United States Court of Appeals Fifth Circuit F I L E D REVISED OCTOBER 13, 2004 September 27, 2004 IN THE UNITED STATES COURT OF APPEALS Charles R. Fulbruge III FOR THE FIFTH CIRCUIT Clerk

No. 03-30023

UNITED STATES OF AMERICA, ex rel. RONALD K. BAIN,

Plaintiffs-Appellees,

versus

GEORGIA GULF CORP,

Defendant-Appellant.

Appeal from the United States District Court for the Middle District of Louisiana

Before GARWOOD, HIGGINBOTHAM, and SMITH, Circuit Judges.

GARWOOD, Circuit Judge:

Defendant-appellant Georgia Gulf Corporation (Georgia Gulf)

brings this appeal under

(b) challenging the

district court’s denial of its 12(b)(6) motion to dismiss and

alternative Rule 56 motion for summary judgment, as well as the

district court’s ruling that plaintiff-relator-appellee Ronald K. Bain (Bain) stated a claim under the False Claims Act (FCA),

(a)(7), and that he pleaded his claim under that

statute with sufficient particularity as required by Federal Rule

of Civil Procedure 9(b). We reverse and remand this case for

further proceedings.

Facts and Proceedings Below

This is a qui tam action under the False Claims Act (FCA),

et seq., filed by plaintiff-relator Bain on July 13,

2001. The government declined to intervene on November 8, 2001, and

the district court unsealed the complaint and ordered it served on

Georgia Gulf. The case is now before this court on the defendant

Georgia Gulf’s interlocutory appeal from the district court’s order

denying Georgia Gulf’s motion to dismiss the complaint under FED. R.

CIV. P. 12(b)(6) (and 9(b)).

Bain began his employment with Georgia Gulf in Plaquemine,

Louisiana in 1982. One of the primary products manufactured by

Georgia Gulf at its chemical facility in Plaquemine is polyvinyl

chloride (PVC), which is a known carcinogen. The PVC is produced

in eighteen reactors which must be routinely opened in order to

conduct physical inspections. When the reactors are opened, vinyl

chloride is released into the atmosphere. This is known as “open

lid loss.” The complaint alleges that “[p]ursuant to the laws of

the United States of America and the State of Louisiana, including

the rules and regulations of and permits issued by the Louisiana

2 Department of Environmental Quality (“LDEQ”) and the Environmental

Protection Agency (“EPA”), Georgia Gulf is required to monitor and

report emissions of vinyl chloride which occur during the production

of PVC.”

The complaint states that Bain was transferred “in late 1994

or early 1995" to the PVC unit to work as a “top deck operator.”

His responsibilities included monitoring and measuring releases of

vinyl chloride during open lid losses and then recording the amount

of each release into the “open lid loss logs.” These logs were then

submitted to the Environmental Protection Agency (EPA) and the

Louisiana Department of Environmental Quality (LDEQ).

The complaint alleges that “[w]hen relator commenced employment

as a top deck operator in the PVC unit he learned” that it was

Georgia Gulf’s “standard operating procedure” to vent vinyl chloride

into the atmosphere without monitoring or measuring the releases and

then to make false records of the emissions during open lid loss.

They in turn allegedly routinely and knowingly submitted these false

records to the EPA and LDEQ. The complaint alleges in general terms

that this practice “was in contravention of

(a)(7),”

the reverse false claims provision of the FCA, because “the actions

of Georgia Gulf have deprived the United States of America and State

of Louisiana of fines, and other monetary assessments which would

have been made had the actions of Georgia Gulf not been concealed.”

