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California District Court Dismisses False Claims Act Suit

The U.S. District Court for the Southern District of California recently dismissed a False Claims Act (FCA) suit because, among other things, the allegedly false statements were not obviously material to the Government’s decision to pay the claim at issue.

In United States ex rel. Durkin v. County of San Diego, the County filed various grant applications with the Federal Aviation Administration (FAA) in order to receive funds to use in developing a local airport.  Among other things, the County was required to follow certain requirements with respect to the land surrounding the airport so as to protect airport operations from hazards on the ground, and people and property on the ground from hazards created by airport operations.  Among other things, the County agreed that it would either try to acquire the surrounding property or would prevent surrounding property owners from using the property for certain activities or from constructing certain types of facilities or buildings, and also agreed to follow various federal laws, regulations, and guidelines regarding acquisition or use of land surrounding the airport.  The plaintiff alleged that the County’s statements were false when made because the County never intended to undertake the obligations regarding the surrounding land that it had promised to do in its FAA grant applications.

In ruling on the County’s motion to dismiss, the Court found that the complaint did not explain how the allegedly false statements were material to the Government’s decision to eventually reimburse the County for the airport project.  Pursuant to the Supreme Court’s decision last year in Universal Health Services, Inc. v. United States ex rel. Escobar, the Court noted that the materiality standard in FCA cases is “demanding.”  An alleged misrepresentation would not be material merely because the Government designates compliance with a particular statute, regulation, or contractual requirement as a condition of payment or because the Government would have the option to decline to pay if it knew of the noncompliance.  The Court also noted that it would consider whether there is any relationship between the subject matter of the false statement and the payment by the Government.  Here, the plaintiff made conclusory statements that the FAA would not have provided the federal funding for the project had it been aware the statements about the surrounding land use were false.  However, the Court found that this was insufficient to show materiality, since it did not explain how the County’s actions with respect to the surrounding land were essential and indispensable elements of the receipt of FAA funding.

The Court also based dismissal in part on the plaintiff’s failure to explain with specificity how the County’s statements were false.  Plaintiffs are required to state with particularity the circumstances constituting fraud, which generally requires explaining what is false or misleading about a statement in an FCA case, and why it is false.  Plaintiffs also must describe “the who, what, when, where, and how” of the alleged fraudulent misconduct. The complaint did not provide detail as to how the County failed to carry out the required activity with respect to the surrounding land.  The Court also noted that for some of the actions which the County had promised to take, it had up to a certain amount of time to act (e.g., ten years), and that the time to act had not yet passed, such that the County still had time left to fulfill some of the promises in its grant applications.  With respect to the plaintiff’s allegation that the County never intended to fulfill its promises even at the time it made them, the Court noted that the Complaint failed to provide sufficient factual information to plead this claim, other than vague references to a County official’s statements in a deposition in a separate lawsuit.

The Court noted that the plaintiff would have an opportunity to submit an amended complaint to try and cure some of the deficiencies noted in the Court’s decision.