Opinion
Civil Action No. 3:98-CV-2143-D.
July 22, 2003.
MEMORANDUM OPINION AND ORDER
In this action alleging claims under the False Claims Act, 31 U.S.C. § 3729-32 ("FCA"), and pendent state-law claims for common law fraud and breach of contract, the court held in United States ex rel. Coppock v. Northrop Grumman Corp., 2002 WL 1796979 (N.D. Tex. Aug. 1, 2002) (Fitzwater, J.) (" Coppock I"), that it had subject matter jurisdiction over one component of relator-plaintiff's ("plaintiff's") FCA claim. The court concluded, however, that because plaintiff's first amended complaint failed in some respects to plead the claim with the particularity required by Fed.R.Civ.P. 9(b) and failed in other respects to state a claim on which relief could be granted, that claim must be dismissed. The court also held that plaintiff had adequately pleaded one of two common law fraud claims and had stated a breach of contract claim. The court granted in part defendant's motion to dismiss, but it also gave plaintiff leave to amend to cure the deficiencies identified. Plaintiff has filed a second amended complaint, and defendant moves anew to dismiss. The court must decide whether it has subject matter jurisdiction under the FCA, plaintiff has pleaded with the particularity that Rule 9(b) requires, and plaintiff has stated an FCA claim on which relief can be granted. For the reasons that follow, the court grants the motion in part and denies it in part.
I
The relevant background facts and procedural history of this case are substantially set out in Coppock I. The court presumes the parties' familiarity with that decision and will therefore add only the facts and procedural history that are necessary to understand today's opinion.
Plaintiff Stephen Coppock ("Coppock") sues defendant Northrop Grumman Corporation ("Northrop") to recover under the FCA and on pendent state-law claims for common law fraud and breach of contract. In Coppock I the court addressed Northrop's motion to dismiss Coppock's first amended complaint. Concerning the FCA claim, it held that Coppock had failed to plead subject matter jurisdiction except to the extent he predicated the claim on the July 31, 1997 spill. Coppock I, 2002 WL 1796979, at *7. Focusing on that factual component of the FCA cause of action, the court held that Coppock had failed in some respects, and succeeded in others, in pleading the claim with the particularity required by Rule 9(b). Id. at *9-*10. It then concluded that Coppock had failed to state an FCA claim on which relief could be granted. Id. at *12-*13. The court held that as a result of its rulings, no viable FCA remained. Id. at *13 ("The court now applies these rulings to Coppock's amended complaint to determine whether an FCA claim remains. The court holds that none does."). It then decided that Coppock had adequately pleaded one of two common law fraud claims and had stated an action for breach of contract. Id. at * 13-*14.
Following Coppock I Coppock filed a second amended complaint. In this pleading Coppock seeks relief in count I under § 3729(a)(1), (2), and (7) based on a flash mix basin leak that caused waste and treatment chemicals in the flash mix to seep out of the bottom of the basin into the surrounding soil at the Naval Weapons Industrial Reserve Plant ("NWIRP"). He contends that when Northrop finally repaired the flash mix basin and took it offline, Northrop did not halt production at the NWIRP complex, but instead diverted the flow past the flash mix basin directly to the floc basins. This permitted improperly-treated industrial waste general ("IWG") and industrial waste concentrate ("IWC") to be discharged into the publicly owned treatment works ("POTW") for Dallas and other communities, violating emissions limitations. This mistreatment of a known leak damaged the government's property by causing environmental contamination and has subjected the government to liability to third parties for fines, personal injuries, and property damage due to migration of the leak and to illegal discharge to the POTW. Northrop has repaired the hole but has not remediated the contamination caused by the leak.
Northrop moved to strike the second amended complaint, contending that four FCA counts that Coppock asserts exceed the scope of the leave to amend that the court granted in Coppock I. The court denied the motion to strike in a March 6, 2003 memorandum opinion and order. See United States ex rel. Coppock v. Northrop Grumman Corp., No. 3:98-CV-2143-D (N.D. Tex. Mar. 6, 2003) (Fitzwater, J.). The court also addressed Northrop's motion to dismiss in order to decide Coppock's motion to stay the motion to dismiss and for appropriate discovery. The court held that the motion to dismiss should not be stayed because "the grounds for the factual attack, and the arguments on which Coppock relies to establish subject matter jurisdiction, suggest that discovery may be unnecessary." Slip op. at 7. The parties have completed the briefing on the motion to dismiss, and it is now ripe for determination.
Coppock maintains that Northrop made three types of false claims and statements to the government in connection with the flash mix basin leak. First, he contends Northop made false statements in Toxic Release Inventory Reports ("TRI Reports") that Northrop was required under federal environmental laws to submit annually to the Environmental Protection Agency ("EPA") in order to operate the NWIRP and the industrial waste treatment facility ("IWT Plant"). Second, he maintains that Northrop made false implied certifications in rent payments to the Navy for use of the NWIRP property, in that it knew about its own malfeasance regarding the flash mix basin and knew at the time it made rent payments that it was not substantially performing the material obligations of its contracts and thus had not satisfied the Navy's duty to continue providing the property to Northrop. He contends the claims were material because, had the Navy known that Northrop was violating the leases in this manner, it would not have allowed Northrop to continue to use the property. Third, Coppock asserts that Northrop fraudulently induced the Navy to enter into a replacement contract for the 1987 Lease — the 1993 Lease — in which it agreed to perform the same obligations that it was breaching under the 1987 Lease, i.e., allowing the flash mix basin leak to continue unremedied and failing to notify the Navy of the leak or repairing the environmental damage it was causing to the Navy's property. He contends that Northrop obtained several renewal contracts for the 1993 Lease in which it agreed to continue to perform these obligations and later obtained a replacement contract — the 1998 Lease — in which it agreed to perform the same obligations it was breaching. Northrop's agreement to undertake these obligations was material to the Navy's willingness to continue to provide use of the NWIRP property.
Coppock alleges in count II a claim under § 3729(a)(1), (2), and (7) based on a leak in the No. 4 holding tank at the IWT Plant, which caused untreated IWC to be released into the ground at the NWIRP and into floor drains leading into the Trinity River.
Coppock maintains that Northrop made three types of false claims and statements to the government in connection with the leak in the No. 4 holding tank at the IWT Plant. First, as in count I, he contends that Northop made false statements in the TRI Reports that it was required to submit to the EPA. Second, as in count I, Northrop made false implied certifications in rent payments to the Navy for use of the NWIRP property. Third, as set out in count I, Northrop fraudulently induced the 1993 Lease, renewals of the 1993 Lease, and the 1998 Lease by making material representations.