On April 22, 2002, Georgia Gulf moved to dismiss the complaint

3 pursuant to Federal Rule of Civil Procedure 12(b)(6), but on June

19, 2002, the district court ordered that Bain first amend his

complaint to comply with Rule 9(b), and gave him twenty days in

which to do so.1 Accordingly, Bain filed an amended complaint on

July 10, 2002 that (a) added miscellaneous allegations related to

his section 3729(a)(7) reverse false claim concerning avoidance of

fines for excessive vinyl chloride emissions during open lid loss

by making false records of such emissions;2 and (b) added an

1 Defendants assert that initially Bain’s complaint against Georgia Gulf was nearly identical to the complaint that had been filed by the relator in a similar case, United States, ex rel. John Doe v. Dow Chemical Co.,

(5th Cir. 2003). This court held in Dow that the plaintiff had failed to properly plead his FCA claim with particularity. 2 The following allegations in this respect were added: “At all material times herein, the polyvinyl chloride unit at the Georgia Gulf facility in Plaquemine, Louisiana was subject to the various regulations promulgated by the Louisiana Department of Environmental Quality and the Environmental Protection Agency. It is specifically alleged that the polyvinyl chloride unit at Georgia Gulf was subject to the provisions of the Clear Air Act,

, et seq.” . . . “Prior to 1995, Georgia Gulf was investigated and fined by the Louisiana Department of Environmental Quality and the Environmental Protection Agency for irregularities pertaining to emissions of vinyl chloride from the polyvinyl chloride unit at Georgia Gulf.” . . . “From at least 1995 through 1998, Georgia Gulf routinely and knowingly submitted false and fraudulent records of vinyl chloride emissions from the polyvinyl chloride unit to the Louisiana Department of Environmental Quality and Environmental Protection Agency.” . . .

4 entirely new claim, namely one for a direct false claim of acquiring

“Emission Reduction Credits (ERC’s)” by false reporting of vinyl

chloride emissions, as follows:

“At all material times herein, Georgia Gulf Corporation was entitled to and, on information and belief, did participate in the Emission Reduction Credit Banking program established and operated by the Louisiana Department of Environmental Quality. Further, on information and belief, Georgia Gulf obtained Emission Reduction Credits (“ERC’s”) based on its reports of emissions of vinyl chloride from the polyvinyl chloride unit.”

. . .

“On information and belief, the submission of false and fraudulent records by Georgia Gulf of vinyl chloride emissions from the polyvinyl chloride unit allowed Georgia Gulf to obtain ERC’s which are a thing of value and could be used by Georgia Gulf or transferred to another person or company in exchange for consideration.”

On September 3, 2002, no further motions, pleadings or briefs

having been filed after Bain’s July 10, 2002 amended complaint, the

district court denied defendant’s April 22, 2002 motion to dismiss,

stating that Bain had adequately alleged that Georgia Gulf’s

submission of false records and documents had “prevented the

Government from collecting the penalties it would have received had

the records and documents been accurate.” The court held that,

“Further, on information and belief, the submission of false and fraudulent records by Georgia Gulf of vinyl chloride emissions from the polyvinyl chloride unit prevented the Louisiana Department of Environmental Quality and the Environmental Protection Agency from imposing statutory fines and penalties which were owed by Georgia Gulf.”

5 assuming the truth of the allegations, this conduct would fall

within the reverse False Claims Act because “the making of false or

fraudulent records prepared by the defendant would allow Georgia

Gulf to ‘avoid’ an ‘obligation to pay’ what the Government would

have received had Georgia Gulf submitted accurate records.” The

district court’s order did not address Bain’s direct false claim

concerning Emission Reduction Credits which was added by his July

amended complaint and was not addressed by Georgia Gulf’s April

motion to dismiss.

Georgia Gulf on September 17, 2002, filed a motion to

reconsider, and in the alternative, a Rule 56 motion for summary

judgment. On September 19, 2002, the district court denied Georgia

Gulf’s motion for reconsideration respecting its 12(b)(6) motion,

and ordered the parties to conduct discovery. Plaintiff then filed

an ex parte motion to clarify the ruling confirming that the

district court had dismissed the summary judgment motion. The

district court ruled that to the extent Georgia Gulf was filing a

motion for summary judgment, it failed to comply with the Rule 56

procedures and therefore the motion was denied without prejudice.

