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

United States District Court, E.D. Pennsylvania


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 unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage") (citing Strickland v. Univ. of Scranton, 700 A.2d 979, 987-988 (Pa. 1997) (citation and internal quotations marks omitted)).

  B. Element One: A "Meeting of the Minds"

  The first required element of a conspiracy under section 3729(a)(3), the agreement itself, has typically been described as a "meeting of the minds." United States ex rel. Durcholz v. FKW Inc., 189 F.3d 542, 545 (7th Cir. 1999). Indeed, the "essence" of an FCA conspiracy is "an agreement between two or more persons to commit a fraud." United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Provident Life & Acc. Ins. Co., 721 F. Supp. 1247, 1259 (S.D. Fla. 1989). Put differently, Atkinson must present evidence that would enable a reasonable juror to conclude that Penn Ship and Fidelity shared a "conspiratorial objective." Durcholz, 189 F.3d at 545 (holding that an FCA plaintiff cannot withstand summary judgment where the "meager evidence" of the alleged conspirators' silence cannot "support the inferential leaps that would be required" to find a meeting of the minds).

  To establish a "meeting of the minds," it is not sufficient for a relator to show that the alleged conspirators "intended to engage in the conduct that resulted in the injury" to the government; rather, the parties must be "aware of the harm or wrongful conduct at the inception of the combination or agreement." Peavy v. WFAA-TV, Inc., 221 F.3d 158, 173 (5th Cir. 2000) (applying Texas law, which is substantively similar to the Pennsylvania law of civil conspiracy). More specifically, "innocent mistakes and negligence" are not actionable under the FCA. United States v. Taber Extrusions, LP, 341 F.3d 843, 845 (8th Cir. 2003) (holding that defendants must have "knowledge" of the intended fraud in order to be held liable for conspiracy under the FCA); see also United States ex rel. Reuter v. Sparks, 939 F. Supp. 636, 638 (C.D. Ill. 1996) (holding that "negligence is not actionable" under the FCA). It is also not the case that "any breach of contract, or violation of regulations or law, or receipt of money from the government where one is not entitled to receive the money, automatically gives rise to a claim under the FCA." United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1265 (9th Cir. 1996) (quoting and agreeing with the district court's analysis).

  To demonstrate the existence of the "agreement" required in federal civil conspiracy claims, a plaintiff/relator may rely on either direct or circumstantial evidence. See Adams v. Teamsters Local 115, 2003 WL 22005708, *6 (E.D. Pa. Aug. 6, 2003); see also Intervest, Inc. v. Bloomberg, L.P. 340 F.3d 144, 159 (3d Cir. 2003) (evidence of a conspiracy to violate the Sherman Act may be proven by either direct or circumstantial evidence). Because conspiracies, "by their very nature, are not often susceptible to direct proof," Durcholz, 189 F.3d at 546, plaintiffs alleging civil conspiracies most often rely upon circumstantial evidence.

  Circumstantial evidence can, in certain instances, give rise to the existence of a conspiracy. See Intervest, 340 F.3d at 159 ("plaintiffs have been permitted to rely solely on circumstantial evidence (and the reasonable inferences that may be drawn therefrom) to prove a conspiracy") (quoting Rossi v. Standard Roofing, Inc., 156 F.3d 452, 465 (3d Cir. 1998)). Where a plaintiff relies upon circumstantial evidence to establish a conspiracy, however, he must "produce more than a whiff of the alleged conspirators' assent" to withstand summary judgment. Durcholz, 189 F.3d at 546 (quotations omitted); see also Scully v. US WATS, Inc., 238 F.3d 497, 516 (3d Cir. 2001) (holding that while a civil conspiracy "may be proved by circumstantial evidence, the evidence must be full, clear and satisfactory") (quoting Fife v. Great Atlantic & Pacific Tea Co., 356 Pa. 265 (1947)). To "raise a fact question" in an FCA conspiracy case, therefore, plaintiff "must provide proof that [defendants] each intended to commit [] fraud, and that they entered into an agreement with that specific objective." United States ex rel. Reagon v. E. Tex. Med. Ctr. Regional Healthcare Sys., 274 F. Supp.2d 824, 857 (S.D. Tex. 2003).

