
was not performed or was performed improperly, resulting in
an undeserved payment flowing to that person or company.
The FCA was enacted as a reaction to rampant fraud and
price gouging by merchants supplying the Union army during
the Civil War.11 In this case, by contrast, the allegation is not
that Victaulic is obtaining monies from the government to
which it is not entitled, but rather that it is retaining money it
should have paid the government in the form of marking
duties. Wrongful retention cases such as these are known as
“reverse false claims” actions.

CFI filed its initial complaint, under seal, on May 30,
2013, in the United States District Court for the Eastern
District of Pennsylvania. On August 7, the United States

10
31 U.S.C. § 3729(a)(1)(G). This section was formerly
codified at 31 U.S.C. § 3729(a)(7).
11
See United States ex rel. Springfield Terminal Ry. Co. v.
Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994).

6
declined to intervene in the matter. After being served,
Victaulic filed a motion to dismiss pursuant to Federal Rule
of Civil Procedure 12(b)(1) and 12(b)(6). Victaulic contested
the District Court’s jurisdiction by contending that CFI’s
complaint violated the FCA’s ban on suits based primarily on
publicly available information.12 Victaulic alleged, in the
alternative, that the complaint failed to present a plausible
claim because it was too conclusory. Discovery was stayed
pending the District Court’s decision on the motion to
dismiss.

When the District Court held a hearing on Victaulic’s
motion, argument focused on Victaulic’s contentions that the
FCA’s public disclosure bar was jurisdictional and that all of
the information in CFI’s complaint was publicly available. In
its subsequent opinion, the District Court rejected these
arguments, holding that the FCA’s public disclosure bar was
not jurisdictional and, in any event, CFI’s complaint was not
based on publicly available information within the meaning
of the FCA.

Then, turning to Victaulic’s alternative argument that
the claim was conclusory, the District Court held that CFI’s
complaint did not state a claim on which relief could be
granted because it failed to cross the Twombly/Iqbal threshold
from possible to plausible. In doing so, the District Court
mentioned that it believed the FCA’s reverse false claims
provision did not cover failure to pay marking duties, but
declined to rule on those grounds because the complaint was
based on legal conclusions unsupportable by the facts alleged.

12
31 U.S.C. § 3730(e)(4)(A).

7
The District Court dismissed the complaint with prejudice,
without any discussion of why CFI should not be afforded the
opportunity to amend its complaint to solve any perceived
deficiencies.

CFI promptly moved for relief from judgment and for
leave to amend its complaint, including a proposed First
Amended Complaint (FAC) that contained substantially more
detailed factual allegations. While the contours of the claim
remains the same in both complaints, the FAC includes
details that address at least some of the concerns that the
District Court had expressed in its opinion. Of particular
import, the FAC details the rationale behind CFI’s
investigation of Victaulic and discusses the methodology CFI
used to develop its claims.

This investigation involved a multifaceted analysis
before filing suit, consisting of two parts: (1) an analysis of
shipping manifest data purporting to show that Victaulic
imports the majority of its pipe fittings from overseas and (2)
a study of listings from the online auction site eBay for
Victaulic products that CFI used as a proxy for the Victaulic
product market. Out of the more than 200 listings for
Victaulic pipe fittings CFI reviewed, there were virtually no
products for sale that CFI considers properly marked. Based
on its analysis, CFI concluded that systematic fraud must be
occurring, since the majority of Victaulic’s products are
imported but virtually no products for sale on the secondary
market are properly marked with the foreign country of origin
markings required by law.

CFI bolstered the FAC by attaching an expert
declaration stating that CFI’s analysis “provides

8
‘overwhelming evidence’ that Victaulic is not properly
marking its pipe fittings,” and attached actual examples of the
data on which CFI and its expert based their analyses.
Moreover, the FAC included two allegations that did not
appear in the original complaint: a statement from an
unnamed witness who recalled a specific instance of
obtaining improperly labeled Victaulic products, and a
reference to a District Court hearing where, according to CFI,
Victaulic showed a photograph of a pipe fitting to the court
that CFI contends was a prime example of improper marking.

The District Court denied CFI’s motions on two
grounds. First, it held that CFI unduly delayed its motion for
leave to amend because it should have been on notice that the
District Court was considering dismissing the complaint
based on comments the court made at the motions hearing.
Second, the District Court held that the FAC was futile,
stating explicitly that failure to pay marking duties could not,
as a matter of law, give rise to a reverse false claims action
because the duties were too attenuated and contingent to
qualify as the types of obligations to pay money to the
government covered by the FCA. This appeal followed, in
which the United States appears as amicus curiae, arguing
that the District Court’s interpretation of the FCA’s reverse
false claims provision is incorrect and that marking duty
obligations are covered by the FCA.13

II.

13
The United States expresses no opinion on whether CFI
should have been granted leave to amend its complaint or
whether the complaint states a claim.

9
 The District Court had jurisdiction over this matter
pursuant to 28 U.S.C. § 1331 and 31 U.S.C. § 3732. We have
jurisdiction over the District Court’s orders dismissing the
complaint, denying relief from judgment, and denying CFI’s
motion for leave to amend pursuant to 28 U.S.C. § 1291. We
review a District Court’s judgment of dismissal pursuant to
Federal Rule of Civil Procedure 12(b)(6) de novo.14 We
accept all factual allegations in the complaint as true and
“determine whether, under any reasonable reading of the
complaint, the plaintiff may be entitled to relief.”15

We review a District Court’s denial of a Rule 59(e)
motion for relief from judgment for abuse of discretion
(except for questions of law, which are subject to plenary
review).16 Similarly, we review a Rule 15 motion for leave to
amend a complaint for abuse of discretion, and if “a timely
motion to amend judgment is filed under Rule 59(e), the Rule
15 and 59 inquiries turn on the same factors.”17 Under such a
review, we are cognizant of Rule 15’s admonition that leave
to amend should be freely given “when justice so requires.”18

14
Bronowicz v. Allegheny Cnty., 804 F.3d 338, 344 (3d Cir.
2015).
15
Id. (quoting Powell v. Weiss, 757 F.3d 338, 341 (3d Cir.
2014)).
16
Cureton v. Nat’l Collegiate Ath. Ass’n, 252 F.3d 267, 272
(3d Cir. 2001).
17
Id.
18
Fed. R. Civ. P. 15(a)(2).

10
“A district court would necessarily abuse its discretion if it
based its ruling on an erroneous view of the law . . ..”19

III.

There are three instances when a court typically may
exercise its discretion to deny a Rule 15(a) motion for leave
to amend: when “(1) the moving party has demonstrated
undue delay, bad faith or dilatory motives, (2) the amendment
would be futile, or (3) the amendment would prejudice the
other party.”20 The District Court relied on two of those
grounds in denying CFI’s motion for leave to amend: undue
delay and futility. We will explain why CFI’s delay was not
undue before turning to the merits of the FAC.

A.

Generally, Rule 15 motions should be granted. In
Foman v. Davis, the Supreme Court held that the fundamental
purpose of Rule 15 is to allow a plaintiff “an opportunity to
test his claim on the merits,” and although “the grant or denial
of an opportunity to amend is within the discretion of the
District Court,” that discretion is abused if it is exercised

19
Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S.
Ct. 1744, 1748 n.2 (2014) (quoting Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 405 (1990)).
20
U.S. ex rel. Schumann v. Astrazeneca Pharm. L.P., 769
F.3d 837, 849 (3d Cir. 2014) (quoting Luke v. Arnold, 232
F.3d 360, 373 (3d Cir. 2000)).

11
without giving the plaintiff sufficient opportunity to make her
case.21

At oral argument before us, counsel for CFI admitted
that CFI was “waiting to see what the court said” before filing
its motion to amend its complaint because CFI had “thought
the court was going to deny the motion to dismiss.” The
District Court held that this tactic made CFI’s delay undue
because CFI was “on notice of the defects in its complaint
once Victaulic moved for dismissal,” and CFI was notified
“that the Court was considering a dismissal with prejudice,”
based on comments made from the bench during a hearing on
Victaulic’s motion. The record, however, is not so clear.

First, the mere fact that a defendant files a motion to
dismiss is not necessarily sufficient to put a plaintiff on notice
that the court will find his complaint to be deficient. One of
the consequences of the Supreme Court’s decisions in
Twombly and Iqbal22 is a general increase in the number of
motions to dismiss filed against plaintiffs. As a result,
plaintiffs are now twice as likely to face a motion to
dismiss.23 It is highly unlikely that in the years since
Twombly was decided, plaintiffs’ complaints are dramatically

21
371 U.S. 178, 182 (1962).
22
Twombly and Iqbal require a complaint to “state a claim to
relief that is plausible on its face,” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)).
23
Lonny Hoffman, Twombly and Iqbal’s Measure: An
Assessment of the Federal Judicial Center’s Study of Motions
to Dismiss, 6 F. Courts L. Rev. 1, 15 (2011).

12
worse or less meritorious. Rather, defendants now have
incentive “to challenge the sufficiency of the plaintiff’s
complaint more frequently.”24 More frequent motions to
dismiss are not necessarily more meritorious motions to
dismiss.

Second, in addition to arguing that CFI’s complaint did
not pass muster under the applicable pleading standards,
Victaulic argued that the public disclosure bar in the FCA
deprived the District Court of jurisdiction over the case.
Much of the hearing on Victaulic’s motion to dismiss dealt
with the two relevant parts of that issue: whether the public
disclosure bar was jurisdictional and whether the information
on which CFI’s complaint is based was in the public domain
within the meaning of the FCA. The District Court rejected
Victaulic’s arguments, finding that the information on which
CFI based its complaint was not in the public domain and
holding that the public disclosure bar is not jurisdictional.
Having disposed of these two substantial issues, the District
Court then granted the motion to dismiss on the other ground
raised by Victaulic: that the complaint was based on legal
conclusions, not supported by fact.