On October 25, 2002, the district court stayed these

proceedings pending a decision by this court in a similar case,

United States, ex rel. John Doe v. Dow Chemical Co.,

(5th Cir. 2003) (Dow), which had been decided by another district

court, and which was “directly opposite the decision rendered by

6 this Court in this case on the same issue.” The district court

certified the order for interlocutory appeal, and Georgia Gulf filed

a petition for permission to appeal the district court’s orders of

September 3 and 19, 2002. On January 7, 2003, this court granted

leave to appeal from the interlocutory orders of the district court.

On August 14, 2003, this court decided Dow without reaching the

issue of whether the complaint stated a claim under the FCA.3

Discussion

1. The Reverse False Claims Act

Under the FCA, the government, or a party suing on its behalf,

may recover for false claims made by the defendant to secure a

payment by the government. Under the reverse False Claims Act

subsection, a plaintiff may recover against “any person who . . .

knowingly makes, uses, or causes to be made or used, a false record

or statement to conceal, avoid, or decrease an obligation to pay or

transmit money or property to the Government.”

(a)(7) (2002). 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 payment to the government when

a payment is obligated.

3 In Dow, this court held that it was proper for the district court to dismiss Doe’s complaint for failure to plead with particularity as required by Rule 9(b). Therefore, this court determined that there was no need to address the district court’s ruling on Dow’s 12(b)(6) motion to dismiss directed at the § 3729(a)(7) claim sought to be alleged there.

7 2. Plaintiff’s amended complaint did not state a claim under the Reverse False Claims Act.

Bain based his section 3729(a)(7) complaint on allegations that

Georgia Gulf concealed from the government the fact that it had

falsified emissions records in an effort to avoid a fine or monetary

penalty to which the company might have been subjected if the

government had known of the illegal emissions and had then decided

to take action against Georgia Gulf. The district court held that

Bain’s complaint stated a cause of action under the reverse False

Claims Act. We disagree.

Bain argues on appeal that Georgia Gulf’s obligations under the

reverse FCA are based on its environmental permits, specifically

those which incorporate provisions of the Clean Air Act (CAA),

et seq. The CAA requires the EPA to establish

regulations for “air quality standards.” Section 7410 requires each

state to develop an implementation plan (SIP) that describes the

manner in which the state will achieve the national minimum

standards on air pollution. The LDEQ was established to ensure

Louisiana’s compliance with environmental regulations, including the

air quality mandates. See La. R.S. 30:2011. LDEQ issues permits

which impose limits on the quantities of air pollution that a source

can emit. La. Admin. Code 33:III §507.

Under 42 U.S.C § 7413, the federal government is charged with

enforcement of SIP’s and air quality permits, which have the effect

of federal law. The permits issued by the LDEQ are enforced by the

8 State of Louisiana. Georgia Gulf claims that its LDEQ permit is

“merely a grant of authority to discharge, not a contract setting

forth obligations owed to and/or from the Government.” However,

Bain makes the wholly conclusory argument on appeal that the permit

is or should be considered a contract with the government, though

that was not alleged or suggested in the complaint or amended

complaint.

Bain argues that this court should interpret a potential fine

or monetary penalty, such as those to which Georgia Gulf could be

subject for causing emissions precluded by the CAA or the SIP and

in circumstances or quantities not authorized by its permit, as an

“obligation” to the government within the meaning of the statute.

However, Georgia Gulf argues that such a potential fine or penalty

cannot be the basis for a reverse false claims action. The United

States, as amicus, although taking a somewhat broader general view

of section 3729(a)(7) than does Georgia Gulf, nevertheless asserts

that a potential fine that may be imposed upon a person simply for

performing an act that the government has defined as unlawful or

prohibited is not an “obligation” within the meaning of section

3729(a)(7). Therefore, the government argues, the avoidance of such

a potential fine or civil penalty in the present situation does not

give rise to reverse false claims liability. We agree that, at

least in these circumstances, there is no reverse false claims

liability.

9 A. Standard of Review

Dismissals for failure to state a claim under FRCP 12(b)(6) are

reviewed de novo. Cousin v. Small,

(5th Cir.