Coppock asserts in count III that Northrop is liable under § 3729(a)(3) and (7) for improperly installed piping in Building 327 that permitted IWC runoff from the production floor to drain directly into the IWG line to the flash mix without receiving sulfur dioxide treatment in the IWC holding tanks.
Coppock maintains that Northrop committed four categories of acts in connection with the improperly-installed piping in Building 327. First, as in counts I and II, Northrop made false statements in the TRI Reports that it was required to submit to the EPA. Second, Northrop falsely denied that the July 31, 1997 spill went into the lagoon and Mountain Creek Lake and otherwise fraudulently described the nature of the spill and the remediation required. Third, Northrop conspired with its outside counsel to conceal the true scope of the spill from the Navy and the EPA and submitted false statements to the EPA designed to avoid liability to remediate fully the contaminations caused by the July 31, 1997 spill. Fourth, Northrop falsified maintenance records, environmental logs, and inspection records that it was required to maintain. On July 31, 1997 Coppock attempted to log the details of the spill event in the environmental log and was prevented from doing so by Northrop's Environmental Liaison, Pat Wilson ("Wilson").
In count IV, Coppock sues under § 3729(a)(7) on the ground that Northrop used the NWIRP complex in an unauthorized manner, interfering with its contractual obligations under its leases with the government. He contends that the 1987 and 1993 Leases allowed Northrop a rent credit for work performed at NWIRP on United States Department of Defense contracts, but Northrop was expressly precluded from taking the credit if it made unauthorized use of the complex. Northrop was contractually authorized under the 1987 and 1993 Leases to operate the facility to fulfill commercial aircraft contracts, provided such use did not interfere with its contractual obligations and it did not use the complex for more than 25% commercial work. Coppock contends that Northrop submitted reverse false claims because it reduced its rent payments under the 1987 and 1993 Leases despite the facts that it used the complex beyond its designed capacity, overwhelming its waste handling capacity and causing pollution and damage to the government's property, more than 25% of the work at the complex was for commercial production, and Northrop's commercial work interfered with its contractual obligations.
Coppock asserts in count V a claim under § 3729(a)(1) and (7) for destruction of three air compressors. He posits that Northrop eliminated on site supervisors for the units, and the units burned out when coolant was not added or they were not shut down when they overheated. Coppock contends that Northrop obtained $989,000 from the Navy to replace the compressors, despite the fact that the Navy was not contractually responsible for damage that Northrop caused. He asserts that Northrop either misrepresented to the Navy the reason the compressors failed or made the request as a capital maintenance request, without explaining that the Navy was not obligated to make the repair under the terms of the leases.
In counts VI and VII Coppock posits claims for common law fraud — inducing him to wash hazardous materials into Mountain Creek Lake and inducing him to confide in Northrop, see Coppock I, 2002 WL 1796979, at *13-*14 — and in count VIII alleges a breach of contract claim — breaching its promise of confidentiality and anonymity in exchange for his report of the July 31, 1997 incident, see id at *14.
II
The court turns first to Northrop's Rule 12(b)(1) motion, in which it advances a factual challenge to Coppock's second amended complaint.
See Coppock I, 2002 WL 1796979, at *5 (distinguishing between "facial" and "factual" challenges under Rule 12(b)(1) to subject matter jurisdiction). "[I]f `the defendant supports [its] motion with affidavits, testimony or other evidentiary materials, then the attack is "factual" and the burden shifts to the plaintiff to prove subject matter jurisdiction by a preponderance of the evidence.'" Id. (quoting Daniels v. Church of the Living Word #4, 2001 WL 1445407, at *1 (N.D. Tex. Nov. 14, 2001) (Fitzwater, J., adopting opinion by Stickney, J.)).
A
The court must decide as a threshold matter whether Northrop's jurisdictional challenge is properly addressed under the Rule 12(b)(1) standard. When jurisdictional issues are intertwined with the merits of the case, the general Rule 12(b)(1) standards are inappropriate. See 2 James Wm. Moore et al., Moore's Federal Practice ¶ 12.30 (2003). In such circumstances a Rule 12(b)(1) motion should be treated as a Rule 12(b)(6) motion — if no facts outside the pleadings are considered — or as a Rule 56 summary judgment motion — when facts beyond the pleadings are considered — and thus evaluated as the merits would be. See Williamson v. Tucker, 645 F.2d 404, 415-16 (5th Cir. May 1981) ("This refusal to treat indirect attacks on the merits as Rule 12(b)(1) motions provides, moreover, a greater level of protection to the plaintiff who in truth is facing a challenge to the validity of his claim: the defendant is forced to proceed under Rule 12(b)(6) . . . or Rule 56 . . . — both of which place greater restrictions on the district court's discretion."); Clark v. Tarrant County, 798 F.2d 736, 741-42 (5th Cir. 1986) ("Where the challenge to the court's jurisdiction is also a challenge to the existence of a federal cause of action, . . . the district court should find that it has jurisdiction over the case and deal with the defendant's challenge as an attack on the merits."). "The questions of subject matter jurisdiction and the merits will . . . be considered [sufficiently] intertwined where the statute provides both the basis of federal court subject matter jurisdiction and the cause of action." Clark, 798 F.2d at 742.In United States ex rel. Laird v. Lockheed Martin Engineering and Science Services Co., ___ F.3d ___, 2003 WL 21452609 (5th Cir. June 24, 2003), a Fifth Circuit opinion decided after briefing on this motion was completed, the court made clear that the FCA provides the basis for jurisdiction and for the cause of action and that jurisdictional issues should be treated as the merits would be:
Other circuit courts have specifically held that in a qui tam suit brought under the FCA, the jurisdictional issue of public disclosure clearly arises out of the same statute that creates the cause of action. . . . Thus, a challenge under the FCA jurisdictional bar is necessarily intertwined with the merits and should be resolved pursuant to either Federal Rule of Civil Procedure 12(b)(6) or 56. While our court has not addressed this specific jurisdictional point, we have previously stated that the questions of subject matter jurisdiction and the merits will normally be considered intertwined where the statute provides both the basis of federal court subject matter jurisdiction and the cause of action. We see this case as presenting one such instance where questions of subject matter jurisdiction and the merits are intertwined because the defendant's challenge to the court's jurisdiction is also a challenge to the existence of a federal cause of action. The proper course of action for the district court was thus to find that jurisdiction existed and deal with the merits of the case.Id. at *2 (citations, internal quotation marks, and brackets omitted).
The court did not raise this threshold question in Coppock I in the context of Northrop's facial challenge to jurisdiction. The parties have not briefed the jurisdictional issue under the Rule 12(b)(6) or Rule 56 standard. The court deems it fair to analyze sua sponte Northrop's motion under the summary judgment standard, however, because both sides have been given an opportunity to present all relevant evidence on the "original source" jurisdictional issues. In briefing Northrop's Rule 12(b)(1) motion, both parties were obligated to present their evidence under a more onerous preponderance of the evidence standard.
