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United States ex rel. Simpson v. Leprino Foods Dairy Products Co.

United States District Court, D. Colorado

March 19, 2018

LEPRINO FOODS DAIRY PRODUCTS COMPANY, a Colorado corporation, Defendant.


          CHRISTINE M. ARGUELLO United States District Judge.

         This matter is before the Court on the Recommendation of United States Magistrate Judge Nina Y. Wang (Doc. # 70), wherein she recommends that this Court grant Defendant Leprino Foods Dairy Products Company's Motion to Dismiss Plaintiff John Simpson's Complaint (Doc. # 28). Both parties timely filed objections to the Recommendation, essentially challenging it in its entirety.[1] (Doc. ## 72, 73.) The Court must therefore review the issues de novo and, in so doing, “may accept, reject, or modify the recommended disposition[.]” Fed.R.Civ.P. 72(b)(3). Having conducted the required de novo review, the Court concludes that dismissal of the Complaint with prejudice is appropriate.

         I. BACKGROUND

         Magistrate Judge Wang's Recommendation provides an extensive recitation of the factual and procedural background in this case. The Recommendation is incorporated herein by reference. See 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b). Thus, the factual background of this dispute will be repeated only to the extent necessary to address the parties' objections.

         Defendant Leprino Foods Dairy Products Family (Leprino) sells cheese to the United States through two component agencies of the United States Department of Agriculture (USDA). (Doc. # 1 at ¶ 8.) Since 2004, the Government has awarded contracts in excess of $644 million to Leprino to purchase lite and low-moisture part-skim mozzarella cheese. (Id. at ¶ 19.) To qualify as mozzarella cheese, the cheese must originate from dairy plants that have been surveyed and awarded the USDA's “C17” plant code. (Id. at ¶¶ 11, 56-57.) The USDA's C17 code is only appropriate when the dairy plant at issue produces mozzarella cheese that strictly conforms to the Food and Drug Administration's (FDA) standard of identity for mozzarella and other regulatory requirements for production of mozzarella cheese. (Id. at ¶ 60.)

         Mr. Simpson is a Field Inspector with the Dairy Plant Survey Program within the USDA. (Id. at ¶ 23.) In the course of his employment, Mr. Simpson inspected Leprino's dairy plant in Greeley, Colorado and determined, starting in 2013, that the cheese produced there did not comply with the FDA's standard of identity regulations for mozzarella cheese. (Id. at ¶ 25.) Mr. Simpson specifically contends that Leprino adds, into its molten cheese, sodium hexametaphosphate (sodium hex), which is not one of the six ingredients that may be used to make mozzarella cheese under FDA standards. (Id. at ¶¶ 18-19.) Another field inspector with the USDA reported similar concerns related to Leprino's plants in Tracy, California and Fort Morgan, Colorado in late 2014. (Id. at ¶ 94; Doc. # 28-1.) The USDA later communicated these concerns to Leprino. (Doc. # 1-7.) Mr. Simpson avers that Leprino's processes and ingredients are still non-compliant with FDA regulations.

         In February 2016, Mr. Simpson commenced this lawsuit against Leprino, bringing one count under the False Claims Act, 31 U.S.C. §§ 3729(a)(1)(A)-(B). (Doc. # 1 at ¶¶ 110-115.) He primarily alleges that, since 2004, Leprino has fraudulently concealed from the Government that (1) its production methods and ingredients disqualify it from being designated “approved” under the FDA for sale to and use in Government programs; and (2) its mozzarella cheese does not meet the FDA's standard of identity regulations. (Id. at ¶ 71.) In April 2017, the Government declined to intervene in this action. (Doc. # 11.)

         In July 2017, Leprino moved for dismissal of the Complaint pursuant to Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6). (Doc. # 28.) Mr. Simpson opposed dismissal (Doc. # 40); and Magistrate Judge Wang heard oral argument on the motion (Doc. # 58). After thoroughly considering the parties' arguments and applicable law, Magistrate Wong recommended that Mr. Simpson's Complaint be dismissed for failure to adequately plead the FCA claim under Federal Rule of Civil Procedure 9(b). Upon de novo review, this Court agrees.


         Rule 9(b) provides: “In all averments of fraud or mistake, the circumstances constituting the fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b); U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 726 (10th Cir. 2006). Following the “straightforward language” of Rule 9(b), the Tenth Circuit has held that “Rule 9(b) requires only the identification of the circumstances constituting fraud, and that it does not require any particularity in connection with an averment of intent, knowledge or condition of mind.” Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997) (citing Seattle-First Nat'l Bank v. Carlstedt, 800 F.2d 1008, 1011 (10th Cir. 1986)).

         Although Rule 9(b) permits intent, knowledge, or condition of mind to be averred generally, courts have repeatedly required plaintiffs to plead the circumstances constituting fraud and the factual basis that gives rise to a strong inference of fraudulent intent. Kramer v. Time Warner, Inc., 937 F.2d 767, 776 (2nd Cir. 1991). “[W]hile Rule 9(b) permits scienter to be demonstrated by inference, this ‘must not be taken for license to base claims of fraud on speculation and conclusory allegations.'” In re United Telecommunications, Inc., Sec. Litig., 781 F.Supp. 696, 702 (D. Kan. 1991) (quoting O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991)).

         Rule 9(b) must also be read in conjunction with Rule 8 which calls for pleadings to be “simple, concise, and direct, ... and to be construed as to do substantial justice.” See Schwartz, 124 F.3d at 1252; see also Seattle-First, 800 F.2d at 1011. But even under a liberal application of Rule 8, plaintiffs must still provide some factual support for the conclusions of fraudulent intent. Seattle-First Nat'l Bank, 800 F.2d at 1011; Romani v. Shearson Lehman Hutton, 929 F.2d 875, 878 (1st Cir. 1991); Turner & Boisseau, Chtd. v. Marshall Adj. Co., 1989 WL 18812, at *2 (D. Kan. 1989) (“Knowledge and intent may be averred generally as long as the complaint provides a sufficient factual basis to support an inference of knowledge and intent.”). Simply stated, Rule 9(b) requires plaintiff to set forth “the circumstances constituting fraud or mistake, ” including “the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof.” Seattle-First Nat'l Bank, 800 F.2d at 1011- 12; Schwartz, 124 F.3d at 1252 (citations omitted).

         If a complaint fails to satisfy these pleading requirements, Rule 12(b)(6) provides that a defendant may move for dismissal. Fed.R.Civ.P. 12(b)(6). In deciding a motion under Rule 12(b)(6), the court must “accept as true all well-pleaded factual allegations ... and view these allegations in the light most favorable to the plaintiff.” Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). However, a plaintiff may not rely on mere labels or conclusions, “and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         III. ...

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