U.S. ex. Rel. Marcy v. Rowan Companies, 2008 WL 588745 (5th Cir. Mar. 5, 2008).

Stephanie Showalter

In March, the Fifth Circuit Court of Appeals affirmed the dismissal of an offshore oil worker’s qui tam1 action against his employers, an oil and gas leesee, an oil and gas company, and a contractor who provided drilling services. Robert Marcy claimed that while employed on the Midland offshore drilling unit in the Gulf of Mexico he was ordered by his employers to illegally dump oil, oil waste, solid waste, grease, paint, and other hazardous substances into the Gulf at night. Marcy further claimed that his employers intentionally failed to report the discharges as required by law. Marcy contends that his employers’ conduct constituted a violation of the federal False Claims Act (FCA).

The FCA was passed to “provide for restitution to the government of money taken from it by fraud.”2 The act permits private individuals, under certain circumstances, to pursue a claim on behalf of the federal government against any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.”3 A claim may also be pursued against someone who “knowingly makes, uses, or causes to be made or used a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”4 The FCA provides incentives for witnesses of fraudulent activity to file suit – plaintiffs are entitled to a portion of the final judgment awarded by a court. “The potential financial recovery available to qui tam plaintiffs is between 15 and 25 [percent] of the action if the government participates, plus reasonable expenses and attorney’s fees.”5 If the government does not participate, the qui tam plaintiff could recover between 25 to 30 percent.6

The Fifth Circuit agreed with the U.S. District Court for the Eastern District of Louisiana that Marcy had failed to state a valid claim under the FCA. Marcy argued that his employers “fraudulently maintained their right to take government property under the lease by failing to report their violations of certain laws and regulations.”7 The court found two problems with this argument. First, the employers did not request money or property from the federal government. They were taking federal property, oil, through the terms of a valid oil and gas lease. Second, any false claim made regarding compliance with the terms of the lease (i.e. omission of discharges from reports) was not material. “A material claim is one that is required to be made in order to receive the relevant government benefit.”8 Marcy’s employers did not need to make a false certification of environmental compliance to continue extracting oil. While the government has the option to cancel a lease upon the failure of a lessee to comply with the terms, it does not have to.

Marcy’s reverse FCA argument based on 31 U.S.C. A7 3729(a)(7) also failed to state a claim. “In a reverse [FCA] suit, there is no improper payment by the government to a defendant, but rather there is an improper reduction in the defendant’s liability to the government.”9 Marcy argued that by falsely certifying compliance with the terms of the lease, his employers avoided fines and other penalties that would have been imposed under environmental laws. The court disagreed noting that a reverse claim  does not extend to “potential or contingent obligations” to pay fines which have not be levied and “which do not arise out of an economic relationship between the government and the defendant.”10 The obligation to pay asserted by Marcy was mere speculation, as the government has discretion regarding the imposition of penalty for violations of environmental laws. Furthermore, the employers’ potential liabilities would have arisen out of the environmental laws, not the oil lease with the federal government. Marcy’s allegation of false certification to avoid possible environmental liability is insufficient to sustain a reverse false claim.

Endnotes
1.   Qui tam is an abbreviation of a Latin phrase meaning “Who sues on behalf of the King as well as himself.” Black’s Law Dictionary, 1251 (6th ed. 1990).
2.   U.S. ex rel. Marcus v. Hess, 317 U.S. 537, 551(1943).
3.   31 U.S.C. A7 3729(a)(2).
4.   Id. 3729(a)(7).
5.   Christi L. Underwood, False Claims Act, Practicing Law Institute Hand­ book: Handling Construction Risks 2007: Allocate Now or Litigate Later (Mar. 2007).
6.   Id.
7.   U.S. ex. Rel. Marcy v. Rowan Companies, 2008 WL 588745 at *3 (5th Cir. Mar. 5, 2008).
8.   Id. at *3.
9.   Id. at *4.
10. Id. at *5, citing U.S. ex rel. Bain v. Georgia Gulf Corp., 386 F.3d 648, 657 (5th Cir. 2004).