  More specifically, "a plaintiff cannot withstand a summary judgment motion by establishing only consciously parallel behavior on the part of the defendants." Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., Inc., 998 F.2d 1224, 1232 (3d Cir. 1993) (citing Theatre Enters., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 541 (1954)) (assessing circumstantial evidence in the context of an alleged conspiracy to fix prices in violation of section 1 of the Sherman Act). Ultimately, a court must focus on whether the evidence proffered by the plaintiff "tends to exclude the possibility that [the defendants] were acting independently." Intervest, 340 F.3d at 160 (citations omitted) (in the context of a Sherman Act conspiracy).

  C. Plaintiff's Evidence of Penn Ship's and Fidelity's "Meeting of the Minds"

  In support of its claims that "a jury could easily conclude that a conspiracy involving defendant[s] existed" and that a "concerted breach of contractual and fiduciary duties" occurred, Pl.'s Mem. at 21, plaintiff offers the following evidence.

  Atkinson claims that a trust indenture provision requiring Fidelity to deliver all recording documents to the Navy — a provision absent from the final version of the trust indenture — was consciously stricken by defendants as part of the conspiracy. The sequence of meetings and revisions which led up to the finalization of the trust indenture is undisputed, as is the sequence and substance of the correspondence stemming from the Navy's award of the Oiler Contract to Penn Ship.*fn12 Due to the critical importance Atkinson places upon these events, it seems worth briefly revisiting the relevant chronology.

  Greg Leatherbury, an attorney for Penn Ship, prepared the first draft of the trust indenture sometime in early March, 1985. Pl.'s Facts, ¶ 20. Leatherbury then discussed the terms of the trust indenture in greater detail with Terence McPoyle, a corporate trust administrator with Fidelity's Corporate Trust Department, and Stephen Mygatt, a Fidelity in-house attorney. Id. ¶¶ 21-22. After these discussions, the initial draft of the trust indenture was signed on March 15, 1985, by Thomas Weller, Chairman of Penn Ship, and McPoyle, on behalf of Fidelity. Id. ¶ 23. Later that day, the signed draft was sent to the Navy for revision and approval.*fn13 Id. ¶ 24.

  The substance of the March 15th trust indenture is undisputed.*fn14 Neither is it disputed that Leatherbury and other Penn Ship representatives met with NAVSEA officials to discuss the trust indenture. Id. ¶ 30. During this meeting — which was not attended by anyone from Fidelity — Leatherbury met separately with Gene Angrist, NAVSEA Counsel, and Shauna Russell, associate counsel, to undertake a page-by-page review of the trust indenture. Id. ¶¶ 31-34. Leatherbury's notes from this three-person meeting include an additional sentence to paragraph 14, now crossed out, stating "the trustee shall deliver copies of all recording documents to the Navy." Id. ¶ 35. Plaintiff does not dispute that this sentence is crossed out in Leatherbury's notes and that it never appeared in any subsequent version of the trust indenture. Id. ¶ 36.

  After this meeting with Russell and Angrist, Leatherbury sent his notes and a marked-up version of the trust indenture to McPoyle and Mygatt, at Fidelity. After separate conversations with Mygatt and Russell, Leatherbury incorporated all changes to the trust indenture and created a final draft. Id. ¶¶ 37-38. The final version of the trust indenture was signed by Penn Ship and Fidelity, as trustee for the Navy, on March 26, 1985. Id. ¶ 39. On March 27, 1985, Leatherbury sent an original fully-executed final version of the Trust Indenture to McPoyle. PSB App. at 886. McPoyle responded to this letter on April 1, 1985, thanking him for the copy of the trust indenture and further noting:

We will of course await notification from you regarding the awarding of the contract.
In conjunction with this, we will then expect to receive evidence of insurance on the mortgaged property, a letter from the United States Navy advising us of who to contact in the future, and proof of all filings performed concerning the mortgaged properties.
PSB App. at 894.