2003). A district court cannot dismiss a complaint for failure to

state a claim “unless it appears beyond doubt that the plaintiff can

prove no set of facts that would entitle him to relief.” United

States, ex rel. Thompson v. Columbia/HCA Healthcare Corp.,

(5th Cir. 1997). “However, conclusory allegations or legal

conclusions masquerading as factual conclusions will not suffice to

prevent a motion to dismiss.” Jones v. Alcoa, Inc.,

(5th Cir. 2003) (internal quotation marks and citation omitted).

B. Discussion

Bain alleges that Georgia Gulf submitted false emissions

records in an attempt to avoid a fine or monetary penalty to which

Georgia Gulf might have been subject if the government had known of

the actual emissions and then decided to seek fines or civil

penalties against the company. The district court agreed with this

interpretation, holding that the relator’s complaint stated a cause

of action under section 3729(a)(7). The court held that, as Bain

had asserted, the “‘obligation to pay’ . . . the Government” was

satisfied by the performance of an unlawful act that may result in

a fine or monetary penalty.

Neither the complaint nor the amended complaint alleges, and

Bain does not contend, that at any time at or after the making of

10 the herein complained of false statements any fine or penalty, with

respect to the emissions allegedly misrepresented by such

statements, had ever been imposed on Georgia Gulf or that any

proceeding seeking to impose, or to determine whether to impose, any

such fine or penalty was ever pending or instituted.

Georgia Gulf argues that the FCA section at issue, section

3729(a)(7), should be read so that potential fines or penalties

cannot form the basis of an FCA reverse claim. In support of its

argument, Georgia Gulf principally relies on United States, ex rel.

American Textile Mfrs. Inst., Inc. v. The Limited, Inc.,

(6th Cir. 1999) (“a reverse false claim action cannot

proceed without proof that the defendant made a false record or

statement at a time that the defendant owed to the government an

obligation sufficiently certain to give rise to an action of debt

at common law”); and United States v. Q International Courier, Inc.,

(8th Cir. 1997) (Quick) (holding that under the

FCA an obligation “must be for a fixed sum that is immediately

due”).

Georgia Gulf contends that, following the reasoning of American

Textile (ATMI), a defendant must have made or submitted a false

record at the time that the defendant owed an obligation to the

government sufficiently certain to give rise to an action of debt

11 at common law.4 ATMI,

. The Sixth Circuit in ATMI

based its decision in part on Quick, but also referred to the

difference between a “claim” and an “obligation.” The court stated,

“‘[c]laims’ encompass requests for payment not only based on

contracts, but also because of the many privileges and benefits

doled out by the government. When seen in context, the Act’s use

of ‘obligation’ suggests a more limited meaning . . . .”

. In Quick, the court held that in order to prevail, the

government must show that there was an “existing, specific legal

duty in the nature of a debt that Quick or the other defendants owed

the United States at the time of their [violative] activities.”5

4 Although this court has not yet addressed the interpretation of section 3729(a)(7), a district court within this circuit recently issued an opinion that expressly followed the reasoning laid out by the Sixth and Eighth Circuits. U.S. ex rel. Graves v. ITT Educational Services,

, 508- 09 (S.D. Tex. 2003). That court dismissed the relator’s claim under section 3729(a)(7), holding that “a government contractor’s potential liability for fines or sanctions that might be imposed at some indefinite point in the future, in some indefinite amount, is not an ‘obligation to pay’ under § 3729(a)(7). Even if the government’s sanctions for noncompliance could include the ability to sue for reimbursement of previously funded monies, that potential does not arise to an ‘obligation to pay’ that would support a reverse” FCA claim. Id. 5 In Quick, a mail courier was alleged to have engaged in an illegal international remailing scheme, by taking letters out of the U.S. to Barbados, and then mailing them back into the U.S., achieving significant postage cost savings. In that case, the government did not allege a true contract with the defendants, but rather relied upon statutes and regulations to establish that the defendants owed a duty to pay full domestic postage. The court held that the statues and regulations cited by the government could show that the defendants engaged in fraud, but they did not “create a legal duty for the defendants to pay

12 Georgia Gulf agrees with these readings of the statute, contending

that a defendant must have made a false record at the time that the

defendant owed an obligation to the government sufficiently certain

to give rise to an action of debt at common law.