N.D. Tex. Civ. R. 56.2(b) provides that, "[u]nless otherwise directed by the presiding judge, or permitted by law, a party may file no more than one motion for summary judgment." The court's reliance sua sponte on the standard judgment standard does not count as one strike against either side's right to file one summary judgment motion without leave of court.
Nor will treating the motion as a summary judgment motion instead of a Rule 12(b)(6) motion to dismiss create a notice problem. Courts are required to notify nonmovants before they convert Rule 12(b)(6) motions to Rule 56 motions. See Washington v. Allstate Ins. Co., 901 F.2d 1281, 1284 (5th Cir. 1990) ("Whenever a motion to dismiss is treated as a motion for summary judgment, the nonmovant is entitled to the procedural safeguards of Rule 56."). Because the court is today denying Northrop's jurisdictional challenge, the absence of notice is immaterial.
When the summary judgment movant will not have the burden at trial, it can meet its summary judgment obligation by pointing the court to the absence of evidence to support the claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the party does so, the nonmovant must then go beyond its pleadings and designate specific facts showing there is a genuine issue for trial. See id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). Summary judgment is mandatory when the nonmoving party fails to meet this burden. Little, 37 F.3d at 1076.
B
Subject matter jurisdiction in this case is governed by 31 U.S.C. § 3730(e)(4). In relevant part, § 3730(e)(4)(A) provides that a court has jurisdiction over a cause of action under the FCA only if the incidents alleged in the complaint have not been publicly disclosed. If they have, the plaintiff must be an "original source" of the information on which the FCA claim is made. Section 3730(e)(4)(B) defines original source as "an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information." Id. "The exception explicitly requires the satisfaction of a two-part test: (1) the relator must demonstrate that he or she has `direct and independent knowledge of the information on which the allegations are based' and (2) the relator must demonstrate that he or she has `voluntarily provided the information to the Government before filing' his or her qui tam action." Laird, ___ F.3d at ___, 2003 WL 21452609, at *4 (citing § 3730(e)(4)(B)). "By its terms, the `public disclosure' bar is jurisdictional." Id. at *2.
Section 3730(e)(4):
Certain actions barred. —
* * *
(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or [General] Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.
"[C]ourts have . . . construed [the statutory] definition to impose a conjunctive requirement — direct and independent — on qui tam plaintiffs." United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994). "`[D]irect' by its plain meaning [i]s knowledge derived from the source without interruption or gained by the relator's own efforts rather than learned second-hand through the efforts of others." Laird, ___ F.3d at ___, 2003 WL 21452609, at *8 (citing WEBSTER'S NEW INTERNATIONAL DICTIONARY 640 (3d ed. 1961)). "In order to be `independent,' the information known by the relator cannot depend or rely on the public disclosures. Therefore, a person who learns of fraud from a public disclosure can never be an `original source.'" United States ex rel. Findley v. FPC-Boron Employees' Club, 105 F.3d 675, 690 (D.C. Cir. 1997) (citation omitted); see Laird, ___ F.3d at ___, 2003 WL 21452609, at *6-*7.
Coppock and Northrop dispute whether Coppock must have had direct and independent knowledge of the representations and claims made to the Navy or whether it is sufficient that he knew the underlying facts on which the false claims were based. Northrop argues that a relator must have direct and independent knowledge of the fraudulent acts, i.e., the misrepresentations and false claims to the government. It cites Coppock's deposition testimony to show that his knowledge of the representations to the government was neither independent nor direct. It argues that, at best, Coppock has background information that has enabled him through research into publicly disclosed information to infer fraudulent conduct. Northrop avers that the FCA does not contemplate qui tam actions based upon such limited personal knowledge.
Northrop contends:
[Coppock] also testified that he has never read the governing contracts. Because he never read the governing contracts, it is impossible for [Coppock] to have direct and independent knowledge about how [Northrop's] rent was calculated, when, if ever, [Northrop] was required to pay the rent, and whether [Northrop] failed to accurately calculate the rent[.]
D. Br. at 18 (citations omitted).
The rent calculations form the basis for [Coppock's] implied certification claims. . . . [Coppock] is not the original source for those claims. He did not participate in the drafting or the negotiating of the terms contained in the different governing contracts, and he cannot claim to have direct and independent knowledge of those negotiations or what was discussed between the contracting parties. [Coppock] even admits that he never participated in the process by which [Northrop] compensated the Government for its use of the NWIRP.Id. at 19 (citations omitted).
Coppock responds that he need not have direct and independent knowledge of the misrepresentations and false claims made to the government. He maintains that the court must determine whether he has direct and independent knowledge of the facts and information that show the falsity of Northrop's claims rather than the representations Northrop made to the government. He reasons that qui tam actions are designed to encourage whistleblowers to provide information previously unknown to the government, and because the representations and claims are always already in the government's possession, it makes little sense to require relators to be the original source of that information.
The court agrees with Coppock. Courts have identified two essential elements in each false claim allegation, sometimes expressing the elements algebraically. "On the basis of plain meaning, and at the risk of belabored illustration, if X + Y Z, Z represents the allegation of fraud and X and Y represent its essential elements." Springfield, 14 F.3d at 654. "Undoubtedly, it is not necessary for a relator to have all the relevant information in order to qualify as `independent.'" United States ex rel Stinson, Lyons, Gerlin Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir. 1991) (citing False Claims Act Implementation: Hearing Before the Subcomm. on Admin. Law and Gov. Relations of the House Comm. on the Judiciary, 101st Cong., 2d Sess. (1990), at 3). "[Section] 3730(e)(4)(B) does not require that the qui tam relator possess direct and independent knowledge of all of the vital ingredients to a fraudulent transaction." Springfield, 14 F.3d at 656-57. "The word `information' refers to ` any essential element of the fraud transaction (e.g., Y).'" Findley, 105 F.3d at 690 (quoting Springfield, 14 F.3d at 657). "Significantly, the `original source' provision requires the relator to possess direct and independent knowledge of the `information' underlying the allegation, rather than direct and independent knowledge of the `transaction' itself." Springfield, 14 F.3d at 656; see United States ex rel Stone v. Rockwell Int'l Corp., 282 F.3d 787, 802 (10th Cir. 2002) (rejecting contention that to be original source relator must have direct and independent knowledge of specific documents that informed government that defendant was in compliance with environmental, health and safety laws and of specific individuals who submitted inaccurate claims); Minn. Ass'n of Nurse Anesthetists v. Allina Health Sys. Corp., 276 F.3d 1032, 1050 (8th Cir. 2002) (holding that to qualify as original source, relator need not have personal knowledge of all elements of cause of action). Qui tam actions are governed by specific jurisdictional requirements established by Congress. While limiting and eliminating frivolous and harassing claims from peripheral and parasitic individuals, whistleblowers with information helpful to the government's pursuit of false claims are encouraged to step forward. See Allina Health, 276 F.3d at 1042 ("The goals of the 1986 Amendments [to the FCA] were (1) to encourage those with information about fraud against the government to bring it into the public domain; (2) to discourage parasitic qui tam actions by persons simply taking advantage of information already in the public domain; and (3) to assist and prod the government into taking action on information that it was being defrauded."). If individuals were required to have personal knowledge both of the underlying, true state of affairs and of the representations made to the government, the body of potential relators would become unduly small, making it virtually impossible for anyone to establish jurisdiction. "Rare indeed would be the case in which relators could gain `original source' status, if such were the standard, because the misrepresented state of affairs, e.g. X, would almost always have been disclosed to the government independently by the alleged defrauder." Springfield, 14 F.3d at 657. It is unlikely that potential defendants — those with direct knowledge of the misrepresentations — will be inclined to implicate themselves by blowing the whistle. Relators with information about the true state of affairs will rarely, if ever, have personal knowledge of the representations made to the government. Conversely, those who have independent knowledge of the representations will often be removed from the conduct that makes the claim fraudulent.