  A month later, on May 6, 1985, Penn Ship was awarded the Oiler Contract by the Navy, pursuant to the terms of which it would provide the Navy with two ships. PSB App. at 502 ("Contract 2115"). The Oiler Contract triggered Penn Ship's obligation under the trust indenture to record the security instruments. Trust Indenture, ¶ 14 (PSB App. at 1236).*fn15 After receiving the executed UCC-1 financing statements from a Penn Ship attorney at the outside firm of Reid & Priest, see Pl.'s Facts, ¶ 60, Leatherbury sent the signed UCC-1 statements to McPoyle at Fidelity on May 21, 1985 with an accompanying letter:

Enclosed are the UCC Financing Statements in connection with the trust indenture. Please execute them on behalf of the Bank, as trustee, and return them to me. I am then going to forward the financing statements and mortgages for appropriate filing and recordation.
PSB App. at 896.

  McPoyle testified that he never received the May 21st letter and its enclosed financing statements. PSB App. at 968. Plaintiff disputes this fact, arguing that "an inference of receipt follows from the mailing." Pl.'s Facts, ¶ 65. Regardless of whether McPoyle did or did not receive this letter, it is undisputed that he did not respond, and neither he nor Leatherbury undertook to follow-up with one another. Pl.'s Facts, ¶¶ 66-67. McPoyle asserts that he did not learn of the award of the Oiler Contract to Penn Ship until four years later, in late 1989. McPoyle Decl., ¶ 18.

  Two to three months after the trust indenture was signed, however, McPoyle did compose a short file memo on the subject of the trust indenture, in fulfillment of the bank's requirement that it "have some kind of a one- or multi-page document just giving a quick overview of a transaction." PSB App. at 957-58, 1008. In his summary of the trust indenture's "purpose," in this file memo, McPoyle noted:

U.S. Navy has contracted with Penn Ship to build (3) T-AO 187 Class Fleet Replenishment Oiler Ships and Penn Ship has given us a Pledge of Mortgage we are to hold in case the ships are not build or on time or to avoid cost overruns, etc.
PSB App. at 1008. With respect to Fidelity's "duties" under the trust indenture, McPoyle wrote that:
We are to do nothing until and if we receive notification from the Navy that there is a problem. At that point, we would have to read and follow procedures in the documents which were modified by S. Mygatt of our legal department.
Id.

  With respect to his statement that the Navy "has contracted with Penn Ship," McPoyle later testified that this portion of the file memo was in error: "At the time I prepared the summary statement, I was unaware as to whether the contract had been awarded to Penn Ship, and the misstatement in my summary statement on this point is the result of inattentive, sloppy drafting on my part at the time of its preparation." McPoyle Decl., ¶ 16. Atkinson labels this assertion "self-serving" and "facially preposterous," pointing out that McPoyle did not offer any such explanation at his Senate Subcommittee deposition in 1995. Pl.'s Mem. at 9.*fn16

  D. Analysis

  Plaintiff highlights three main events which he believes demonstrate the existence of a conspiracy. I will address them each in turn.

  (1) The Crossed-Out Provision

  From the facts discussed above, Atkinson concludes that Penn Ship, "on at least two occasions — in the March 15 Proposal, and in striking the Navy's request — consciously omitted a requirement that the Navy or the Trustee be notified of filing." Pl.'s Mem. at 6. Omitting a provision from a trust indenture, however, does not amount to a conspiracy to defraud the government. First, neither Leatherbury nor Russell, the Navy attorney, recalls why the provision was suggested, by whom, why it was stricken, or whether its subsequent omission was the result of a conscious or extensive discussion. See Russell Dep., PSB App. at 383, 439-40 (Russell testified that she could not recall whether the Navy had made any un-granted requests for changes to the trust indenture to Leatherbury and that she had no recollection as to whether the Navy was negotiating for a provision requiring the delivery of copies of all recording documents); Leatherbury Dep., PSB App. at 599 (testifying that he did not recall how the crossed-out provision came into existence in the first place nor why it was ultimately stricken). Such a lack of knowledge and inability to recall cannot reasonably give rise to a "concerted effort," as required by section 3729(a)(3). Moreover, Leatherbury and other Penn Ship officials deny any illegal purpose underlying this editorial decision. See Leatherbury Dep., PSB App. at 672 (Leatherbury's testimony indicated that his intention was to send all relevant documents off to be recorded). Finally — and most importantly — plaintiff has pointed to nothing implicating Fidelity, the supposed coconspirator, in this alleged conspiracy to consciously omit the provision in question. Plaintiff asserts that "Fidelity actively participated in this glaring omission." In support of this statement, however, plaintiff cites vague references made by Fidelity employees to "procedures" in the trust indenture, drafting meetings, and "further documentation." Pl.'s Mem. at 6. From these bits and pieces of unenlightening evidence, Atkinson makes two unsubstantiated legal leaps. First, he assumes that "at the very same time that Leatherbury was striking the requirement that the Trustee — Fidelity — would deliver[] copies of the documents to the Navy, he was meeting with Fidelity. A logical and reasonable inference is that a provision directly dealing with Fidelity's role was expressly discussed." Id. at 6-7 (emphasis added). Secondly, Atkinson argues that because the delivery requirement would have imposed such a minimal burden on both Penn Ship and Fidelity, "the striking of this basic delivery requirement was part of a broader plan not to record." Pl.'s Mem. at 7.