CFI then moved to amend its complaint. In denying
the motion, the District Court opined that, based on comments
from the bench, the court itself had put CFI on notice that its
complaint would be dismissed with prejudice. We disagree.
As was pointed out at oral argument before us, judges at all
levels make statements and ask questions during hearings that
may not be a clear indication of the court’s views or how a

24
Id.

13
case will eventually be decided. To expect the plaintiff to
pick, from dozens of questions and statements over the course
of a hearing, those questions that signal what the court will
ultimately decide is to expect too much.

Moreover, even though at the hearing the District
Court called the plaintiff’s complaint “bare bones” and
implied that the plaintiff might need to plead more facts,
those statements were not a ruling, a holding, or an
explanation of how the court intended to rule. We cannot see
how, on this record, CFI could have reasonably been expected
to understand from the District Court’s comments that CFI
was in danger of having its entire suit dismissed with
prejudice were it not to move to amend its complaint
immediately after argument, instead of immediately after the
decision came down.

This is not to say that a plaintiff will never be on
notice of potential deficiencies based on a motion to dismiss
or comments from the bench. Nevertheless, in the context of
a typical Rule 12(b)(6) motion, a plaintiff is unlikely to know
whether his complaint is actually deficient—and in need of
revision—until after the District Court has ruled. Once CFI
had actual notice of the perceived deficiencies in its
complaint, it promptly moved to file its first amended
complaint.

Third, we have rarely upheld a dismissal with
prejudice of a complaint when the plaintiff has been given no
opportunity to amend. Victaulic attempts to sidestep this fact
by arguing that the FAC is a de facto second amended
complaint because the District Court considered additional
evidence outside the original complaint at the hearing on

14
Victaulic’s motion. As a procedural matter, there is no basis
for this contention. The record is clear that CFI’s motion for
leave to amend was CFI’s first attempt to file an amended
complaint.

Moreover, at the outset of the hearing on Victaulic’s
motion to dismiss, the District Court noted that it had
received “a lot of factual material from the plaintiff that goes
beyond the allegations of the complaint.” Since Victaulic’s
motion was filed pursuant to Rule 12(b)(1) as well as Rule
12(b)(6), consideration of this information was proper, to a
point. When a Rule 12(b)(1) motion is evaluated as a “factual
attack” on the Court’s subject matter jurisdiction, “the court
may consider evidence outside the pleadings” in evaluating
that attack.25 When a motion to dismiss implicates both Rule
12(b)(6) and Rule 12(b)(1), outside evidence may be
considered for Rule 12(b)(1) purposes but not for Rule
12(b)(6) purposes.26

CFI’s counsel made this point at the hearing before the
District Court, stating that CFI had submitted additional
information only for purposes of the Rule 12(b)(1) motion
and that that evidence should not be considered for the Rule
12(b)(6) motion. The District Court seems to have accepted
the point, noting that it believed the additional evidence
would help the court evaluate both parts of the motion, but
acknowledging that the additional evidence was only
submitted for the Rule 12(b)(1) motion. In its opinion,

25
Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d
Cir. 2000).
26
Id. at 178.

15
however, the District Court noted that it was not considering
“these additional facts in assessing the sufficiency of the
complaint itself,” but that it would consider the facts “in
determining . . . whether, having dismissed the original
complaint, the Court should grant CFI leave to file an
amended complaint containing these additional factual
allegations.” The District Court did not refer to any legal
basis for considering evidence outside the complaint in
determining whether to dismiss a complaint with prejudice on
a 12(b)(6) motion. Moreover, the District Court did not have
a motion to amend pending before it when it issued its
opinion, making any consideration of whether to grant such a
motion hypothetical at best.

In essence, by considering the evidence submitted on
the Rule 12(b)(1) motion when deciding a Rule 12(b)(6)
motion, the District Court converted Victaulic’s Rule 12(b)(6)
motion into a motion for summary judgment. The court could
have done so pursuant to Rule 12(d), under which
consideration of evidence submitted outside the complaint
would be proper. Rule 12(d) requires, however, that the
parties “be given a reasonable opportunity to present all the
material that is pertinent to the motion.”27 The District Court
did not notify the parties that it was converting Victaulic’s
Rule 12(b)(6) motion to one for summary judgment under
Rule 12(d), and CFI was not given a reasonable opportunity
to present more information.

In addition to these procedural irregularities, the
District Court abused its discretion in finding that CFI’s

27
Fed. R. Civ. P. 12(d).

16
attempt to amend its complaint constituted undue delay. The
District Court held that “CFI is imposing an unwarranted
burden on the Court by requiring the Court to waste judicial
resources revisiting issues that could have been addressed
earlier,” and that “the FAC rests almost entirely on
information that was already before the Court or that CFI
could have presented to the Court prior to dismissal.”

The District Court relied on several cases28 to reach its
conclusion. That reliance is, however, misplaced. It is true
that in Jang v. Boston Scientific Scimed, Inc., we noted that
we have “declined to reward a wait-and-see approach to
pleading.”29 In context, however, that statement was of no
practical import, since in Jang we reversed the District
Court’s entry of judgment on the pleadings and remanded for
further proceedings, explicitly noting that the plaintiff
remained “free to file a new motion for leave to amend.”30
Similarly, in In re: Adams Golf, Inc. Securities
Litigation, we reversed a District Court’s decision granting a
Rule 12(b)(6) motion in part, but affirmed the denial of a
motion for leave to amend based on futility and “undue
delay.”31 In that case, the District Court had already allowed
one Amended Complaint and found that the proposed Second

28
See Jang v. Boston Scientific Scimed, Inc., 729 F.3d 357,
368 (3d Cir. 2013); In re: Adams Golf, Inc. Securities
Litigation, 381 F.3d 267, 280–81 (3d Cir. 2004); California
Public Employees’ Retirement System v. Chubb Corp.
(CPERS), 394 F.3d 126, 163 (3d Cir. 2004).
29
729 F.3d at 368.
30
Id.
31
381 F.3d at 280–81.

17
Amended Complaint was futile since it did not contain new
material allegations.32 Also, in California Public Employees’
Retirement System v. Chubb Corp. (CPERS), the case
involved allegations of securities fraud subject to the Public
Securities Litigation Reform Act. The court affirmed the
denial of a motion for leave to amend after the district court
had previously allowed two amended complaints, denied both
and given extensive guidance to the plaintiff as to the
deficiencies the district court saw with the amended
complaints.33

Finally, the District Court relied upon Arthur v.
Maersk, Inc.,34 as an example of our rejection of the “wait-
and-see approach to pleading.” In Arthur, we held that a
delay of less than a year from the filing of an initial complaint
to the filing of an amended complaint is rarely, if ever,
sufficient to become undue.35 Here, the elapsed time from
filing of the initial complaint—which had to be filed under
seal pursuant to the FCA and could not be served on the
defendant—to the amended complaint was approximately
sixteen months. Under the circumstances, the lapse of time is
not “so excessive as to be presumptively unreasonable.”36

32
Id. at 280; 280 n.12.
33
394 F.3d at 163.
34
434 F.3d at 204.
35
Id. at 205 (citing Tefft v. Seward, 689 F.2d 637, 639–40
(6th Cir. 1982) and Buder v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 644 F.2d 690, 694 (8th Cir. 1981)).
36
Id.

18
 In none of the cases the District Court relied upon did
we uphold a dismissal with prejudice where the plaintiff had
been given no opportunity to amend its complaint and would
not be given an opportunity to amend in the future.

For the reasons stated above, we hold that the District
Court’s denial of the CFI’s motion for leave to amend was
error. Nevertheless, the District Court would have been
justified in denying CFI’s motion if the FAC was itself futile,
which was the alternative ground on which the District Court
based its opinion. We turn to that rationale next.

B.

In rejecting CFI’s FAC as futile, the District Court
held that, as a matter of law, failure to pay marking duties
could not give rise to a reverse FCA claim and that CFI failed
to meet the pleading requirements of Federal Rule of Civil
Procedure 9(b). Both holdings were error. We will first
address why marking duties fall within the FCA’s reverse
false claims provision before addressing the alleged
deficiencies in CFI’s FAC.
1.

The reverse false claims provision of the FCA37 was
revised as part of the Fraud Enforcement and Recovery Act of
2009 (FERA).38 Although many reforms were enacted as part
of the FERA, Congress specifically enacted one portion in

37
31 U.S.C. § 3729(a)(1)(G) (2009).
38
Pub. L. No. 111-21, 123 Stat. 1617 (2009).

19
response to a perceived narrowing of the scope of the reverse
false claims provision.

Prior to 2009, the reverse false claims provision
provided for a civil penalty for one 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.”39 The word
“obligation” was not defined in the statute.40 The FERA
made two substantial changes. First, it added to the reverse
false claims provision the phrase “or knowingly conceals or
knowingly and improperly avoids or decreases an obligation
to pay or transmit money or property to the Government”.41
Second, it defined an “obligation” as “an established duty,
whether or not fixed, arising from an express or implied
contractual, grantor-grantee, or licensor-licensee relationship,
from a fee-based or similar relationship, from statute or
regulation, or from the retention of any overpayment.”42
These two sections broadened the scope to which reverse
false claims liability would attach.

The new definition was, in part, a reaction to the
decision in American Textile Manufacturers Institute, Inc. v.
The Limited, Inc. (ATMI), which held that the term
“obligation” should be afforded “a different, and more
limited, meaning” than the meaning afforded the word
“claim” in the FCA, and that reverse false claims liability

39
31 U.S.C. § 3729(a)(7) (1994) (emphasis added).
40
Id.
41
31 U.S.C. § 3729(a)(1)(G) (2009).
42
31 U.S.C. § 3729(b)(3) (2009).

