U.S. EX REL N. SANTIAM WATERSHED v. KINROSS GOLD USA

THELTON HENDERSON, Senior District Judge

Currently before the Court is defendants' Motion to Dismiss. The Court heard extensive oral argument by the parties on March 2, 1998. For the reasons stated herein, defendants' motion will be granted.

This is a qui tam action brought pursuant to the False Claims Act, 31 U.S.C. § 3729-33 ("FCA"), by an environmental protection organization, the North Santiam Watershed Council, and Charles E. Uhlmann (hereinafter referred to collectively as "relators") on behalf of the United States. Defendants are eighteen (18) different mining companies. Each of the defendant mining companies is alleged to be incorporated in the United States but be owned by foreign corporations or governments.

According to the relators, defendant mining companies fraudulently obtained United States mineral assets in violation of the FCA. Defendants claimed rights to the mineral assets by completing patent applications pursuant to the General Mining Act of 1872, 30 U.S.C. § 21-54 ("Mining Act"). The Mining Act requires that applicants be in compliance "with the laws of the United States, and with State, territorial, and local regulations not in conflict with the laws of the United States governing their possessory title." 30 U.S.C. § 26. Relators contend that defendants committed fraud when they certified that they were in compliance with the "laws of the United States" when in fact none of them had fully complied with the Foreign Agents Registration Act, 22 U.S.C. § 611 et seq. ("FARA"). According to relators, FARA requires that the defendants register as agents of foreign principals and they failed to do so. Relators seek damages of over $60 billion for defendants' false mining claims against the federal government.

Defendants filed this motion to dismiss, asserting a number of alternate grounds for dismissal. First, defendants argue that they are misjoined under Federal Rule of Civil Procedure 20. If they are misjoined, then relators have failed to establish personal jurisdiction and venue in the Northern District of California for all but one of the defendants. Second, defendants contend that this Court lacks subject matter jurisdiction over relators' claims because the action is based on information that has been publicly disclosed and the relators are not the original source of that information. Third, defendants argue that the relators have failed to state a claim upon which relief can be granted under the FCA. Finally, defendants contend that the relators failed to plead the circumstances concerning the alleged fraud with sufficient particularity, as required by Federal Rule of Civil Procedure 9(b), and failed to plead the elements of conspiracy.

The Court must first consider the personal and subject matter jurisdiction questions raised by the defendants. Where a district court lacks jurisdiction, it cannot adjudicate the merits of the claims. Wang v. FMC Corp., 975 F.2d 1412, 1415 (9th Cir. 1992). PERMISSIVE JOINDER

Defendants contend that they are misjoined because the incidents underlying relators' claims are wholly separate and unrelated, and involve distinct sets of facts. Relators counter that defendants are properly joined under Federal Rule of Civil Procedure 20(a) because each of the defendant mining companies fraudulently obtained mining patents from the United States government in violation of the False Claims Act. They also argue that joinder is appropriate to conserve judicial resources in this complex case because the same novel issues of law are common to each defendant.

Federal Rule of Civil Procedure 20(a) permits parties to be joined in a single action as co-defendants only if both of the following two requisites are satisfied: (1) a right to relief is asserted against each defendant jointly, severally, or in the alternative, any right to relief relates to or arises out of the same transaction, occurrence, or series of transactions or occurrences; and (2) some question of law or fact in common to all defendants will arise in the action. See, CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL § 1653 (1982). Even where the specific requirements of Rule 20(a) are met, the Court has the discretion to examine other relevant factors in a case in order to determine whether the permissive joinder of a party will comport with principles of fundamental fairness. Desert Empire Bank v. Insurance Co. of North America, 623 F.2d 1371, 1375 (9th Cir. 1980). In deciding whether to allow the joinder of a party, the Court should must Rule 20(a) liberally in order to promote trial convenience and to expedite the final determination of disputes. League to Save Lake Tahoe v. Tahoe Regional Planning Agency, 558 F.2d 914, 917 (9th Cir. 1977).

In the present case, relators argue that defendants' allegedly unlawful acts occurred at different times and in various locations over the course of thirteen years. The only common thread running through the factual statements in the Amended Complaint is relators' contention that defendants each failed to comply with FARA, and that therefore each fraudulently obtained United States mining patents. Although the same questions of law would arise with respect to each of the defendants, relators have failed to allege facts to meet the second requirement of Rule 20(a), that defendants' conduct relates to or arises out of the "same transaction or occurrence." Defendants' are accused of engaging in similar activities, however, it is clear that each incident would have to be considered separately, and that the determination of facts and the scope of testimony with respect to one defendant would have little relevance to issues raised by another defendant. Moreover, relators have failed to make any showing that joinder is necessary to further principles of fundamental fairness, Desert Empire Bank, 623 F.2d at 1375, to promote trial convenience, or to expedite the final determination of disputes. League to Save Lake Tahoe, 558 F.2d at 917. Accordingly, the Court HEREBY ORDERS the claims against each individual severed. The Court shall proceed separately with respect to each defendant, pursuant to Federal Rule of Civil Procedure 21.

