Cheryl Nolte Barnes v. Clark County

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JAN 7 2022

MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

CHERYL NOLTE BARNES, Qui Tam No. 21-15137 Relator; ex rel. United States of America,

D.C. No. Plaintiff-Appellant, 2:15-cv-01621-JCM-VCF v.

MEMORANDUM* CLARK COUNTY, a Political Subdivision of the State of Nevada; et al.,

Defendants-Appellees.

Appeal from the United States District Court for the District of Nevada James C. Mahan, District Judge, Presiding Argued and Submitted October 21, 2021 San Francisco, California

Before: MURGUIA, Chief Judge, and WALLACE and BEA, Circuit Judges.

The False Claims Act (“FCA”) provides that “in qui tam cases, a court may award attorneys’ fees against the plaintiff if the ‘action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.’” Pfingston v. Ronan Eng’g Co., 284 F.3d 999, 1005 (9th Cir. 2002) (quoting 31 U.S.C. § 3730(d)(4)). This court has developed a stringent test for “clearly frivolous” actions under the FCA: “An action is ‘clearly frivolous’ when ‘the result is obvious or the appellant’s arguments . . . are wholly without merit.’” Pfingston, 284 F.3d at 1006. Following the dismissal of Relator’s qui tam action for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), the district court granted Defendants’ renewed motion for attorneys’ fees on the grounds that Relator’s “claims were clearly frivolous” under 31 U.S.C. § 3730(d)(4). Relator appeals that decision. We review the attorneys’ fees award for abuse of discretion1 and reverse.

I.

This is the second time we review an attorneys’ fees award in this case.2 Previously, the district court granted Defendants’ motion for attorneys’ fees on the grounds that it “should have been obvious to plaintiff” that most of her claims were barred by the statute of limitations and that, as to her remaining claims, Relator “failed to satisfy the FCA’s scienter requirement.”3 The district court reasoned that “defendants could not have ‘knowingly misrepresented’ their positions regarding whether [Defendants] took airspace without just compensation because the case establishing that they did in fact do so, [McCarran Int’l Airport v. Sisolak, 137 P.3d 1110 (Nev. 2006) (“Sisolak”)], was decided after the representations were made.”

We vacated the award because, first, we found that “the standard the district court used to assess the timeliness of [Relator’s] claims is no longer good law.” Second, it appeared that the “district court found that the County could not have knowingly made false certifications because the alleged misstatements occurred before the Nevada Supreme Court’s ruling in [Sisolak]” but “the County submitted twenty-four grant applications [that Relator alleged contained false statements] after Sisolak was issued.” In vacating the attorneys’ fees award of $133,896.22, we stressed that “[t]he district court should ‘make detailed findings in support of any award’ on remand.”

On remand, the district court granted Defendants’ second motion for attorneys’ fees. The district court explained that it “maintain[ed] its prior position” that Relator’s “claims were clearly frivolous,” now on the grounds that “there was no way that plaintiff could satisfy knowledge or materiality.” A single paragraph constituted the “detailed findings” this court ordered the district court to make to support a fees award, which by that time had grown to $283,251.46.

II.

Assessing the district court’s holdings regarding Relator’s allegations as to the elements of materiality and knowledge is complicated by the fact that neither the district court nor this court have previously analyzed Relator’s allegations as to the element of falsity. We do so now, and interpret Relator’s amended complaint to have alleged two theories as to Defendants’ allegedly false statements.

First, Relator alleged that Defendants falsely stated in grant applications to the Federal Aviation Administration (“FAA”) that they had complied or would comply with the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, 42 U.S.C. § 4601 et seq. (“URA”). Relator alleged that the URA required, that in obtaining the airspace necessary for the functioning of the airport, Defendants would “obtain appraisals for necessary acquisitions of airspace up to the approach surface to the required height; offer to purchase the airspace for at least the amount of the appraisals; refrain from taking possession of the airspace until purchasing it; and refrain from requiring any owner of airspace to bring a suit in inverse condemnation due to their failure to comply with the URA.”4 Relator alleged that Defendants took none of these steps. Instead, Relator alleged that Defendants took airspace near runways necessary for the functioning of the airport by passing Ordinance 1599, which became effective in 1994 and provided no payment to landowners. Relator alleged that Defendants continued to assert in Airport Improvement Projects (“AIP”) and Passenger Facilities Charge (“PFC”) applications, including from 2005 onwards, that Defendants had paid just compensation for the airspace the airport was required to possess. Relator alleged that these representations were knowingly false because Defendants had not compensated landowners whose property allegedly was taken by the land use ordinance and Defendants continued to defend inverse condemnation lawsuits brought by the landowners.