  Plaintiff's proffered evidence in support of these two bold inferences is simply not the type of "full, clear, and satisfactory" evidence required to establish the existence of a conspiracy. The evidence does not suggest a conscious omission. With respect to Atkinson's inferential leap that express discussions were taking place, both Leatherbury and McPoyle — the individuals who would have actually engaged in these purported discussions, had they in fact taken place — specifically deny Atkinson's inference.*fn17 Regarding Atkinson's second argument — that the de minimus burden posed by the inclusion of a delivery requirement must mean that the omission of such a requirement stemmed from a conspiracy — plaintiff's logic eludes this court. The fact that undertaking illegal activity would impose a minimal burden does not compel the conclusion that such activity did in fact occur. Plaintiff's argument presupposes a causal relationship for which he has offered no evidence and which, more importantly, is not causal at all. By plaintiff's logic, any time an individual could have completed a crime with little effort, he could be assumed to have in fact committed that crime — despite a total lack of evidence to that effect.

  Moreover, even if Penn Ship's decision to exclude the sentence in question was a conscious omission, there is nothing in the evidence before this court to suggest that Fidelity participated in this omission. No one from Fidelity attended the March 15, 1985 meeting where the provision was introduced and, subsequently, deleted. Importantly, the provision had been crossed out before Fidelity ever reviewed the document. Furthermore, even if Fidelity had desired that the provision be excluded, plaintiff has introduced nothing indicative of a "conspiratorial objective" or other "meeting of the minds." In fact, plaintiff has barely even hinted at the existence of a conspiracy.

  In his single reference to an agreement, or conspiracy, Atkinson refers only to his belief that it is inevitable that, during the drafting of the trust indenture, Fidelity and Penn Ship "expressly discussed" the recording provision. A "discussion," however, does not a conspiracy make. In order to be held liable for conspiracy under section 3729(a)(3), defendants must be shown to have formed an "agreement" to "commit a fraud." Stinson, 721 F. Supp. at 1259. Coincidental agreement as to the best structure and wording of a draft of the trust indenture, however, is not an agreement to commit fraud. Indeed, courts have repeatedly held that "conscious parallelism" cannot give rise to liability for civil conspiracy. See, e.g., Petruzzi's, 998 F.2d at 1232.

  Finally, it seems worth noting that the omission of the provision to which Atkinson attaches such great importance had very little effect upon the trust indenture. The Navy had reviewed the trust indenture language and was aware that Fidelity had no obligation to provide it with copies of the recording documents. To the extent that plaintiff's concern regarding the absence of this provision is grounded in a worry that the Navy's interests be secured, the Navy had knowledge that it was not to depend upon Fidelity for the relevant documentation and accepted the trust indenture with this knowledge.*fn18

  The "conscious omission" of the provision requiring Fidelity to provide copies of all recording documents to the Navy appears neither conscious, conspiratorial, nor relevant. A reasonable juror, therefore, could not find that the absence of this provision in the trust indenture establishes the existence of a conspiracy. (2) Fidelity's Knowledge

  The second set of events that plaintiff suggests as giving rise to an inference of conspiracy involves the reach of Fidelity's knowledge concerning the award of the Navy contract to Penn Ship.

