U.S. ex rel., Sequoia Orange Co. v. Baird-Neece Packing Corp.

Page 1139

151 F.3d 1139

98 Cal. Daily Op. Serv. 4710, 98 Daily Journal

D.A.R. 6688

UNITED STATES of America, Ex Rel., SEQUOIA ORANGE COMPANY Lisle Babcock, Plaintiffs-Appellants, v. BAIRD-NEECE PACKING CORPORATION; Sunkist Growers Inc. Sunland Packing House Company; San Joaquin Citrus; Baker Brothers Sunkist Packing House; Dept. of Agriculture Clayton Yeutter, Secretary of Agriculture; Jack Parnell Deputy Secretary of Agriculture; Joann Smith, Assistant Secretary of Agriculture; Dan Haley, Administrator, Agricultural Marketing Service; Kaweah Citrus Association; Oxnard Lemon Company; Edward Madigan, Secretary of Agriculture; Mission Citrus Company; Ventura Pacific Company; Saticoy Lemon Association; Dole Citrus, a California corporation aka Blue Goose Growers, Inc., dba Central Valley Citrus; Strathmore Packing House Company; Millwood Packing Inc.; Blue Banner Company Inc.; Ventura County Fruit Growers, Inc.; Limonera Company, Defendants-Appellees. Kendall L. Nanock, Fresno, California, for Grand View defendants-appellees.

No. 96-15024.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 7, 1997.

Decided June 19, 1998.

James Moody, Washington, DC, for plaintiffs-appellants.

Brian C. Leighton, Clovis, California, for plaintiffs-appellants.

Douglas Letter, United States Department of Justice, Washington, DC, for defendants-appellees.

Michael H. Bierman, Tuttle & Taylor, Los Angeles, California, for defendant-appellee Sunkist Growers.

Robert L. Compton, Laura K. McAvoy, Susan M. Seemiller, Nordman, Cormany, Hair & Compton, Oxnard, California, for defendants-appellees Ventura Pacific Co. & Saticoy Lemon Assn.

Gerald D. Vinnard, Thomas, Snell, Jamison, Russell and Asperger for defendant-appellee Stark Packing Corp.

Kendall L. Manock, Fresno, California, Robert D. Wilkinson, Douglas M. Larsen, Baker, Manock & Jensen, for defendants-appellees Baird-Neece Packing Corp., Sunland Packing House Co., San Joaquin Citrus Assn., and Dole Citrus.

Appeal from the United States District Court for the Eastern District of California; Oliver W. Wanger, District Judge, Presiding. D.C. Nos. CV-88-00566-OWW, 89-00002-OWW, 89-00050-OWW, 91-00194-OWW, 91-00195-OWW, 91-00196-OWW, 91-00197-OWW, 93-05016-OWW, 94-05287-OWW, 94-05288-OWW, 94-05289-OWW, 94-05290-OWW, 94-05291-OWW.

Before: SNEED, SCHROEDER and BRUNETTI, Circuit Judges.

SCHROEDER, Circuit Judge:

This is a qui tam case under the False Claims Act (FCA). One citrus company seeks damages from other citrus companies, claiming that they made false statements to the government in connection with a citrus marketing program. The government intervened several years after the litigation began and sought dismissal under 31 U.S.C. § 3730(c)(2)(A) because it had decided to abandon the entire marketing program. The case must be seen against the background of a war in the citrus industry related to the administration of that program. The district court granted the government's motion to dismiss, finding that the government's decision to end that war on all fronts, including dismissal of the qui tam claims, was rationally related to a legitimate governmental purpose. See United States ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F.Supp. 1325 (E.D.Cal.1995).

The qui tam relators appeal contending that because the false claims actions had some merit, the government cannot seek dismissal. The appeal thus requires us to consider what standard a court should apply when considering the government's motion to dismiss a qui tam action that otherwise would not be dismissed before the litigation was fully resolved. We affirm.

BACKGROUND

Sequoia Orange Company (an orange processor) and Lisle Babcock (an orange grower) filed 34 qui tam actions against a number of citrus industry growers and packinghouses alleging violations of the orange and lemon marketing orders promulgated by the Secretary of Agriculture pursuant to the Agricultural Marketing Agreement Act of 1937 (AMAA), 7 U.S.C. §§ 601-626. The relators began filing the actions in 1988.