PERSONAL JURISDICTION

Defendants contend that if they are misjoined then this Court lacks personal jurisdiction over all but one of the defendants. In their complaint as well as their opposition to defendants' motion to dismiss, relators sole alleged basis for personal jurisdiction over the defendants is that defendant Placer Dome U.S., Inc. has its principal place of business in San Francisco and committed acts in violation of section 3729 of the FCA in this District. Therefore, they argue personal jurisdiction properly lies over the remaining defendants pursuant to FCA section 3732. Section 3732 of the False Claims Act provides that personal jurisdiction may be established in "any judicial district in which the defendant or, in the case of multiple defendants, any one defendant can be found, resides, transacts business, or in which any act proscribed by section 3729 occurred." (emphasis added).

Because relators' claims against each defendant must be addressed separately, section 3732 requires that the relators allege facts that if true would establish an independent basis for personal jurisdiction over each defendant. Relators have failed to meet this burden with respect to all but Placer Dome. Therefore, the Court finds that relators have failed to meet their burden of establishing a basis for personal jurisdiction with respect to each of the remaining defendants. Accordingly, the Court must DISMISS relators' claims against them for lack of personal jurisdiction.

The Court now turns to defendants' remaining arguments for dismissal as they relate to defendant Placer Dome.

SUBJECT MATTER JURISDICTION

Defendants argue that this Court lacks subject matter jurisdiction over relators' FCA claims because the claims are based on publicly disclosed information and the relators are not the original source of this information. FCA "[s]ection 3730(e) circumscribes the power of courts to hear qui tam suits." Wang, 975 F.2d at 1415. Pursuant to section 3730(e)(4), "[n]o court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions . . . unless . . . the person bringing the action is an original source of the information." Courts construe the FCA jurisdictional restriction strictly against finding jurisdiction. United States ex rel. Precision Co. v. Koch Industries, 971 F.2d 548, 552 (10th Cir. 1992). The relators bear the burden of establishing subject matter jurisdiction. Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986).

The relators argue that the central allegations of the Amended Complaint — that defendants failed to comply with FARA and fraudulently failed to report their noncompliance when applying for mining rights — has never before been made and thus cannot be deemed public information. Although this particular allegation has never before been made, the facts upon which it is based are public. If the information on which the qui tam action is based in is the public domain, and the relator is not the original source of the information, the suit is barred. United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 17 (2d Cir. 1990). The public disclosure bar precludes actions based, even in part, on publicly disclosed information. United States ex rel. McKenzie v. Bellsouth Telecommunications, Inc., 123 F.3d 935, 940 (6th Cir. 1997), cert. denied, 118 S.Ct. 855 (1998).

Relators further argue that whether the allegations of the Amended Complaint have been publicly disclosed for purposes of the False Claims Act is a question of fact that cannot be determined without reference to materials outside the pleadings. Thus, they contend this question is not appropriate for resolution before they have had an opportunity to conduct discovery. Although in some instances a court would be required to look beyond the pleadings to determine whether information is publicly disclosed, United States ex rel. Saaf v. Lehman Bros., 123 F.3d 1307, 1308 (9th Cir. 1997), this is not such a case. The FARA itself provides that FARA registration statements are public records and open to public examination and inspection. 22 U.S.C. § 616(a).

The relators allegations are clearly based on information available in the public domain — defendant Placer Dome's failure to comply with the provisions of FARA. If the information upon which a claim is based is public, the relators must be the "original source" of that information; otherwise, the court lacks subject matter jurisdiction over the qui tam action. 31 U.S.C. § 3730(e)(4)(A); Wang, 975 F.2d at 1417. To qualify as the "original source" relators must show three things: (1) that they had direct and independent knowledge of the information on which the allegations are based; (2) that they voluntarily provided that information to the government prior to filing this suit; and (3) that they had a hand in the public disclosure of the allegations that are part of their suit. United States ex rel. Devlin v. California, 84 F.3d 358, 358 n. 3 (9th Cir. 1996).

