United States ex rel. Tracy v. Emigration Improvement Dist.

UNITED STATES OF AMERICA ex rel. MARK CHRISTOPHER TRACY, Plaintiff - Appellant, v. EMIGRATION IMPROVEMENT DISTRICT, a Utah Special Service District; FRED A. SMOLKA, an individual; MICHAEL HUGHES, an individual, DAVID BRADFORD, an individual; MARK STEVENS, an individual; LYNN HALES, an individual; ERIC HAWKES, an individual; BARNETT INTERMOUNTAIN WATER CONSULTING, a Utah corporation; DON BARNETT, an individual; JOE SMOLKA, an individual; KENNETH WILDE, an individual; RONALD R. RASH, an individual; KEVIN W. BROWN, an individual; MICHAEL B. GEORGESON, an individual; THE BOYER COMPANY, a Utah company; CITY DEVELOPMENT, a Utah corporation; R. STEVE CREAMER, an individual; CAROLLO ENGINEERS, INC., a California professional corporation, Defendants - Appellees.

UNITED STATES OF AMERICA EX. REL. MARK CHRISTOPHER TRACY, Plaintiff - Appellant, v. EMIGRATION IMPROVEMENT DISTRICT, a Utah Special Service District; FRED A. SMOLKA, an individual; MICHAEL HUGHES, an individual; DAVID BRADFORD, an individual; MARK STEVENS, an individual; LYNN HALES, an individual; ERIC HAWKES, an individual, Defendants - Appellees, and BARNETT INTERMOUNTAIN WATER CONSULTING, a Utah corporation; DON BARNETT, an individual; JOE SMOLKA, an individual; KENNETH WILDE, an individual; RONALD R. RASH, an individual; KEVIN W. BROWN, an individual; MICHAEL B. GEORGESON, an individual; THE BOYER COMPANY, a Utah company; CITY DEVELOPMENT, a Utah corporation; R. STEVE CREAMER, an individual; CAROLLO ENGINEERS, INC., a California professional corporation, Defendants.

Nos. 21-4059, 21-4143

United States Court of Appeals, Tenth Circuit

November 1, 2022

(D.C. No. 2:14-CV-00701-JNP) (D. Utah) Before TYMKOVICH, BALDOCK, and CARSON, Circuit Judges.

ORDER AND JUDGMENT ^[*]

Joel M. Carson III Circuit Judge

Mark Tracy, acting as a qui tam relator, brought suit on behalf of the United States alleging that Emigration Improvement District (the District) and various other defendants made false statements to obtain a federal loan for a water project in violation of the False Claims Act (FCA), 31 U.S.C §§ 3729 et seq., and that after the loan proceeds were disbursed, the District failed to comply with conditions of the loan and failed to report this noncompliance to the United States government.^[1] In the operative complaint-the third amended complaint-he asserted a reverse false claim under § 3729(a)(1)(G) and a direct false claim under § 3729(a)(1)(A) and (B). In a series of orders entered over the course of the litigation, the district court dismissed both claims against all defendants. In Appeal No. 21-4059, Mr Tracy appeals the district court's orders dismissing his direct false claim against all defendants as untimely under 31 U.S.C. § 3731(b)(2). He does not appeal the order dismissing the reverse false claim. In Appeal No. 21-4143 Mr. Tracy appeals the district court's order awarding attorneys' fees to a subset of defendants pursuant to the FCA's fee-shifting provision, 31 U.S.C. § 3730(d)(4). We procedurally consolidated the appeals and, exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm both orders.^[2]

Background

Our decision in Mr. Tracy's prior appeal describes most of the factual and procedural background of the underlying litigation in some detail. See United States ex. rel. Tracy v. Emigration Improvement Dist. (Tracy I), 804 Fed.Appx. 905, 907-09 (10th Cir. 2020). We do not repeat that background here, other than as necessary to provide context for our consideration of the issues presented in this appeal.

In Tracy I, we remanded for the district court to decide whether Mr. Tracy filed his complaint within the ten-year period established by § 3731(b)(2). See 804 Fed.Appx. at 909. Following remand, a subset of defendants-Carollo Engineers, Inc., the District, Michael Hughes, Mark Stevens, David Bradford, Fred Smolka, Lynn Hales, Eric Hawkes, and Steve Creamer-filed motions to dismiss the remaining claim against them pursuant to Fed.R.Civ.P. 12(b)(6) as time-barred.^[3] The issue was whether the period started to run when the District filed the last claim for payment or on the date the government paid that claim. The parties did not dispute the relevant dates-according to documents attached to the third amended complaint, the District submitted its final request for payment on September 13, 2004, and the government paid the claim on September 29, 2004. Mr. Tracy filed suit on September 26, 2014-more than ten years after the District submitted the final claim but less than ten years after the government paid it.