  As discussed above, McPoyle of Fidelity claims that he was not aware of the contract award which triggered Fidelity's obligations as trustee and Penn Ship's duty to record. According to plaintiff, however, Fidelity's ignorance is a "recent invention" rendered implausible due to the existence of McPoyle's file memorandum, from the spring of 1985, which stated that the "Navy has contracted with Penn Ship to build (3) T-AO 187 Class Fleet Replenishment Oiler Ships." Pl.'s Mem. at 8. Plaintiff places great weight on the inconsistency generated by this memorandum and McPoyle's later testimony that he was unaware that the contract had been awarded. The factual dispute as to McPoyle's level of knowledge, however, is immaterial.

  Even if McPoyle knew that the Navy had awarded the Oiler contract to Penn Ship, plaintiff has nonetheless failed to establish a conspiracy under the FCA. Fidelity's knowledge of the contract award triggered its status as Trustee.*fn19 Its failure to ensure the perfection of the Navy's security interests, then, could — at most — amount to a breach of its fiduciary duty to the Navy.*fn20 Assuming arguendo that the Navy could successfully bring a cause of action for breach of fiduciary duty against Fidelity, this breach neither involves Penn Ship nor a "meeting of the minds," nor does it otherwise suggest the existence of a conspiracy to defraud the Navy. Under the trust indenture, Penn Ship was responsible for recording all security instruments and Fidelity had no obligation to ensure that this recordation occurred. Even if Fidelity knew of Penn Ship's receipt of the contract and subsequent duty to record, this knowledge did not trigger any specific duties of Fidelity with respect to the recording of the trust indenture's security instruments.*fn21 Fidelity's failure to ensure perfection of these interests, therefore, was in line with its contractual duties and can in no way — regardless of whether Fidelity knew of the contract — enable a reasonable juror to find the existence of a conspiracy.

  (3) Motive

  Plaintiff's final argument in support of finding the existence of an agreement between Penn Ship and Fidelity relates to defendants' motives for creating the trust indenture. Essentially, plaintiff argues that Penn Ship's motives for non-recording were so compelling that there is simply no other explanation — other than the existence of a conspiracy — for the creation of the trust indenture.

  More specifically, plaintiff contends that because defendants can point to no legitimate rationale driving the creation of the trust indenture, it must have been the product of a conspiracy. Plaintiff points out that the trust indenture was an uncommon arrangement, was not necessary to protect the Navy's interests, but was necessary to Penn Ship's success in obtaining the Oiler contract. Because Penn Ship could have given direct liens to the Navy rather than to a trustee, the only purpose of the trust indenture, according to plaintiff, must have been to facilitate non-recording and fraud.

  Plaintiff also highlights the factors encouraging Penn Ship's non-recording, pointing to three specific reasons Penn Ship would have been inclined toward non-recording: first, he claims that perfecting the trust indenture's security instruments would have alerted losing bidders to the existence of the allegedly improper trust indenture and therefore have necessitated a second bidding process, thus delaying construction and posing a risk to Penn Ship's acquisition of the contract; second, plaintiff argues that Penn Ship's non-recording increased the potential collateral value of its properties to other companies and banks, from which it was attempting to secure additional financing; and third, he contends that Penn Ship's failure to record the security instruments enabled it to threaten the Navy with its bankruptcy. With respect to Fidelity, Atkinson claims that because the bank stood to benefit from an ongoing banking relationship with Penn Ship, it had compelling reasons to encourage Penn Ship not to record.

  As defendants each note, plaintiff's inability to identify a compelling reason behind the use of a trust indenture does not necessarily mean that no such reason existed, or — even more implausibly — that a conspiracy or fraud must have been the driving force behind the trust indenture's creation. The United States Navy — the party upon which the alleged fraud was perpetrated — had extensive opportunities to review the trust indenture's provisions, make revisions, and discuss the document with Leatherbury. Had the trust indenture been constructed solely as a tool to be employed by defendants in carrying out a conspiracy, two NAVSEA attorneys, Angrist and Russell, would not — after reviewing it and making changes — have accepted the trust indenture. Furthermore, as Penn Ship points out in its reply, "nothing in the Trust Indenture prevented the Navy from checking to determine whether the security interests were recorded." PSB Reply at 3. While the trust indenture may have been unusually structured, the document itself clearly obligated Penn Ship to perfect the Navy's security instruments. An agreement which inured to the benefit of the Navy, while uncommon, cannot be relied upon as evidence of a conspiracy to defraud the Navy itself. No reasonable juror could conclude that the use of the trust indenture structure, despite the lack of an absolute "necessity" that it exist, establishes the requisite "agreement" to defraud the Navy.