Second, Relator alleged that Defendants certified to the government that they had complied or would comply with FAA Advisory Circulars AC 150/5300- 13 (“Airport Design Circular”) and AC 159/5190-4A (“Model Zone Ordinance Circular”) (together, “FAA Circulars”). Relator alleged that the FAA Circulars required Defendants to acquire certain airspace near the airport, but that Defendants did not acquire title or easements to at least some of the airspace they were required to obtain.5 Relator alleged that the government relied upon Defendants’ allegedly false certification of compliance with the FAA Circulars in both AIP and PFC applications in awarding Defendants with funding from 2005 onwards.

On appeal, Defendants contend that Relator’s allegations that Defendants made false statements were “clearly frivolous” on the sole basis that 49 U.S.C. § 47106(b)(1) and the assurance statement implementing that statute did not require Defendants to acquire any airspace. Nevertheless, Defendants failed to demonstrate that Relator frivolously alleged that Defendants falsely certified that they would comply with the FAA Circulars. Relator alleged that these false statements obligated Defendants to acquire and pay for certain airspace that they did not obtain. Defendants also failed meaningfully to challenge Relator’s allegations that Defendants falsely certified compliance with the URA. We therefore conclude that Defendants have not established that Relator’s allegations that Defendants made false statements was “clearly frivolous” under this court’s stringent standard.6

III.

To establish the element of materiality, Relator was required to establish that the government would have denied Defendants’ grant applications if the government had known that that Defendants were not in compliance and would not comply with the alleged requirements of the URA (including payment of just compensation) in acquiring necessary airspace, or the alleged requirement of the FAA Circulars to acquire certain airspace. See Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2003–04 (2016).

Previously, in affirming the district court’s dismissal of Relator’s claims, we observed that Relator’s “complaint indicates only that the FAA conditioned its payments on the County’s compliance with a long list of statutes, regulations, and policies.” We held that Relator failed to state a claim under the FCA because she “has not plausibly alleged that the FAA placed significant weight on the County’s certification of compliance with” the URA or the FAA Circulars.7

Problematically, the district court on remand cited this court’s affirmance of the Rule 12(b)(6) dismissal of Relator’s complaint to support its holding that Relator’s complaint was “clearly frivolous.” Rather than making “detailed findings” to support an attorneys’ fees award as instructed, it stated only that “[t]he record presents no apparent avenue for plaintiff to properly allege that ‘the FAA placed significant weight on the County’s certification of compliance with’” the FAA Circulars and the URA “as to all passenger facility charge applications and twenty-seven grant applications identified in the complaint” and that Relator “fails to appropriately or persuasively address these concerns.”

We have stated in similar contexts that in assessing whether an action was so frivolous as to permit an attorneys’ fees award to the defendant “it is important that a district court resist the understandable temptation to engage in post hoc reasoning by concluding that, because a plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation.” C.W. v. Capistrano Unified Sch. Dist., 784 F.3d 1237, 1245 (9th Cir. 2015) (internal quotation and citation omitted) (assessing claims under the same standard of whether “the result is obvious or the . . . arguments of error are wholly without merit” in the context of 20 U.S.C. § 1415(i)(3)(B)); see also Harris v. Maricopa Cty. Superior Ct., 631 F.3d 963, 975–76 (9th Cir. 2011) (assessing claims under 41 U.S.C. § 1988). “The award of fees under the False Claims Act is reserved for rare and special circumstances.” Pfingston, 284 F.3d at 1006–07. And, the standard for “[d]ismissal under Rule 12(b)(6) is not the same as the standard for frivolousness.” Capistrano Unified, 784 F.3d at 1248 (citing Neitzke v. Williams, 490 U.S. 319 (1989)).

