United States ex rel. Millin v. Krause

          ORDER

          CHARLES B. KORNMANN UNITED STATES DISTRICT JUDGE.

         BACKGROUND

         On behalf of the United States and himself, Dr. John A. Millin ("Relator, " together with the United States, "plaintiffs") filed suit on July 18, 2016, against Larry F. Krause and Krause-Allbee Trucking, Inc. ("defendants") in a qui tam action under the False Claims Act ("FCA"), Title 31 U.S.Q § 3729, et. seq., as amended, to recover damages and penalties related to defendants' alleged false claims for payment to the United States Department of Agriculture, Farm Services Agency ("FSA") in connection with farm subsidy payments, farm disaster payments, and loans for farmers. Relator alleges that defendant Krause misrepresented the ownership of Krause- Allbee Trucking by submitting filings to the FSA stating that Relator and his then spouse, Lori Millin, maintained ownership interests in Krause-Allbee Trucking, when Relator did not maintain any such ownership interest. Relator states that he discovered he did not hold any ownership interest in Krause-Albee Trucking after divorce from his then spouse, when his attorney contacted defendants to request Krause-Allbee Trucking's financial statements.

         Specifically, Relator alleges that Krause filed documents with the FSA or the United States Department of Agriculture or both in 2002, indicating that Relator and his then spouse owned stock in Krause-Allbee Trucking. Krause also allegedly signed and submitted to the FSA a document stating that Relator designated Krause-Allbee Trucking to receive FSA payments to which Relator was entitled. The same Farm Operating Plan listing ownership interests in Krause-Allbee Trucking was again filed in 2003 with the FSA. In 2004, 2005, and 2006, Relator alleges that Krause filed documents with the FSA, stating Relator and his then spouse held the same ownership interests in Krause-Allbee Trucking.

         According to plaintiffs' Complaint, filings with the FSA on behalf of Krause-Allbee Trucking for 2007, 2008, and 2009 similarly list Relator and his then spouse as holding ownership interests in Krause-Allbee Trucking. Documents from 2009 include minutes of a corporate meeting dated January 14, 2009, indicating that Relator and his then spouse were the only stockholders of Krause-Allbee Trucking. Relator alleges that additional documents from 2009, including the Farm Operating Plan, list Relator and his then spouse as guarantors of a loan to Krause-Allbee Trucking from the First State Bank of Warner, but that both Krause and the . First State Bank of Warner have represented that Relator never guaranteed such a loan. Relator further alleges that, from 2010-2015, Krause filed Farm Operating Plans with the FSA, listing Relator and his then spouse as holding ownership interests in Krause-Allbee Trucking.

         In 2002, 2006, and 2009 the FSA sent Krause-Allbee Trucking letters confirming the ' stock ownership, stating that "[y]ou are 'actively engaged in farming' and eligible for payments and benefits" and "Adjusted Gross Income provisions have been met based on your certifications." According to plaintiffs' Complaint, Krause-Allbee Trucking received subsidies from the FSA of $307, 924 in 2008, $62, 506 in 2009, $347, 134 in 2010, $72, 205 in 2011, $258, 104 in 2012 and $108, 585 in 2013. Plaintiffs' Complaint argues that the alleged false statements regarding ownership interests were material to the FSA's grant of farm subsidies, because Krause's payments would have otherwise been capped by limits on an individual's receipt of farm subsidies. By listing Relator and his then spouse as owners of Krause-Allbee Trucking, plaintiffs' Complaint alleges that "[d]efendants were able to receive farm subsidy payments to which they would not have been entitled if Krause and his wife were listed as the owners of Krause-Allbee Trucking."

         Plaintiffs' Complaint further states that Krause may have filed similar statements on behalf of Krause-Allbee Farming, Inc. or L&L General Partnership or both, and that these entities, along with K&L Land & Cattle, LLC, received subsidies from the FSA based on Farm Operating Plans submitted to the FSA.

         Plaintiffs filed claims for relief under the FCA, 3.1 U.S.C. § 3729(a)(1), (i) for presenting a false claim for payment or approval, (ii) making or using a false record or statement material to a false claim, (iii) conspiring to defraud the Government, and (iv) using a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government (also called a "reverse false claim"). Plaintiffs' Complaint also seeks a declaratory judgment pursuant to 28 U.S, C. § 2201 for Relator regarding his ownership interest in Krause-Allbee Trucking, as well as a claim of unjust enrichment against defendants for receiving payments from farm subsidy programs on Relator's behalf.