On the other hand, Bain argues that potential fines and

penalties should be considered “obligations” for the purposes of

section 3729(a)(7). To bolster his argument, Bain relies on the

opinion in United States v. Neifert-White Co.,

(1968),

for the proposition that Congress desired the FCA to be given a

broad reading and “intended [it] to reach all types of fraud,

without qualification, that might result in financial loss to the

Government.”6 Although that case was decided well before the 1986

domestic postage.”

. In Quick the court relied in part on the portions of the legislative history to the 1986 amendments to FCA which (among other things) added the reverse false claims provision of § 3729(a)(7), PL 99-562 § 2,

(October 27, 1986), indicating that the false statement contemplated is one relating to money “owed” the government. Quick,

. The Senate Report concerning PL 99-562 notes that the subcommittee added a provision “that an individual who makes a material misrepresentation to avoid paying money owed the Government should be equally liable under the Act as if he had submitted a false claim” (emphasis added) and in its “section-by-section analysis” states: “Section 1, paragraph (7) of the bill amends section 3729 to provide that an individual who makes a material misrepresentation to avoid paying money owed the Government would be equally liable under the Act as if he had submitted a false claim to receive money.” S. Rep. No. 99-345 at 15, 18 (1986), reprinted in 1986 U.S.C.C.A.N. 5266 at 5280, 5283 (emphasis added). 6 The Court in that case held that the FCA should apply to a false statement made in an application for a government loan,

13 legislation which, among other things, added the section 3279(a)(7)

reverse False Claims Act provision, P.L. 99-562, § 2,

(October 27, 1986), the above passage from Neifert-White was quoted

with approval in the legislative history of section 3179(a)(7). See

S. Rep. No. 99-345 at 19 (1986), reprinted in 1986 U.S.C.C.A.N. 5266

at 5284. Following this reasoning, the district court held that in

submitting false records and documents, Georgia Gulf prevented the

government from collecting fines or penalties that it could have

imposed and received if the records had been accurate, and therefore

Bain stated a claim.

Bain also cites United States v. Pemco Aeroplex, Inc.,

(11th Cir. 1999), for the proposition that the existence

of a need for further government action before an obligation is

liquidated does not preclude a reverse false claims action. In that

case, the court found that a reverse false claim existed when the

defendant had an existing agreement with the government, in the form

of an actual contract, that created “a specific legal obligation at

that time to dispose of any excess property in accordance with the

government’s instructions.” The Eleventh Circuit distinguished

Quick because that case did not involve a government contract, and

held that a potential obligation satisfied the requirements of

section 3729(a)(7). See also United States ex rel. Sequoia Orange

because the statute “reaches beyond ‘claims’ which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money.” Id. at 962.

14 Co. v. Oxnard Lemon Co.,

(E.D.Cal. May 4, 1992)

(violation of an administrative enforcement statute constituted an

obligation);7 United States v. McGinnis, Inc.,

(S.D.Ohio Oct. 26, 1994) (defendant’s failure to report and record

pollution discharge as required by the Clean Water Act supported a

reverse false claim; however, this case has been superseded by

ATMI).

The United States, as amicus herein, takes the position that

the statute does not require that there always be a specific fixed

legal obligation at the time the alleged false record or statement

was made. According to the government, there are essentially two

ways an obligation within the meaning of section 3729(a)(7) could

arise: “First, there may be a fixed obligation, spelled out by a

judgment, contract, statute, or regulation, that imposes a duty on

the person to pay money or transmit property to the government.

