Thornton G. Sanders initiated a qui tam action under the False Claims Act against North American Bus Industries, Inc. (NABI) and Deloitte Touche USA, LLP, alleging fraud related to import duties on bus frames imported from Hungary and misrepresentations regarding the eligibility of the manufactured buses for federal "Buy America" subsidies. NABI, based in Alabama, manufactures transit buses, with bus frames produced by its Hungarian affiliate, NABI Hungary. These frames, along with other components, are imported and assembled in Alabama before being sold to municipalities. For federal subsidies, NABI must certify that over sixty percent of the bus components are sourced from the U.S. The court dismissed Sanders's claims, concluding he failed to demonstrate the necessary elements for a False Claims Act violation. The appellate court affirmed this dismissal, agreeing with the lower court's findings. The case underscores the complexities of compliance with federal import duty classifications and the "Buy America" requirements as outlined under relevant U.S. laws.
In June 1998, NABI hired Damon Pike from Deloitte to file a protest with U.S. Customs Service, seeking reclassification of its previous imports under HTSUS subheading 8702.10.30 for "Motor vehicles [with a diesel engine] designed for the transport of 16 or more persons, including the driver." NABI aimed to change the classification from bus bodies to completed motor vehicles to qualify for duty-free treatment under the Generalized System of Preferences, as the imports were from Hungary. The protest relied on General Rule of Interpretation 2(a) of the HTSUS, which allows for the inclusion of incomplete or unfinished articles that possess the essential character of completed articles. NABI argued that its bus shells had this essential character, supporting its case with a list of twenty components it claimed were permanently installed upon importation, while acknowledging twelve components were added post-import. In November 1998, Customs granted NABI’s protest, ruling that the bus shells contained a substantial amount of necessary equipment for completed transit buses, thus affirming their classification as motor vehicles and allowing for duty refunds for certain earlier imports. Following this decision, NABI started classifying subsequent imports under the same duty-free subheading. B. Thornton G. Sanders, a former executive of NABI who served as Vice President and later President, raised concerns regarding contracts between NABI and NABI Hungary related to the imports. NABI had two contracts with NABI Hungary, one for bus shells and components, and another for engineering and technology services, which NABI did not include in the declared value of the imported bus shells for Customs or Buy America subsidy calculations.
In 1996, Sanders recommended to NABI that it cease separate payments for engineering and technology services, asserting that these payments did not reflect the technical assistance received from NABI Hungary. Following his advice, NABI discontinued these contracts in 1997 and subsequently terminated Sanders’s employment after he proposed selling the company to a group of investors, including himself. Sanders alleged he was fired due to perceived disloyalty related to his proposal. In 2002, he filed a qui tam lawsuit against NABI under the False Claims Act (FCA), alleging false claims regarding federal payments.
The FCA imposes treble damages and civil penalties for fraudulent claims made to the government and allows private individuals, or relators, to sue on the government's behalf. Relators can receive a portion of any recovered funds and must file their complaints under seal. The United States did not intervene in Sanders’s case. He presented five claims under the FCA:
1. **Count I**: Sanders alleged NABI falsely certified its buses for Buy America subsidies. The district court granted summary judgment to NABI, citing the six-year statute of limitations and lack of actual damages to the government.
2. **Counts II and III**: Sanders claimed that a protest submitted by NABI and Deloitte contained false information about imported bus shells. The district court dismissed these counts as time-barred and granted summary judgment to NABI, noting that any false statements were immaterial to Customs’ classification decisions.
3. **Count IV**: Sanders contended NABI underpaid duties by not declaring payments for engineering and technology services. The court ruled in favor of NABI, stating that no duties were owed based on a successful Customs decision, thus no FCA violation occurred.
4. **Count V**: Sanders claimed wrongful discharge under the FCA’s anti-retaliation provision. The court dismissed this claim as time-barred, a decision Sanders did not contest.
Sanders is appealing the district court's rulings on all claims.