The district court concluded that the relevant date for purposes of § 3731(b)(2) was the date the District submitted its final request for payment and that because Mr. Tracy filed suit more than ten years from that date, the claim was time-barred. The court thus granted the motions to dismiss and dismissed the claim against the moving defendants. The court then ordered Mr. Tracy to show cause why the claim should not also be dismissed as to the remaining defendants. He conceded that, in light of the court's decision on the motions to dismiss, his claim against the remaining defendants should be dismissed. Accordingly, the court dismissed the claim against those defendants and entered judgment in favor of all defendants.

A different subset of defendants-the District, Michael Hughes, Mark Stevens, David Bradford, Fred Smolka, Eric Hawkes, and Lynn Hales-then moved for attorneys' fees and costs pursuant to § 3730(d)(4).^[4] The district court granted the motion after concluding that the action was clearly vexatious and brought for the purpose of harassment.

Discussion 1. Dismissal Order - Appeal No. 21-4059

Mr Tracy first contends that the district court erred in concluding that the period for filing his claim started running when the District made its final request for payment. He insists that his claim was timely filed because the time period did not begin to run until the last date the government suffered damages-the date on which it made the payment induced by the last false claim. We disagree.

We review the district court's Rule 12(b)(6) dismissal de novo. Brooks v. Mentor Worldwide LLC, 985 F.3d 1272, 1278 (10th Cir.), cert. denied, 142 S.Ct. 477 (2021). "A complaint is subject to dismissal for failure to state a claim if the allegations, taken as true, show the plaintiff is not entitled to relief." Jones v. Bock, 549 U.S. 199, 215 (2007). If the allegations show that the claim is time-barred, the complaint is subject to dismissal for failure to state a claim. Id. We review de novo whether a district court properly applied a limitations period, including its determination of the date the period began to run. Nelson v. State Farm Mut. Auto. Ins. Co., 419 F.3d 1117, 1119 (10th Cir. 2005).

Section 3731(b)(2) sets forth two limitations periods that apply to relator-initiated civil suits under the FCA. See Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S.Ct. 1507, 1511-12 (2019). Specifically, it provides:

A civil action under section 3730 may not be brought . . . 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.

§ 3731(b)(2).

The different start dates for the two time periods is significant. The three-year period is a typical statute of limitations that starts to run when the government knew or should have known about the fraud, while the ten-year period is a statute of repose that places an outer limit on the otherwise applicable statute of limitations. See CTS Corp. v. Waldburger, 573 U.S. 1, 7-8 (2014) (discussing the difference between statutes of limitations and statutes of repose); Nat'l Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc., 764 F.3d 1199, 1211 (10th Cir. 2014) (same). As is the case for many repose periods, the ten-year period in § 3731(b)(2) starts running when a specific event occurs, not when the alleged injury occurs. See CTS Corp., 573 U.S. at 8 (explaining that statutes of limitations typically begin to run when a cause of action accrues, meaning when the alleged injury occurred or was discovered, while a statute of repose begins to run when a specific event occurs, often "the date of the last culpable act or omission of the defendant . . ., even if [the repose] period ends before the plaintiff has suffered a resulting injury" (internal quotation marks omitted)). That date is the date the "violation is committed." § 3731(b)(2).

The question then, is when the defendants' alleged FCA violation was committed. Mr. Tracy's claim alleged the defendants violated § 3729(a)(1)(A) and (B), which impose civil liability when a person "knowingly presents, or causes to be presented" to the government "a false or fraudulent claim for payment or approval," § 3729(a)(1)(A), or uses a false record or makes a false statement material to a false claim, § 3729(a)(1)(B). Liability thus stems from the act of making a false claim, not from the government's payment of the claim. See United States ex rel. Sorenson v. Wadsworth Bros. Constr. Co., 48 F.4th 1146, 1151 (10th Cir. 2022) ("The FCA imposes liability for fraudulent attempts to cause the government to pay out sums of money." (emphasis added) (internal quotation marks omitted)); see also Rex Trailer Co. v. United States, 350 U.S. 148, 152-53 &n.5 (1956) (recognizing that under a statute that is "essentially the equivalent" of the FCA, a contractor who submits a false claim for payment may be liable even if the claim did not actually induce the government to pay out funds or to suffer any loss).^[5] We...