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U.S. EX REL. ATKINSON v. PENNSYLVANIA SHIPBUILDING CO.

July 28, 2004.

UNITED STATES OF AMERICA ex rel., PAUL E. ATKINSON, Plaintiff,
v.
PENNSYLVANIA SHIPBUILDING CO. and FIRST FIDELITY BANK, N.A., Defendants.



The opinion of the court was delivered by: WILLIAM YOHN, JR., District Judge

Memorandum and Order

This is a qui tam action brought by Paul E. Atkinson pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729. The lawsuit stems from a pattern of fraud allegedly perpetrated by defendants Pennsylvania Shipbuilding Co. ("Penn Ship" or "PSB") and First Fidelity Bank, N.A. ("Fidelity") on the United States Navy in connection with the bidding for, and construction of, two Henry J. Kaiser class fleet Oiler ships. The case, originally filed on December 5, 1994, features an extensive factual and procedural history, both of which have been delineated at length in two prior opinions by this court. See Atkinson v. Pennsylvania Shipbuilding Co., 2000 WL 1207162 (E.D. Pa. Aug. 24, 2000) ("Atkinson I"); Atkinson v. Pennsylvania Shipbuilding Co., 255 F. Supp.2d 351 (E.D. Pa. 2002) ("Atkinson II").

In his third amended complaint Atkinson asserted twelve claims against defendants, all but one of which I dismissed in Atkinson II. Presently before the court are defendants' motions for summary judgment with respect to plaintiff's remaining claim, which asserts that defendants conspired to defraud the U.S. Navy in violation of the FCA. Having considered each of the parties' submissions and the arguments raised therein, I will grant summary judgment for defendants.

  I. FACTUAL BACKGROUND

  Because the vast majority of the factual and procedural history of this ten-year old case is not relevant to the motions before me, I will reiterate only those facts which give rise to plaintiff's claim for conspiracy.

  In 1984, the Navy solicited bids for the construction of oil tanker ships. Penn Ship sought this contract ("Oiler Contract") and ultimately was determined to have submitted the lowest bid. Before the Oiler Contract was awarded to Penn Ship, however, the Navy requested that Penn Ship secure it against the reprocurement costs it would incur should Penn Ship default on the contract.*fn1 To address the Navy's concerns, Penn Ship proposed to secure the Navy through the creation of a trust which, by naming the Navy as the beneficiary, would provide a layer of financial comfort and security to the Navy.*fn2 Penn Ship then drafted this Trust Indenture — akin to an escrow agreement — for which Fidelity served as trustee.*fn3 The trust indenture transferred to Fidelity, as trustee for the Navy,*fn4 second lien security interests in (1) all but seven acres of the Chester shipyard, where Penn Ship's building operations were centered; (2) all fixtures and equipment owned by Penn Ship; (3) "Drydock No. 4," a floating, 70,000-ton capacity drydock; and (4) "Sun 800," an 800-ton capacity floating crane. These liens secured the Navy for up to $20 million in reprocurement costs in the event that Penn Ship's contract was terminated for default. The Navy's security interests, however, were subordinated to $18 million in existing first liens and mortgages, and provided that Penn Ship had the right to substitute additional first liens up to $24 million. See Trust Indenture, PSB App. at 1226. On March 26, 1985, the trust indenture was finalized and signed by all parties.

  The Navy awarded the Oiler contract to Penn Ship on May 6, 1985. Pursuant to its terms, the trust indenture became effective immediately upon execution of the T-AO contract between Penn Ship and the Navy for construction of the oil tankers. See Trust Indenture, PSB App. at 1226. Under paragraph 14 of the trust indenture Penn Ship was also required, upon award of the contract, to "promptly file all mortgages, financing statements and other documents necessary to perfect the Trustee's secured status under the Security Instruments." PSB App. at 1236.*fn5 Penn Ship, however, never recorded the documents required to perfect Fidelity's security interest in the various property and equipment identified by the trust indenture. PSB App. at 706.*fn6

  Penn Ship experienced financial difficulty in the late 1980s and was unable to complete its responsibilities under the Oiler contract. After two unsuccessful attempts to modify the financing and timing of Penn Ship's construction of the tankers, see Mod. 5 and Mod. 11, the Navy and Penn Ship decided on August 24, 1989, to end their contract, terminate the trust indenture, and transfer the two original oil tankers to another shipyard. See Mod. 17, PSB App. 159-225.

