US Ex Rel. Defatta v. UPS

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 8, 2019
• Docket: 16-56015
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 8 2019 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

UNITED STATES EX REL. MARK No. 16-56015 DEFATTA, D.C. No. Plaintiff, 2:08-cv-07284-GW-CT

and MEMORANDUM* MARK DEFATTA, Qui Tam,

Plaintiff-Appellant,

v.

UNITED PARCEL SERVICE, INC., Delaware; et al.,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California George H. Wu, District Judge, Presiding

Argued and Submitted April 9, 2019 Pasadena, California

Before: GRABER and BYBEE, Circuit Judges, and ARTERTON,** District Judge.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Janet Bond Arterton, United States District Judge for the District of Connecticut, sitting by designation. Appellant Relator Mark DeFatta, a UPS employee, brought claims on behalf

of the government alleging that Defendants, all United Parcel Service, Inc.

(“UPS”) entities, committed fraud on the government as part of their “Air-in-

Ground” practice, whereby UPS ships some Next Day Air or Second Day Air

(together, “Air”) packages using only surface transportation methods. Relator

alleged (1) that Defendants fraudulently induced shipping contracts between UPS

and the government by making false representations in its responses to the

government’s request for proposal (“RFP”); (2) that Defendants submitted facially

false invoices which fraudulently overcharged the government for Air shipments

that actually traveled via surface transportation; and (3) that Defendants submitted

claims which falsely implied certification of compliance with Air Mobility

Command Freight Traffic Rules Publication No. 5 (“AFTRP No. 5”), all in

violation of the False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq. The district

court granted Defendants’ motion to dismiss, and Relator appeals. Reviewing de

novo, see Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1014 (9th Cir.

2012), we affirm.

1. The district court correctly dismissed Relator’s claim that Defendants

fraudulently induced government contracts by making false representations on

their response to the RFP. Relator argues that UPS was obligated to disclose UPS

Ground service in its response to the RFP, and that the failure to do so was a false

2 16-56015 representation which induced the schedule contract and tenders in violation of the

FCA.

The RFP sought “Commercial Services for the Domestic Express Delivery

Services for Same Day, Next Day, Two Day or Three Day Delivery.” Although

UPS Ground shipments within certain distances will be delivered within one, two,

or three days, UPS Ground does not guarantee delivery within those time frames

regardless of the package’s origin or destination for all or 95% of United States

ZIP Codes, as the RFP required. Therefore, the district court correctly concluded

that UPS Ground was not responsive to the RFP because it did not meet the RFP’s

express requirements, and Defendants’ decision not to offer UPS Ground service in

their response to the RFP was neither fraudulent nor misleading. Absent

identification of any false statement made by Defendants, Relator has not stated a

claim for fraudulent inducement under the FCA. See U.S. ex rel. Hendow v. Univ.

of Phx., 461 F.3d 1166, 1174 (9th Cir. 2006).

2. The district court correctly dismissed Relator’s claim that Defendants

submitted facially false invoices for Air shipments. Relator argues that Defendants

fraudulently overcharged the government by invoicing for Air services while

transporting those invoiced packages by surface transportation.

However, UPS retained discretion to choose the transportation method —

i.e., truck or airplane — regardless of the service selected — i.e., Ground or Air —

3 16-56015 and tied the type of fuel surcharge to the service selected, not to the transportation

method actually used. Thus, Defendants’ use of surface transportation methods for

some Air shipments and their method of calculating fuel surcharges were

consistent with the governing contracts and were not misleading. The invoices are

therefore neither false nor fraudulent on their face, and Relator has neither

“identif[ied] representative examples of false claims” nor “allege[d] ‘particular

details of a scheme to submit false claims paired with reliable indicia that lead to a

strong inference that claims were actually submitted,’” as is required to state an

FCA claim. Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998–99 (9th Cir. 2010)

(quoting U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)).

Given the heightened pleading standard for fraud claims under Federal Rule of

Civil Procedure 9(b), which requires a relator to “state with particularity the

circumstances constituting fraud or mistake,” Cafasso, U.S. ex rel. v. Gen.

Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054–55 (9th Cir. 2011) (quoting Fed. R.

Civ. P. 9(b)), Relator has failed to state a claim for fraudulent overcharge under the

3. The district court correctly dismissed Relator’s claim that Defendants

falsely implied certification with AFTRP No. 5. AFTRP No. 5 established rules to

“govern the freight services of all air freight carriers doing business with” the

Department of Defense (“DOD”) and required that carriers “bill the Government at

4 16-56015 the rate applicable to the actual service performed.” Relator argues that for many

contracts between the government and Defendant UPS Supply Chain Solutions,

Inc. (“UPS SCS”), which were covered by AFTRP No. 5, Defendants nonetheless

subjected covered shipments to their “Air-in-Ground” practices, charging the

government for Air service but shipping packages using only surface transportation

methods, in violation of AFTRP No. 5’s requirement.

To survive a Rule 9(b) motion to dismiss, a complaint alleging implied false certification must plead with particularity allegations that provide a reasonable basis to infer that (1) the defendant explicitly undertook to comply with a law, rule or regulation that is implicated in submitting a claim for payment and that (2) claims were submitted (3) even though the defendant was not in compliance with that law, rule or regulation.

Ebeid, 616 F.3d at 998. Under that heightened standard, Relator has not pled

sufficient detail to support a reasonable inference that UPS SCS participated in the

“Air-in-Ground” practice. Further, he has made no specific or particular allegations

that UPS SCS itself subjected shipments to the “Air-in-Ground” practices, nor has

he made any specific or particularized allegations that such shipments were

subjected to “Air-in-Ground” practices after transfer from UPS SCS to UPS. He

relies instead on conclusory generalizations about the relationship between UPS

and UPS SCS and the broad application of the “Air-in-Ground” program. Such

allegations are insufficient to survive a motion to dismiss Relator’s implied false

certification claims.

5 16-56015 AFFIRMED.

6 16-56015 FILED United States ex rel. DeFatta v. United Parcel Serv., Inc., No. 16-56015 MAY 08 2019 GRABER, Circuit Judge, concurring: MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

I concur but would affirm for a more fundamental reason. In my view, the

district court lacked jurisdiction because Relator revealed no non-public

information. Accordingly, the district court lacked subject matter jurisdiction. 31

U.S.C. § 3730(e)(4) (2008); see Schindler Elevator Corp. v. United States ex rel.

Kirk, 563 U.S. 401, 404 n.1 (2011) (holding that 2010 amendments to the public

disclosure bar do not apply to cases then pending); Malhota v. Steinberg, 770 F.3d

853, 858 (9th Cir. 2014) (holding that the public disclosure bar is triggered when

the underlying information already was in the public realm).