20
should be viewed more narrowly than general false claims
liability.43 Specifically, the ATMI court limited reverse false
claims liability to those circumstances where “an obligation
in the nature of those that gave rise to actions of debt at
common law for money or things owed” would have arisen.44

The Senate Report on the FERA states that the new
definition of “obligation” was intended to address “confusion
among courts that have developed conflicting definitions.”45
The FERA rejected the reasoning in ATMI, with the Senate
Report highlighting the definition’s express inclusion of
“contingent, non-fixed obligations” that encompasses “the
spectrum of possibilities from the fixed amount debt
obligation,” typically at issue at common law, “to the instance
where there is a relationship between the Government and a
person that results in the duty to pay the Government money,
whether or not the amount owed is yet fixed.”46 In effect, the
FERA expressly rejected ATMI’s narrow interpretation of the
FCA’s reverse false claims provision in favor of a more
broadly inclusive definition.

Of particular importance here, the Senate Report
discussed “customs duties for mismarking country of origin,”
and how such duties would be covered by the amended
reverse false claims provision.47 The Report notes that an

43
See 190 F.3d 729, 736 (6th Cir. 1999).
44
Id. at 735 (quoting United States v. Q Int’l Courier, Inc.,
131 F.3d 770, 773 (8th Cir. 1997)).
45
S. Rep. 111-10, at 14 (2009).
46
Id. (internal quotation marks omitted).
47
Id. at 14 n.10.

21
early version of the FERA named marking duties explicitly in
the definition of “obligation” so as to leave no doubt about
the abrogation of ATMI, but the Senate considered the
language in the new definition so clear that “any such specific
language would be unnecessary,” since “customs duties
clearly fall within the new definition of the term
‘obligation.’”48 With this background in mind, we turn to the
conduct at issue here.

At the outset, in reviewing the marking duty provision
of the Tariff Act, the District Court held that “an importer
does not owe marking duties upon importation of unmarked
or mismarked merchandise.” While technically correct, this
makes too fine a distinction between the time at which an
importer must pay marking duties and the time at which such
duties accrue. It is true, as Victaulic argues, that when
mismarked or unmarked goods are in government custody the
importer may not simply pay marking duties to obtain the
release of such goods.49 By statute, such goods must be
properly marked, re-exported, or destroyed under government
supervision.50 Yet, if such goods nevertheless escape
detection and are released into the United States, the ten
percent ad valorem duty is deemed to “have accrued at the
time of importation” and is due and owing, without
exception.51

48
Id.
49
See 19 U.S.C. § 1304(a), (c), (i).
50
Id. § 1304(i).
51
Id.

22
 This is precisely what CFI alleges Victaulic did in a
systematic way for years. Victaulic, according to CFI, knew
its goods were not marked properly and, therefore, knew that
the imported pipe fittings should not have been released from
government custody. Had Victaulic informed the government
of this state of affairs, the goods would not have been allowed
into the country. By staying silent, CFI alleges that Victaulic
made a choice—to pay the ten percent marking duty owed on
its goods, if its scheme was discovered, instead of paying to
have the goods marked properly, re-exported, or destroyed.
Hence, in CFI’s view, Victaulic knowingly concealed
information from the government by not informing customs
officials that the imported pipe fittings were not marked
properly. According to CFI, once the pipe fittings cleared
customs, Victaulic knew it owed marking duties that accrued
on importation but did not pay them. This, in CFI’s view,
gives rise to reverse false claims liability for the unpaid
marking duties.

The plain text of the FCA’s reverse claims provision is
clear: any individual who “knowingly conceals or knowingly
and improperly avoids or decreases an obligation to pay or
transmit money or property to the Government” may be
subject to liability.52 As alleged by CFI in the amended
complaint, Victaulic declined to notify the Bureau of Customs
and Border Protection of its pipe fittings’ non-conforming
status. This failure to notify resulted in the pipe fittings being
released into the stream of commerce in the United States
and, consequently, marking duties being owed and not paid.

52
31 U.S.C. § 3729(a)(1)(G) (emphasis added).

23
 The District Court held that this conduct is immaterial
and cannot give rise to a reverse false claims liability. To
reach this conclusion, the court followed the reasoning in
ATMI, but, as previously discussed, that reasoning has been
called into doubt, if not entirely abrogated, by the FERA.
Prior to the FERA, the “knowingly and improperly avoids or
decreases an obligation” language was absent from the
FCA.53 In the pre-FERA FCA, a false statement or record
was a necessary element for reverse FCA liability to attach.54
A false statement is no longer a required element, since the
post-FERA FCA specifies that mere knowledge and
avoidance of an obligation is sufficient, without the
submission of a false record, to give rise to liability.55
Consequently, the District Court’s reliance on ATMI and
ATMI’s focus on the submission of a false record is
misplaced.

Indeed, the District Court’s lengthy discussion of
whether Victaulic filled out its customs forms in a proper
manner is ultimately of no import since, under the post-FERA
FCA, Victaulic need not have made any express statement to
the government to give rise to reverse false claims liability.
The statute, 19 U.S.C. § 1484(a)(1), requires an importer to
provide “such information as is necessary to enable [CBP] to
determine whether [its] merchandise may be released from
the custody of [CBP]” and to “enable [CBP] to properly
assess duties on [imported] merchandise.” If Victaulic

53
Compare id. with 31 U.S.C. § 3729(a)(7) (1994).
54
See 31 U.S.C. § 3729(a)(7) (1994); see also ATMI, 190
F.3d at 736.
55
31 U.S.C. § 3729(a)(1)(G).

24
knowingly failed to disclose to CBP the fact that its goods
were unmarked or improperly marked despite its affirmative
obligation to do so under § 1484(a)(1) and if such goods
nevertheless escaped detection and were released into the
United States, Victaulic would be liable under the FCA.
Thus, CFI need only prove that Victaulic knew its pipe
fittings were improperly marked and did not notify the
Bureau of Customs and Border Protection, since to do so is to
conceal information customs officials needed to know in
order to determine whether to release Victaulic’s goods from
its custody.56

From a policy perspective, the possibility of reverse
false claims liability in such circumstances makes sense in the
context of the larger import/export regulatory scheme created
by Congress. Because of the government’s inability to
inspect every shipment entering the United States, an
importer may have an incentive to decline to mention that its
goods are mismarked on the assumption that the mismarking
will not be discovered. In doing so, an importer avoids its
obligation under 19 U.S.C. § 1484 to provide the government
with such information as is necessary to enable the Bureau of
Customs and Border Protection to determine whether the
merchandise may be released from government custody or
whether it must be properly marked, re-exported or destroyed

56
Given that here, § 1484 requires importers to disclose to
CBP that goods are improperly marked, we have no need to
address how, if at all, the FCA would apply in the absence of
an affirmative obligation to disclose separate from the
obligation to pay or transmit money or property to the
government.

25
pursuant to 19 U.S.C. § 1304(i). Moreover, if the importer
believes the value of bringing unmarked or improperly
marked goods into the country exceeds the risk that the
deception will be discovered and the ten percent ad valorem
duty will be owed, an importer may decline to mention that
its goods are mismarked, since the chance that some goods
will be discovered as mismarked and that marking duties will
be owed would still result in a net gain to the company.
Reverse false claims liability changes that value proposition
because a finding of deception carries the possibility of treble
damages.

The statutory text, legislative history, and policy
rationale underlying the regulatory scheme all lead to one
conclusion: reverse false claims liability may attach as a
result of avoiding marking duties. Consequently, the District
Court erred in holding otherwise.

2.

The District Court’s determination that CFI’s FAC
failed to meet the pleading requirements of Federal Rules of
Civil Procedure 8(a)57 and 9(b)58 is also in error. At the
motion to dismiss stage, a court must “accept as true all of the
allegations contained in a complaint,” make all reasonable
inferences in favor of the plaintiff, and refrain from engaging

57
Rule 8(a)(2) provides that a complaint must contain “a
short and plain statement of the claim . . ..”
58
Rule 9(b) provides that in “alleging fraud . . ., a party must
state with particularity the circumstances constituting fraud . .
..”

26
in any credibility determinations.59 In the FAC, CFI lays out
in great detail each shipment of pipe-fittings Victaulic
imported during the requisite time period, as well as the
methodology pursuant to which CFI concluded that these
shipments consisted of improperly marked or unmarked
goods for which the marking duties were not paid. Given the
operation of customs marking duties, CFI’s discovery of what
it believes to be unmarked or improperly marked goods in the
stream of commerce in the United States plausibly shows
liability under the FCA.

