Appellate Court Rejects Novel Application of the False Claims Act to TSCA Reporting Requirements
Posted on July 11, 2019 by Lynn L. Bergeson
By Lynn L. Bergeson and Carla N. Hutton
On July 5, 2019, the U.S. Court of Appeals for the District of Columbia Circuit rejected an “invitation” to recognize liability under the False Claims Act (FCA) based on a company’s failure to meet a Toxic Substances Control Act (TSCA) reporting requirement and failure to pay an unassessed TSCA penalty. Kasowitz Benson Torres LLP v. BASF Corp. (No. 1:16-cv-02269). The court states that the FCA imposes civil liability on anyone who defrauds the federal government of money or property. Under the FCA, a third party may file suit on behalf of the government and collect a “substantial” bounty if successful. The law firm Kasowitz Benson Torres LLP (Kasowitz) filed suit in 2016, claiming that several chemical manufacturers violated TSCA by “repeatedly failing to inform” the U.S. Environmental Protection Agency (EPA) of “information regarding the dangers of isocyanate chemicals.” Kasowitz argued that the manufacturers’ failure to disclose this information and their subsequent actions deprived the government of property (substantial risk information) and money (TSCA civil penalties and contract damages). The court noted that Kasowitz demanded “billions of dollars in damages, even though the government openly support[ed] the defendants.” The district court dismissed its lawsuit, and Kasowitz appealed, asking the court “to become the first court to recognize FCA liability based on the defendants’ failure to meet a TSCA reporting requirement and on their failure to pay an unassessed TSCA penalty. We decline the invitation and affirm the dismissal.”
Kasowitz claimed that the defendants -- BASF Corporation, Covestro LLC, Dow Chemical Company, and Huntsman International LLC -- “manufacture isocyanate chemicals, which are used to produce various polyurethane-based materials such as paint, adhesives, rigid foam for insulation, flexible foam for mattresses and cushions, and parts for automotive interiors.” According to Kasowitz, the defendants acquired information as early as the 1970s about the adverse health effects of isocyanate chemicals. The companies failed to disclose this information to EPA, however, despite participating in EPA’s Compliance Audit Program. Kasowitz argued that the companies’ TSCA violations and their failure to pay penalties for those violations deprived the government of its money and property.
In its analysis of Kasowitz’s claims, the court describes the allegation that the companies violated FCA’s reverse false claim provision by “knowingly conceal[ing] or . . . improperly avoid[ing] . . . an obligation to pay” money as a non-starter. The court notes that “[i]t is undisputed that the EPA did not assess TSCA penalties against the defendants for failing to report substantial risk information regarding isocyanate chemicals.” As a result, there was no FCA “obligation” for the companies to conceal or avoid. In its decision, the court states that once EPA has taken successful administrative action, it has discretion to impose an appropriate civil penalty, including no penalty. According to the court, two TSCA provisions make this conclusion “inescapable”: (1) TSCA expressly grants the EPA authority to remit or otherwise decline to impose a civil penalty; and (2) TSCA itself recognizes that not every violation results in a civil penalty. Under EPA’s Compliance Audit Program, the court states that a company that failed to report substantial risk information faced no additional penalty and was in the same position it would have been had it not participated in the Program at all. Kasowitz also argued that the companies violated the reverse false claim provision by “knowingly conceal[ing] or . . . improperly avoid[ing] . . . an obligation to pay or transmit” property in the form of substantial risk information. The court considered whether the TSCA obligation to inform the EPA of substantial risk information qualifies as an obligation to transmit property. The court “conclude[d] that TSCA does not require the transmission of a property interest. TSCA gives the EPA one -- and only one -- interest in substantial risk information: the right to be informed of it.”