A minority of courts take an opposing view and require relators to have direct and independent knowledge of the representations made to the government. See United States v. Alcan Elec. Eng'g, Inc., 197 F.3d 1014 (9th Cir. 1999); United States ex rel. Mistick PBT v. Hous. Auth., 186 F.3d 376 (3d Cir. 1999). The court declines today to adopt the minority position.
Northrop's position also appears to be at odds with the purposes for qui tam actions. One goal is to provide information that will assist the government in making fraud claims. It would make little sense to require relators to have direct knowledge of the representations made to the government because the government can normally be expected to possess this information. What the government lacks is the true story, i.e., why the claim is false, not information regarding the claim itself.
Accordingly, Coppock need only show direct and independent knowledge of the underlying facts to establish "original source" jurisdiction.
C
The court now applies this standard to Coppock's FCA claims. Northrop contends that even under this benchmark Coppock has not established jurisdiction. It essentially advances arguments regarding direct knowledge that are linked to the underlying merits of the case, maintains that Coppock does not have knowledge of the representations, contracts, or negotiations, and seeks to impeach his assertions of direct and independent knowledge of the relevant facts.
1
Northrop provides several arguments that are inextricably intertwined with the merits of the case. Supported principally by affidavit testimony from Northrop employees, these arguments generally posit that Coppock could not have witnessed the alleged events because they never occurred.
Because the jurisdictional issues in this case will be decided under a summary judgment standard, it might seem logical to address now the arguments regarding the lack of spills or leaks. Northrop's contentions, however, more properly address the existence vel non of a substantive claim rather than the jurisdictional boundaries of the FCA. See, e.g., McBeath v. Inter-Am. Citizens for Decency Comm., 374 F.2d 359, 363 (5th Cir. 1968) ("[W]here the factual and jurisdictional issues are completely intermeshed the jurisdictional issues should be referred to the merits, for it is impossible to decide the one without the other. . . . `Where the jurisdictional issue . . . [cannot] be decided without the ruling constituting at the same time a ruling on the merits of the case, the case should be heard and determined on its merits through regular trial procedure.'"); Chatham Condo. Ass'ns. v. Century Village, Inc., 597 F.2d 1002, 1011-12 (5th Cir. 1979); 5A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1350, at 235 (2d. ed. 1990) ("If, however, a decision of the jurisdictional issue requires a ruling on the merits of the case, the decision should await a determination of the merits either by the court on a summary judgment motion or by the fact finder at trial." (footnote omitted)). More important, the arguments raise issues that have not been subjected to full discovery and are not fairly raised in this motion, which deals primarily with Coppock's ability to have witnessed the alleged environmental problems at the NWIRP. Coppock has not had the opportunity to conduct necessary discovery. Accordingly, the court will not now address these arguments but will do so, if necessary, in the context of a merits-based summary judgment motion.
2
Despite arguing that no original source jurisdiction exists even if Coppock is not required to know the representations made to the government, Northrop contends that Coppock's indirect knowledge of the lease agreements and representations defeats jurisdiction. These arguments are foreclosed by the court's decision above. See supra § II(B). According to the reasoning of Springfield, the fact that Coppock does not have direct and independent knowledge of the representations made to the government, was not involved in the rent calculations, and did not participate in any of the contract negotiations, is not determinative in evaluating his status as an original source. The court need not address Northrop's arguments.
For example, Northrop argues:
[Coppock] also testified that he never read the governing contracts, never reviewed any documents submitted by NGC to the Government concerning rent calculations or commercial use of the NWIRP, never participated in the process by which NGC compensated the Government for its use of the NWIRP and did not participate in the drafting or negotiation of the terms contained in any specific contract between NGC and the Government. Indeed, in his Response, [Coppock] admits that he obtained knowledge of `the amount of the rent claims and the contract terms regarding rent credits' from public sources.
D. Rep. Br. at 14-15 (citations omitted).
3
3 Although Northrop's remaining contentions are properly considered as part of its challenge to jurisdiction, the court rejects them because there is a genuine issue of material fact whether Coppock is an original source of the facts that underlie his allegations.
Coppock's deposition testimony demonstrates generally that he was a Northrop engineer at the NWIRP. He had a confidential clearance — the second highest level — and access to almost every building in the facility. Given his duties, he was required to work throughout the NWIRP, but he spent some of his time at the IWT Plant. His job responsibilities required that he monitor and log the amount of toxic industrial waste, take necessary steps to treat the waste, and release it into the environment. Coppock testified that he personally observed and logged discrepancies in the waste held in the flash mix basin, which indicated that a leak existed, and in 1993 he personally viewed the large hole in the basin while repairs were being made. This information serves as the basis for count I.
Similarly, Coppock testified that he twice witnessed a leak in the No. 4 holding tank for toxic waste. He identified and logged the leak, was involved in pumping leaked waste from the basement into aquifers that drained into the Trinity River, personally helped test Tank No. 4 for a leak by filling it with water, and specifically recalled the amount and concentration of waste leaked on one occasion. He also was personally responsible for notifying Northrop management of the tank leak. This direct and independent knowledge is the basis for count II.
Coppock testified that Northrop management told him on July 31, 1997 to spill waste containing hexavalent chromium out of the solid contact basin onto the ground, which he did. He observed the waste flow downhill and into lagoons that eventually led to Mountain Creek Lake. Coppock also viewed blueprints of the piping structure in Building 327 and lifted manhole covers to examine the piping problems in Building 327 that contributed to the excess waste that required dumping on July 31, 1997. This direct and independent knowledge supports the allegations in count III.