This “discovery” by CFI must of course be based on a
reliable methodology. The FAC details the process by which
CFI came to its conclusions. After determining that a
“significant majority”60 of Victaulic’s pipe fittings were
imported from China and Poland, CFI reasoned that “one
would expect to see Victaulic pipe fittings sold in the United
States and manufactured in recent years bearing ‘Made in
China’ or ‘Made in Poland’ country-of-origin markings.”61 In
the FAC, CFI then describes how it “executed a unique study
of the secondary market for Victaulic pipe fittings (CFI’s
‘product study’), with the goal of objectively determining
what percentage of Victaulic pipe fittings for sale in the
United States have foreign country-of-origin markings.”62

CFI attached to the FAC a report by its expert,
Abraham J. Wyner, Ph.D., a professor of Statistics at the

59
See, e.g., Iqbal, 556 U.S. at 678.
60
JA 311, 313.
61
JA 304.
62
Id.

27
University of Pennsylvania’s Wharton School of Business.
Professor Wyner explained that because CFI did not “have
access to direct evidence that traces and tracks imported
Victaulic pipe fittings in the U.S. supply chain,” “statistical
methods can be used to establish indirect evidence.”
Professor Wyner then “opines that the process chosen by CFI
to survey the secondary market for Victaulic products ‘is
standard practice’ in this regard.”63

As set forth in the FAC, in setting up its survey, CFI
determined that Victaulic sold pipe fittings through
distributors and directly to end-users64 and that a review of
such sales is only possible through a review of after-market
sales.65 Victaulic products are sold on secondary markets in
the United States, including on eBay which CFI determined
“is an active and diverse secondary sales outlet for Victaulic
products.”66 CFI then noted that a review of secondary sales
outlets provided a much wider spectrum of total Victaulic
sales in the country than a review of the sales of a particular
distributor. A secondary market sales review included
“different channels of distribution, as well as a wider range of
dates in which sales might have been made.”67

Professor Wyner concluded that “CFI’s findings are so
stark that the only conclusion one can possibly reach is that

63
JA 317.
64
Id.
65
JA 318.
66
JA 317.
67
JA 318.

28
Victaulic is not properly marking its imports.”68 At the
motion to dismiss stage, without the benefit of any discovery,
taking all facts as true, and making all reasonable inferences
in favor of the plaintiff, we conclude that that showing is
enough to allow this matter to proceed.

It is this study, however, that the dissent describes as
“unsupported assumptions” and “numerical guesswork.” The
dissent criticizes the numbers arrived at by CFI, for instance
that statistically less than 2% of the Victaulic pipe fittings in
the secondary market bore foreign country of origin
markings.69 That finding of less than 2% is not, however,
necessary to demonstrate the plausibility that, since Victaulic
is importing a “significant majority” of its pipefittings, some
approximation of that number of Victaulic pipefittings with
foreign country-of-origin markings would show up in the
secondary market.70 71

68
JA 305 (emphasis added).
69
JA 304
70
JA 316.
71
This result differs from that, for example, in Burgis v. New
York City Department of Sanitation, 798 F.3d 63 (2d Cir.
2015), in which plaintiffs alleged that the sanitation
department was discriminating against employees based on
race. The Second Circuit held that statistics could sufficiently
allege discriminatory intent as long as they are of “a level that
makes other plausible non-discriminatory explanations very
unlikely.” Id. at 69. The statistics there showed only that a
majority of employees at multiple levels of the sanitation
department were white, but showed nothing about “the
qualifications of individuals in the applicant pool and of those

29
 The District Court was skeptical of the validity of
CFI’s methods of determining whether Victaulic had
imported unmarked goods. We, too, are skeptical. There is
little evidence to show that CFI’s unusual procedure of
reviewing eBay listings is an accurate proxy for the universe
of Victaulic’s products available for sale in the United States.
Yet, such skepticism is misplaced at the Rule 12(b)(6) stage.
For the reasons stated above, we conclude that the variable
being measured here, the existence of country of origin
markings on Victaulic pipefittings, could support the results
of CFI’s product study only if Victaulic was not properly
marking its imported pipefittings.

Turning then to Rule 9(b), we conclude that the FAC
adequately meets the particularity requirements for alleging
fraud. In the FCA context, a plaintiff “must provide
‘particular details of a scheme to submit false claims [or
avoid obligations] paired with reliable indicia that lead to a
strong inference that claims were actually submitted [or
obligations avoided].” 72 The FAC refers to voluminous
records detailing the shipments at issue, when they entered
the country, the alleged problems with those shipments, and,
by operation of law, when liability would have attached.

hired for each position, or the number of openings at each
level.” Id. at 70. Our case is not analogous because among
other things we have a baseline here that was missing in
Burgis—between 54% and 91% of the entirety of Victaulic
pipefittings should have foreign origin markings.
72
Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153, 157-
58 (3d Cir. 2014)

30
 Although CFI has not, as the dissent points out, alleged
“which shipments, during which time periods, at which ports,
were supposedly unlawful,” in Foglia, we held that the facts
were sufficient to meet Rule 9(b)’s heightened pleading
standard where the plaintiff alleged that a dialysis center was
not actually using all of the medicine for which it was getting
reimbursed by Medicare. “Accepting the factual assertions
made by Foglia as true,” we reasoned, we had “patient logs
that show that less [medicine] was used than would be
required if it were used in the single use fashion”; Medicare’s
reimbursement scheme presented “an opportunity for the sort
of fraud alleged”; and only the defendant “ha[d] access to the
documents that could easily prove the claim one way or
another.”73 Likewise, here, we accept CFI’s allegations, as
we must at this stage, that far more Victaulic pipe fittings on
the secondary market should have country-of-origin
markings, that the way marking duties are assessed provides
an opportunity for fraud, and that only Victaulic has access to
the documents that could prove or disprove CFI’s well-pled
allegations.
We conclude that, at this pleading stage, nothing more
is required to give Victaulic adequate notice of the claims
raised against it.

In sum, failure to pay marking duties may give rise to
reverse false claims liability. CFI’s FAC contains just
enough reference to hard facts, combined with other
allegations and an expert’s declaration, to allege a plausible
course of conduct by Victaulic to which liability would
attach. Thus, since CFI did not unduly delay its motion for

73
Id. at 158.

31
leave to amend and the proposed amended pleading is not
futile, the District Court abused its discretion in denying
CFI’s motion. We will therefore reverse and remand for
further proceedings.

C.

Although we hold that CFI has done just enough to
allow this matter to proceed, we are aware of the great
expense and difficulty that may accompany False Claims Act
discovery and the burden on defendants and their
shareholders and investors of having unresolved allegations
of fraudulent conduct in pending proceedings. Because of
our awareness, we have looked to the recent amendments to
the Federal Rules of Civil Procedure; those rules provide
some guidance as to how excessive expense and difficulty
may be avoided and how discovery should proceed.

In December 2015, a series of amendments to the
Federal Rules were enacted to improve a system of civil
litigation that “in many cases . . . has become too expensive,
time-consuming, and contentious, inhibiting effective access
to the courts.”74 To counter these problems, the 2015
amendments placed a greater emphasis on judicial
involvement in discovery and case management and
cooperation among litigants’ counsel.75

74
Chief Justice John Roberts, “2015 Year-End Report on the
Federal Judiciary,” Dec. 31, 2015 (Roberts Report), at 4,
available at http://www.supremecourt.gov/publicinfo/year-
end/2015year-endreport.pdf.
75
Id. at 5.

32
 Rule 26, which governs discovery, was among the
rules amended. Rule 26(b)(1) now includes a discussion of
proportionality, stating

Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any
party’s claim or defense and proportional to the
needs of the case, considering the importance of
the issues at stake in the action, the amount in
controversy, the parties’ relative access to
relevant information, the parties’ resources, the
importance of the discovery in resolving the
issues, and whether the burden or expense of
the proposed discovery outweighs its likely
benefit.

As Chief Justice Roberts wrote of these amendments,
“[t]he key here is careful and realistic assessment of actual
need” that may “require the active involvement of a neutral
arbiter—the federal judge—to guide decisions respecting the
scope of discovery.”76 The instant matter is a prime example
of the need for such controlled discovery.

CFI alleges a massive, systematic effort by Victaulic to
avoid paying marking duties on any of its imports. Since
Victaulic’s motion to dismiss was granted, there has been no
answer from the defendant as to whether any of CFI’s
allegations are true. An answer could shed some light on
these allegations. Similarly, while CFI has identified millions

76
Id. at 7.

33
of pounds of imported pipe fittings that it alleges were
mismarked, proportional discovery would counsel in favor of
limiting the scope of early discovery. It will be up to the
District Court and counsel to determine an appropriately
limited discovery plan, perhaps reviewing the documents and
duties paid on a representative sample of the shipments
identified by CFI.

In any event, Chief Justice Roberts noted that
“[j]udges must be willing to take on a stewardship role,
managing their cases from the outset rather than allowing
parties alone to dictate the scope of discovery and the pace of
litigation.”77 The instant matter will require the active
involvement of the District Court, in conjunction with counsel
and their clients, to limit the expense and burden of discovery
while still providing enough information to allow CFI to test
its claims on the merits.
IV.

For the foregoing reasons, we will vacate the order of
the District Court denying CFI’s motions for relief from
judgment and for leave to amend its complaint. We will
remand this matter for further proceedings consistent with
this opinion.

77
Id. at 10.

34
FUENTES, Circuit Judge, concurring in part, dissenting in
part, and dissenting from the judgment.

Customs Fraud Investigations, LLC (“CFI”) brings this
action under the False Claims Act, alleging a ten-year scheme
to defraud the government on the basis of statistical evidence
alone.1 That evidence consists almost entirely of non-random
observations gleaned from product advertisements on the
website of the online retailer eBay. Whereas Twombly and
Iqbal require plausible allegations of wrongdoing, CFI gives
us unsupported assumptions and numerical guesswork.
Whereas Rule 9(b) requires that fraud be alleged with
particularity, CFI gives us ten years of raw import data and
insists there is evidence of fraud in there, somewhere, while
completely failing to identify which shipments, during which
time periods, at which ports were illegal. The mere
suggestion of fraud, which is all CFI has alleged, is not
enough to state a plausible claim or to satisfy the heightened

1
It may be worth noting that CFI appears to be a legal entity
created solely for the purpose of bringing this case. See
Victaulic Br. at 4 (“CFI does not appear to have any function
beyond pursuing this case against Victaulic. CFI was formed
in August 2012, which was the same time when CFI began its
‘investigation’ of Victaulic’s activities.” (internal citation
omitted)).
The government has the right to intervene in order to
prosecute a qui tam suit under the False Claims Act on its
own behalf. See 31 U.S.C. § 3730(b)(4). The government
declined to do so here. See J.A. 104, ECF No. 3.