         Defendants move to dismiss plaintiffs' claims based on the statute of limitations codified in the FCA at 31 U.S.C. § 3731 (b), stating that the six-year limitation on claims bars "the majority of plaintiffs' claims. Defendants also submit that plaintiffs' Complaint failed to meet the plausibility requirement of Fed.R.Civ.P. 8(a) and the particularity requirement of Fed.R.Civ.P. 9(b) for fraud claims. Defendants further argue that plaintiffs' conspiracy claim is barred by the intracorporate conspiracy doctrine. Relator's request for declaratory judgment, defendants state, must be dismissed if the FCA claims are dismissed, as the Declaratory Judgment Act does not provide an independent basis for jurisdiction. Finally, defendants argue that Relator's claim for unjust enrichment must be dismissed, stating that Relator has not pled the elements required for such a claim. These arguments are addressed in turn below.

         Plaintiffs filed an opposition to the motion to dismiss requesting, in the alternative, leave to amend the Complaint.

         DECISION

         I. The applicable statute of limitations under the FCA, 31 U.S.C. § 3731(b)

         A motion to dismiss may be granted "when a claim is barred under a statute of limitations." Bradley Timberland Res, v. Bradley Lumber Co., 712 F.3d 401, 406 (8th Cir. 2013) (citing Varner v. Peterson Farms, 371 F.3d 1011, 1016 (8th Cir. 2004)). A court may dismiss a complaint pursuant to Fed.R.Civ.P. 12(b)(6) when it appears from the face of the complaint that the claim is time-barred and no facts are alleged to avoid the bar of the statute. Wong v. Wells Fargo Bank N.A., 789 F.3d 889, 897 (8th Cir. 2015) (citing Illig v. Union Elec. Co., 652 F.3d 971, 976 (8th Cir. 1995)); Varner v. Peterson Farms. 371 F.3d 1011, 1016 (8th Cir.2004); and Brictson v. Woodrough, 164 F.2d 107 (8th Cir. 1947). In deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a court must assume "all facts in the complaint to be true" and must construe "all reasonable inferences most favorably to the complainant." U.S. ex rel. Raynor v. Nat'l Rural Utilities Co-op. Finance. Corp., 690 F.3d 951 (8th Cir. 2012) (citing B&B Hardware, Inc. v. Hargis Indus., Inc., 569 F.3d 383, 387 (8th Cir.2009); and Eckert v. Titan Tire Corp,, 514 F.3d 801, 806 (8th Cir.2008)).

         Assuming that all of the facts in plaintiffs' Complaint are true and drawing inferences in plaintiffs' favor, plaintiffs' claims allege that defendants may have committed violations of the FCA each year from 2002-2015. However, 31 U.S.C. § 3731(b) provides that a civil action may not be brought under the FCA

(1) more than 6 years after the date on which the violation of section 3729 is committed, or

(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.

         Whether 31 U.S.C. § 3731(b)(1) or (b)(2) applies in the instant case, then, determines whether false claims submitted after 18 July 2010 or 18 July 2006 remain viable. Because it is clear from the face of the Complaint that plaintiffs plead claims that may be barred by the statute of limitations-specifically, any false claims allegedly submitted by defendants prior to either of these dates-we may decide this issue as raised in the defendants' motion to dismiss.

         Plaintiffs and defendants acknowledge that where, as here, the government declines to join a civil action brought by a private person, the Eighth Circuit has not determined which limitations period applies. Moreover, circuit courts are split on this issue. As a question of first impression in our circuit on which a number of courts are in disagreement, then, this Court undertakes a review of rationale given by leading opinions regarding which statute of limitations applies to private actions brought under the FCA.