The relators allege no facts in their Amended Complaint which, if proven, would demonstrate that the relators are the "original source" of the information upon which their claims are based. They do not claim to have any direct or independent knowledge of this information. This action, therefore, must be DISMISSED for lack of subject matter jurisdiction under the FCA. However, even assuming, arguendo, that the relators are correct and the Court may assert subject matter jurisdiction over their claims, the Court finds that relators' claims against Placer Dome must be dismissed for failure to state a claim.

FAILURE TO STATE A CLAIM

Dismissal is appropriate under Rule 12(b)(6) when a plaintiff's allegations fail to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). The court must accept as true the factual allegations of the complaint and indulge all reasonable inferences to be drawn from them, construing the complaint in the light most favorable to the plaintiff. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993); NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). Unless the court converts the Rule 12(b)(6) motion into a summary judgment motion, the court may not consider material outside of the complaint. Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir. 1994). Documents attached to the complaint and incorporated therein by reference, however, are treated as part of the complaint for purposes of Rule 12(b)(6). Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In addition, "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss" without converting it into one for summary judgment. Branch, 14 F.3d at 454.

The court must construe the complaint liberally, and dismissal should not be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." 5A CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1357 (2d ed. 1990) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)); accord Jacobson v. Hughes Aircraft Co., 105 F.3d 1288, 1292 (9th Cir. 1997). Dismissal without leave to amend is appropriate only where a court is satisfied that the deficiencies of the complaint could not possibly be cured by amendment. Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir. 1996); Noll v. Carlson, 809 F.2d 1446, 1448 (9th Cir. 1987).

The defendants argue that under the Mining Act, they were under no duty to disclose any alleged FARA violations. Each of relators' claims rests upon the assumption that the phrase, contained in the Mining Act, "the laws of the United States" refers to all federal laws, including FARA. They argue that the plain language of the statute compels such a result. The defendants counter that this reading is nonsensical and that the phrase refers only to federal mining laws.

Where a literal interpretation would lead to an absurd or futile result the Court must look beyond the express language of a statute. Albertson's, Inc., v. Commissioner of Internal Revenue, 42 F.3d 537, 545 (9th Cir. 1994). Under relators' interpretation of the phrase "laws of the United States," a mining claimant would be required to show compliance with literally all federal laws, and the Bureau of Land Management (BLM) would become a super-enforcement agency of all federal laws. This result is absurd and futile. Therefore, the Court must look beyond the plain language of the statute for assistance in interpreting it's language.

The Relators fail to cite to a single authority supporting it's broad reading of the phrase "laws of the United States." Although it appears that no case has construed this precise question, dicta from numerous decisions cited by defendants point to the conclusion that the phrase was intended to encompass only federal mining laws. See e.g., United States ex rel Wilbur v. Kurshnic, 280 U.S. 306, 317 (1930) ("so long as [a mining claimant] complies with the provisions of the mining laws, his possessory right . . . is as good as though secured by patent"); North Clyde Quartz Mining Claim and Mill Site, 35 L.D. 445 (1907); Golden Crowne Lode, 32 L.D. 317 (1903). In addition to judicial interpretation, the enforcing agency's regulations interpreting the Mining Act specifically require the claimant to demonstrate compliance only with federal mining laws, not any other federal laws. 43 C.F.R. § 3862.1-1(a). Similarly, the BLM Manual setting forth the requirements for seeking mineral patents states that a claimant must present data "showing compliance with the Mining Act of 1872." BLM Manual § 3862.1.11 (July 9, 1991).

The Court concludes that the Mining Act cannot possibly have intended to condition mining claims upon compliance with all federal laws. The Court agrees with defendants that the phrase "laws of the United States" refers only to federal mining laws. FARA is not a mining law. Therefore, Placer Dome's alleged non-compliance with FARA is irrelevant to sit's claims for mining rights and relators have failed to state a claim under the FCA. No amendment to the complaint could possibly resuscitate relators' claims. Accordingly, the Court must GRANT defendants' motion to dismiss, with prejudice.

Because the defendants are misjoined, the Court must sever the claims consider the claims against each defendant individually. The relators have failed to allege any facts that would establish personal jurisdiction over the defendants, with the exception of defendant Placer Dome U.S., Inc. The Court must dismiss the claims against each of the remaining defendants for lack of personal jurisdiction. Although the Court may assert personal jurisdiction over Placer Dome U.S., Inc., the claims against this sole remaining defendant must also be dismissed because the Court lacks subject matter jurisdiction over relators' claims. Even assuming, arguendo, that subject matter jurisdiction lies, the Court finds that the relators have failed to state a claim upon which relief can be granted.

For the foregoing reasons, defendants' Motion to Dismiss is HEREBY GRANTED.