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U.S. v. NATURE'S FARM PRODUCTS

May 3, 2005.

UNITED STATES OF AMERICA ex rel HUANGYAN IMPORT & EXPORT CORP, Plaintiff,
v.
NATURE'S FARM PRODUCTS, INC et al, Defendants.



The opinion of the court was delivered by: VAUGHN WALKER, District Judge

ORDER

This is a suit by the United States (the qui tam relator has been dismissed) under the False Claims Act (FCA), 31 USC § 3729 et seq, and the common law against an importer of canned mushrooms and its affiliates. Following various settlements, only the importer, Nature's Farm Products (NFP) and its officers (collectively, the "NFP defendants") remain in this suit. The United States alleges that defendants conspired to and did evade customs duties on their imports by falsifying their products' country of origin. The NFP defendants move pursuant to FRCP 12(b)(6) to dismiss the FCA causes of action for failure to state a claim upon which relief can be granted, advancing purely legal arguments about the reach of the FCA. Doc #13 (motion to dismiss FCA conspiracy claim); Doc #22 (motion to dismiss FCA substantive claim). The court sua sponte raised the question of its subject matter jurisdiction in light of United States v. Universal Fruits & Vegetables, 370 F3d 829 (9th Cir 2004). For the reasons that follow, the court concludes that it has jurisdiction over this case, GRANTS the NFP defendants' motion to dismiss the FCA conspiracy claim and DENIES the NFP defendants' motion to dismiss the FCA substantive claim. Finding that this order resolves controlling questions of law as to which there is substantial ground for difference of opinion, and finding that an immediate appeal from this order may materially advance the ultimate termination of this litigation, the court CERTIFIES this order for interlocutory appeal under 28 USC § 1292(b).

I

  As the motions before the court pose pure questions of statutory interpretation, only the barest recitation of the allegations in the United States' extremely detailed complaint is necessary. "On a motion to dismiss, all well-pleaded allegations of material fact are taken as true and construed in a light most favorable to the non-moving party." Wyler Summit Partnership v. Turner Broadcasting System, Inc, 135 F3d 658, 661 (9th Cir 1998) (citing Parks School of Business, Inc v. Symington, 51 F3d 1480, 1484 (9th Cir 1995)). The operative complaint in this case was filed by the United States in the Southern District of New York on October 10, 2003; the United States simultaneously filed a motion (which was granted) to dismiss the relator under the FCA's public disclosure bar, see 31 USC § 3730(e)(4)(A). Apparently due to a docketing error in the Southern District of New York, the file sent to this court upon transfer under 28 USC § 1404(a) did not include the United States' complaint. To correct the record, the parties have stipulated to the filing of the complaint in this court's docket as Doc #32. Accordingly, what follows is drawn from that complaint (the "complaint"), taking its allegations as true.

  Defendant NFP is an importer of, inter alia, canned mushrooms. The mushrooms come from Chile, and in late 1998, the International Trade Administration, Department of Commerce (ITA) determined that mushrooms exported from Chile by NFP's Chilean affiliate were being sold at less than fair value ("dumping" in the parlance). ITA imposed an antidumping duty of 148.51% on NFP's mushrooms. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 63 Fed Reg 56,613 (ITA Oct 22, 1998). NFP officers Dennis Choi and Peter Pizzo developed a scheme to circumvent the antidumping duties: They would ship large drums of "brined" (salt-preserved) mushrooms from Chile to Canada; in Canada, with the assistance of defendant Ravine Foods, the mushrooms would be de-brined and packaged in cans for retail sale; these cans — labeled as products of Canada and so designated in paperwork prepared by defendant Aliments Heritage — would be imported from Canada into the United States duty-free pursuant to the North American Free Trade Agreement. Defendant Bank of China, New York Branch (BOCNY) was NFP's commercial bank and was aware of and provided financing for the scheme.

  Defendants executed the scheme from late 1998 to mid-2000. As each shipment of canned mushrooms was presented at the Canada-United States border, defendants submitted to Customs a Customs Form 7501 that designated the "country of origin" as Canada (or the provinces of Quebec or Ontario), and declared that no duty was owed. Along with the false Forms 7501, defendants submitted false certificates of origin prepared by Aliments Heritage that stated that the mushrooms were products of Canada. In total, between December 9, 1998, and June 9, 2000, NFP imported approximately 150 falsely labeled shipments of Chilean mushrooms with a declared value of approximately $4.8 million, thus evading antidumping duties of approximately $7.8 million.

  A competitor of NFP, relator Huangyan Import & Export ("Huangyan"), uncovered evidence of the scheme during discovery in an apparently unrelated civil lawsuit against NFP. Huangyan filed this qui tam suit against defendants in the Southern District of New York in 2000; the suit was held under seal until 2003 while the United States decided whether to intervene. As noted above, the United States did intervene, filed its own complaint and successfully dismissed the relator. After the United States settled with defendant BOCNY, the case was transferred pursuant to 28 USC § 1404(a) to this district (in which NFP has an office). At this point, the United States has settled its claims against all but the NFP defendants.

