Response - BP Qui Tam Mtn to Dismiss

8/8/2019 Response - BP Qui Tam Mtn to Dismiss

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IN THE UNITED STATES DISTRICT COURT FOR THESOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

UNITED STATES OF AMERICA EX REL.KENNETH W. ABBOTT; KENNETH W.ABBOTT, INDIVIDUALLY; AND FOOD &WATER WATCH, INC.;

Plaintiffs,vs.

BP P.L.C.; BP EXPLORATION ANDPRODUCTION, INC.; BP AMERICA, INC.;AND BP PRODUCTS NORTH AMERICAINC.;

Defendants.

Civil Action No. 4:09-cv-01193 Jury Trial Requested

PLAINTIFFS RESPONSE TO MOTION TO DISMISS

WATTS GUERRA CRAFT LLPMikal C. Watts J. Hunter CraftEmily C. JeffcottFour Dominion Drive,Bldg. 3, Suite 100San Antonio, Texas 78257Telephone: (210) 447-0500Facsimile: (210) 447-0501

PERRY & HAASDavid L. PerryRen HaasP.O. Box 1500Corpus Christi, Texas 78403Telephone: (361) 880-7500Facsimile: (361) 887-9507

Attorneys for Plaintiffs


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TABLE OF CONTENTSPage

TABLE OF CONTENTS............................................................................................... ii

TABLE OF AUTHORITIES.......................................................................................... iv

NATURE AND STAGE OF PROCEEDINGS ........................................................... 1

STATEMENT OF ISSUES AND STANDARDS OF REVIEW................................. 3

SUMMARY OF THE ARGUMENT............................................................................ 5

ARGUMENT ................................................................................................................. 7

I. BECAUSE ABBOTT AMENDED HIS COMPLAINT , BPS MOTION TODISMISS THE ORIGINAL COMPLAINT SHOULD BE DENIED ASMOOT ....................................................................................................... 7

II. ABBOTTS ALLEGATIONS CONSTITUTE VIOLATIONS OF THE FALSECLAIMS ACT ............................................................................................ 8

A. Only Through BPs False Certifications Could BPObtain Oil and Gas From the OCS ......................................... 10

1. Oil and Gas Production at the Atlantis FacilityWould not Have Occurred Without the FalseCertifications.................................................................... 10

a. BPs Leases Do not Purport to Grant a

Vested Interest in Oil and Gas ........................ 11 b. The Supreme Court has Recognized that

Oil and Gas Operators Must ObtainRequisite Approvals in Order to ExtractOil and Gas from the OCS ............................... 12


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2. The Governments Ability to Cancel the Lease isIrrelevant as to Whether BP Submitted FalseCertifications in Violation of the FCA.............................14

B. BPs False Certifications are Material..................................... 15

III. ABBOTTS CLAIMS COMPORT WITH RULE 9(B)....................................... 17

IV. CONDITIONAL REQUEST TOREPLEAD .................................................... 19

CONCLUSION ............................................................................................................. 19

CERTIFICATE OF FILING AND SERVICE.............................................................. 22


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TABLE OF AUTHORITIES

UNITED STATES SUPREME COURT CASES:

Ashcroft v. Iqbal ,129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)............................................................................3

Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962) ....................................................4

Mobil Oil Exploration & Producing Southeast, Inc. v. United States ,530 U.S. 604, 120 S.Ct. 2423, 147 L.Ed.2d 528 (2000).................................10, 12, 13, 14

Neder v. United States, 527 U.S. 1, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999).........................................................16

United States ex rel. Marcus v. Hess ,

317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943) .............................................................13 United States v. McNinch ,

356 U.S. 595,, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958)........................................................10

United States v. Neifert-White Co. ,390 U.S. 228, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968)...................................................8, 14

FEDERAL CIRCUIT COURT CASES:

Campbell v. Wells Fargo Bank ,781 F.2d 400 (5th Cir. 1986)..............................................................................................3

Cuvillier v. Taylor ,503 F.3d 397 (5th Cir. 2007)..............................................................................................3

Hutchins v. Wilentz, Goldman & Spitzer v. ABC Corp., 253 F.3d 176 (3d Cir. 2001).............................................................................................15

Kaiser Aluminum & Chem. Sales v. Avondale Shipyards ,677 F.2d 1045 (5th Cir. 1982)............................................................................................3

King v. Dogan, 31 F.3d 344 (5th Cir. 1994) ...............................................................................................8

Mikes v. Straus ,274 F.3d 687 (2d Cir. 2001) .........................................................................................8, 15

Randel v. U.S. Dep't of the Navy, 157 F.3d 392 (5th Cir. 1998)..............................................................................................3


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Rosenzweig v. Azurix Corp. ,334 F.3d 854 (5th Cir. 2003)..............................................................................................3

United States ex rel. Adrian v. Regents of the Univ. of California ,363 F.3d 398 (5th Cir. 2004). ..........................................................................................19