Sanders argues that the district court incorrectly interpreted the False Claims Act (FCA) statute of limitations under 31 U.S.C. § 3731(b). The statute specifies that a civil action may not be initiated more than six years after the violation or more than three years after relevant facts are known to a responsible U.S. official, with an overall cap of ten years from the violation. The district court concluded that the six-year limit barred Sanders’s claims against NABI and Deloitte. However, Sanders contends that the court should have applied the three-year knowledge rule in § 3731(b)(2), which would allow claims to be brought within ten years if the government official has not been aware of the violation for over three years.
The court holds that § 3731(b)(2) extends the limitations period only when the United States is a party to the action. This interpretation is supported by the statute's language, which focuses on the government's knowledge of material facts relevant to an FCA claim and does not pertain to relators. The court emphasizes that the government’s awareness of facts does not inform a relator about their claims, thus suggesting that the knowledge should trigger limitations only in government actions. The court further notes that once the U.S. is aware of the material facts, the responsible government official's duty is to initiate action, not to ensure a relator's timely filing. This interpretation aligns with the similar provisions in 28 U.S.C. § 2416(c), which toll the statute of limitations exclusively for actions brought by the United States.
When Congress enacted Section 3731 (b)(2), it adopted language from Section 2416 (c), which applies exclusively to government-initiated actions. This indicates that the extended limitations period in Section 3731 (b)(2) is applicable only when the government is a party. Sanders argues contrary to this interpretation, suggesting that the lack of explicit mention of relators in Section 3731 (b)(2) implies its applicability to qui tam actions. He claims that "a civil action under section 3730" includes all FCA actions and that the absence of exclusionary language means relator actions are covered.
However, this argument is flawed. First, Section 3731 (b)(2) implicitly excludes relator actions, as its language does not apply sensibly to cases without government involvement. Second, the Supreme Court in Graham County Soil and Water Conservation District v. United States ex rel. Wilson established that "a civil action" does not uniformly apply to all FCA claims, as seen in Section 3730(h) anti-retaliation claims. The Court noted that Congress’s use of "action under section 3730" was imprecise and contextually limited.
The reasoning from Wilson is relevant here; Section 3731 (b)(2)’s specific reference to the United States clarifies that only actions involving the government can benefit from the extended limitations period. Additionally, Sanders's interpretation creates practical complications, as it would necessitate reliance on a nonparty government official's knowledge for statute of limitations defenses in qui tam actions, complicating litigation and discovery for defendants and the government. This interpretation could also enable relators to delay filing claims for up to ten years, potentially leading to inflated recoveries from false claims. Therefore, the text does not support Sanders's broader application of Section 3731 (b)(2) to relator actions.
Empowering relators to extend the limitations period at will would render the six-year limitations period established in Section 3731(b)(1) effectively meaningless in most False Claims Act (FCA) cases, contradicting the legal obligation to give effect to all parts of a statute. This interpretation could allow relators to delay claims, undermining the FCA's purpose of promptly addressing fraud and enabling private parties to act when government officials are slow to respond. Such a scenario may permit fraud to persist for up to ten years and could hinder the government's ability to initiate criminal prosecutions, which are subject to a five-year statute of limitations.
The majority of federal appellate courts reject the view that Section 3731(b)(2) extends the limitations period for qui tam actions regardless of when the relator became aware of relevant facts. The Tenth Circuit specifically ruled that Section 3731(b)(2) does not apply to qui tam actions where the government has not intervened. Other circuits also affirm the application of the six-year limitations period for relators' claims. While some courts have debated which government official's knowledge affects the limitations period, this issue is not resolved here because Sanders cannot utilize Section 3731(b)(2). The prevailing interpretation among various district courts aligns with this majority view.