  If the use of the trust indenture was not itself conspiratorial, plaintiff's argument goes, the failure to record was. Plaintiff's argument that Penn Ship conspired not to record the security instruments because of the risk of alerting other bidders who might, in turn, contest the contract award, ignores the fact that an FCA conspiracy must involve an intent to defraud the government. While non-recording could have — without offending conventional logic — be perceived as having been intended to conceal an unusual contract modification from other bidders, so as not to delay the construction of the oilers, this intent would have been shared by the Navy itself and thus would have benefited the Navy as well as Penn Ship. This allegedly compelling motive not to record, therefore, cannot reasonably give rise to a conspiracy to defraud the Navy.

  Furthermore, plaintiff has failed to demonstrate that Fidelity shared this desire — to avoid re-bidding — in any specific way. Atkinson argues that Fidelity stood to profit from Penn Ship's successes because it enjoyed a banking and investment banking relationship with Penn Ship. According to the evidence, however, it is undisputed that Penn Ship never made any corporate investments nor paid any fee to Fidelity for investment banking services. See Pl. App. at 71 (Weller Dep. at 53); Pl. App. at 205 (Stevens Dep. at 55).*fn22 Moreover, Atkinson has pointed to no evidence indicating that Fidelity had any opportunity to profit from the avoidance of a second bidding process.

  This position is, at its core, an assertion that Penn Ship's desire to avoid a re-bidding process was so strong that Penn Ship's subsequent failure to record the security instruments constitutes evidence of a conspiracy to defraud the government. Quite simply, plaintiff has failed to connect the dots in this argument. Even assuming that Atkinson is correct, and Penn Ship did desire to avoid a re-bidding process and thus possessed a motivation not to record — both of which are disputed — it also possessed a contractual obligation to record, under the trust indenture. Conflicting motivations as to whether or not to comply with a contract requirement do not establish a conspiratorial objective. More significantly, plaintiff has failed to suggest any tangible way in which this particular motivation — even if powerful enough to motivate Penn Ship not to record — involved Fidelity, the alleged co-conspirator.

  In his second assertion regarding Penn Ship's motivations not to record, plaintiff claims that Penn Ship's non-recording increased the potential collateral value of its properties to other companies and banks, from which it was attempting to secure additional financing.

  The trust indenture specifically permitted Penn Ship to use the trust indenture assets to secure first liens up to $24 million. PSB App. 132-33. With respect to the $5 million line of credit extended to Penn Ship 18 months later by Fidelity itself, because Fidelity knew of the trust indenture liens it was aware that any liens on the trust's assets in favor of Fidelity that exceeded the $24 million cap would have been subordinate to the Navy's interests. The lack of constructive notice through recording does not trump actual notice. Penn Ship's acquisition of this $5 million loan, therefore, cannot be construed as a manifestation of the motive driving Penn Ship not to record.

  Penn Ship also obtained a $10 million loan from the Water Facilities Loan Board ("WFLB") in May, 1986. PSB Supp. App. at 12-22. Plaintiff suggests that this additional financing could not have been obtained had Penn Ship properly recorded the security instruments, as the WFLB loan was itself secured by the trust indenture collateral. See Pl.'s Mem. at 14. According to defendants, however, Penn Ship's existing $18 million debt to Sun Ship — which counted toward the $24 million cap on Penn Ship's first liens — was reduced by almost $10 million simultaneously with the acquisition of the WFLB loan. PSB Supp. App. at 23-25 (1986 Sun Ship/Penn Ship Mutual Release).

