United States District Court, District of Columbia
UNITED STATES OF AMERICA ex rel. KASOWITZ BENSON TORRES LLP, Plaintiff,
BASF CORPORATION, et al., Defendants.
ROSEMARY M. COLLYER UNITED STATES DISTRICT JUDGE
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.
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].
The False Claims Act
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
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
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.
The Toxic Substances Control Act
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. §
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. §
The Compliance Audit Program
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.
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.
Motion to Dismiss Under Rule 12(b)(1)
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 ...