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

United States Court of Appeals, District of Columbia Circuit

July 5, 2019

United States of America, ex rel. Kasowitz Benson Torres LLP,
v.
BASF Corporation, et al., Appellees and Kasowitz Benson Torres LLP, Appellant

          Argued May 13, 2019

          Appeal from the United States District Court for the District of Columbia (No. 1:16-cv-02269)

          Andrew A. Davenport argued the cause for appellant. With him on the briefs was Daniel Benson.

          Gregory G. Garre argued the cause for appellees. On the brief were Christopher Landau, Alice S. Fisher, Anne W. Robinson, Alex Loomis, William F. Goodman III, Raymond Cardozo, Brian A. Sutherland, Steven M. Bauer, Fred M. Haston III, Lawrence S. Sher, and Seth A. Rosenthal. Ryan Baasch entered an appearance.

          Before: Henderson, Srinivasan and Pillard, Circuit Judges.

          OPINION

          Karen LeCraft Henderson, Circuit Judge.

         "Pecunia non satiat avaritiam, sed inritat" translates from Latin to English as "money doesn't satisfy greed; it stimulates it." This case teaches that money also stimulates legal artifice. For over one hundred and fifty years, the False Claims Act (FCA) has imposed civil liability on anyone who defrauds the federal government of money or property. See generally Act of March 2, 1863, ch. 67, 12 Stat. 696 (1863) (codified as amended at 31 U.S.C. §§ 3729 et seq.). A third party-a relator-may bring an FCA lawsuit on behalf of the government and collect a substantial bounty if he prevails. See 31 U.S.C. § 3730(b), (d). Today we review a relator's novel theory of FCA liability.

         The law firm Kasowitz Benson Torres LLP (Kasowitz) alleges that a handful of large chemical manufacturers violated the Toxic Substances Control Act, Pub. L. No. 94-469, 90 Stat. 2003 (1976) (codified as amended at 15 U.S.C. §§ 2601 et seq.) (TSCA), by repeatedly failing to inform the United States Environmental Protection Agency (EPA) of information regarding the dangers of isocyanate chemicals. Kasowitz claims the defendant-chemical manufacturers' failure to disclose and subsequent actions deprived the government of property (substantial risk information) and money (TSCA civil penalties and contract damages). Kasowitz demands billions of dollars in damages, even though the government openly supports the defendants. The district court dismissed its lawsuit. Kasowitz now appeals, asking us to become the first court to recognize FCA liability based on the defendants' failure to meet a TSCA reporting requirement and on their failure to pay an unassessed TSCA penalty. We decline the invitation and affirm the dismissal.

         I. Background

         TSCA requires a chemical manufacturer, inter alia, to inform the EPA of substantial risk information-that is, "information which reasonably supports the conclusion that [a] substance or mixture presents a substantial risk of injury to health or the environment." 15 U.S.C. § 2607(e). TSCA authorizes the EPA to take administrative action against any individual or entity that violates the duty to disclose and to impose a civil penalty on a violator. Id. § 2615(a)(2)(A)-(C). As part of its role in implementing TSCA, the EPA established the Compliance Audit Program, a "one-time voluntary compliance program designed to strongly encourage companies to voluntarily audit their files" and disclose substantial risk information. Registration and Agreement for TSCA Section 8(e) Compliance Audit Program, 56 Fed. Reg. 4128, 4129 (Feb. 1, 1991). The EPA offered a reduced civil penalty for any tardy disclosure made under the Program and reserved the right to "take appropriate enforcement action" against a violator. Id. The Compliance Audit Program was in effect from 1991 to 1996. See TSCA Section 8(e); Notification of Substantial Risk; Policy Clarification and Reporting Guidance, 68 Fed. Reg. 33, 129, 33, 131 (June 3, 2003) (The "EPA reached final settlements with CAP participants, announced those settlements on October 15, 1996, and collected payment for stipulated penalties.").

         Kasowitz alleges that the defendants-BASF Corporation, Covestro LLC, 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."[1] United States ex rel. Kasowitz Benson Torres LLP v. BASF Corp., 285 F.Supp.3d 44, 47 (D.D.C. 2017). Isocyanate chemicals can, under some circumstances, pose a health hazard if inhaled or exposed to skin. Beginning in the late 1970s and continuing through the early 2000s, the defendants acquired information about the adverse health effects of isocyanate chemicals. They did not disclose this information to the EPA, however, not even while participating in the Compliance Audit Program.

         Kasowitz sued the defendants under the FCA, alleging that their TSCA violations-and evasion of responsibility for those violations-deprived the government of its money and property. The defendants allegedly deprived the government of money by failing to pay TSCA and Compliance Audit Program civil penalties and by concealing their liability from the EPA. And the defendants allegedly deprived the government of property in the form of undisclosed substantial risk information regarding isocyanate chemicals. The complaint's first four counts allege violations of the FCA's reverse false claim provision[2] (Counts One, Two and Four) and conversion provision (Count Three).[3] Count Five alleges that the defendants engaged in a conspiracy to violate the FCA. The defendants moved to dismiss the case for failure to state a claim upon which relief can be granted. BASF Corp., 285 F.Supp.3d at 46-47, 49. The district court rejected Kasowitz's legal theories and accordingly granted the motion. Id. at 50- 56. Kasowitz timely appealed.

         II. Analysis

         To survive dismissal under Federal Rule of Civil Procedure 12(b)(6), a complaint must include factual allegations that establish a plausible claim to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007) (plaintiff must plead "enough facts to state a claim to relief that is plausible on its face"). We consider seriatim and review de novo the five counts of Kasowitz's complaint. See Elec. Privacy Info. Ctr. v. IRS, ...


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