  The document cited by Penn Ship in support of its assertion that its WFLB loan did not exceed the trust indenture's $24 million cap, due to a simultaneous loan reduction, does not specify a dollar value for this reduction; it notes only that Penn Ship was released from all obligations under an "Agreement" dated February 8, 1982. Id. at 23-24. Plaintiff, however, has offered only vague and unsupported assertions that Penn Ship did exceed the $24 million cap; he has produced no quantitative evidence that such was the case, much less that Penn Ship's motivation to secure additional financing by relying upon the trust assets was so powerful as to constitute a conspiracy.

  Finally, plaintiff argues that by failing to record the trust indenture's security instruments, Penn Ship was able to threaten the Navy with bankruptcy during contract modification negotiations. More specifically, Atkinson asserts that the non-recording resulted in a substantially weakened bargaining position for the Navy; because the unrecorded liens would be voidable in a bankruptcy, he claims, the Navy would be an unsecured creditor and thus unlikely to be able, in the event of a bankruptcy, to recoup its reprocurement costs as anticipated by the trust indenture. As Penn Ship points out, however, the Navy was never put in such a compromised position.

  Harold Hanson, the NAVSEA officer who negotiated and executed Mod.17 on behalf of the Navy, testified regarding the Navy's bargaining position during these negotiations:

Q: Do you recall whether or not the nonrecording of the security instruments under the trust indenture were [sic] a factor in the negotiations of modification 17?
A: No, it was not a factor.
* * * *
Q: Did the nonrecording of the security instruments under the trust indenture have any impact at all on the negotiations of modification 17 from the Navy's standpoint?
A: No . . . had it been recorded or not recorded, I think the end result would have been the same. I think Penn Ship operated in a fashion — I mean, they never came to us and said, hey, these things aren't recorded, so you[] really don't have a security interest. I mean, everybody operated as if it were valid and recorded and — so I don't think it had any impact.
Q: In your view, would the Navy had gotten a better deal from Penn Ship if the security instruments had been recorded?
[Objection, form]
A: No, I think we got the best deal we could, recorded or not. As a matter of fact, I don't even know if I was aware that they weren't recorded at that time. Hanson Dep., PSB App. at 44-45.
  While Atkinson makes assertions to the contrary — that is, that the Navy was significantly disadvantaged due to Penn Ship's nonrecording — he offers no evidence in support of this claim.*fn23 Assuming that a Penn Ship bankruptcy could have adversely impacted the Navy's ability to secure its reprocurement costs, plaintiff has failed to suggest a connection between the effects of a Penn Ship bankruptcy in 1989 and the (allegedly conspiratorial) objectives of Penn Ship — let alone Fidelity — in entering into the trust indenture four years earlier.

  As best I can discern, Atkinson's argument runs as follows: in 1985, Penn Ship's desire to exert undue influence over the Navy, should Penn Ship find itself on the verge of bankruptcy in 1989, was so powerful that Penn Ship conspired with Fidelity not to perfect the security instruments upon which the Navy would have a second lien security interest in the event that Penn Ship could not complete an Oiler contract which it had yet to sign. This argument rests on speculation and contingency. Moreover, while the nonrecording of the security instruments in question could have had an adverse financial impact upon the Navy in the event of a Penn Ship bankruptcy, the testimony is clear that the nonrecording had no effect at all on the negotiations or terms of the contract's ultimate termination.

  (4) The Absence of a Conspiracy

  Despite Atkinson's numerous assertions of conspiracy, he has not offered sufficient evidence of a "meeting of the minds" between Penn Ship and Fidelity. Even if Fidelity knew of the Oiler contract award; even if the trust indenture was a novel form of security agreement; and even if Penn Ship stood to benefit financially from nonrecording; plaintiff has failed to produce any evidence of a conspiratorial objective shared by Penn Ship and Fidelity.