United States ex rel. Berge v. Bd. of Trs. of the Univ. of Ala.,104 F.3d 1453 (4th Cir. 1997).........................................................................................16

United States ex rel. Grubbs v. Kanneganti ,565 F.3d 180 (5th Cir. 2009)..................................................................................4, 17, 18

United States ex rel. Harrison v. Westinghouse Savannah River Co. ,352 F.3d 908 (4th Cir. 2003)..........................................................................................8, 9

United States ex rel. Laird v. Lockheed Martin Engg & Science Servs. Co., 491 F.3d 254 (5th Cir. 2007)............................................................................................16

United States ex rel. Longhi v. United States ,575 F.3d 458 (5th Cir. 2009) ...............................................................................15, 16, 17

United States ex rel. Marcy v. Rowan Cos., Inc. ,520 F.3d 384 (5th Cir. 2008)................................................................................14, 16, 17

United States ex rel. Quinn v. Omnicare Inc. ,382 F.3d 432 (3d Cir. 2004)...............................................................................................8

United States ex rel. Sanders v. American-Amicable Life Ins. Co. of Tex. ,545 F.3d 256 (3d Cir. 2008).............................................................................................15

United States ex rel. Thompson ,125 F.3d 899 (5th Cir. 1997)..............................................................................................9

United States v. Aerodex, Inc. ,469 F.2d 1003 (5th Cir. 1972)............................................................................................8

United States v. Southland Management Corp. ,288 F.3d 665 (5th Cir. 2002)........................................................................................8, 16

Williams v. WMX Techs., Inc. ,

112 F.3d 175 (5th Cir. 1997)............................................................................................17FEDERAL DISTRICT COURT CASES:

Probado Technologies Corp. v. Smartnet, Inc. , 2010 WL 918573 (S.D. Tex. Mar. 12 2010) ......................................................................8

United States v. Intervest Corp., 67 F.Supp.2d 637 (S.D. Miss. 1999) ...............................................................................16


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United States v. Krizek ,111 F.3d 934 (D.C. Cir. 1997)............................................................................................8

United States ex rel. Wilkins v. N. Am. Constr. Corp.,173 F.Supp.2d 601 (S.D.Tex. 2001) ...............................................................................16

United States v. Johnston ,138 F.Supp. 525 (W.D. Ok. 1956).................................................................................8, 9

STATUTORY PROVISIONS:

31 U.S.C. 3729 .............................................................................................................................1

31 U.S.C. 3729(c).......................................................................................................................10

31 U.S.C. 3729(a)(1) ..................................................................................................................1031 U.S.C. 3729(a)(2) ..................................................................................................................10

31 U.S.C. 3729(a)(7) ...................................................................................................................2

31 U.S.C. 3730(e)(4)(B) ...............................................................................................................9

REGULATORY PROVISIONS:

30 C.F.R. 250.293.......................................................................................................................10

30 C.F.R. 250.800.......................................................................................................................10

30 C.F.R. 250.903.......................................................................................................................10

30 C.F.R. 250.904(a) ..................................................................................................................10

30 C.F.R. 250.904(b)..................................................................................................................10

30 C.F.R. 250.905(j) ..................................................................................................................10

30 C.F.R. 250.917(a) ..................................................................................................................10

FEDERAL RULES:

Fed. R. Civ. P. 8........................................................................................................................5, 19

Fed. R. Civ. P. 8(a).......................................................................................................................17

Fed. R. Civ. P. 9........................................................................................................................5, 19


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Fed. R. Civ. P. 9(b).......................................................................................................................17

Fed. R. Civ. P. 15(a).................................................................................................................4, 19

LEGISLATIVE DOCUMENTS:

S. Rep. No. 99-345, at 9,reprinted in 1986 U.S.C.C.A.N. 5266, 5274....................................................................15


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NATURE AND STAGE OF PROCEEDING

On April 29, 2009, Kenneth W. Abbott (Abbott) initiated this action on behalf

of the Government to recover damages and penalties for violations of the False Claims

Act (FCA) by BP Exploration and Production, Inc., BP America, Inc., and BP p.l.c.

(Rec. Doc. 1) Pursuant to the 31 U.S.C. 3729,et seq., Abbott filed his original complaint

under seal and the Government initiated its investigation during which Abbott was

precluded from taking any action on the matter. Id. By order of the Court, the

Governments time to investigate was extended through December 28, 2009. (Rec. Doc.