Coppock testified that he was able to and did observe a number of commercial projects worked on at the NWIRP because he was assigned to and worked in all plant buildings. He observed work done for Boeing engines, Boeing fuel tanks, Pratt-Whitney engines, and automotive bumpers. This direct knowledge serves as a basis for count IV.
Coppock testified that he at one time worked with the air compressors that he alleges in count V were destroyed. He was present to add coolant and to monitor them in case they began to overheat. Coppock has direct knowledge that budget cutbacks resulted in the elimination of employees to supervise the operation of the compressors. Following these cutbacks, the compressors melted down. Within a day of their destruction, Coppock was assigned to tear down the compressors and was able to observe the remnants of the machines and the damage caused. This personal knowledge is the basis for the FCA claim in count V.
Northrop's remaining argument concerning count I is that Coppock "admits that he cannot remember any specific dates and times in which the flash mix basin was leaking and acknowledges that the alleged `droppage' in [waste] readings was derived, in part, from discussions with other plant operators, rather than from any personal observation." D. Rep. Br. at 11. This contention does not undermine original source jurisdiction. First, Coppock's inability to remember specific dates does not suggest that he did not personally witness the hole in the flash mix basin or the suspicious waste readings. Second, Coppock did not testify that his knowledge was in any way derived from conversations with coworkers. Although he did speak with coworkers about the leak, his knowledge of the leak is first-hand. See D. App. 15. The court therefore concludes that there is a genuine issue of material fact as to Coppock's direct and independent knowledge of the allegations in count I.
In Northrop's remaining arguments concerning count II, it asserts that although Coppock maintains that he personally observed the No. 4 holding tank leaking on two occasions, neither his testimony nor any other evidence concerns the July 1, 1997 spill; instead, Coppock testified that he could not recall specific dates, and he revealed that his knowledge was in part derived from a review of an engineer's log that other plant operators created. The court disagrees. Although Coppock is unfamiliar with specific dates, this does not suggest that he did not witness the environmental violations. Furthermore, while the information to which he testified was contained in engineer logs, his knowledge of the leak and of the specific leak on the July 1, 1997 was not derived from the logs. See D. App. 23-24. Coppock testified that he observed the July 1, 1997 spill. Although he did not refer to the date specifically, he did describe it as the worst of the leaks that occurred in the No. 4 tank. See D. App. 24.
Although it would appear that Coppock's testimony referred to the allegations in ¶ 70 of the second amended complaint — because the lawyer referred in the deposition specifically to that paragraph, see D. App. 24 ("You state in paragraph 70 that a leak in the No. 4 holding tank caused [waste] . . . to be released") — it is apparent from the context that the lawyer and Coppock miscommunicated. The avernments in ¶ 70 are simply generalized allegations regarding leaks before 1988. Coppock was referring in his testimony to a specific catastrophic spill late in his career. This testimony necessarily refers to the July 1, 1997 spill.
Northrop maintains that Coppock has not satisfied his burden of proof regarding his direct knowledge of the July 1, 1997 spill because the engineer's log for that date reveals that Coppock did not sign it, leading to the conclusion that he did not work at the IWT Plant on July 1. Coppock admits that he did not sign the log for the catastrophic spill. He points out, however, that he was called to the spill on an emergency basis, as he stated in his deposition testimony, thus explaining that he would not have signed the log that day. Therefore, the court holds that Coppock has created a genuine issue of material fact that defeats summary judgment.
Northrop has no remaining viable arguments that undermine the averred direct and independent knowledge of the facts underlying counts III, IV, and V. The only arguments that Northrop makes are related to the fact that Coppock had no knowledge of the representations made to the government, or they are inextricably bound to the merits of the case. The court has addressed both categories of arguments above, and they are insufficient to support summary judgment. Coppock's testimony regarding his personal knowledge of the events creates a genuine issue of material fact as to whether Coppock has direct and independent knowledge of the allegations in counts III-V.
4
Original source jurisdiction also requires that a relator "voluntarily provide the information to the Government before filing" an action that is based on the information. Laird, ___ F.3d at ___ 2003 WL 21452609, at *4 (citing § 3730(e)(4)(B)). Northrop maintains that Coppock did not voluntarily provide information to the government before he filed suit. Having considered Northrop's arguments, the court holds that there is a genuine issue of material fact whether Coppock gave the underlying information to the government. Coppock testified that he provided the information on all the environmental violations and facility misuse in meetings with government officials in August 1997. See D. App. 18-19, 20, 29-30. Thus there is a genuine issue of material fact whether Coppock disclosed all the relevant information to the government before filing suit.
III
The court now turns to Northrop's motion to dismiss the false certification portions of counts I, II, and IV under Rule 12(b)(6) for failure to state a claim on which relief can be granted.
Northrop argues that Coppock has not demonstrated that certification of compliance with government regulations and statutes was a prerequisite to acceptance of rent payments. As the court recognized in Coppock I, certification, whether implied or express, must be a prerequisite to a received benefit before it can be considered legally false. See Coppock I, 2002 WL 1796979, at *11-*12. In responding to Northrop's first motion to dismiss, Coppock argued that certification was not a prerequisite to the receipt of benefits. Rather than amend his complaint to address the holding of Coppock I, Coppock has simply reiterated his prior position:
The Fifth Circuit has "not specifically addressed whether FCA liability can be based on an `implied certification' theory." United States ex rel. Willard v. Humana Health Plan of Tex., Inc., ___ F.3d ___, 2003 WL 21467963, at *4 (5th Cir. June 26, 2003).
[Coppock] admittedly does not allege that the contracts required Northrop to certify its rent payments. Nevertheless, contrary to the Court's prior holding, see [Coppock I] at 26, [Coppock] believes that this last fact is not necessary to state an implied certification cause of action here.
P. Br. at 20. The court declines to reconsider the holding in Coppock I.
FCA claims fall into several categories.
The archetypal qui tam FCA action is filed by an insider at a private company who discovers his employer has overcharged under a government contract. However, FCA actions have also been sustained under theories of supplying substandard products or services; false negotiation, including bid rigging and defective pricing; and false certification.United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996) (citations omitted and emphasis added) (cited by United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir. 1997)). Coppock makes false certification claims in counts I, II, and IV. "False certification cases differ from mischarging and false negotiation cases. In these cases, parties avail themselves of benefits of some type, such as loan guarantees or agricultural supports, through false statements which create eligibility that otherwise would not exist." Id. (quoting John T. Boese, Civil False Claims and Qui Tam Actions, 1-29 to 1-30 (1995)). Courts assess false certification cases somewhat more skeptically, given that "[v]iolations of laws, rules, or regulations alone do not create a cause of action under the FCA," Id. (quoted by Thompson, 125 F.3d. at 902). Even if actionable in other contexts, not all violations of the law or of a contract constitute false claims against the government under the FCA.
