A federal judge in Pittsburgh has closed a qui tam case involving highway projects that was first filed 10 years ago.
In 2003, a recent retiree from the Pennsylvania Department of Transportation had filed the suit alleging that CMC Engineering had defrauded the federal government, which funds many state highway projects, by inflating the experience level of its employees.
U.S. District Judge Cathy Bissoon of the Western District of Pennsylvania, however, found that the engineering firm hadn’t acted with intent to defraud the government and granted it summary judgment.
The federal government declined to intervene in the False Claims Act suit.
"Arnold claims that CMC violated the FCA by submitting bills to PennDOT for inspection services performed by engineers who were improperly classified under the standard form, which resulted in overbillings that were then passed on to the federal government," Bissoon said, referring to August Arnold, who brought the suit on behalf of the U.S. Department of Transportation. The case is captioned Arnold v. CMC Engineering.
"Because Arnold has not met his burden in proving that CMC acted with the requisite scienter, however, CMC’s motion for summary judgment will be granted," Bissoon said.
She was assigned the case after U.S. District Judge Gary Lancaster, who had been chief of the Western District of Pennsylvania, died in April. Lancaster had taken on the case in 2006, after then-U.S. District Judge Thomas Hardiman recused himself when the law firm of Reed Smith entered an appearance. Hardiman had been a partner at Reed Smith before joining the bench. He has since been elevated to the U.S. Court of Appeals for the Third Circuit.
That court, through a three-judge panel that didn’t include Hardiman, vacated Lancaster’s dismissal of the case in 2009 because of an intervening ruling from the U.S. Supreme Court. Lancaster had dismissed the case, citing the FCA’s requirement that a fraudulent claim must be presented to the federal government, not simply a grantee of federal funds like PennDOT, and no such thing had happened in this case.
The Third Circuit noted in its 2009 opinion that while the case was pending, the high court had ruled in Allison Engine v. United States ex rel. Sanders, a decision that "categorically precludes liability under the FCA when fraudulent claims induce private entities to disburse federal funds over which the private entity has complete control," according to the Third Circuit opinion. "In other words, if the federal government provides money in a lump sum to a grantee, and is thereafter uninvolved in the disbursement of the funds, the FCA does not apply. However, the court left open the possibility that, if the federal government is somehow involved in the grantee’s disbursement of federal money, FCA liability may exist."
The Third Circuit asked the district court to examine the extent to which there might be a distinction between public and private grantees in the application of the FCA.
But, in response to the Supreme Court’s Allison Engine decision, Bissoon said, "Congress clarified that liability under the FCA ‘attaches whenever a person knowingly makes a false claim to obtain money or property, any part of which is provided by the government without regard to whether the wrongdoer deals directly with the federal government; with an agent acting on the government’s behalf; or with a third-party contractor, grantee, or other recipient of such money or property.’"
In a footnote, she cited a Sixth Circuit opinion from last year holding that the amendment to the FCA legislatively overruled Allison Engine. That case was captioned United States ex rel. Wall v. Circle C Construction.
Still, Bissoon ruled that Arnold hadn’t met the burden for proving that CMC Engineering had "acted with the requisite scienter."
By including the scienter requirement, that there must be proof of the defendant’s intent to defraud, Congress was clear that it didn’t want to punish mistakes or negligence, Bissoon said.
"While courts should be hesitant to grant summary judgment when a case turns on a state of mind determination," she said, citing the Fifth Circuit’s 2008 opinion in United States ex rel. Taylor-Vick v. Smith, "they are not prohibited from doing so in an FCA case when there is no genuine dispute as to whether the defendant acted knowingly."
In this case, she found that Arnold hadn’t proven that CMC Engineering had clear knowledge that its consultant inspectors lacked qualification.
Further, Bissoon held that the engineering company’s lack of scienter was supported by PennDOT’s practice of asking for certain inspectors to be submitted above their actual classification in order to secure their services.
She noted that the Second, Fourth, Ninth and Tenth circuits have adopted the doctrine of "government knowledge inference," which acknowledges that the submission of a potentially false claim isn’t subject to the FCA if the government is aware of and approves of the underlying facts in the claim.
"Although the Court of Appeals for the Third Circuit has not addressed the issue, it has striven for consistency with other circuits on the interpretation of the FCA generally. … This court, therefore, will apply the inference," Bissoon said.
"We’ll have to wait and see what happens next," said Paul Logan of Powell, Trachtman, Logan, Carrle & Lombardo in King of Prussia, Pa., who is representing CMC Engineering. He noted that the dozen or so other defendants who had originally been named had all either settled or been dismissed.
James Ashton, a Pittsburgh lawyer who is representing Arnold, couldn’t be reached for comment.
(Copies of the 14-page opinion in Arnold v. CMC Engineering, PICS No. 13-1197, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •