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United States ex rel. Barrick v. Parker-Migliorini International, LLC

United States Court of Appeals, Tenth Circuit

December 28, 2017

UNITED STATES OF AMERICA EX REL. BRANDON BARRICK, Plaintiff/Relator -Appellant,
v.
PARKER-MIGLIORINI INTERNATIONAL, LLC; PARKER INTERNATIONAL, INC., also known as PMI Foods-USA; COTTONWOOD TRADING, LLC; FORTUNA FOODS, LLC, JOHN AND JANE DOES 1-10, Defendants - Appellees.

         APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH (D.C. NO. 2:12-CV-00381-DB)

          Ann Marie Taliaferro (James C. Bradshaw and Mark R. Moffat, Brown, Bradshaw & Moffat, L.L.P., and Robert B. Cummings, The Salt Lake Lawyers, Salt Lake City, Utah, with her on the briefs), Brown, Bradshaw & Moffat, L.L.P., Salt Lake City, Utah, for Appellant.

          Mark R. Gaylord (Tesia N. Stanley and Tyler M. Hawkins with him on the brief), Ballard Spahr LLP, Salt Lake City, Utah, for Appellees.

          Before TYMKOVICH, Chief Judge, EBEL, and LUCERO, Circuit Judges.

          TYMKOVICH, CHIEF JUDGE.

         Brandon Barrick brought this action under the False Claims Act on behalf of the United States, alleging his former employer Parker-Migliorini International (PMI) illegally smuggled beef into Japan and China. At the time of the scheme, China banned all imports of U.S. beef, and Japan imposed heightened standards, under which certain types of U.S. beef would have been banned.

         The False Claims Act prohibits false or fraudulent claims for payment to the United States. 31 U.S.C. § 3729(a)(1)(A). The Act authorizes enforcement either by the Attorney General, id. § 3730(a), or by private individuals like Barrick, called "relators, " who bring qui tam actions in the government's name, id. § 3730(b)(1).[1] Section 3729(a)(1)(G) of the Act also creates liability for so-called "reverse false claims." These claims reverse the typical claim under the Act: instead of creating liability for wrongfully obtaining money from the government, the reverse-false-claims provision creates liability for wrongfully avoiding payments that should have been made to the government. But, crucially, liability under the reverse-false-claims provision requires the existence of an "obligation"-defined as an "established duty"-to pay money to the government. Id. § 3729(a)(1)(G).

         In this case, Barrick alleges PMI cheated the government out of the inspection fees that would have been paid if PMI had complied with federal law. The United States Department of Agriculture (USDA) charges an hourly rate for the process of inspecting and certifying meat for export to a country only if the country has higher standards than the United States. In order to smuggle beef into Japan and China, PMI lied about the beef's destination. PMI gave sham destinations-Moldova or several Central American countries-which have import standards equal to or less than the United States. Based on these sham destinations, the USDA provided its usual (free) inspection rather than the appropriate heightened (reimbursable) inspection.

         In Barrick's view, an "obligation" to pay the government arises when the USDA is informed that meat is being exported to a country with inspection standards higher than those in the United States. Thus, the government should have been paid for the inspections that would have occurred if PMI had accurately reported the destination countries.

         We disagree. Barrick cannot allege there was an "established duty" to pay the government for inspections for the smuggled beef. First, the obligation would never have arisen for the beef smuggled to China, where it was altogether banned. The relevant regulations do not impose a charge for ascertaining whether a given destination country bans the import of U.S. meat, which is where the process would have ended. Second, the obligation for the beef smuggled to Japan did not rise to the level of an "established duty." An established duty is one owed at the time the improper conduct occurred, not a duty dependent on a future discretionary act. Here, the obligation would not have arisen absent a third-party meat supplier's independent wrongful conduct. This is because the meat supplier supplies the destination country to the USDA, thus controlling the type of inspection performed. But PMI did not use meat suppliers who were eligible to export beef to Japan. So, for an obligation to arise, the supplier would have had to report an accurate-and illegal-destination country to the USDA, even though the supplier was not eligible to export to that country. This conduct does not create an established duty under the Act.

         Therefore, because we do not find Barrick can adequately plead the existence of such an "obligation" by PMI as the statute requires, we AFFIRM the district court's denial of Barrick's motion for leave to amend.

         I. Background

         We begin with an overview of USDA regulations governing the inspection and certification of meat destined for export. Then, we summarize Barrick's allegations, the applicable provision of the False Claims Act, and the grounds for the district court's denial of leave to amend.

         A. The Export Certification Process

         Federal law requires the USDA to inspect and certify meat destined for export. See 21 U.S.C. §§ 615-618; 9 C.F.R. §§ 322.2, 322.4. The USDA delegates the responsibility for performing these inspections to the Food Safety and Inspection Service (FSIS). 9 C.F.R. § 300.2. The export certification process normally involves the following three steps.

         First, a supplier completes an export application and provides it to a FSIS employee. FSIS Directive 9000.1, Export Certification (U.S.D.A. 2006), at 1. This application indicates the destination country, the establishment from which the product is exported, and the name of the products being exported. FSIS Form 9060-6 ("Application for Export Certificate").

         Second, the FSIS employee verifies the information on the application and performs a physical inspection. This step includes verifying the product meets the requirements of the destination country. FSIS Directive 9000.1, at 1-2, 4-6. The FSIS employee does so by consulting the "Export Library, " a list of requirements officially communicated to FSIS by various countries. FSIS Directive 9000.1, at 3; USDA, Export Library (Sept. 1, 2017), https://www.fsis.usda.gov/wps/portal/fsis/topics/international-affairs/exporting-pr oducts/export-library-requirements-by-country. After verifying the information on the application, the FSIS employee signs the application and issues an export certificate. FSIS Form 9060-5 ("Export Certificate of Wholesomeness").

         Third, a FSIS certifying official compares the completed export certificate and the signed application. This step includes verifying again that the information is consistent with the destination country's requirements. If the certifying official deems the export certificate accurate, he signs it. The product is then eligible for export. FSIS Directive 9000.1, at 2, 7-8.

         Domestic meat quality standards provide a baseline for exported American meat. For some countries, that is enough-meat that satisfies U.S. law is good enough for them. Other countries, however, impose additional requirements. When that is the case, "[o]nly facilities and products which meet those specific requirements are eligible to export products to that country." FSIS, Export Certification, at 41-25 (Apr. 14, 2017), ...


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