1
pleading standards of Rule 9(b).

Faced with obvious deficiencies in CFI’s allegations,
the District Court granted the defendant’s motion to dismiss
the complaint—with prejudice—and then denied CFI’s
motion to reopen the judgment so that it could file an
amended complaint. I disagree with the majority’s decision to
vacate the District Court’s dismissal and reinstate this case.
When asserting a violation of the False Claims Act, a plaintiff
must state a plausible claim and allege fraud with
particularity. CFI has failed in both respects. I therefore
partially dissent.2

I. The Proposed Amended Complaint Fails to Allege a
Plausible Claim

CFI’s eight-page, 35-paragraph complaint alleges that
Victaulic, a manufacturer of iron and steel pipe fittings, has
engaged in a decade-long scheme to defraud the government
by mismarking its imported products. The District Court
dismissed that complaint for failure to allege a plausible claim

2
I agree with the majority that the District Court erred by
concluding that the False Claims Act does not permit claims
on the basis of failure to pay marking duties. Accordingly, I
dissent only in part.

2
within the meaning of Twombly and Iqbal.3 When CFI
moved to reopen the judgment, the District Court denied that
motion too—this time, not on plausibility grounds, but for
reasons that included undue delay and CFI’s failure to satisfy
Rule 9(b)’s heightened standard for pleading fraud in its
proposed amended complaint.4

Because this is an appeal from the District Court’s
final order, we would ordinarily limit our review to issues
arising from CFI’s motion to reopen the judgment—i.e.,
undue delay and the proper application of Rule 9(b). But the
real problems with the proposed amended complaint run
deeper. Since “[w]e exercise plenary review over a decision
granting a motion to dismiss[,] . . . ‘[w]e may affirm the
district court on any ground supported by the record.’”5 I
therefore think it’s worth exploring whether the proposed
amended complaint even raises a plausible allegation under
the False Claims Act, much less whether it makes those
allegations with the requisite particularity.

3
United States ex rel. Customs Fraud Investigations, LLC v.
Victaulic Co., No. 13-cv-2983 (MAM), 2014 WL 4375638, at
*13–16 (E.D. Pa. Sept. 4, 2014) (relying on Bell Atl. Corp. v.
Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556
U.S. 662 (2009)).
4
United States ex rel. Customs Fraud Investigations, LLC v.
Victaulic Co., No. 13-cv-2983 (MAM), 2015 WL 1608455, at
*8–10, 15–19 (E.D. Pa. Apr. 10, 2015).
5
Hildebrand v. Allegheny Cty., 757 F.3d 99, 104 (3d Cir.
2014) (quoting Tourscher v. McCullough, 184 F.3d 236, 240
(3d Cir. 1999)).

3
 CFI says that before suing Victaulic it conducted a
“complex and multifaceted analysis.”6 I am not willing to
credit this characterization. In my view, CFI’s investigation
into Victaulic’s imports is incapable of supporting the kinds
of statistical inferences that CFI wants us to draw. To explain
why, I begin by summarizing some basic principles of valid
survey design. I then apply those principles to assess the
plausibility of the allegations in CFI’s proposed amended
complaint.

A. The Fundamentals of Statistical Sampling

A valid statistical survey essentially has three steps: (i)
identify a population of interest, (ii) take a random sample
from that population, and (iii) use the observations in the
sample to draw inferences about the population as a whole.7
We see examples of this process every day in opinion polls.
A survey firm will identify a population to study, draw a
random sample from that population, and then, based on its
observations, make inferences about that population to a
greater or lesser degree of confidence based on the sample
size. These principles apply to all probabilistic surveys,

6
Proposed Am. Compl. (J.A. 302–33) ¶ 4.
7
See 1 Mod. Sci. Evidence § 5:14 (2015–2016 ed.) (“In
surveys that use probability sampling methods, a sampling
frame (that is, an explicit list of units in the population) is
created. Individual units then are selected by a kind of lottery
procedure, and measurements are made on the selected units,
which constitute ‘the sample.’ The objective is to generalize
from the sample to the population.”).

4
including the kind of survey that CFI conducted—or, at least,
attempted to conduct—in this case.

There are a few critical features that are necessary for
such a survey to be valid. First, it is important for the sample
to be drawn from the correct population of interest. When a
survey makes an error relating to “the specification of the
population to be sampled . . . any estimates made on the basis
of the sample data will be biased.”8 This makes sense. If
there are differences between the population being studied
and the population actually sampled, the survey’s results will
necessarily be unreliable.

Second, a valid statistical sample must be drawn
randomly. Surveys rely on random sampling because “[t]he
statistics derived from observations or measurements of
random samples permit one to estimate the parameters of the
population.”9 Indeed, “random selection is the only selection
mechanism . . . that automatically guarantees the absence of
selection bias. That is because when we use random sampling

8
1 McCormick on Evid. § 208 (7th ed. updated through
2016). To be a bit more technical, “[a] measurement
procedure is unbiased if it produces measures that are right on
average across repeated applications; that is, if we apply the
same measurement procedure to a large number of subjects,
sometimes the measure will be too large and sometimes too
small, but on average it will yield the right answer.” Lee
Epstein & Gary King, The Rules of Inference, 69 U. Chi. L.
Rev. 1, 92 (2002).
9
1 McCormick on Evid. § 208.

5
we are, by definition, assuring the absence of any association
that may exist between selection rules and the variables in our
study.”10 In a nonrandom sample, by contrast, the selection
rule “may inadvertently . . . introduce bias.”11

It is frequently the case that a random sample is either
not available or difficult to obtain. Survey methodologists
and statisticians have developed numerous tools to address
this problem. What a researcher cannot do, however, is draw
a nonrandom “convenience sample” simply because the data
is close at hand and then assume away all the statistical
problems that such a technique creates.12 Unfortunately, this
is precisely what CFI did. In the words of Charles Seife, we
are about to be “Fooled by the Numbers.”13

B. Step One: The Review of Victaulic Import
Data
CFI claims that its president “personally spen[t] at least

10
Epstein & King, 69 U. Chi. L. Rev. at 110.
11
Id. at 111.
12
Such a sample “provides no rigorous assurance that the
sample will represent the population of interest.” Ben K.
Grunwald, Suboptimal Social Science and Judicial Precedent,
161 U. Pa. L. Rev. 1409, 1424 (2013).
13
See Charles Seife, Proofiness: How You’re Being Fooled
by the Numbers 8 (2010) (“[I]f you want to get people to
believe something . . . just stick a number on it. Even the
silliest absurdities seem plausible the moment they are
expressed in numerical terms.”).

6
700 hours” on its investigation,14 a figure that is fairly
extraordinary on its own and only becomes more so once it
becomes clear what CFI actually did—and, more to the point,
did not do.

CFI’s first step was to estimate the proportion of
Victaulic products imported from overseas in recent years.
To do so, it reviewed figures from a subscription service,
Zepol, that aggregates data from ships carrying imports into
the United States.15 CFI tells us that Zepol is an “expensive
fee-based subscription service” with an annual cost of
$5,995.16 It also says that the information in Zepol’s database
is so unwieldy as to be comprehensible only by persons who
have “worked with customs import data over many years . . .
[who can] understand what conclusions can properly be
drawn” from such data.17

CFI queried the database for the word “Victaulic” for
the nine-year period between 2003 and 2012.18 Its president
then “personally reviewed the narrative description for every
import entry and culled through line by line to eliminate items
that were not iron or steel pipe fittings.”19 We are told that

14
Proposed Am. Compl. ¶ 4.
15
Id. ¶ 23.
16
Id. ¶¶ 23–24.
17
Id. ¶ 25.
18
Id. ¶ 26.
19
Id. ¶ 28.

7
“[o]nly upon completing the above multi-step process was
CFI able to obtain a usable database from which Victaulic’s
imports could then be segregated and tabulated by country
and from which CFI could draw reliable conclusions.”20 In an
era when Microsoft Excel or, indeed, any data management
software can filter data based on complex queries, it is
completely unclear why this kind of line-by-line effort was
even necessary.

At this point, CFI had constructed a dataset purporting
to show all of Victaulic’s imports of pipe fittings into the
United States. According to these figures, over the period
from 2003 through 2012 Victaulic imported 83 million
pounds of pipe fittings from China and Poland (an average of
about 9.2 million pounds per year).21 Between 2010 and
2012, this annual average climbed to 15.2 million pounds per
year.22

Of course, that figure is not helpful without some
baseline. Knowing this, CFI sought to convert Victaulic’s
raw imports into a dollar figure, and then to compare that
dollar figure against Victaulic’s total revenue. Unfortunately,
the Zepol database aggregates information about Victaulic’s
imports across several, differently-priced product lines. CFI’s
approach to solving this problem was, at best, extremely
problematic.

20
Id. ¶ 30.
21
Id. ¶ 31.
22
Id.

8
 CFI started by using Victaulic’s 2011 price list to
compile “a total of 147 separate price observations for 49
different products with three sizes each to arrive at an
estimated per pound price of $36.40.”23 CFI admits that this
figure may not be reliable, however, because “[d]iscounts off
price lists . . . are very common in the pipe fittings industry.”24
CFI therefore “assume[s] conservatively” that Victaulic’s
imported pipe fittings were sold “at deeply discounted prices”
averaging between $10 and $15 per pound.25 Using these
figures, CFI estimates that, during the period from 2010
through 2012, Victaulic’s annual sales deriving from Chinese
and Polish imports were somewhere between $152 million
and $228 million per year.26

Next, CFI cites unnamed “[a]uthoritative independent
sources” for the proposition that “Victaulic’s annual revenue
is in the approximate range of $250–280 million.”27 It then
uses these numbers to claim that pipe fittings imported from
China and Poland accounted for between 54% and 91% of

23
Id. ¶ 32.
24
Id. ¶ 37.
25
Id. ¶ 40.
26
The $152 million figure comes from multiplying 15.2
million pounds by an average price of $10 per pound. The
$228 million figure comes from multiplying 15.2 million
pounds by an average price of $15 per pound.
27
Proposed Am. Compl. ¶ 33.