  In Durcholz, the Seventh Circuit affirmed the district court's grant of summary judgment for the defendant in an FCA qui tam action. 189 F.3d 542. The plaintiff in Durcholz, which involved the bidding process used by the Navy to select a general contractor for a pond-clearing project, alleged that the contracting Naval Officer ("Strange") and FKW, the general contractor, had conspired to defraud the government by selecting the second-lowest subcontract for dredging, rather than a lower bid submitted by plaintiff. United States ex rel. Durcholz v. FKW Inc., 997 F. Supp. 1159 (S.D. Ind. 1998). As evidence of this conspiracy, Durcholz submitted testimony that FKW was coerced by Strange, the Naval Officer, into selecting the second-lowest bid. Id. at 1173. The district court found that FKW's decision to follow Strange's orders did not amount to an "agreement" as required by the law of civil conspiracy. Id. Even if it did constitute an agreement, reasoned the district court, an agreement to select a particular bid — a bid that was not the lowest but that enabled defendants to maintain a business relationship with a valued customer — could not be considered "an agreement in order to defraud the government." Id. at 1173 n. 27.

  Affirming, the Seventh Circuit reiterated that evidence of one defendant following the instructions of another did not establish a "meeting of the minds." Durcholz, 189 F.3d at 545. Noting that the evidence of a conspiracy was actually stronger than the district court had first admitted, however, the court went into some detail with respect to the evidence that Strange had supplied misinformation during the bidding process while Frederick, an FKW manager who was present, remained silent and declined to correct the misstatement. Id. at 546. Considering whether a reasonable jury could infer from this silence that Strange and FKW "were in cahoots to withhold the proper information about Durcholz's bid," the court held that it is "impossible" to find a "meeting of the minds from Frederick's silence alone," noting that countless other explanations for silence exist.*fn24 Id. Ultimately, the court found it impossible to construe a conspiracy from the paucity of evidence before it:

Even were we to believe that Frederick's alleged silence was fraudulent, however, there is nothing to suggest that the objective of his fraud was shared by Strange. In any event and whatever the reason for Frederick's alleged silence, there is no evidence that Frederick was mum in order to advance a plan that he had hatched with Strange. And, in light of all of the other evidence, . . . no reasonable jury could infer a conspiracy from the meager evidence of an agreement produced by Durcholz.
Id. at 546. The Seventh Circuit's analysis makes clear that the "meeting of the minds" requirement demands more than an unproven suspicion of fraudulent intent. Rather, the alleged coconspirators must be shown to have shared a common objective, that objective must be shown to be fraudulent, and the fraudulent nature of the goal must have been, specifically, to perpetrate fraud upon the government.

  Atkinson has not satisfied that burden. Despite his laundry list of the reasons Penn Ship might, conceivably, have wished to avoid its obligation to record, he has failed to offer "more than a whiff of the alleged conspirators' assent." Durcholz, 189 F.3d at 546. With respect to Fidelity — whose alleged role in the conspiracy was its failure to ensure recordation — plaintiff has provided this court with no evidence that Fidelity played any role whatsoever in the nonrecording, nor that Fidelity had any incentive to pursue such a goal. Furthermore, the Navy itself — the purported victim of plaintiff's alleged conspiracy — claims that the contract termination process took place as if the security interests had been recorded, see Hanson Dep., PSB App. at 45, increasing the likelihood that the non-recording was a mistake or oversight as opposed to a well-orchestrated and far-reaching scheme to defraud the government. And finally, as defendants each point out, the correspondence among Penn Ship, its outside attorneys, and Fidelity, actually reveal an intent to record, or — at the very least — Penn Ship, in working toward completing the UCC-1 financing statements, had set the ball in motion and was taking the initial steps necessary to record the security instruments.*fn25 V. CONCLUSION

  I am unable to find any evidence in the record from which a reasonable jury could conclude that Penn Ship and Fidelity formed an agreement. Absent such a "meeting of the minds," no conspiracy in violation of the FCA can exist. Accordingly, summary judgment will be entered for defendants. An appropriate order follows. And now, on this ____ day of July, 2004, upon consideration of all parties' motions for and in opposition to summary judgment, it is hereby ORDERED that:

1.) Defendant Penn Ship's motion for summary judgment (Doc. # 192) is GRANTED;
2.) Defendant Fidelity's motion for summary judgment (Doc. #194) is GRANTED;
3.) Judgment is entered in favor of Defendants Pennsylvania Shipbuilding Co. and First Fidelity Bank and against plaintiff-relator Paul E. Atkinson.


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