5)

Shortly after the expiration of this investigatory period, Abbott obtained a

dismissal without prejudice thereby preserving his right to re-file this action at a later

date. (Rec. Doc. 8) Subsequent this dismissal, the Court erroneously entered a second

order dismissing Abbotts claims with prejudice. (Rec. Doc. 10) With the consent of the

Government, (Rec. Doc. 17), Abbott sought to rectify this erroneous dismissal by setting

aside both orders of dismissal. (Rec. Doc. 13) On May 20, 2010, the Court set aside both

orders (Rec. Doc. 18), and upon Governments request, the Court also unsealed the

record thereby authorizing service on BP Exploration and Production, Inc., BP America,

Inc., and BP p.l.c. (Rec. Doc. 19)

On July 22, 2010, BP Exploration and Production, Inc. and BP America, Inc. filed

a Motion to Dismiss Plaintiffs claims under Federal Rules of Civil Procedure 12(b)(6)

and 9(b). BP p.l.c. has not joined in the filing this motion. On September 9, 2010, basedon information obtained through Freedom of Information Act (FOIA) requests,

Abbott amended his complaint to detail newly discovered facts and add BP Products


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North America Inc. as a defendant. 1 (Rec. Doc. 47) Further, the amended complaint

brought a claim on behalf of Abbott, individually, and Food & Water Watch for

injunctive relief seeking to permanently enjoin operations at the BP Atlantis Facility. At

this time, the Government has chosen not to intervene in this matter.

1 Pursuant to Court order and agreement by all parties, Abbotts period to amend his complaintas of right was extended to September 10, 2010. Accordingly, Abbott has amended to includeinformation obtained subsequent to the filing of his original complaint and to clarify certainissues raised in BPs Motion to Dismiss. Likewise, in his original complaint, Abbott raised areverse false claim violation, 31 U.S.C. 3729(a)(7). Having evaluated its merits, Abbott hasdecided to concede the reverse false claim and proceed only with the false certification claims inhis amended complaint.


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STATEMENT OF ISSUES AND STANDARDS OF REVIEW

I.

Whether Abbotts amended complaint renders BPs motion to dismiss moot?

Standard of Review

A question of law exists as to whether the filing of an amended complaint

supersedes an original complaint, and accordingly, a de novo standard of review is

applied. Randel v. U.S. Dep't of the Navy, 157 F.3d 392, 395 (5th Cir. 1998).

II.

Under Federal Rule of Civil Procedure 12(b)(6), should Abbotts amended

complaint be dismissed where Abbott asserts that BP violated the FCA bysubmitting false documents to the government in order to obtain the righttoand ultimately the production ofgovernment-owned oil and gas.

Standard of Review

A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief

may be granted is viewed with disfavor and is rarely granted. Kaiser Aluminum &

Chem. Sales v. Avondale Shipyards , 677 F.2d 1045, 1050 (5th Cir. 1982). The complaint

must be liberally construed in favor of the plaintiff, and all facts pleaded in the

complaint must be taken as true. Rosenzweig v. Azurix Corp. , 334 F.3d 854, 865 (5th Cir.

2003);Campbell v. Wells Fargo Bank , 781 F.2d 400, 442 (5th Cir. 1986). To survive a Rule

12(b)(6) motion to dismiss, a complaint does not need detailed factual allegations, but

must provide the plaintiffs grounds for entitlement to reliefincluding factual

allegations that when assumed to be true raise a right to relief above the speculative

level. Cuvillier v. Taylor , 503 F.3d 397, 401 (5th Cir. 2007) (internal quotations omitted).

A claim has facial plausibility when the plaintiff pleads factual content that allows the

court to draw the reasonable inference that the defendant is liable for the misconduct

alleged. Ashcroft v. Iqbal , 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009).


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III.

Under Federal Rule of Civil Procedure 9(b), should Abbotts amendedcomplaint be dismissed where Abbott alleges with particular specificitythe factual basis of his claims.

Standard of Review

Federal Rule of Civil Procedure 9(b) does not reflect a subscription to fact

pleading, and requires only simple, concise, and direct allegations of the circumstances

constituting fraud . United States ex rel. Grubbs v. Kanneganti , 565 F.3d 180, 188 (5th

Cir. 2009). [T]he time, place, contents, and identity standard is not a straitjacket for

Rule 9(b). Rather the rule is context specific and flexible and must remain so to achieve

the remedial purposes of the False Claims Act. Id. at 190. [A] relators complaint, if it

cannot allege the details of actually submitted false claim, may nevertheless survive by

alleging particular details of a scheme to submit false claims paired with reliable indicia

that lead to a strong inference that claims were actually submitted. Id.

IV.

Whether Abbott should be afforded an additional opportunity to repleadshould the Court find their amended complaint insufficient?

Standard of Review

Under the Federal Rules of Civil Procedure, leave to amend shall be freely given

when justice so requires. Fed. R. Civ. P. 15(a). The decision to grant or deny leave is

left to the sound discretion of the trial court. In deciding whether leave should be

granted, the district court considers such factors as undue delay, bad faith or dilatory

motive on the part of the movant, repeated failure to cure deficiencies by amendments

previously allowed, undue prejudice to the opposing party . . . [and] futility of

amendment. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).


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SUMMARY OF THE ARGUMENT

I.

Unless an amended complaint expressly refers to and adopts the original

complaint, an amended complaint supersedes the original complaint. Absent such an

express reference, the original complaint is of no legal effect and any motion practice

directed to such is rendered moot. As such, because Abbotts amended complaint did

not expressly incorporate the original complaint, the original complaint is of no legal

effect and BPs motion to dismiss should be denied as moot.

II.

A viable claim under the FCA requires the submission to the Government of a

false certification that has the potential to influence the Governments decision to

transfer property or money to the defendant. BP submitted certifications that it

maintained engineering documentation required by (1) regulations and (2) its leases

with the Government. These certifications were required before the Government would

approve oil and gas production, and thus served as conditions precedent to physically

obtaining oil and gas from the OCS. Thus, without these false certifications, BP would

have never obtained oil and gas from the OCS. It is irrelevant that the Government had

the discretion to cancel BPs leases. Such discretion does not negate FCA jurisdiction as

the punitive nature of the FCA does not look to other outside, available remedies when

ascertaining liability. Accordingly, Abbott has stated a valid claim for relief against BP,

and BPs motion to dismiss should be denied.III.

To comply with the pleading requirements under Federal Rules of Civil

Procedure 8 and 9, a plaintiff must plead with sufficient specificity to ascertain a scheme

to submit false claims to the Government. Abbott has specifically pleaded the dates,


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places, and persons involved in the events surrounding his knowledge of BPs

document deficiencies. Because (1) the submission of certifications related to these

documents could not have been truthfully submitted prior to oil and gas production or

during Abbotts employment and (2) such certifications are necessary prerequisites to

obtaining oil and gas, a scheme to submit such certifications to the government exists.

As such, BPs motion to dismiss under Rule 9 should be dismissed.

IV.

Abbott asserts that his amended complaint sufficiently states claims for relief.

Nevertheless, should the Court find Abbotts claims deficient, Abbott would request

leave to more specifically plead. The Court should permit such as the Federal Rules of

Civil Procedure set forth a liberal policy in favor of permitting amendment of pleadings

absent a a substantial reason not to do. No such reason exists in this case, and thus,

should the Court find Abbotts claims insufficient, the Court should allow Abbott the

opportunity to replead.


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ARGUMENT

BPs right to extract oil and gas from the OCS is predicated on compliance with

the contractual provisions of its leases. Specifically, the contractual provisions require:

(1) compliance with all regulations issued pursuant to [OCSLA], (2) that all platforms

and other devices permanently or temporarily attached to the seabed adhere to

applicable laws and regulations, and (3) [t]he Lessee [] comply with all regulations

and Orders. See Exhibit A, BP Atlantis Oil and Gas Lease, June 25, 1995, 1, 2(c), 10.2

Specifically, the regulations require production equipment to be designed by qualified

engineers, meet specified engineering requirements, and include as-built

documentation that can be relied upon by others in, for example, times of disaster.

Abbott, while working for BP after production began at Atlantis, learned that a vast

number of BP engineering documents lacked the requisite as-built engineering

approval. In order to produce oil and gas at BP Atlantis, BP was required BP to submit

certifications regarding these document approvals, and because these approvals did not

exist, BPs certifications to their effect were false.

Based on this knowledge, Abbott filed his original complaint on behalf of the

Government alleging violations of the False Claims Act. Since his original filing, Abbott

has obtained additional information regarding the BPs document deficiencies, and

thus, on September 10, 2010, Abbott filed an amended complaint detailing that

information and thereby superseding his original complaint.

I. BECAUSE ABBOTT AMENDED HIS COMPLAINT , BPS M OTION TO D ISMISS THEO RIGINAL COMPLAINT SHOULD BE D ENIED AS M OOT

As recently noted by this Court, [i]f an amended complaint does not incorporate

2 As noted by Defendants, BP and MMS executed five leases covering the BP Atlantis region.The five leases contain identical lease provisions, and therefore, only one lease, identified inExhibit A, has been produced to the Court.


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the earlier pleading, a court may deny as moot a motion to dismiss that was filed before

the operative amended complaint. Probado Technologies Corp. v. Smartnet, Inc. , 2010 WL

918573, *1 (S.D. Tex. Mar. 12 2010). See also King v. Dogan, 31 F.3d 344, 346 (5th Cir.

1994) (An amended complaint supersedes the original complaint and renders it of no

legal effect unless the amended complaint specifically refers to and adopts or

incorporates by reference the earlier pleading.). In this matter, Abbott amended his

complaint after BP filed its motion to dismiss. Thus, because the subsequent amended

complaint does not refer to, adopt, or incorporate by reference earlier pleadings,

Plaintiff[s] operative First Amended Complaint is the only effective complaint.

Probado , 2010 WL 918573 at *1. Accordingly, BPs motion to dismiss Abbotts original

complaint should be denied as moot.

II. A BBOTT S ALLEGATIONS CONSTITUTE VIOLATIONS OF THE FALSE CLAIMS ACT

Even if this Court does not render moot BPs motion to dismiss, the motion

should nonetheless be denied because the FCA covers all fraudulent attempts to cause

the Government to pay out sums of money [or property], United States v. Neifert-White

Co. , 390 U.S. 228, 233, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968), and aims to impose liability

for a broad range of conduct . . . . United States ex rel. Quinn v. Omnicare Inc. , 382 F.3d

432, 439 (3d Cir. 2004). Essentially, the FCA serves as a statutory vehicle allowing

certain individuals to retrieve [the] ill-begotten funds on behalf of the government.

United States v. Southland Management Corp. , 288 F.3d 665, 691 (5th Cir. 2002) (quoting

Mikes v. Straus , 274 F.3d 687, 697 (2d Cir. 2001)). The FCA likewise imposes penalties onthose who knowingly deceive the government and taxpayers. Id.3 In the matter before

3 This broad range of conduct has included: (1) overbilling on Medicare invoices, United Statesv. Krizek , 111 F.3d 934, 940 (D.C. Cir. 1997); (2) falsely certifying that airplane components were built to specifications, United States v. Aerodex, Inc. , 469 F.2d 1003, 1011 (5th Cir. 1972); (3) falselycertifying that no conflicts of interest existed between a contractor and subcontractor, United


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the Court, Abbott employs this statutory vehicle to recover the value of oil and gas ill-

begotten by BP and penalties thereof. 4

As will be explained below, BP falsely certified compliance with certain

regulations in order to obtain oil and gas. United States ex rel. Thompson , 125 F.3d 899,

903 (5th Cir. 1997) ([W]here the government has conditioned payment of a claim upon

a claimant's certification of compliance with, for example, a statute or regulation, a

claimant submits a false or fraudulent claim when he or she falsely certifies compliance

with that statute or regulation.). These false submissions were material because

without them, BP would not have been able to extract oil and gas at the BP Atlantis

Project. To combat the clear significance of BPs false certifications, BP argues that it is

not required to certify compliance with any regulations in order to obtain the oil and

gas, and that the oil and gas vested at the signifying of the lease with the Government.

(Rec. Doc. 35, p. 12) However, BPs argument fails because BPs leases in essence

created bilateral contracts that did not automatically vest title to the oil and gas, but

allowed BP to take ownership of the oil and gas so long as it: (1) complied with the

regulations incorporated into the lease and (2) paid a royalty to the Government. Thus,

because BPs false certifications allowed BP to fraudulently extract oil and gas from the

OCS, Abbotts claims seeking restitution of the value of BPs falsely obtained oil and gas

are within the ambit of the FCA.

States ex rel. Harrison v. Westinghouse Savannah River Co. , 352 F.3d 908, 924 (4th Cir. 2003); and (4)submitting false qualifications for a government job, United States v. Johnston , 138 F.Supp. 525,527 (W.D. Ok. 1956).4 The FCA authorizes an individual to bring claims on behalf of the Government if theindividual is the original source of the information on which the FCA allegations are based.31 U.S.C. 3730(e)(4)(B). BP has not taken issue with Abbotts standing as an original source,and thus it is not an issue before the Court.


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As noted above, Abbott need only establish a reasonable inference that BPs

false claims, when taken as true, constitutes a violation of the FCA. In his amended

complaint, Abbott has alleged two specific violations of the FCA:

(1) BP knowingly presented to MMS a false or fraudulent claim forGovernment payment or approval. 31 U.S.C. 3729(a)(1); and

(2) BP knowingly made use of a false record to get a false or fraudulent claimpaid or approved by MMS. 31 U.S.C. 3729(a)(2).

BP argues that these claims must fail because (1) the false certifications did not

involve property, and (2) the false certifications were not material. For the reasons

asserted below, Abbotts allegations raise a reasonable inference that BPs presented

false certifications in order to fraudulently obtain propertyoil and gasowned by the

Government. As such, BPs motion to dismiss should be denied.

A. Only Through BPs False Certifications Could BP Obtain Oil and GasFrom the OCS

A claim under FCA is defined as any request or demand, whether under a

contract or otherwise, for money or property . . . if the United States Government

provides any portion of the money or property which is requested or demanded. 31

U.S.C. 3729(c). [T]he conception of a claim against the government normally

connotes a demand for money or some transfer of public property. United States v.

McNinch , 356 U.S. 595, 597, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958). Here, without BPs false

certifications, the Government would not have allowed BP to produce oil and gas, and

thereafter transfer its interest in the oil and gas.

1. Oil and Gas Production at the Atlantis Facility Would not HaveOccurred Without the False Certifications

A necessary predicate to the production of oil and gas are the mechanisms used

to achieve production, i.e. the structures and components that ensure the safe removal

of oil and gas. Mobil Oil Exploration & Producing Southeast, Inc. v. United States , 530 U.S.


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604, 609, 120 S.Ct. 2423, 147 L.Ed.2d 528 (2000). Before oil and gas can be physically

removed from the OCS, the Government must approve the implementation of these

mechanisms. 30 C.F.R. 250.293; 30 C.F.R. 250.800; 30 C.F.R. 250.904(a) & (b). To

obtain approval, BP must certify the existence of a various engineering documents

imperative to the safe functioning of the installed mechanisms. 30 C.F.R. 250.903; 30

C.F.R. 250.905(j); 30 C.F.R. 250.917(a).

BP argues that despite these needed certifications and approvals, BP

obtained a vested interest in the oil and gas when it entered into the lease with the

Government. Thus, according to BPs flawed interpretation, any action subsequent to

the signing of the lease has no bearing on BPs right to extract oil and gas from the OCS.

This argument not only misconstrues the language of the lease, but is also inconsistent

with United States Supreme Court (Supreme Court) analysis of OCS oil and gas

leases.

a. BPs Leases Do not Purport to Grant a Vested Interest inOCS Oil and Gas

The crux of BPs argument is that because BP obtained the right to produce oil

from the leases fifteen years ago when it acquired the leases from the Government, its

subsequent failure to abide by MMS regulations does not give rise to FCA jurisdiction.

(Rec. Doc. 35, p. 8) However, it is clear from the leases that the property rights BP

alleges to have retained for the last fifteen years do not extend to the oil and gas

minerals themselves . Each lease contains identical language conveying the exclusive

right and privilege to drill for, develop, and produce oil and gas resources, except

helium gas, in the submerged lands of the Outer Continental Shelf . The lease goes

on to further describe these rights as including:

(a) the nonexclusive right to conduct within the leasedarea geological and geophysical explorations in


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accordance with applicable regulations;

(b) the nonexclusive right to drill water wells within thelease area, unless the water is part of the geopressed-geothermal and associated resources, and to use thewater produced therefrom for operations pursuant tothe Act free of case, on the condition that the drillingis conducted in accordance with procedures approved by the Direct of the Minerals Management Service orthe Directors delegate []; and

(c) the right to construct or erect and to maintain withinthe leased area artificial islands, installations, andother devices permanently or temporarily attached tothe seabed and other works and structures necessaryto the full enjoyment of the lease, subject tocompliance with applicable laws and regulations.

Exhibit A, BP Atlantis Oil and Gas Lease 1-5, 3. An outright interest in the oil and gas

itself is notably absent.

Simply because the leases grants BP the right to explore, develop and produce oil

and gas from the OCS does not automatically entitleat the signing of the leaseBP to

a vested right in the physical oil and gas located in the OCS. These leases have merely

granted BP the right to perform various activities associated with the production of

oil and gas, and does not grant a fee simple ownership of the oil and gas interest itself.

Instead, and more importantly, the lease clearly enunciates that BP is obliged to follow

all regulations promulgated by MMS at the time of the signing of the lease. Exhibit A,

BP Atlantis Oil and Gas Lease 1-5, 1.

b. The Supreme Court has Recognized that Oil and GasOperators Must Obtain Requisite Approvals in Order to

Extract Oil and Gas from the OCSThe Supreme Court has likewise noted that oil and gas operators must obtain

requisite permissions prior to removing oil and gas from the OCS. In Mobil Oil

Exploration & Producing Southeast, Inc. v. United States , 530 U.S. 604, 120 S.Ct. 2423, 147

L.Ed.2d 528 (2000), the Supreme Court noted that operators could develop the oil that


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they found (subject to further royalty payments) provided that the companied received

exploration and development permissions in accordance with various statutes and

regulations to which the lease contracts were made subject. Id. at 609 (emphasis

added). BP erroneously relies upon Mobil Oil for the proposition that BPs leases

automatically convey a vested interest in the oil and gas minerals. (Rec. Doc. 35, p. 10

([T]he lease contracts gave the companies more than rights to obtain approvals. They

also gave the companies rights to explore for, and to develop, oil.)) However, BPs

incomplete and misleading quotehad it been accurately presentedactually leads to

the opposite conclusion that regulatory approvals are conditions precedent to extracting

oil and gas:

[T]he lease contracts gave the companies more than rights toobtain approvals. They also gave the companies rights toexplore for, and to develop, oil. But the need to obtainGovernment approvals so qualified the likely futureenjoyment of the exploration and development rights thatthe contract, in practice, amounted primarily to anopportunity to try to obtain exploration and developmentrights in accordance with the procedures and under thestandards specified in the cross-referenced statutes andregulations.

Mobil Oil , 530 U.S. at 619 (original emphasis).

Here, BPs leases specifically require that the right to construct, erect and to

maintain devices permanently or temporarily attached to the seabed and other works

and structures necessary to the full enjoyment of the lease [are] subject to compliance

with applicable laws and regulations. Exhibit A, BP Atlantis Oil and Gas Lease 1-5,

2. As established in Abbotts original and amended complaint, BP failed to abide by

critical regulations in constructing the Atlantis Facility. BP falsely stated that it had

complied with such regulations and submitted certifications to that effect. Without

these false certifications and without governmental approval based on these false


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certifications, BP would never have received authorization to extract oil and gas from

the OCS.