9
Victaulic’s annual sales between 2010 and 2012.28

Drawing all inferences in CFI’s favor, I accept—at
least for the sake of argument—that foreign-made pipe
fittings accounted for between 54% and 91% of Victaulic’s
annual sales during the period from 2010 through 2012.29
Notice, however, that nothing in the proposed amended
complaint so far supports the plausible inference that
Victaulic defrauded the government, much less that it did so
over ten years. To support that allegation, CFI relies on its
so-called “eBay investigation.” And that is where CFI’s
claims ultimately fail.

28
The 54% figure comes from dividing $152 million
(Victaulic’s estimated annual sales from imports at a price of
$10 per pound) by $280 million (the upper-bound of
Victaulic’s annual sales). The 91% figure comes from
dividing $228 million (Victaulic’s estimated annual sales
from imports at a price of $15 per pound) by $250 million
(the lower-bound of Victaulic’s annual sales).
29
When an appeal comes to us at the motion to dismiss
stage, “we must accept all well-pled allegations in the
complaint as true and draw all reasonable inferences in favor
of the non-moving party.” Brown v. Card Serv. Ctr., 464 F.3d
450, 452 (3d Cir. 2006). The tension here is that “all aspects
of a complaint must rest on ‘well-pleaded factual allegations’
and not ‘mere conclusory statements’”—and some of CFI’s
arithmetic seems awfully conclusory. Finkelman v. Nat’l
Football League, 810 F.3d 187, 194 (3d Cir. 2016) (quoting
Iqbal, 556 U.S. at 678–79).

10
 C. Step Two: The “eBay Investigation” and Its
Obvious Deficiencies
At this point in our narrative, CFI (i) believes that
Victaulic is importing large quantities of foreign-made pipe
fittings into the United States, and (ii) suspects that Victaulic
is not properly marking those pipe fittings to reflect their
countries-of-origin. But how to prove those suspicions?
CFI’s answer was to survey the online retailer eBay in an
attempt to draw inferences about the broader U.S. market.

To that end, CFI’s president personally spent between
one and five hours per day over a period of six months
compiling eBay postings for Victaulic pipe fittings.30 CFI
then examined these postings to determine whether they
contained photographs of Victaulic products with visible
country-of-origin marks.

What was the goal of this investigation? Well, recall
that CFI estimates that between 54% to 91% of Victaulic’s
pipe fittings were imported from China and Poland between
2010 and 2012. According to CFI, we should therefore
expect to see “Made in China” or “Made in Poland” markings
on somewhere between 54% and 91% of all Victaulic pipe
fittings for sale in the United States—and, by corollary, for
sale on eBay.31

That hypothesis, however, assumes, with no basis in
alleged fact, that secondhand postings on eBay are

30
Proposed Am. Compl. ¶ 65.
31
Id. ¶ 55.

11
representative of all Victaulic products for sale in the United
States. It also assumes, again with no basis in alleged fact,
that photographs in eBay postings (i) depict the very items
being sold rather than stock images or photographs of other
inventory, and (ii) depict those items in such a way that
foreign country-of-origin markings would be clearly visible.
Both of these assumptions are questionable. First, Victaulic
claims that “[its] full product line is not available on eBay,”
meaning that “[r]esellers on eBay would only have access to
small quantities of overstock and/or older, used, salvaged,
stolen, or counterfeit products.”32 Second, CFI’s complaint
alleges that U.S.-made products tend to command a higher
price than foreign-made products.33 Resellers on eBay
therefore may have a strong incentive to obscure foreign
country-of-origin markings. We, of course, cannot credit a
defendant’s factual assertions at the motion to dismiss stage—
but doing so is different from recognizing that the plausibility
of CFI’s allegations depends on multiple unsupported
assumptions about how eBay actually functions.

What is fairly clear to this point is that CFI did not
actually base its conclusions on a comprehensive analysis of
Victaulic pipe fittings for sale on eBay. What CFI did instead
was to construct a subsample of a subsample of a subsample.
For example:

32
Victualic Br. at 39.
33
See Proposed Am. Compl. ¶¶ 11, 87.

12
  CFI began by searching eBay for
“Victaulic” in the “new” subset of the
“fittings” product category. These
searches “typically resulted in about 600
active eBay listings daily.”34

 In some postings, the word “Victaulic”
appeared in the title, but it was clear that
the posting was not actually for a
Victaulic pipe fitting. These postings
were excluded.35

 Some postings were for “old stock.”
These were excluded because CFI’s
analysis “was intended to examine
products of relatively recent manufacture
(e.g., from 2005 to the present).” That
2005 number is surprising because CFI’s
earlier calculations focus on import
figures for the period from 2010 to
2012—to say nothing of the fact that CFI
actually alleges a fraudulent scheme
going back to 2003.

34
Id. ¶ 65.
35
Id. ¶ 66.

13
  At this point, 20% of postings “did not
include actual photos of the products for
sale.”36 These, too, were excluded.
Eliminating listings without photos, of
course, is the same thing as assuming
that 100% of the pipe fittings advertised
in those listings lacked foreign country-
of-origin marks—an assumption that is
itself deeply problematic.

After filtering the data this way, CFI identified 221
postings for Victaulic pipe fittings that contained
photographs. Of those 221 postings, 29 contained
photographs of products marked as being made in the United
States; three contained photographs of products with foreign
country-of-origin marks; and 189 contained photographs
where no country-of-origin marks were apparent.37 Of the
189 postings in the third group, “there were approximately 40
listings that had limited or unclear photographs, such that it
would have been difficult to see country-of-origin
markings.”38

CFI decided that it wanted more information about the
40 listings with indeterminate photographs. Rather than
purchase products from all 40 of them, however, CFI

36
Id. ¶ 67.
37
Id. ¶¶ 70, 72.
38
Id. ¶ 74.

14
purchased just ten to examine in person. CFI never says
whether these products were randomly chosen. Of these, it
turned out that one was not a Victaulic product at all, four had
no country-of-origin markings, four had U.S. country-of-
origin markings, and one item “was packed with a U.S. origin
label, but did not appear to have a permanent origin
marking.”39

If we assume (again, with no basis in alleged fact) that
the ten-product sample is representative of all products in the
group of 40 postings with indeterminate photographs, then the
results of the eBay study looks like this:

39
Id. ¶ 75.

15
 Table 1: Results of CFI’s eBay Investigation

Original
Victaulic Products Extrapolations
Tally
U.S. country-of-origin
29 45
markings
Foreign country-of-
3 3
origin markings
No country-of-origin
149 169
markings
Photographs unclear 40 ---
Not Victaulic products
--- 4
at all
Total Postings 221 221

This is the extent of the evidence of a decade-long
scheme to defraud the government. CFI points to the
extrapolated “fact” that 169 of the Victaulic products in its
221-item sample—about 75% of the total—lack country-of-
origin markings.40 Recall, too, that CFI asserts that at least
54% of Victaulic products for sale on eBay should be stamped
“made in China” or “made in Poland.” CFI therefore

40
CFI extrapolates that half of the products from the 40
postings with unclear photographs must bear U.S. markings
and half must bear no country-of-origin markings. Id. ¶ 77.
This seems to be an error. If we are going to use CFI’s bogus
methodology, we should at least follow its logic and conclude
that one-tenth of the 40 items at issue were not made by
Victaulic.

16
contends that “[t]he only reasonable conclusion that can be
drawn from [its] analysis is that Victaulic has unlawfully
imported huge quantities of unmarked pipe fittings from its
foreign manufacturing plants and has then sold those
unmarked fittings in the U.S.”41

Based on the record before us, here is the entire logical
chain supporting CFI’s allegations:

 Step one: Based on import data and
information from unnamed sources, 54%
to 91% of Victaulic’s annual sales
between 2010 and 2012 derived from
imports of pipe fittings from China and
Poland.

 Step two: We should therefore expect
that, in any representative sample of
Victaulic’s products for sale in the U.S.
market, 54% to 91% of items should bear
country-of-origin markings from China
and Poland.

 Step three: Assume that Victaulic
products available on eBay constitute a
perfectly representative sample of
Victaulic products for sale in the United
States.

41
Id. ¶ 81.

17
 Step four: Assume that photographs on
eBay are not stock images but rather
accurate depictions of the physical items
being sold.

 Step five: Assume that a nonrandom
sample of 221 of Victaulic items for sale
on eBay is also perfectly representative
of Victaulic products sold in the United
States.

 Step six: While 40 items out of this 221-
item sample contain unclear
photographs, assume that we can rectify
that problem with a nonrandom sample
of ten items, examined in person.

 Step seven: Extrapolating from these
two nonrandom samples, we can
conclude that over 75% of Victaulic
products for sale on eBay lack country-
of-origin marks.

 Step eight: Because we have assumed
that eBay is perfectly representative of
the U.S. market, we can conclude that
75% of all Victaulic products sold in the
United States must lack country-of-origin
marks as well.

18
  Step nine: Therefore, Victaulic has been
defrauding the United States government
of accrued marking duties since at least
2003.

This chain of inferences simply does not support a
plausible allegation of fraud.