As the court explained in Coppock I, to limn potentially far-reaching liability, several courts, including the Fifth Circuit, have required that for noncompliance with a statute, regulation, or contractual provision to support an FCA claim, compliance must be a prerequisite to obtaining the government benefit. See Coppock I, 2002 WL 1796979, at *11-*12. In a decision rendered after Coppock I, the en banc Fifth Circuit reiterated the prerequisite requirement in a different form:
It is only those claims for money or property to which a defendant is not entitled that are "false" for purposes of the False Claims Act . . . Although 3729(a)(2) prohibits the submission of a false record or statement, it does so only when the submission of the record or statement was done in an attempt to get a false claim paid. There is no liability under this Act for a false statement unless it is used to get the false claim paid.United States v. Southland Mgmt. Corp., 326 F.3d 669, 674-75 (5th Cir. 2003) (en banc) (citations omitted). Southland Management essentially makes clear that certification of compliance in the abstract, apart from its use to secure payment of a claim, cannot be the basis of an FCA claim. "Mere regulatory violations do not give rise to a viable FCA action . . . where regulatory compliance was not a sine qua non of receipt of [benefit]." Hopper, 91 F.3d at 1267. In its recent decision in United States ex rel. Willard v. Humana Health Plan of Texas, Inc., ___ F.3d ___, 2003 WL 21467963 (5th Cir. June 26, 2003), the Fifth Circuit stressed in the context of implied certification cases that "the critical point is that an action on which payment was conditioned had not been performed." Id. at *5 (emphasis added). The panel explained:
Other circuits that have recognized the "implied certification" theory have also set forth this requirement. See United States ex rel. Augustine v. Century Health Svs., Inc., 289 F.3d 409, 415 (6th Cir. 2002) (adopting the implied certification theory, explaining that FCA liability "can attach if the claimant violates its continuing duty to comply with the regulations on which payment is conditioned"); Mikes v. Straus, 274 F.3d 687, 700 (2d Cir. 2001) (concluding that "implied false certification is appropriately applied only when the underlying statute or regulation . . . expressly states the provider must comply in order to be paid"); United States ex rel. Siewick v. Jamieson Science Eng'g, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000) (holding that courts will "infer certification from silence, but only where certification was a prerequisite to the government action sought").Id.
Although Coppock alleges that compliance with environmental statutes and regulations and with maintenance requirements was explicitly required by contract, and he asserts that compliance was a "condition precedent to the Navy's duty to continue providing th[e] property," he does not allege that compliance with these contract terms was a true prerequisite to acceptance of rent payments and continued use of the NWIRP complex. Coppock does not allege that failure to certify statutory or contractual compliance would necessarily have resulted in termination of the leases. See Southland Mgmt., 326 F.3d at 675-77 (holding that compliance with regulations would not have led immediately to termination of housing assistance payments where intervening steps would likely have been taken before withholding payments). Even if Coppock has sufficiently pleaded that Northrop engaged in conduct that breached the lease in question, that breach does not of itself constitute a viable FCA claim.
This principle is illustrated as well in Willard.
It is clear that compliance with the regulations Willard alleges Humana violated was not a condition of payment under the contract. If Humana engaged in any practice that "would reasonably be expected to have the effect of denying or discouraging enrollment" based on health status, the Government is merely authorized to suspend future enrollment, suspend future payments, or impose monetary penalties, rather than withhold payment for those already enrolled.Willard, ___ F.3d at ___, 2003 WL 21467963, at *6.
Therefore, the parts of counts I and II in which Coppock alleges that Northrop made a false claim by certifying, expressly or impliedly, compliance with environmental statutes and regulations and with contractual maintenance provisions in return for use of the NWIRP are dismissed for failure to state a claim. Coppock has not alleged that compliance with these regulatory and contractual provisions was a prerequisite to the acceptance of rent payments or to the continued use of the NWIRP. See Willard, ___ F.3d at ___, 2003 WL 21467963, at *5 (assuming arguendo that it would recognize implied certification theory, plaintiff-relator would still lack cognizable claim because he failed to allege facts that would show that defendant conditioned its payment on any implied certification of compliance with anti-discriminatory regulations). The court grants the motion to dismiss with respect to the implied certification portions of counts I and II brought under § 3729(a)(1) and (2).
Count IV sufficiently avers, however, that compliance with the proper authorized usage requirements relating to the percentage of commercial work performed was a prerequisite to the grant of rent credits. The fact that Northrop was expressly forbidden from taking rent credits when its use of the facility to fulfill commercial aircraft contracts exceeded 25% means that the amount of commercial work performed was a prerequisite to claiming rent credits. This is true whether the certification of compliance was express or implied. Northrop's motion to dismiss count IV is therefore denied.
See 2d Am.Compl. ¶¶ 118-19:
The 87 and 93 Leases required that Northrop pay rent based on the Government's acquisition costs in the facility. In calculating the rent, Northrop was allowed a percentage-based credit for work performed at the Complex on its [United States Department of Defense] contracts. However, if Northrop made unauthorized use of the Complex, then it was expressly forbidden from taking these credits.
By express prohibition in the 87 and 93 Leases, Northrop was not authorized to use the Complex to perform any work that interfered with its performance of its contractual obligations under the Lease and was not authorized to use the Complex for more than 25% commercial work.
It is arguable that Coppock incorrectly alleges an FCA claim in count IV under § 3 729(a)(7). Taking rent credits is not, in the court's view, technically a reverse claim. In deducting rent credits, Northrop was making a claim for money, as defined by § 3729(c). Regardless, compliance is alleged as a prerequisite to the claim for rent credits, and the claim therefore would qualify under § 3729(a)(1) if not under (a)(7).
IV
The court dismisses the reverse false claim actions in counts I-III. Although Northrop has not included this ground in its motion, the court may take this action sua sponte. See Coates v. Heartland Wireless Communications, Inc., 55 F. Supp.2d 628, 633 (N.D. Tex. 1999) (Fitzwater, J.); Foreman v. Dallas County, Tex., 990 F. Supp. 505, 510 (N.D. Tex. 1998) (Fitzwater, J.) (three-judge court). "Even if a party does not make a formal motion, the court on its own initiative may note the inadequacy of the complaint and dismiss it for failure to state a claim as long as the procedure employed is fair." 5A Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1357, at 301 (2d ed. 1990).