This fixed obligation may be liquidated, as with a judgment, or it

may be unliquidated but easily determinable, as with the tariffs or

fees due on imported goods. Avoidance of a fixed obligation is

indisputably a sufficient condition supporting a reverse false

7 Although it was called into question by the Sixth Circuit in ATMI , this Ninth Circuit district court case supports Bain’s contentions, holding that potential fines and forfeitures against which the defendant allegedly insulated itself through false reporting were covered by section 3729(a)(7), and that the assertion that an “obligation to pay” should only encompass money owed to the government under a contract for goods, services, concessions or other benefits was unduly restrictive and contrary to the intent of Congress.

15 claims action under section 3729(a)(7).” The government goes on to

state that (contrary to Georgia Gulf’s contention) such an existing

“fixed obligation” is not always necessary to state a reverse claim,

provided that the obligation avoided, though only contingent, is one

which arises out of an economic or financial relationship, typically

contractual, between the government and the defendant under which

the government provides some benefit to the defendant wholly or

partially in exchange for an expected payment or transfer of

property by or on behalf of the defendant to (or for the economic

benefit of) the government.8 However, the government urges that an

8 In this connection the government notes the reference in the legislative history to a “potential” claim, citing the following language from page 18 of the Senate Report: “The question of whether the False Claims Act covers situations where, by means of false financial statements or accounting reports, a person attempts to defeat or reduce the amount of a claim or potential claim by the United States against him, has been the subject of differing judicial interpretations.” S. Rep. No. 99- 345 at 18, 1986 U.S.C.C.A.N. 5266 at 5283 (emphasis added). The Senate Report next goes on to note that fraudulently filing a false income tax return showing less taxes owing than are due had been held not a false claim, in contrast to filing a fraudulent claim for tax refund, which had been held to be a false claim. The Report indicates the intention not to make the former an actionable reverse false claim.

The Report next addresses “contract or lease arrangement cases” in which some courts had held that “a person’s fraudulent attempt to reduce the amount payable by him to the United States was considered not to constitute a violation of the False Claims Act.” It contrasted those cases to the “better reasoned result” in Smith v. United States,

(5th Cir. 1961), where we held that a lessee from the government whose lease obligated it to “remit quarterly to . . . [the government] as rent the excess of the lessee’s revenues from the project over its operation expenses,” and to submit quarterly reports of its said revenues and expenses, violated the False Claims Act by submitting a report which falsely inflated expenses and thus falsely reduced the amount of

16 environmental permit such as that involved here does not give rise

to such an economic type relationship and that “there is no free-

floating obligation actionable under the False Claims Act that

arises merely because a person must obey the law” or the terms of

a regulatory permit, and that “the False Claims Act does not apply

when the false statements at issue merely conceal the fact that the

person making the statement engaged in criminal or otherwise

unlawful conduct, and therefore might properly be subject to fines,

penalties, or forfeitures,” citing Quick,

, and ATMI,

.

It is unclear to us precisely what in other contexts the

operational differences would be between the government’s position

and that of the Sixth and Eighth Circuits in ATMI and Quick. We

note that section 3729(a)(7) applies not only to the defendant who

“makes” a false statement or record but also to one who knowingly

“uses” (or causes to be used) such a statement or record for the

prohibited purpose. Thus, if the defendant, for the prohibited

purpose, knowingly uses (or causes to be used) a false statement to

reduce the amount of a then matured and owing fixed obligation “to

rent paid (and showed as owing). The context indicates that the reverse false claims provision was intended by the Committee to make sure that the Smith result, rather than the contrary result in the other “contract or lease arrangement cases,” would be applied in the False Claims Act. See 1986 U.S.C.C.A.N. 5266 at 5284 (Committee “included this amendment to resolve the current split in the case law relating to such material misrepresentations.”).

17 pay or transmit money or property to the Government,” it would not

seem to matter that when the statement was made the obligation was

merely contingent and unfixed. If this is so, much of the

government’s concern about some of the expressions in ATMI and Quick

might be alleviated. For purposes of deciding this case, however,

we need not, and do not, choose between the approach of the

government and that of ATMI and Quick, much of which the government

agrees with.