I turn first to the relevant legal standard. As we
recently explained in Finkelman v. National Football
League,42 the essence of the Supreme Court’s plausibility test
under Twombly and Iqbal is that allegations merely consistent
with liability are not enough to survive a motion to dismiss.43
When assessing whether a complaint raises sufficiently
plausible allegations, the Supreme Court has instructed us to
“draw on [our] judicial experience and common sense.”44

My common sense tells me that a plaintiff cannot
plausibly allege a ten-year scheme to defraud the government
on the basis of 221 eBay postings. At most, the eBay study

42
810 F.3d 187 (3d Cir. 2016).
43
Id. at 201 (stating that the Twombly plaintiffs “looked
around and saw conduct consistent with a conspiracy, but they
saw no facts that indicated more plausibly that a conspiracy
actually existed”); see also Santiago v. Warminster Twp., 629
F.3d 121, 133 (3d Cir. 2010) (“[P]ossibility’ is no longer the
touchstone for pleading sufficiency after Twombly and Iqbal.
Plausibility is what matters.”).
44
Iqbal, 556 U.S. at 679.

19
provides evidence consistent with fraud.45 It does not provide
any evidence more plausibly suggesting that fraud actually
occurred.

The first problem is that CFI surveyed the wrong
population. It would have been perfectly acceptable for CFI
to draw a random sample from eBay if it was trying to draw
inferences about the larger universe of Victaulic products
actually sold on eBay. The problem is that CFI wants to use
eBay as a proxy for the entire U.S. market for Victaulic pipe
fittings. Unfortunately, CFI never sampled that larger
population. CFI could have rectified this problem by making
factual allegations sufficient to support the plausible inference
that eBay serves as an appropriate proxy for the entire U.S.
market, but the only allegations to that effect in the complaint
are entirely conclusory.46 This is unsurprising, since there is

45
I say “evidence consistent with fraud” because, of course,
CFI could have run the exact same flawed study, with the
same faulty criteria, and come up with a sample of 221 eBay
postings in which a large proportion of postings did depict
foreign country-of-origin markings. In this sense, the results
of the eBay study are “more consistent” with fraud than the
alternative. But this is different from concluding that the
eBay study actually allows us to draw any meaningful
inferences about Victaulic’s behavior.
46
CFI claims that eBay is “a reliable evidentiary source.”
(Proposed Am. Compl. ¶ 64.) But “we have been careful to
note that, even at the pleading stage, ‘we need not accept as
true unsupported conclusions and unwarranted inferences.’”
Finkelman, 810 F.3d at 202 (quoting Maio v. Aetna, Inc., 221
F.3d 472, 500 (3d Cir. 2000)). Asserting that eBay is a

20
no reason to believe that eBay—an e-commerce platform that
sells everything from clothing to electronics to collectible
coins, sometimes via auction and sometimes via direct person-
to-person transactions—looks or functions anything like the
broader market for iron and steel pipe fittings.

This brings us to the second problem with the eBay
study—the fact that CFI did not take a random sample at all.
Thus, even if we were to treat eBay as a viable stand-in for
the U.S. market, the eBay study is still fatally flawed because
CFI did not take a random sample of Victaulic products for
sale on eBay. Instead, it spent weeks building its own curated
subset of 221 postings, all the while applying any number of
criteria (including the requirement that postings contain
photographs) likely to skew its results. This is to say nothing
of the fact that CFI’s actual conclusions involve additional
extrapolations based on the ten Victaulic products that CFI
examined in person. CFI constructed a convenience sample,
not a random one, and such a sample “provides no rigorous
assurance that the sample will represent the population of
interest.”47

The District Court raised these very objections when it

“reliable evidentiary source” from which to draw conclusions
about the broader U.S. market is exactly the kind of
“unsupported conclusion” we have traditionally rejected.
47
Grunwald, 161 U. Pa. L. Rev. at 1424.

21
dismissed CFI’s first complaint.48 In an effort to respond to
these concerns, CFI hired Dr. Abraham J. Wyner, Director of
the Undergraduate Program in Statistics at the University of
Pennsylvania’s Wharton School, to write a declaration that it
attached as an exhibit to the proposed amended complaint.
Unfortunately, Dr. Wyner fails to articulate any independent
justifications for CFI’s methodology. Instead, his declaration
rests entirely on CFI’s own conclusory assumptions about
eBay. Here is the key language:

48
Customs Fraud Investigations, LLC, 2014 WL 4375638,
at *15 (“Even if the Court accepts CFI’s assertion that eBay
listings constitute a reasonable representative sample of the
secondary sale market for pipe fittings in the United States, or
that an examination of 221 advertisements from eighty-one
sellers over a six-month period could provide data from which
to draw accurate wider conclusions about millions of pounds
of product imported over a decade, and even assuming that
CFI has accurately identified, dated, and examined every
Victaulic pipe fitting on eBay, CFI has alleged no facts to
show that any of the unmarked pipe fittings on eBay are not,
in fact, U.S.-made.”).

22
 My analysis is based on . . . very reasonable and
quite conservative assumptions . . . . I will
assume that the slice of the secondary market
for Victaulic pipe fittings represented by eBay
contains a proportion of imported products at
least approximately similar to the proportion of
imported products among all U.S. sales and that
any significant deviation is caused only by
chance.49
The sleight of hand here is to assert, without any basis
in alleged fact, that it is “very reasonable” to assume that the
universe of products being sold on eBay somehow mirrors the
entire U.S. market. Indeed, the entire rhetorical gambit of the
Wyner declaration is to repeat CFI’s conclusory allegations
back to the reader in more technical-sounding terms. A few
examples illustrate the point.

First, Dr. Wyner recognizes that the findings from the
eBay investigation “could be skewed” if eBay were not
representative of the U.S. market, but he says that these fears
are “contrary to [CFI’s] actual observations of eBay as a
diverse sales outlet with a representative national cross-
section of Victaulic pipe fittings, including geographically
and by supplier and product variety.”50 This conclusory
language is lifted directly from the proposed amended

49
J.A. 359–60 ¶¶ 11–12 (emphasis added).
50
Id. at 360–61 ¶ 13.

23
complaint.51

Second, Dr. Wyner acknowledges that the validity of
the eBay study depends on the accuracy of photographs in
eBay postings, but he downplays that concern because
“[a]ccording to [CFI] . . . the vast majority of relevant listings
had pictures and the vast majority of these pictures provided
views of the Victaulic product such that a country-of-origin
marking would have been visible had it existed.”52 In other
words: the eBay study is accurate because CFI says it is.

Third, while Victaulic warns that “eBay sellers may
have concealed import markings,” Dr. Wyner tells us that
“[t]his is inconsistent with the evidence provided by [CFI]
that only 40 of the 221 items had incomplete or unclear
images.”53 This mode of reasoning is exactly backwards. If
the results of a survey are biased, those same results cannot
support the reliability of the survey design in the first
instance.

Accordingly, Dr. Wyner’s conclusion—that “assuming
the validity of [his assumptions], [he] would be more than

51
See Proposed Am. Compl. ¶ 61 (“eBay is an active and
diverse secondary sales outlet for Victaulic products.”); id. ¶
64 (“The eBay listings identified included a representative
national cross-section of Victaulic iron and steel pipe fittings,
including, in most cases, product photos, making it a reliable
evidentiary source.”).
52
J.A. 361 ¶ 15 (parentheticals omitted).
53
Id. at 363 ¶ 19.

24
99.9% confident that Victaulic is improperly marking a
significant portion of its imports”—is profoundly
misleading.54 If I were to assume that the judges of the Third
Circuit comprise an accurate cross-section of the U.S.
population, I would then be able to conclude that a startlingly
high proportion of the general public has a law degree. But of
course, it would be frivolous to make that assumption in the
first instance. Understood in context, Dr. Wyner’s declaration
is little more than a reflection of CFI’s own unsupported
assumptions about eBay, only dressed up in more persuasive-
sounding statistical jargon. For this reason, his declaration
completely fails to nudge CFI’s allegations across the
plausibility threshold.

Stepping away from the specifics of CFI’s
investigation, the significant issue in this case concerns how
we think about the plausibility standard when a complaint
rests entirely on statistical evidence. In the mine run of cases,
of course, Daubert and the Federal Rules of Evidence will
filter out unreliable statistical evidence in due course.55 But
to my mind, we act contrary to Twombly and Iqbal when we
refuse to ask whether statistical evidence actually supports a
plausible inference of wrongdoing at all, particularly when a

54
Id. at 360 ¶ 12.
55
See Kannankeril v. Terminix Int’l, Inc., 128 F.3d 802, 806
(3d Cir.1997) (“Under the Federal Rules of Evidence, it is the
role of the trial judge to act as a ‘gatekeeper’ to ensure that
any and all expert testimony or evidence is not only relevant,
but also reliable.” (citing Daubert v. Merrell Dow Pharms.,
Inc., 509 U.S. 579, 589 (1993)).

25
complaint rests on statistical evidence alone. In the words of
one observer, “[s]tatistical studies are neither magic nor snake
oil, and the experts neither sorcerers nor (generally speaking)
charlatans. Rather, what legal actors need to do is treat
statistical studies critically.”56 Just so—even at the motion to
dismiss stage.

A recent case from the Second Circuit illustrates this
point. In Burgis v. New York City Department of Sanitation,57
the plaintiffs alleged that officials had “discriminated against
them and others similarly situated on the basis of their race
and/or national origin in the [Department of Sanitation’s]
promotional practices.”58 In support of their Equal Protection
claim, they relied exclusively on statistical evidence. The
Second Circuit held for the first time that, in a case alleging
employment discrimination, “statistics alone may be
sufficient” to get past the motion to dismiss stage.59

But the Second Circuit also stated that, “to show
discriminatory intent . . . based on statistics alone, the
statistics must not only be statistically significant in the

56
Edward K. Cheng, Fighting Legal Innumeracy, 17 Green
Bag 2d 271, 275 (2014), available at
http://www.greenbag.org/v17n3/v17n3_articles_cheng.pdf
(last visited Aug. 26, 2016).
57
798 F.3d 63 (2d Cir. 2015), cert. denied, 136 S. Ct. 1202
(2016).
58
Id. at 66.
59
Id. at 69.