Although Coppock asserts count V as a reverse claim, it does not appear to be properly alleged as one. Therefore, the court will not address it here. The request for funds and subsequent payment for repair of the air compressors is more aptly considered a direct claim for money. The court will not dismiss count V as a reverse claim.
In counts I, II, and III Coppock requests relief for a reverse claim under § 3729(a)(7), which provides that liability attaches where a person "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." Coppock avers that the failure to disclose chemical leaks and spills to the Navy and the EPA allowed Northrop to avoid payment for clean-up, resulting in a reverse false claim. This potential liability is not the kind of "obligation" included in § 3729(a)(7), and it cannot support a reverse false claim.
For example, Coppock alleges in count I:
These false statements were material. Had a true statement been given to the EPA, it would have resulted in an EPA enforcement action including holding Northrop liable to clean up the contamination to the NWIRP and surrounding property.
Further, at true report to the EPA would have resulted in notice to the Navy as the property owner about the contamination. The Navy would also have held Northrop liable for clean-up costs pursuant to the terms of the Leases.
2d Am.Compl. ¶¶ 54-55.
"Obligation" in the FCA has been interpreted to mean "an obligation sufficiently certain to give rise to an action of debt at common law." Am. Textile Mfrs. Inst., Inc. v. The Limited, Inc., 190 F.3d 729, 736 (6th Cir. 1999).
A defendant risks liability when making a false statement to conceal, avoid or decrease obligations such as his prior acknowledgment of indebtedness, a final court or administrative judgment that the defendant owes money or property to the government, or a contractual duty to pay or transmit money or property to the government.Id. at 736. Where the reverse claim is based upon the avoidance of
[a] potential penalty [it] does not create a common-law debt. A debt, and thus an obligation under the meaning of the False Claims Act, must be for a fixed sum that is immediately due. This regulation merely provides a range of penalties that might be assessed; it does not create an immediate duty to pay a specific sum.Id. at 735 (emphasis added and internal quotation marks deleted) (quoting United States v. Q Int'l Courier, Inc., 131 F.3d 770, 774 (8th Cir. 1997)). An obligation refers to "existing legal duties to pay or deliver property," Q Int'l, 131 F.3d at 773, rather than to speculative duties, or duties that do not exist at the time of the false statements.
See United States ex rel. S. Prawer Co. v. Verrill Dana, 946 F. Supp. 87 (D. Me. 1996):
I may negligently cause damage to another in a car accident, but morality aside, I have no tort-based obligation to pay or transmit money to her until she obtains a judgment. I may breach a contract, but absent a specific remedy provided in the contract, I have no obligation to pay or transmit money to the other contracting party until he obtains a judgment.id. at 94 (emphasis added).
Coppock does not allege that Northrop has a specific, fixed debt either to the EPA or to the Navy. Based upon the second amended complaint, it appears that the EPA and the Navy have discretion to pursue a clean-up action against Northrop and might not necessarily demand payment, nor was a specific amount set at the time of the allegedly false statements. See Am. Textile, 190 F.3d at 738 ("Contingent obligations — those that will arise only after the exercise of discretion by government actors — are not contemplated by the statute."). The Navy and the EPA could reach an agreement with Northrop to pursue clean-up, maintenance, and repairs, or they might decide that extenuating circumstances justify not doing so. The existence of discretion by the EPA and Navy and the lack of specific damages that must be paid defeat a reverse false claim action in counts I-III. A reverse claim might be available if there were set damages that a contract or statute dictated must be paid to the EPA and Navy based upon the amount of pollutant emitted (e.g., Northrop must pay the Navy $200 monthly for every gallon of hexavalent chromium released into the environment). Such established penalties would be obligations comparable to debts at common law. Under the alleged facts, however, no such claim has been made.
Because the court has taken this action sua sponte, it will give Coppock 20 days to submit a brief, not to exceed 15 pages, in which he attempts to demonstrate why this basis for dismissing reverse false claims under § 3729(a)(7) is in error. If no response is filed, or the response does not persuade the court that it has erred, it will dismiss under Rule 12(b)(6) the parts of counts I, II, and III in which Coppock seeks relief for reverse claims under § 3729(a)(7).
The court will also dismiss the conspiracy component of count III because secondary liability for conspiracy under § 3729(a)(3) cannot exist without a viable underlying claim. The FCA provides in § 3729(a)(3) that any person who "conspires to defraud the Government by getting a false or fraudulent claim allowed or paid . . . is liable to the United States Government for a civil penalty[.]" Liability for conspiracy under the FCA is governed by traditional notions of civil conspiracy. See United States v. Murphy, 937 F.2d 1032, 1039 (6th Cir. 1991) (containing general discussion of civil conspiracy in FCA context). A claim for civil conspiracy is generally not viable without the commission of an underlying wrongful act:
[C]onspiracy allegations, however, do not set forth an independent cause of action; instead, such allegations are sustainable only after an underlying tort claim has been established. See Halberstam v. Welch, 705 F.2d 472, 479 (D.C. Cir. 1983) ("Since liability for civil conspiracy depends on performance of some underlying tortious act, the conspiracy is not independently actionable; rather, it is a means for establishing vicarious liability for the underlying tort."). In the context of the present case, for example, individuals alleging false arrest must prove that they were unlawfully arrested in order for their conspiracy claims to become cognizable.McCarthy v. Kleindienst, 741 F.2d 1406, 1413 n. 7 (D.C. Cir. 1984); see K S P'ship v. Cont'l Bank, N.A., 952 F.2d 971, 980 (8th Cir. 1991) (securities fraud case). Therefore, in the instant case, where FCA conspiracy liability is based on an underlying claim that has been dismissed, the § 3729(a)(3) claim must also be dismissed.
V
Finally, Northrop moves to dismiss all of Coppock's FCA claims on the ground that he has failed to allege the materiality of the misrepresentations or false statements and reports. Count III in its entirety, and the false certification and reverse false claims components of counts I and II, have been dismissed. The court has already determined that count IV, which is based on the false certification of authorized usage of the facility to receive rent credits, alleges materiality by properly positing certification as a prerequisite. Therefore, the court will not address these allegations concerning materiality. This leaves the fraudulent inducement elements of counts I and II, and count V.Assuming arguendo that materiality is a requirement of all FCA claims, the court holds that Coppock has sufficiently alleged the materiality of the false claims statements. Northrop's challenges relate primarily to the fact that the government knew the true state of affairs and that Northrop had no affirmative duty to maintain logs and records.
