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United States ex rel. Kasowitz Benson Torres LLP v. BASF Corp.

United States District Court, District of Columbia

October 23, 2017

BASF CORPORATION, et al., Defendants.



         The law firm Kasowitz Benson Torres LLP sues a group of chemical companies under the False Claims Act alleging that Defendants violated the “reverse” false claims provision, 31 U.S.C. § 3729(a)(1)(G), and conversion false claims provision, 31 U.S.C. § 3729(a)(1)(D), of the False Claims Act by failing to report substantial risk information to the Environmental Protection Agency under the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq. The Complaint will be dismissed. An unassessed penalty is not an “obligation” to pay the United States under the reverse false claims provision and characterizing substantial risk information as “property” does not establish a claim under either the reverse or conversion theories of liability.

         I. BACKGROUND

         Defendants BASF Corporation, Covestro LLC, The Dow Chemical Company, and Huntsman International LLC manufacture isocyanate chemicals, which are used to produce various polyurethane-based materials such as paint, adhesives, rigid foam for insulation, flexible foam for mattresses and cushions, and parts for automotive interiors. Am. Compl. [Dkt. 21] ¶ 7. The law firm Kasowitz Benson Torres LLP (Kasowitz), relators in this action, previously represented plaintiffs bringing personal injury claims against BASF, Covestro, and Dow. Kasowitz brings this suit based on information obtained during discovery in that case. Kasowitz alleges that all Defendants failed to report substantial risk information and to pay penalties to the United States Environmental Protection Agency (EPA), thereby committing fraud in violation of the False Claims Act (FCA), 31 U.S.C. § 3729. Defendants have moved to dismiss Kasowitz's suit. Defs.' Mot. to Dismiss (Mot.) [Dkt. 110]. Kasowitz opposes. Pl.'s Resp. to Defs.' Mot. to Dismiss (Opp'n) [Dkt. 115]. Defendants replied. Defs.' Reply in Supp. of Mot. to Dismiss (Reply) [Dkt. 118]. The Government, as an interested party, filed a Statement of Interest in this case. Statement of Interest by United States of America (Statement of Interest) [Dkt. 117].

         A. The False Claims Act

         FCA became law in 1863, during the Civil War, “amid reports of widespread corruption and fraud in the sale of supplies and provisions to the union government during the war.” 132 Cong. Rec. H6474-02 (Sept. 9, 1986) (statement of Rep. Glickman). FCA remains “the primary vehicle by which the Government prosecutes civil fraud.” Id. As originally enacted, an action under FCA could be brought by either the Attorney General or a private individual suing on the government's behalf-a “relator”-to recover from persons who make fraudulent claims to secure payment by the United States. 31 U.S.C. § 3729(a)(1)(A). An FCA claim can also be brought under a “conversion” theory of liability against “any person who has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property.” 31 U.S.C. § 3729(a)(1)(D). In 1986, Congress amended the statute to include a “reverse” theory of liability for any person who:

knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

31 U.S.C. § 3729(a)(1)(G). “In a reverse false claims suit, the defendant's action does not result in improper payment by the government to the defendant, but instead results in no payments to the government when a payment is obligated.” United States ex rel. Bain v. Georgia Gulf Corp., 386 F.3d 648, 653 (5th Cir. 2004).

         B. The Toxic Substances Control Act

         The Toxic Substances Control Act (TSCA) was enacted to ensure that adequate data was developed on the health and environmental impacts of chemical substances and mixtures. Under TSCA, those who manufacture and process such chemical substances and mixtures are responsible for developing the relevant data. Toxic Substances Control Act, Pub. L. No. 94-469, 90 Stat. 2003 (1976) (codified as 15 U.S.C. §§ 2601 et seq.). To ensure such information is gathered, section 8(e) of TSCA requires “[a]ny person who manufactures, processes, or distributes in commerce a chemical substance or mixture and who obtains information which reasonably supports the conclusion that such substance or mixture presents a substantial risk of injury to health or the environment” to immediately inform EPA. 15 U.S.C. § 2607(e). Failure to report this “substantial risk information” may lead to civil penalties and each day a violation continues is considered a separate violation that can carry an additional penalty. 15 U.S.C. § 2615(a)(1).

         TSCA lays out a process whereby such penalties may be imposed. Civil penalties “shall be assessed by the Administrator by an order made on the record after opportunity . . . for a hearing.” 15 U.S.C. § 2615(a)(2)(A). Persons being assessed must be given notice and may request a hearing “within 15 days of the date the notice is received.” Id. TSCA also gives the government discretion in determining the amount of a civil penalty, provided the following is taken into account: “the nature, circumstances, extent, and gravity of the violation or violations and, with respect to the violator, ability to pay, effect on ability to continue to do business, any history of prior such violations, the degree of culpability, and such other matters as justice may require.” 15 U.S.C. § 2615(a)(2)(B). The government may also “compromise, modify, or remit, with our without conditions, any civil penalty which may be imposed.” 15 U.S.C. § 2615(a)(2)(C). Only after an order rendering an assessment becomes final, with no petition for judicial review, or after a court has entered a final judgment in favor of the government, does the Act direct the Attorney General to recover the amount assessed. 15 U.S.C. § 2615(a)(4).

         C. The Compliance Audit Program

         In 1991, EPA announced a Compliance Audit Program (CAP) in response to the critique that EPA's enforcement process then imposed significant disincentives, “namely very high monetary penalties, ” that could dissuade chemical manufacturers from auditing past studies and reporting them to EPA. 56 Fed. Reg. 4128, 4128 (Feb. 1, 1991). To obtain any outstanding data, CAP was introduced as a “one-time voluntary compliance program designed to strongly encourage companies to voluntarily audit their files for studies reportable under section 8(e).” Id. at 4129. If a company voluntarily enrolled in the CAP program, it agreed that any disclosures that were determined reportable under TSCA's section 8(e) would be subject to penalties and, in turn, EPA agreed to limit those penalties and created a cap on the total penalties that may be assessed. Id. at 4130.

         The Court need not address Kasowitz's arguments regarding CAP because it has abandoned all claims for pre-2010 conduct, Opp'n at 61, and CAP ended in 1996.


         A. Motion to Dismiss Under Rule 12(b)(1)

         Pursuant to Federal Rule of Civil Procedure 12(b)(1), a defendant may move to dismiss a complaint, or any portion thereof, for lack of subject-matter jurisdiction. Fed.R.Civ.P. 12(b)(1). When reviewing a motion to dismiss for lack of jurisdiction under Rule 12(b)(1), a court must “assume the truth of all material factual allegations in the complaint and ‘construe the complaint liberally, granting plaintiff the benefit of all inferences that can be derived from the facts alleged.'” Am. Nat'l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011) (quoting Thomas v. Principi, 394 F.3d 970, 972 (D.C. Cir. 2005)). Nevertheless, “the Court need not accept factual inferences drawn by plaintiffs if those ...

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