26
mathematical sense, but they must also be of a level that
makes other plausible non-discriminatory explanations very
unlikely.”60 The plaintiffs in Burgis “failed to allege statistics
that me[t] the standards articulated above,” in part because
their evidence “show[ed] only the raw percentages of White,
Black, and Hispanic individuals at each employment level,
without providing any detail as to the number of individuals at
each level, the qualifications of individuals in the applicant
pool and of those hired for each position, or the number of
openings at each level.”61 In the Second Circuit’s view, this
was not enough to allege a viable claim.

Burgis demonstrates that numbers alone are not
enough to get a litigant past the motion to dismiss stage.
Rather, a litigant’s statistical evidence must be reliable
enough to raise a plausible inference of wrongdoing. Here, I
believe that a basic facility with statistical concepts
demonstrate that the plaintiff’s eBay study supports no
plausible inference at all—let alone one that surpasses the
high bar to allege fraud.62

The ultimate lesson of Twombly and Iqbal is that a
federal lawsuit is not a mechanism to confirm a vague
suspicion that fraudulent conduct occurred. Sturdier factual
allegations are necessary. The Twombly plaintiffs, observing
parallel conduct in the marketspace, were awfully concerned
about an antitrust conspiracy. Finkelman himself observed

60
Id.
61
Id. at 70.
62
See discussion infra at pages 22–25.

27
higher prices in the resale market for Super Bowl tickets and
had “a strong suspicion that [his] ticket[s] would have been
cheaper if more tickets had been available for purchase by
members of the general public.”63 CFI browses postings on
eBay and has a powerful inkling that Victaulic has been
mismarking its products. In all these instances, what is
lacking is either some first-person account indicating that
unlawful conduct has actually occurred, or at the very least,
some other generalized allegation that raises a plausible
inference of wrongdoing.

To be fair, there is one moment in the Proposed
Amended Complaint when CFI tries to offer a first-person
account of fraudulent conduct. Here it is:

One witness, who has worked for many years in
the pipe and tube industry, recalls a customer
procuring Victaulic pipe fittings that the
company represented were 100% U.S.
manufactured. This witness observed that at the
bottom of one box of Victaulic inventory, a
packing list indicated that the products had
originated from Poland. None of the Victaulic
pipe fittings were marked with any foreign
country name, however.64
This is CFI’s best evidence: one unnamed witness in
an unknown location who, one time, saw one box of Victaulic
pipe fittings that appeared to be mismarked. That single

63
Finkelman, 810 F.3d at 201.
64
Proposed Am. Compl. ¶ 83.

28
anecdote simply cannot be enough to support plausible
allegations of a ten-year scheme to defraud the government.
Accordingly, I would affirm the District Court’s denial of
CFI’s motion to reopen the judgment on this alternative
ground.

II. The Proposed Amended Complaint Also Fails to
Satisfy Rule 9(b)

I would also conclude that the proposed amended
complaint fails to comply with Rule 9(b). CFI’s pleadings
contain “voluminous records detailing the shipments at issue,
when they entered the country, the alleged problems with
those shipments, and, by operation of law, when liability
would have attached.”65 In the majority’s view, “nothing
more is required to give Victaulic adequate notice of the
claims raised against it.”66 I respectfully disagree.

We start with the applicable law. Rule 9(b) requires
that “a party must state with particularity the circumstances
constituting fraud or mistake.”67 In Foglia v. Renal Ventures
Management, LLC,68 we explained that two approaches had
emerged in the Courts of Appeals regarding how to comply
with Rule 9(b) in a False Claims Act suit. Under one
approach, “a plaintiff must show ‘representative samples’ of

65
Majority Op. Typescript at 24–25.
66
Id. at 25.
67
Fed. R. Civ. P. 9(b).
68
754 F.3d 153 (3d Cir. 2014).

29
the alleged fraudulent conduct, specifying the time, place, and
content of the acts and the identity of the actors.”69 We
adopted a second, more lenient approach, holding that “it is
sufficient for a plaintiff to allege ‘particular details of a
scheme to submit false claims paired with reliable indicia that
lead to a strong inference that claims were actually
submitted.’”70 We rejected the stricter alternative because, in
our view, it would have required qui tam relators to offer a
level of “detail at the pleading stage [that] would be ‘one
small step shy of requiring production of actual
documentation with the complaint, a level of proof not
demanded to win at trial and significantly more than any
federal pleading rule contemplates.’”71

Foglia itself was a “close case as to meeting the
requirements of Rule 9(b).”72 Still, we concluded that the
plaintiff’s allegations were satisfactory because (i) they
“suffice[d] to give [the defendant] notice of the charges
against it, as is required by Rule 9(b),” and (ii) “only [the
defendant] ha[d] access to the documents that could easily
prove the claim one way or another—the full billing records
from the time under consideration.”73

69
Id. at 155.
70
Id. at 156 (quoting United States ex rel. Grubbs v.
Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)).
71
Id. (quoting Grubbs, 565 F.3d at 190).
72
Id. at 158.
73
Id. (punctuation modified).

30
 Our only precedential opinion to have applied Foglia
in a subsequent False Claims Act case, United States ex rel.
Moore & Co., P.A. v. Majestic Blue Fisheries, LLC,74 made it
clear that Rule 9(b) still has sharper teeth than Rule 8. We
said there that, under Rule 9(b), “[a] plaintiff alleging fraud
[under the False Claims Act] must . . . support its allegations
‘with all of the essential factual background that would
accompany the first paragraph of any newspaper story—that
is, the who, what, when, where and how of the events at
issue.’”75 This is a greater level of detail than that associated
with mere notice pleading.

The proposed amended complaint does not satisfy
these standards. While it may be true that CFI’s complaint
includes “voluminous records detailing the shipments at
issue,”76 it is important to keep in mind that these records
detail all of Victaulic’s imports from China and Poland over
the period from 2003 through 2012.77 Based on its flawed
eBay study, CFI insists that some unknown portion of those
shipments must involve mismarked goods. But CFI fails
entirely to tell us which shipments, during which time periods,
at which ports, were supposedly unlawful. To suggest that
there must be fraud there—somewhere—cannot possibly be

74
812 F.3d 294 (3d Cir. 2016).
75
Id. at 307 (quoting In re Rockefeller Ctr. Props., Inc. Sec.
Litig., 311 F.3d 198, 217 (3d Cir. 2002)).
76
Majority Op. Typescript at 24–25.
77
A line-by-line printout of these imports takes up 36 pages
of the record. See J.A. 154–89.

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enough to satisfy Rule 9(b). Such an approach neither
provides us “with reliable indicia that lead to a strong
inference that [false] claims were actually submitted,”78 nor
tells us anything specific about “the who, what, when, where
and how of the events at issue.’”79 It is, instead, a data dump
camouflaged as a set of particularized allegations.80

I would therefore affirm the District Court’s
termination of this case on this ground as well.

III. Conclusion

The desirability of increasing or decreasing anti-fraud
efforts through the mechanism of the False Claims Act is a

78
Foglia, 754 F.3d at 156 (internal quotation marks
omitted).
79
Majestic Blue Fisheries, LLC, 812 F.3d at 307 (internal
quotation marks omitted).
80
This becomes immediately apparent once we step away
from the False Claims Act and consider Rule 9(b) more
generally. We have held, for example, that a claim under the
Securities Act triggers Rule 9(b) when it “sound[s] in fraud.”
In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 270
(3d Cir. 2006). Would we conclude that a plaintiff alleges
securities fraud with particularity by attaching ten years of
prospectus statements and financial reports to a complaint and
telling us, “There must be some fraudulent statements in there
somewhere”? I highly doubt it.

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topic of heated debate.81 By highlighting the deficiencies in
CFI’s allegations, I express no opinion on these matters,
whose resolution lies more properly with the executive and
legislative branches.

Even so, it is certainly within our province to enforce
legal standards as they presently exist. In my view, CFI
cannot overcome the plausibility bar of Iqbal and Twombly
because its flawed eBay study completely fails to raise a well-
supported inference of fraud. CFI cannot satisfy Rule 9(b)
because it has failed to allege fraud with particularity. What’s
more, I also believe that the District Court was correct to deny
CFI’s motion to reopen the judgment on the ground of undue
delay.82

81
See, e.g., Sean Elameto, Guarding the Guardians:
Accountability in Qui Tam Litigation Under the Civil False
Claims Act, 41 Pub. Cont. L.J. 813, 823 & nn. 77–80 (2012)
(noting that Congress has recently considered bills that would
relax Rule 9(b) in the context of False Claim Act suits).
82
During the oral argument on Victaulic’s motion to
dismiss, the District Court told CFI outright that its complaint
was deficient. See J.A. 195:5–13 (“[Y]ou needed something,
sir, because your complaint is just too barebones. I mean,
honestly, I’ll listen to you, but, you know, if you state these,
even if they’re facts, they’re conclusory kinds of facts that
really under Twombly and Iqbal really don’t carry the day.”
(scrivener’s errors corrected)).

33
 I therefore respectfully dissent.

Despite this admonition, over seven months passed without
CFI filing an amended complaint. Even then, after the
District Court granted Victaulic’s motion to dismiss, CFI let
another four weeks go by before filing a motion to reopen the
judgment. And then, instead of offering new factual
allegations, its proposed amended complaint was almost
entirely an amalgamation of CFI’s original complaint and the
allegations contained in its earlier witness declaration. The
District Court concluded—rightly—that CFI was engaging in
dilatory tactics that independently merited denying CFI’s
motion to reopen the judgment.

34