  The complaint states four claims: (1) a violation of 31 USC § 3729(a)(7) ("§ 3729(a)(7)") the substantive FCA provision for so-called "reverse" false claims (which arise when a party avoids an obligation to pay the government, in contrast to claims that seek fraudulently to obtain money or property from the government); (2) a violation of 31 USC § 3729(a)(3) ("§ 3729(a)(3)"), the FCA's provision governing conspiracies to defraud the government; (3) a claim for common law fraud; and (4) a claim for unjust enrichment. The NFP defendants move pursuant to FRCP 12(b)(6) to dismiss counts (1) and (2) for failure to state a claim upon which relief can be granted.

  II

  The court must first consider its own subject matter jurisdiction. See Steel Co v. Citizens for a Better Environment, 523 US 83, 94 (1998). Generally, the district courts have federal question jurisdiction under 28 USC § 1331 over suits under the FCA. But some matters are carved out from the district courts' original jurisdiction; one such carve-out is found in 28 USC § 1340, which provides that "[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress providing for * * * revenue from imports * * * except matters within the jurisdiction of the Court of International Trade." One statute providing for the exclusive jurisdiction of the Court of International Trade is 28 USC § 1582, which vests exclusive jurisdiction in that court of "any civil action which arises out of an import transaction and which is commenced by the United States * * * to recover customs duties."

  The Ninth Circuit has recently held that an FCA suit brought by the United States in the first instance to recover antidumping duties is within the exclusive jurisdiction of the Court of International Trade because (1) it is a civil action, (2) it is "commenced by the United States," (3) the case "arises out of an import transaction," and (4) the recovery sought constitutes customs duties. United States v. Universal Fruits & Vegetables Corp, 370 F3d 829 (9th Cir 2004). Universal Fruits is indistinguishable from the case at bar in all but one respect: Universal Fruits was brought by the United States in the first instance, while the case at bar was originally filed by a relator. This distinction may make a difference, because a suit brought by a relator (who was dismissed) may not be "commenced by the United States" — thus vesting jurisdiction in this court, not the Court of International Trade. Accordingly, the court must decide whether a FCA suit in which the United States has intervened, filed a complaint and successfully dismissed the qui tam relator is a suit "commenced by the United States" within the meaning of 28 USC § 1582 and Universal Fruits. The court put precisely this question to the parties in asking for supplemental briefing, Doc #31, which the parties have provided, Doc #38 (United States), Doc #39 (NFP defendants).

  The question here is difficult because the case at bar lies between two established markers: On the one hand, in Universal Fruits, the Ninth Circuit held that a suit brought in the first instance by the United States is "commenced by the United States" within the meaning of 28 USC § 1582. On the other hand, in United States ex rel Fenton v. Allflex USA, Inc, 989 F Supp 259, 263 (CIT 1997), the Court of International Trade held that "a qui tam suit is `commenced by' the private actor, not the Government." But Fenton is arguably distinguishable from the case at bar because in Fenton the United States had not intervened and the relator was prosecuting the suit; here, by contrast, the United States successfully dismissed the relator (Huangyan) under the public disclosure bar of 31 USC § 3730(e)(4)(A), and filed its own complaint. Because (1) the public disclosure bar of § 3730(e)(4)(A) utterly divests courts of jurisdiction over qui tam actions brought on the basis of publicly disclosed information, (2) the United States' complaint supersedes the relator's and (3) the United States is not bound by any action of the relator, see 31 USC § 3730(c)(1), one could fairly argue that the relator's participation was a nullity; that the relator "commenced" this suit only in the sense of docketing the first paper; and that for all practical purposes, the United States "commenced" this suit with its complaint.

  Against this argument, the United States offers three compelling arguments resting on a detailed textual analysis of the FCA and the Federal Rules of Civil Procedure. First, "a civil action is commenced by filing a complaint with the court." FRCP 3 (emphasis added). In some sense, this is the end of the matter: 28 USC § 1582 uses the word "commenced" and FRCP 3 defines "commence." Common sense suggests that an activity (e g, a lawsuit) can only be commenced once, and the relator's filing of its complaint in the Southern District of New York was that commencement.

  Second, within the qui tam provisions of the FCA, 31 USC § 3730, there is a dichotomy between "private persons" (i e, relators) and "the Government": The former may "bring a civil action" that is "brought in the name of the Government"; in the FCA, the relator is referred to as "the person bringing the action" or "the person intiating the action." The United States, by contrast, "may elect to intervene and proceed with the action," and by intervening it assumes "the primary responsibility for prosecuting the action." Among the synonyms for "begin," Roget's Thesaurus lists "commence," "bring" and "initiate." ("Commence" and "proceed" are also both synonyms for "arise," but this cluster, which also includes "derive" and "result," seems to be about genesis — "arise from," "derive from," "proceed from," "commence from" and ...


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