         Why Congress has not acted over a period of 25 years to address all these questions and different interpretations of the statute is a mystery to me. This inaction is a detriment to litigants and the courts.

         a. Interpretations of3lU.S.C. § 3731(b) in the Eighth Circuit

         In their motion to dismiss plaintiffs' claims as barred by the statute of limitations, defendants state that the six-year limitation applies here, "as the three-year limitation applies only to the government." In support of this statement, defendants cite an unreported case (U.S. ex rel. Read v. Central Plains Clinic, 1998 WL 663330 (D.S.D. 1998)), an Eighth Circuit case in which the six-year statute of limitations was not on appeal and so not considered in the Court's decision (Baycol Prods. Litig., 732 F.3d 869 (2013)), and two cases from the District of Minnesota which cite an Eighth Circuit case, Joshi, as precedent (U.S. ex rel. Dicken v. Nw. Eye Center, P.A., 2017 WL 2345579 (D. Minn. 2017); and U.S. ex rel. Sammarco v. Ludeman, 2010 WL 681454 (D. Minn. 2010) (unreported)). The Court in Joshi, however, in fact declined to decide whether § 3731(b)(2) applies where the government does not intervene (U.S. ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 559 (8th Cir. 2006)). There is no case law that otherwise determines how this Court must decide this issue.

         Courts have recognized three approaches to interpreting how the statute of limitations in 31 U.S.C. § 3731(b) applies to actions brought by a private person in which the government declines to intervene. The first approach, which defendants argue this court should adopt, interprets § 3731(b)(2) as applying to the government only and as inapplicable in cases where the government does not intervene. U.S. ex rel. Sanders v. N. Am, Bus. Indus., Inc., 546 F.3d 288 (4th Cir. 2008). The second approach asserts that private parties are entitled to the 10 year statute of limitations § 3731(b)(2) and that the limitations period begins on the date the government should have known of facts material to the right of action. U.S. ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., 474 F.Supp.2d 75 (D.D.C. 2007). Finally, the third approach is that the private party stands in for the government where the government declines to intervene, and that the limitations period begins to run on the date that the plaintiff knew or should have known the facts relevant to the right of action. U.S. ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996).

         b. First approach: Limiting private plaintiffs to the six year limitations period

         In Sanders, the Fourth Circuit decided that, based upon a claimed plain reading of § 3731(b), it is clear that Congress intended clause (b)(2) of that section to apply only to cases in which the government is a party, as reading clause (b)(2) to apply when the government is not a party produces the "bizarre" result in which "the limitations period in a relator's action depends on the knowledge of a nonparty to the action." U.S. ex rel. Sanders v. N. Am. Bus. Indus., Inc., 546 F.3d 288, 293 (4th Cir. 2008). Such an interpretation of the government's awareness of facts relevant to the claim "does not notify the relator of anything, so that knowledge cannot reasonably begin the limitations period for a relator's claims." Id. at 294. Moreover, the government official responsible for acting on such knowledge cannot "be charged with any responsibility other than to see that the government brings or joins an FCA action within the limitations period." Id. There is no responsibility for such official to assume that a private party will bring an FCA action.

         The Fourth Circuit further explains that, following the Supreme Court's decision in Graham, it is clear that the reference to a "civil action" in § 373 l(b)'s preface should not be interpreted to mean that all civil actions are covered by each clause of § 3731(b), but rather that "only a subset of civil actions may benefit from the extended limitations period in § 3731(b)(2)-those in which the government is a party." Id. at 295 (citing Graham Cty. Soil & Water Conservation Dist. v. ex rel. Wilson, 545 U.S. 409, 411 (2005)). The Fourth Circuit notes that § 3731(b)(2) is almost identical to another federal statute, 28 U.S.C. § 2416(c), which "tolls the generally applicable statute of limitations in actions brought by the United States-and only by the United States--until 'facts material to the right of action' are actually or constructively known by an 'official of the United States charged with the responsibility to act in the circumstances.'" Sanders at 294 (internal citations omitted). It is argued then that Congress transcribed language enacted in 28 U.S.C. § 2416(c), which applies only to the government, when adopting § 3731(b)(2), suggesting that Congress intended § 3731(b)(2) to similarly only apply to the government.^[1] Id.

         Interpreting § 3731 (b)(2) to apply to private plaintiffs could result in unfavorable outcomes. In addition to requiring defendants, in asserting a statute of limitations defense, "to seek out and litigate the identity and knowledge of a government official not a party to the action, " it would also allow private plaintiffs to delay in filing an action, increasing their own recovery in doing so and rendering the six-year statute of limitations in § 3731(b)(1) superfluous. Id. at 295. A private plaintiffs failure to timely file a claim may also cause the government to lose the opportunity to bring a criminal action for the fraud, which must be filed "within five years of the violation, " although this outcome could also occur in the event a plaintiff exercises the full six-year limitations period set forth in ...