A minority of cases align with Sanders's perspective, as seen in *United States ex rel. Pogue v. Diabetes Treatment Ctrs. of America*, *United States ex rel. Salmeron v. Enterprise Recovery Sys., Inc.*, and *United States ex rel. Kreindler, Kreindler v. United Techs. Corp.* The court affirms the district court's grant of summary judgment to NABI on Count I, as Sanders limited this count to claims outside the six-year statute of limitations, negating the need to assess actual damages. Counts II and III against Deloitte are dismissed as time-barred since Sanders's claims did not assert independent FCA violations within the six-year window. Furthermore, Sanders failed to adequately plead causation, as Deloitte's advice was not essential to the Customs decision. Despite attempts to argue that Deloitte caused violations within the limitations period, the court found that Count III did not support this theory. Additionally, the district court determined that Sanders did not demonstrate that NABI's alleged false statements in a 1998 Customs protest were material to the agency’s decision regarding duty-free treatment. The court outlines the elements of an FCA claim and the standard for materiality, noting that Sanders did not allege any false statements by NABI beyond the protest. NABI's argument for reclassification was based on the claim that its bus shells had the "essential character" of finished vehicles, supported by a protest listing components as "permanently installed." Sanders contended that this protest was materially false due to discrepancies regarding the installation of some components.
The Amended Complaint asserts that the protest is false based on the claim that at least seven specific components were not permanently installed in the bus shells. Sanders argued that the need to remove and reattach imported axles indicated falsity; however, this argument was deemed immaterial to Customs' classification, which focused on whether the bus shells contained sufficient components for a completed transit bus. A prior Customs ruling reinforced this view by emphasizing the presence of components over their installation status. After recognizing the irrelevance of permanent installation, Sanders maintained that NABI’s protest was materially false due to some components being incomplete or not imported. Evidence indicated only minor deficiencies, with one or two subcomponents missing and most wheels and tires included. Notably, certain bus shells lacked brake chambers and had removed axles returned to Hungary, but no other missing components were alleged. The record suggests that even if NABI's statements were false, they were not material to Customs' decision, which evaluated the overall "essential character" of the bus shells rather than individual components. Thus, Sanders’ attempts to pinpoint minor inaccuracies did not substantiate his claims of materiality. Additionally, Sanders criticized the district court's materiality standard application, arguing it incorrectly assessed the potential impact of missing components on Customs' decision.
The district court found no materiality in Sanders' claims regarding NABI’s alleged false statements, emphasizing that the standard is whether these statements could influence agency action. According to this standard, the court determined that NABI's statements were immaterial to Customs' classification of its bus shells as motor vehicles. Sanders argued that the shells were incomplete and should be classified under an alternative subheading for "bodies," citing 39 missing components. However, he acknowledged that only three of these components were asserted to be present in NABI’s protest, and NABI had informed Customs about many missing parts. Customs recognized the shells' unfinished state but still classified them as motor vehicles, indicating that any complaints about the classification were directed at Customs' decision rather than NABI's conduct.
In Count IV of Sanders’ complaint, he claimed that NABI underpaid duties by not including payments made to NABI Hungary for engineering services in the value of its bus shells. The district court agreed that Sanders did not prove that NABI's conduct caused the government to lose money, as Customs had ruled that NABI’s imports qualified for duty-free treatment. Therefore, regardless of the declared value, NABI owed no duties. Sanders' argument regarding the inability to recover duties paid before a certain date was deemed irrelevant, as the Customs decision showed that NABI should not have owed any duties, meaning there was no loss to the government.
The earlier misclassification of NABI’s imports inadvertently benefited the government by subjecting those imports to taxation, which prevented NABI from recovering its overpayments. Sanders' argument that NABI should be held liable for not providing the government with an additional financial benefit does not satisfy the fourth element of a False Claims Act (FCA) claim, leading to an affirmation of the district court's summary judgment on Count IV. Additionally, Sanders' anti-retaliation claim under Section 3730(h) was dismissed by the district court as time-barred, a conclusion both parties agree with, referencing the Supreme Court's ruling in Graham County Soil and Water Conservation District v. United States ex rel. Wilson. Sanders suggested his claim should be reinstated if Congress takes action to reverse this precedent, but no such legislation has been enacted. The court affirms the dismissal of this claim as well. During the appeal, Sanders presented new information regarding Customs reclassifying certain bus shells and a government investigation into NABI for potential criminal violations, but the court does not address these claims as they are outside the case record. The court concludes that the district court correctly granted motions to dismiss and for summary judgment, affirming its judgment.