  Modification 17 established Penn Ship's liability for excess reprocurement costs as a fixed liability of $19 million, which was satisfied by the transfer of Drydock No. 4 to the Navy, and a contingent liability of up to $5.09 million. PSB App. at 159-225; see also id. at 1054-55. The contingent liability would occur if Penn Ship was able to generate excess cash flow by liquidating its assets over the thirteen-month period following execution of Mod. 17. Id. As Penn Ship was unable to produce excess cash flow, the contingent liability never arose. Pl.'s Statement of Facts in Response to PSB's Facts ("Pl.'s Facts"), ¶ 87. On January 12, 1992, Penn Ship and the Navy entered into Modification 20, pursuant to which the Navy fully released Penn Ship from all responsibility and liability under the Oiler contract. PSB App. at 1090-95.

  II. PROCEDURAL BACKGROUND*fn7

  Atkinson and his former co-relator Eugene Schorsch filed this action — their second qui tam action — under seal on December 5, 1994. In addition to the two defendants named in this case, Sun Ship Inc. ("Sun Ship") was originally a named defendant as well. Over the next six years this case underwent substantial delay: the government requested and received multiple extensions of time within which to inform the court of its determination of whether to intervene in the action;*fn8 plaintiffs requested and received several extensions of time within which to serve their amended complaint on the defendants so that they could obtain an attorney; this court ordered plaintiffs to file a second amended complaint; and this action was placed in civil suspense while the Supreme Court determined that a private citizen has standing in qui tam actions.*fn9

  Following this delay, each defendant moved, pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss every count in the second amended complaint for failure to plead allegations of fraud with sufficient particularity under Rule 9(b). On this basis, I dismissed some of plaintiff's claims against Penn Ship, without prejudice, and dismissed plaintiff's claims against Fidelity and Sun Ship in their entirety, also without prejudice. See Atkinson I. On October 16, 2000, Atkinson filed his third amended complaint, which dropped Sun Ship as a defendant and asserted twelve distinct claims against Fidelity and Penn Ship.

  On August 30, 2002, I granted defendants' motions to dismiss plaintiff's third amended complaint in large part, holding that I lacked subject matter jurisdiction over counts 2-11. See Atkinson II. With respect to plaintiff's first count, which alleged a conspiracy in violation of 31 U.S.C. § 3729(a)(3), I granted defendants' motions to dismiss to the extent that plaintiff's first count is based on reverse false claims and to the extent that it is based on claims subitted prior to December 4, 1988. Defendants' motion to dismiss was denied with respect to Atkinson's first count, however, insofar as it sounded in Penn Ship's non-recording of the Navy's security instruments and Fidelity's failure to ensure such recordation.

  III. STANDARD OF REVIEW

  Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). This court may not resolve disputed factual issues, but rather should determine whether there are genuine, material factual issues that require a trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Where "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party," however, there is "no genuine issue for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quotations omitted). In order to determine whether summary judgment is appropriate in this particular case, all of the facts delineated above are stated in the light most favorable to the plaintiff as the non-moving party. See Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001). While this court will draw all reasonable inferences in plaintiff's favor, however, plaintiff must do more than rest upon mere allegations, general denials, or vague statements. Trap Rock Indus., Inc. v. Local 825, 982 F.2d 884, 890 (3d Cir. 1992). Rather, plaintiff "must present affirmative evidence" in order to defeat a motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).*fn10

  IV. DISCUSSION

  In the sole claim remaining before this court, Atkinson alleges that defendants Penn Ship and Fidelity conspired to defraud the United States in violation of 31 U.S.C. § 3729(a)(3). More specifically, Atkinson contends that Penn Ship and Fidelity agreed to defeat the Navy's security interests under the Trust Indenture by not recording its underlying security instruments. Penn Ship's participation, according to Atkinson, consisted of its failure to record, while Fidelity's role involved its failure to ensure that the security instruments were in fact recorded. By Atkinson's account, these actions were undertaken in furtherance of an agreement, between defendants, to defraud the government out of monies and property to which it was entitled under the terms of the Oiler Contract.

  A. FCA Conspiracy, 31 U.S.C. § 3729(a)(3)

  To state a claim under the FCA for conspiracy pursuant to section 3729(a)(3), a plaintiff must show: (1) that the defendant conspired with one or more persons to get a false or fraudulent claim allowed or paid by the United States, and (2) that one or more conspirators performed any act to get a false or fraudulent claim allowed or paid. United States v. Hill, 676 F. Supp. 1158, 1173 (N.D. Fla. 1987) (citing Blusal Meats, Inc. v. United States, 638 F. Supp. 824, 828 (S.D.N.Y. 1986) aff'd 817 F.2d 1007 (2d Cir. 1987)).*fn11 General principles of civil conspiracy apply to FCA conspiracy claims. See United States v. Murphy, 937 F.2d 1032, 1039 (6th Cir. 1991); see also General Refractories Co. v. Fireman's Fund Ins. Co., 337 F.3d 297, 313 (3d Cir. 1999) (the Third Circuit, interpreting Pennsylvania law, held that civil conspiracy requires a showing of "(1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by ...


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