United States District Court, M.D. Alabama, Eastern Division
D. LAND, U.S. DISTRICT COURT JUDGE.
Lasonia Carlisle and Jimmy Arwood allege that Defendants
Daewon Kangup Co., Ltd., Daewon America, Inc., Andrew Dooho
Hurr, and Won Kwon conspired to submit false claims to the
government, in violation of the federal False Claims Act, 31
U.S.C. §§ 3729-3733, and several state
counterparts. Defendants filed a motion to dismiss for
failure to state a claim (ECF No. 36). The Magistrate Judge
recommended granting this motion. R. & R. on
Defendants' Mot. to Dismiss for Failure to State a Claim
(“R. & R. on 12(b)(6) Mot.”), ECF No. 59. The
Magistrate's recommendation to dismiss the federal law
claims in Relators' First Amended Complaint for failure
to state a claim is adopted for the reasons set forth below.
The Court also agrees with the Magistrate that with no
federal claims remaining to be litigated in this proceeding,
it is appropriate to decline supplemental jurisdiction over
the state law claims, which are dismissed without prejudice.
Daewon Kangup Co., Ltd. also filed a motion to dismiss for
lack of personal jurisdiction (ECF No. 34). The Magistrate
recommended granting that motion. R. & R. on Defendant
Daewon Kangup Co., Ltd.'s Mot. to Dismiss for Lack of
Personal Jurisdiction, ECF No. 58. Given that the First
Amended Compliant is dismissed in its entirety, the Court
finds it unnecessary to reach the question whether the
Magistrate was correct to recommend dismissal under Rule
12(b)(2) without permitting jurisdictional discovery. Daewon
Kangup's motion to dismiss for lack of personal
jurisdiction (ECF No. 34) is terminated as moot.
Court designated the Magistrate to submit recommendations for
the disposition of any pretrial motions in this case. The
Magistrate recommended that Defendants' 12(b)(6) motion
be granted. See generally R. & R. on 12(b)(6)
Mot. Relators filed an objection to the Magistrate's
recommendation. Pl.'s Obj. to R. & R. on 12(b)(6)
Mot., ECF No. 60. The Court “shall make a de novo
determination of those portions of the report or specified
proposed findings or recommendations to which objection is
made.” 28 U.S.C. § 636(b)(1). The Court “may
accept, reject, or modify, in whole or in part, the findings
or recommendations made by the magistrate judge.” 28
U.S.C. § 636(b)(1).
Magistrate's Recommendation contains an excellent
discussion of the elements for a viable claim under the False
Claims Act, as well as the pleading standard for such claims.
The Court finds it unnecessary to repeat that discussion
here. Relators make the following claims.
Relators assert that Defendants, who manufacture automobile
parts, violated 31 U.S.C. §§ 3729(a)(1)(A) and (B)
by disregarding test results showing that certain automobile
parts were defective and then selling those defective parts
to automobile manufacturers. Relators further allege that the
automobile manufacturers placed Defendants' defective
parts in automobiles that may have been sold to federal or
state agencies. For the reasons explained by the Magistrate,
Relators' allegations with regard to this conduct do not
sufficiently plead a False Claims Act claim, and the Court
adopts the Magistrate's order as its own.
Relators contend that Defendants violated 31 U.S.C.
§§ 3729(a)(1)(A) and (B) when they sold allegedly
defective parts to General Motors while the United States was
the majority shareholder of the company (“New
GM”). Relators contend that false claims presented to
New GM should be considered claims presented to the federal
government. For the reasons set forth by the Magistrate,
Relators' allegations with regard to this conduct do not
sufficiently plead a False Claims Act claim. The Court also
finds the Government's argument in its statement of
interest to be persuasive: a claim presented to New GM, a
private corporation, is not a “claim” presented
to the United States. See generally United
States' Statement of Interest, ECF No. 51. For these
reasons, Relators' claims based on allegedly defective
parts that were sold to New GM are dismissed.
Relators assert that Defendants conspired to violate 31
U.S.C. § 3729(a)(1)(A) and (B). For the reasons
explained by the Magistrate, Relators did not adequately
allege that Defendants conspired to cause false claims to be
submitted to the Government.
Relators contend that Defendants made reverse false claims in
violation of 31 U.S.C. § 3729(a)(1)(G). The
Magistrate's recommendation did not clearly address this
claim, but the Court finds that it should be dismissed. It is
a violation of the False Claims Act for a person to make,
use, or cause to be made or used “a false record or
statement material to an obligation to pay or transmit money
or property to the Government.” 31 U.S.C. §
3729(a)(1)(G). It is also a violation to conceal, avoid, or
decrease “an obligation to pay or transmit money or
property to the Government.” Id.
Relators assert that Defendants could potentially be subject
to civil penalties based on their concealment of alleged
defects in their products. But a reverse false claim requires
an “obligation, ” which “means 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.” 31 U.S.C. §
3729(b)(3). The civil penalties Relators argue that
Defendants owe the Government are contingent on the exercise
of administrative discretion. At least one Circuit has
concluded that this type of contingent liability is not an
“obligation” for purposes of a reverse false
claim. See, e.g., United States ex rel. Simoneaux v. E.I.
duPont de Nemours & Co., 843 F.3d 1033, 1039 (5th
Cir. 2016) (explaining that if “a regulatory penalty
has not been assessed and the government has initiated no
proceeding to assess it, there is no established duty to
pay” and distinguishing False Claims Act claims based
on failure to pay customs duties). The Court finds the Fifth
Circuit's rationale persuasive. Accordingly,
Relators' reverse false claim fails and must be
dismissed, along with any conspiracy claim based on alleged
reverse false claims.
discussed above, the Court adopts the Magistrate's
recommendation to grant Defendants' motion to dismiss
Relators' False Claims Act claims for failure to state a
claim (ECF No. 36). The False Claims Act claims are dismissed
with prejudice. The Court recognizes that Relators asked for
leave to file a Second Amended Complaint if the Court found
that their First Amended Complaint failed to state a claim.
Relators did not file a proposed Second Amended Complaint or
explain how more careful ...