The fraudulent inducement of contract claims are generally available where "the contract under which payment is made was procured by fraud." Willard, ___ F.3d at ___, 2003 WL 21467963, at *7 (citing Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 787 (4th Cir. 1999); and United States ex rel. Marcus v. Hess, 317 U.S. 537, 543-44 (1943)). Such fraudulent conduct must be material to the decision to enter into the contract. See United States ex rel. Wilkins v. N. Am. Constr. Corp., 173 F. Supp.2d 601, 637 (S.D. Tex. 2001) ("In these examples of fraud-in-the-inducement cases, the false statements were material because a reasonable agency would have acted differently in the absence of the fraud."); Weinberger v. Equifax, Inc., 557 F.2d 456, 460-61 (5th Cir. 1977) (finding that decision to hire employee must have been brought about by material misrepresentations to constitute false claim). While there has been some disagreement in this circuit about the degree of materiality required in FCA claims, see United States v. Southland Management Corp., 288 F.3d 665 (5th Cir. 2002) (detailing debate over degree of materiality required), vacated by granting of reh'g en banc, 307 F.3d 352 (5th Cir. 2002) (en banc), Coppock's allegations, see, e.g., 2d Am.Compl. ¶¶ 62-68, are sufficient even under the highest materiality standard. He alleges that Northrop consistently violated the existing leases, that this fact was hidden from and misrepresented to the government, and that Northrop pledged to comply with the obligations in the continued lease while simultaneously violating these requirements. Coppock's fraudulent inducement of contract claims adequately allege materiality.
Northrop has not challenged the concept of fraudulent inducement of contract asserted in the second amended complaint. There is little direction in the Fifth and other circuits that indicates the limits of fraudulent inducement of contract claims beyond the requirement that the misrepresentations in contract negotiations be material to the formation of the agreement. See, e.g., United States ex rel. Wilkins v. N. Am. Constr. Corp., 173 F. Supp.2d 601, 637 (S.D. Tex. 2001).
Count V also adequately alleges materiality. Coppock avers that Northrop requested $989,000 for repair of air compressors that had been destroyed. Northrop was only entitled to compensation if the compressors were damaged due to regular wear and tear. Coppock alleges that Northrop misrepresented the cause of the damage. Under any standard of materiality, the alleged misrepresentation is material to the government's decision to pay Northrop for the compressors.
Therefore, the court denies Northrop's motion to dismiss to the extent based on the contention that the alleged misrepresentations to the government were not material.
VI
Finally, Northrop contends under Rule 9(b) that Coppock has failed to plead some of his FCA fraud allegations with the required specificity. Northrop argues that the allegations in ¶¶ 21, 106, 107, 128, 139, and 140 are insufficient because they are based solely on information and belief, do not provide a factual basis for the belief, and rely only on unsubstantiated information and belief.
A
The court will not address ¶¶ 21, 106, or 107. The facts described in ¶ 21 are simply background that are not necessary to state a claim under any of Coppock's causes of action. The facts alleged in ¶¶ 106 and 107 relate to count III, which the court has addressed sua sponte and are subject to dismissal under Rule 12(b)(6).
B
Paragraph 128 alleges on information and belief that Northrop obtained $989,000 from the Navy to replace air compressors and, to obtain the payment,
either represented to the Navy that the compressors failed due to their age and wear or Northrop made the request as a capital maintenance request, failing to explain with its request that the Navy was not obligated to make this repair under the terms of the leases due to the fact that Northrop had caused the damage.
2d Am.Compl. ¶ 128. Coppock bases this allegation on the fact that "the Navy paid this money when the contracts did not obligate it to do so and that it could not legally give a gift to Northrop and would not violate the law[.]" Id.
As the court explained in Coppock I, a plaintiff may rely upon information and belief to plead fraud in compliance with Rule 9(b) when "`the facts relating to the alleged fraud are peculiarly within the perpetrator's knowledge.'" Coppock I, 2002 WL 1796979, at * 10 (quoting Thompson, 125 F.3d at 903). "`[E]ven where allegations are based on information and belief, the complaint must set forth a factual basis for such belief.'" Id. (quoting Thompson, 125 F.3d at 903).
It seems clear that there is no reason that Coppock, a Northrop engineer at NWIRP, would have personal knowledge of the representations that Northrop made to the government, and Northrop is in the best position to have such information. As such, he may plead Northrop's knowledge on information and belief. Furthermore, Coppock has set out the factual basis for his belief by asserting that the Navy would not have paid $989,000 for damage it was not required by contract to pay. The court concludes that ¶ 128 complies with Rule 9(b).
C
Coppock alleges ¶¶ 139 and 140 in support of count VI. He avers the state of mind of three individuals in a cover-up of the July 31, 1997 chemical spill and their manipulation of his actions pursuant to that cover-up. As the court explained in Nortel Networks Ltd. v. Kyocera Wireless Corp., 2002 WL 31114077 (N.D. Tex. Sept. 20, 2002) (Fitzwater, J.):
Coppock alleges in ¶¶ 139 and 140:
On information and belief, Kent's, Phillips' and McGlinchey's actual purpose in conducting the meeting was to dissuade Coppock from blowing the whistle and to undermine Coppock's account if he went to the EPA and to otherwise assist Northrop in covering up the true scope of the event.
On information and belief — due to the fact that Phillips later attempted to have Coppock lie to the EPA in violation of law and due to the fact that the promise was so quickly breached after being made — Kent, Phillips and McGlinchey had no intention of honoring their promise to maintain Coppock's confidentiality. Shortly thereafter, Coppock's identity and his statements and his blowing the whistle about the spill [were] revealed by these lawyers to union representatives and to others.
"Federal Rule of Civil Procedure 9(b), pertaining to pleading special matters, provides, in pertinent part, that `[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally.'" Heimann v. Nat'l Elevator Indus. Pension Fund, 187 F.3d 493 509 (5th Cir. 1999) (citing cases); see Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d 1134, 1138-39 (5th Cir. 1992) (addressing civil RICO claim). "The rule recognizes the unworkability and undesirability of requiring specificity in pleading a condition of mind; describing a state of mind with exactitude is inherently difficult and would lead to complexity and prolixity in pleadings." Id. (citing 5 Charles A. Wright Arthur R. Miller, Federal Practice and Procedure § 1301, at 674 (2d ed. 1990)). The Fifth Circuit has approved alleging conditions of the mind of a person at a general level. See, e.g., Belli v. Orlando Daily Newspapers, Inc., 389 F.2d 579, 589 (5th Cir. 1967) (addressing malice component of Rule 9(b)).Id. at *8. Therefore, Coppock is not required to plead with particularity the state of mind of the Northrop employees, and the court declines to dismiss Coppock's fraud claims for failure to comply with Rule 9(b).
The instant case, of course, is not a securities fraud action. "[Tuchman v. DSC Communications Corp., 14 F.3d 1061 (5th Cir. 1994),] in particular, and decisions of this court in general, that have required specificity in pleading fraudulent intent are securities fraud cases." Nortel, 2002 WL 31114077, at *8.