2. The Governments Ability to Cancel the Lease is Irrelevant as toWhether BP Submitted False Certifications in Violation of the FCA

In addition to arguing that BP has retained outright ownership of unproduced oil

and gas for the past fifteen years, BP also argues that because the Government has the

discretionary authority to cancel the lease and hasat this timechosen not to, there is

no violation of the FCA. (Rec. Doc. 35, p. 9) This position, however, is inconsistent with

the general nature of the FCA and unduly narrows its applicability.

In support of its position, BP relies upon the Fifth Circuit holding in United Statesex rel. Marcy v. Rowan Cos., Inc. , 520 F.3d 384 (5th Cir. 2008). (Rec. Doc. 35, p. 14)

However, just as with its reliance on Mobil Oil , BP fails to paint an accurate picture of

the Courts holding. In Marcy , the Fifth Circuit expressly refused to decide whether a

valid claim for property had been made under the FCA. Id. at 389 (We do not decide

whether Marcy has properly identified a claim for purposes of Section 3729(a)(2)).

Instead, the Court solely looked at materiality, which as established below, has been

met in the instant case. Id. Essentially, jurisdiction and viability under the FCA does

not turn on whether the Government has an alternative, discretionary means to punish

a wrongdoer outside of the FCA. United States v. Neifert-White Co. , 390 U.S. 228, 232-33,

88 S.Ct. 959 (1968). There exists no OCSLA provision that provides discretionary

cancelation as the exclusive remedy for fraud nor does OCSLA intend to preempt FCA

jurisdiction. Accordingly, it is of no consequence whether the Government employees,

for whatever reason, have accepted noncompliant goods or services.

Instead, a proper false certification claim focuses solely on whether a fraud has

been perpetrated against the Government and does not look to the governments


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possible alternative methods of recovery. United States ex rel. Sanders v. American-

Amicable Life Ins. Co. of Tex. , 545 F.3d 256, 259 (3d Cir. 2008). In fact, to have a viable

claim under the FCA, payment of monies or property is not even necessary. Hutchins v.

Wilentz, Goldman & Spitzer v. ABC Corp., 253 F.3d 176, 180 (3d Cir. 2001). A false

certification claim is based only on the false submission, and is simply not tempered by

the Governments apparent authority to cancel a contract.

Furthermore, it is inconsequential that BP has properly paid royalties or received

a benefit on the extracted oil gas. The purpose of the FCA is to provide for restitution

to the Government of money taken from it by fraud. United States ex rel. Marcus v.

Hess , 317 U.S. 537, 551, 63 S.Ct. 379, 87 L.Ed. 443 (1943). As recently noted by the Fifth

Circuit, where a company falsely certifies its qualifications to the Government,

restitution of all monies paid to a company is proper despite the companys fulfillment

of its contractual obligations. United States ex rel. Longhi v. United States , 575 F.3d 458,

472 (5th Cir. 2009) ([T]he [d]efendants ability to deliver on the hoped for ends,

however, does not justify the means it employed to receive the [] grants.). Thus,

regardless of the Governments discretionary authority, a violation of the FCA has

nonetheless occurred because BP committed fraud when it submitted false certificates.

B. BPs False Certifications are Material

A false certification claim may take many forms, the most common being a

claim for goods or services provided in violation of contract terms, specification,

statute or regulation . Mikes , 274 F.3d at 697 (original emphasis) (quoting S. Rep. No.99-345, at 9,reprinted in 1986 U.S.C.C.A.N. 5266, 5274). The claim must be material, or in

other words, the false claim must have the natural tendency to influence, or [is]

capable of influencing, the decision of the decision-making body to which it is


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addressed. Neder v. United States, 527 U.S. 1, 16, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999)

(quotation omitted) (insertion in original).

BP incorrectly argues that the limited materiality standard discussed in Marcya

2008 holdingis controlling. (Rec. Doc. 35, p. 16 (stating that because the Government

could cancel the lease, the false certifications were not material)) In 2009 the Fifth

Circuit revised the standard applied and adopted a broad interpretation of the natural

tendency test:

[T]he natural tendency to influence or capable of influencing test requires only that the false or fraudulentstatements either (1) make the government prone to a

particular impression, thereby producing some sort ofeffect, or (2) have the ability to effect the governmentsactions, even if this is a result of indirect or intangibleactions on the part of the Defendants . All that is requiredunder the test for materiality, therefore, is that the false orfraudulent statements have the potential to influence thegovernments decisions.