The AMAA "authorizes the Secretary of Agriculture to issue marketing orders limiting the quantity of commodities shipped into markets identified by the Secretary, thus protecting prices for producers and maintaining orderly marketing conditions." Cecelia Packing Corp. v. USDA, 10 F.3d 616, 618 (9th Cir.1993). The Secretary in 1984 had issued orange and lemon marketing orders that regulated the quantity of oranges and lemons shipped to market by citrus handlers in Arizona and California. See 7 U.S.C. § 608c; 7 C.F.R. §§ 907.1, 908.1, 910.1 (1994). Citrus handlers who ship oranges and lemons in excess of their allotment ("prorate") are subject to criminal fines and civil penalties. See 7 U.S.C. §§ 608a(5), 608c(14).

The qui tam relators alleged that the defendants had, over the course of approximately ten years, violated the prorate provisions of the orange and lemon marketing orders by over-shipping citrus and failing accurately to report, account and pay assessments for those overshipments. Prior to the expiration of the 60-day seal period, see 31 U.S.C. § 3730(b)(2), the government elected to intervene in 10 of the qui tam cases.

As the relators were filing their qui tam complaints, the government was also filing prorate violation claims under the AMAA against citrus industry growers and packinghouses, including Sequoia Orange Company. After discovering growing evidence of widespread prorate violations in the industry, the Secretary concluded that the prorate cheating reflected dissatisfaction with the citrus marketing orders, and that the orders had become divisive. In June 1993 the Secretary formally suspended orange and lemon prorate regulation and invited the citrus industry to propose amendments to the marketing orders.

Simultaneously, the government proposed a settlement of all AMAA and FCA cases alleging prorate violations in order to end industry turmoil. To facilitate the settlement, the government moved to intervene in the remaining 24 qui tam cases pursuant to 31 U.S.C. § 3730(c)(3), which permits the government to intervene in a qui tam action at any time "upon a showing of good cause." The district court granted the motion, over the relators' objections, on the basis of the government's representations that it would litigate the qui tam actions, in conjunction with the AMAA cases, if a settlement could not be reached.

While the settlement negotiations were proceeding, the district court ruled in April 1994 that the 1984 orange marketing orders were unlawfully promulgated and that the prorate provisions of the orange marketing orders were therefore invalid. See United States v. Sunny Cove Citrus Ass'n, 854 F.Supp. 669, 697 (E.D.Cal.1994). The Sunny Cove case involved the government prosecution of another citrus handler, Sunny Cove, for violations of orange prorate regulations. Sunny Cove successfully defended the prosecution on the ground that the Secretary's reinstatement of prior marketing orders was invalid. That decision made settlement less likely in these qui tam cases because the overwhelming majority of qui tam and AMAA actions were based on the invalidated prorate regulations.

In May 1994, the Secretary announced his decision to terminate the citrus marketing orders, dismiss all pending AMAA actions, and withdraw from the FCA cases. The Secretary justified this decision on the failure of the settlement negotiations, the prospect of more litigation after the Sunny Cove decision, and the desire to end the divisiveness in the citrus industry caused by over ten years of litigation. The Secretary concluded that the best way to advance the interests of the industry was to "clean the slate."

At the time of the Secretary's announcement, the government apparently did not believe it had the authority to dismiss the qui tam actions over the relators' objections. After soliciting advice from all parties on the government's authority to dismiss under 31 U.S.C. § 3730(c)(2)(A), the government moved for dismissal in August, 1994, citing six reasons: (1) to end the divisiveness in the citrus industry; (2) to facilitate a new marketing order; (3) to terminate protracted and burdensome litigation; (4) to protect the United States' taxpayers from continuing and escalating litigation expenses; (5) to curtail the drain on private resources resulting from the litigation; and (6) to allow the growers, agricultural cooperatives, handlers and others to work together in shaping new marketing tools.

After a four-day evidentiary hearing, the district court granted the government's motion to dismiss the qui tam actions, ruling that the government sought dismissal for legitimate government purposes; that the reasons offered by the government were rationally related to these legitimate government purposes; and that the dismissal was not arbitrary or capricious. See 912 F.Supp. at 1353. The relators appeal, contending that the district court could not dismiss on the government's motion unless the court found the cases lacked merit.

DISCUSSION

The legal issues turn on the provisions of the False Claims Act as it was amended in 1986. Under the qui tam provisions of the FCA, a private individual, referred to as a relator, may file an action on behalf of the federal government against any individual or company who has knowingly presented a false claim to the government for payment. See 31 U.S.C. §§ 3729(a), 3730(b). A successful relator will generally receive a share of the civil fines imposed and be eligible for attorneys' fees and costs. See 31 U.S.C. § 3730(d); United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230, 233 (9th Cir.1997).

To proceed with a qui tam action, the relator must serve a copy of the complaint on the government 60 days before it is served on the defendant. See 31 U.S.C. § 3730(b)(2). During the 60-day period, the government can investigate the complaint's allegations...