It is clear to us that, as the government argues, the reverse

false claims act does not extend to the potential or contingent

obligations to pay the government fines or penalties which have not

been levied or assessed (and as to which no formal proceedings to

do so have been instituted) and which do not arise out of an

economic relationship between the government and the defendant (such

as a lease or a contract or the like) under which the government

provides some benefit to the defendant wholly or partially in

exchange for an agreed or expected payment or transfer of property

by (or on behalf of) the defendant to (or for the economic benefit

of) the government. Nothing in the complaint or amended complaint

even suggests that Georgia Gulf had any sort of contractual or other

economic relationship with the government, or indeed any

relationship at all other than having a permit authorizing certain

PVC emissions. Any such relationship was obviously purely

regulatory, and not one in which any economic or financial transfer

18 or payment by Georgia Gulf to the government was contemplated. The

permit obviously contemplated that Georgia Gulf would not make

otherwise precluded PVC emissions in amounts or circumstances other

than as authorized by the permit, not that Georgia Gulf would pay

the government for PVC emissions. Georgia Gulf, in common with all

others, was obligated to obey the law, including the Clean Air Act

and the regulations pursuant thereto, and if it did not it could be

subjected (as alleged in the amended complaint) to “statutory fines

and penalties,” but the mere contingent potential that such fines

or penalties might be (but had not been) sought and imposed does not

constitute “an obligation to pay or transmit money or property to

the Government” within the meaning of section 3729(a)(7). Nor does

anything in the legislative history, which speaks of money “owed”

the government and addresses obligations arising under “contract or

lease arrangement[s],” suggest a broader reading of “obligation.”

See notes 5

Accordingly, we hold that the district court erred in its

ruling that the complaint, as amended, stated a claim under section

3729(a)(7).

3. Emission Reduction Credits (ERCs)

In his amended complaint, Bain for the first time added

allegations to the effect that the submission of false or fraudulent

records allowed Georgia Gulf to obtain ERCs, which allegedly are a

thing of value and could be transferred for consideration. Georgia

19 Gulf counters that Bain’s ERC claim must fail because he did not

sufficiently allege that Georgia Gulf made any false claims to

obtain payment from the government.9

After Bain filed his amended complaint, Georgia Gulf did not

file another motion to dismiss, and the district court did not

address the ERC allegations in its ruling. Rather, the district

court held that Bain did state a claim under the reverse FCA, and

denied the motion to dismiss. Georgia Gulf then filed a motion to

reconsider the denial of the motion to dismiss and filed a motion

for summary judgment. In its motion for reconsideration, Georgia

Gulf raised the other district court holding concerning section

3729(a)(7) in Dow, and based on that case, the district court in the

case sub judice certified its ruling.

This case was certified for interlocutory appeal on the

district court’s initial order denying the 12(b)(6) motion, which

was filed after the amended complaint, but addressed only Georgia

Gulf’s motion that was filed before the amended complaint existed.

Therefore, we hold that the question of whether Georgia Gulf

violated the FCA by submitting false records and thereby obtaining

ERCs is not encompassed within the certified orders, and in any

event, would better be addressed in the first instance by the

9 This ERC claim would not fall under § 3729(a)(7) as a reverse false claim, and rather must be examined, under subsections (a)(1) or (2).

20 district court.10

Conclusion

For the foregoing reasons, the district court’s denial of

Georgia Gulf’s 12(b)(6) motion directed to the section 3729(a)(7)

claim is REVERSED and the case is REMANDED to the district court for

proceedings consistent with this opinion.

REVERSED and REMANDED.

10 We also note that it is questionable whether Bain has complied with

(b)(2) & (4) with respect to the alleged § 3729(a)(1) and/or (2) false claim concerning ERCs, a matter alleged for the first time in Bain’s amended complaint, which was filed well after the government’s November 8, 2001 notice of election to decline intervention. There is no indication that the government was ever served with “written disclosure of all material evidence and information” Bain possessed in respect to that claim. With respect to Georgia Gulf’s motion for summary judgment, it was denied “without prejudice” on the ground that Georgia Gulf “failed to comply with the procedures set forth in Rule 56.” It is not properly before us.

21