Although Relator has not “nudged [her] claims . . . across the line from conceivable to plausible” for the purposes of defending a motion to dismiss under Fed. R. Civ. P. 12(b)(6), Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009) (quotations omitted), this does not mean her pleading as to materiality was “clearly frivolous” under 31 U.S.C. § 3730(d)(4). Relator did allege materiality: that Defendants promised to comply with certain laws, regulations, and guidance to obtain grant funding that “they would not otherwise have been able to obtain.” Moreover, it is conceivable that the government would deny a grant application if it learned that the applicant intended not to comply with the federal rules that the applicant certified it would abide by in its grant application. Further, Relator’s claim is supported by the allegation that, at least in one case, the FAA followed-up after approving one of Defendants’ applications to “inquire[] whether Clark County was properly applying its funds . . . as Clark County has represented . . . to acquire” land near McCarran’s runway.8

We instructed the district court to make “detailed findings in support of any award.” It did not. Moreover, we conclude that Defendants have failed to establish that Relator’s allegations concerning the element of materiality were “clearly frivolous.” See Pfingston, 284 F.3d at 1006. Accordingly, the district court abused its discretion in finding that Relator’s allegations concerning materiality were “clearly frivolous” because that finding was implausible and unsupported by the record. United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009).

IV.

To establish the element of scienter, Relator was required to establish that Defendants knowingly, recklessly, or in deliberate ignorance made false statements. 31 U.S.C. § 3729(b)(1)(A); Universal Health Servs., 136 S. Ct. at 1996. “Innocent mistakes, mere negligent representations and differences in interpretations are not false certifications under the Act.” Gonzalez v. Planned Parenthood of Los Angeles, 759 F.3d 1112, 1115 (9th Cir. 2014) (citation omitted).

The district court concluded that Relator’s pleading was “clearly frivolous” as to the element of scienter in a single sentence: “As this court has already stated plainly, ‘[p]laintiff’s assertion that defendants knowingly misrepresented their positions regarding whether defendants took airspace without just compensation does not comport with this litigation history.’” The order the district court quoted, in which the district court granted Defendants’ motion to dismiss under the Rule 12(b)(6) standard, reasoned, in a few more words, that Relator’s arguments “boil down to a disagreement over the proper interpretation of Sisolak and of defendants’ duties under the law post-Sisolak,” and that Defendants could not have knowingly misrepresented they did or would not commit takings because they honestly disagreed with Relator about what Sisolak required.

The district court’s one-sentence quotation from its order granting dismissal under the Rule 12(b)(6) standard fails to support its holding that Relator’s pleading as to scienter was “clearly frivolous.” See Capistrano Unified, 784 F.3d at 1248. Moreover, Defendants’ briefing—like the district court’s opinion below— addresses scienter only as to Relator’s first theory of false statements (that Defendants promised they did not or would not take property without compensating its owners, but did so), but not the second (that Defendants did not acquire all the airspace they promised they possessed or would acquire). And, even granting the proposition that the Nevada Supreme Court’s holding in Sisolak does not guarantee victory by other property-owners affected by Ordinance 1599 in inverse condemnation suits against Defendants, Relator’s allegation that Defendants purposefully adopted a policy that required landowners to sue for compensation following the passage of Ordinance 1599 is not obviously false from the record before us. Relator alleged that Defendants promised they had paid or would pay compensation for all airspace they acquired, not that they would compensate property owners only after losing inverse condemnation actions.

Again, the district court did not make detailed findings in support of the award. Moreover, we find that Defendants have failed to establish that Relator’s allegations as to scienter were “clearly frivolous,” and that the district court’s contrary finding was an abuse of discretion because it is both unsupported and implausible. See Hinkson, 585 F.3d at 1262.

V.

For the reasons stated above, the district court’s attorneys’ fees award cannot be affirmed. And because we find that Defendants have failed to establish that Relator’s allegations were “clearly frivolous,” we conclude that Defendants’ second motion for attorneys’ fees should be denied.9 Accordingly, the district court’s grant of Defendants’ second motion for attorneys’ fees is REVERSED.