Longhi , 575 F.3d at 470 (emphasis added). 5

Here, BPs false certifications ha[d] the potential to influence the governments

decision and in fact did induce the Government into actionthe Government

approved production based on the false certifications. Further, BPs unrelenting

reliance on Marcy is additionally misplaced. The false certification claims raised in

Marcy differ than those raised before the Court. In Marcy , the allegations were that the

5 Prior to 2009, the Fifth Circuit interpreted natural tendency under two different standards.The first standard, the outcome materiality standard, required that the falsehood ormisrepresentations [] affect the governments ultimate decision [] to remit funds to the claimantin order to be material. United States v. Southland Mgmt. Corp. (Southland I) , 288 F.3d 665, 676(5th Cir. 2002) (citing United States ex rel. Berge v. Bd. of Trs. of the Univ. of Ala., 104 F.3d 1453,1459-60 (4th Cir. 1997); United States v. Intervest Corp., 67 F.Supp.2d 637, 646-48 (S.D. Miss.1999)). See also United States ex rel. Laird v. Lockheed Martin Engg & Science Servs. Co.,491 F.3d254, 261 (5th Cir. 2007) (indicating that the outcome materiality standard is the applicablestandard to FCA cases). The second claim materiality standard required the falsehood ormisrepresentation [] be material to the defendants claim of right in order to be consideredmaterial. Southland I , 288 F.3d at 676 (citing United States ex rel. Wilkins v. N. Am. Constr. Corp., 173 F.Supp.2d 601, 630 (S.D.Tex. 2001)).


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Defendants fraudulently maintained their right to take government property under the

lease by failing to report their violations of certain laws and regulations. Marcy , 520

F.3d at 389. Here, Abbott does not assert that (1) BP has fraudulently maintained its

right to take government property by (2) failing to report violations. Abbott asserts that

(1) BP fraudulently induced the Government to approve BPs extraction of oil and gas

interests through (2) the false submission of documents and certifications necessary for

such governmental approval. This type of fraudulent inducement has been recognized

as valid under the FCA, and BPs were thus material. Longhi , 575 F.3d at 469.

III. A BBOTT S CLAIMS COMPORT WITH RULE 9(B)

BP alleges that Abbotts failure to allege the exact time, place and contentions

of the false certifications renders Abbotts pleadings in violation of Federal Rule of Civil

Procedure 9. (Rec. Doc. 35, p. 18) Rule 9(b), however, does not operate in isolation and

is rather supplementary to Rule 8(a). Williams v. WMX Techs., Inc. , 112 F.3d 175, 178 (5th

Cir. 1997) (noting that Rule 9(b) is to be read as part of the entire set of rules, including

Rule 8(a)s insistence upon simple, concise and direct allegations.) Respectfully, the

Fifth Circuit has recently concluded that the time, place, contents, and identity

standard is not a straitjacket form Rule 9(b). Rather, the rule is context specific and

flexible and must remain so to achieve the remedial purpose of the False Claim Act.

United States ex rel. Grubbs v. Kanneganti , 565 F.3d 180, 188 (5th Cir. 2009). Instead,

where a relator is unable to plead the detail of an actually submitted false claim, [the

claim] may nevertheless survive by alleging particular details of a scheme to submitfalse claims paired with reliable indicia that lead to a strong inference that claims were

actually submitted. Id. Abbott does just this; Abbott alleges in great detail a scheme

that undoubtedly involved the submission of false certifications to the Government.

Abbott, in his original and amended complaint, provides specific descriptions of


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the chain of events leading to his discovery of the documentation deficiencies and his

attemptsdisregarded by BPto cure the issues. Abbotts allegations provide the

specific dates he acquired the knowledge, who he spoke to, what emails he received

regarding the issue, the meetings he attended regarding the issue, the emotional state of

participants at those meetings, and whether these meetings resolved the documentation

deficiencies. See, e.g., Grubbs , 565 F.3d at 191-92 (Grubbs describes in detail, including

the date, place, and participants, the dinner meeting at which two doctors in his section

attempted to bring him into the fold of their on-going fraudulent plot.). Further, after

obtaining additional information from FOIA requests, Abbott amended his complaint to

ensure the incorporation of all factual details and to seek injunctive relief to prevent

harm to the Gulf of Mexico from the potential injuries posed by BPs failure to abide by

its leases and regulations. Specifically, the amended complaint contains details

regarding letters in which BP expressly certified the existence of the requisite design

drawings, and the Government subsequently issued an approvalbased on those false

certificationsof the design and installation of the production equipment and subsea

systems. These facts, when taken as true, establish that BP lacked the requisite design

documents to render its earlier certifications of compliance. See id. (finding that based

on allegations it is logical that fraudulent bills were submitted to the government

despite not having the bills, nor knowing the exact billing numbers or amounts).

Further, BPs argument that the Complaint fails to identify which as built documents

were needed to make any specific certifications , is simply misleading andexemplifies BPs inability to grasp the exact nature and extent of its document

deficiencies. (Rec. Doc. 35, p. 18) There is no one type of as-built that is required for

certification; the certification stated that BP maintained all as-built design drawings

for the BP Atlantis Project, including subsea components.


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BP additionally misrepresents that Abbotts knowledge is derived solely from a

spreadsheet. (Rec. Doc. 35, p. 5) In fact, Abbott personally reviewed the BP databases

and their documents, and was intimately aware of the status of such documents. (Rec.

Doc. 47, 4.9) According to Abbotts personal observations, BP could not have had as-

built drawings for all components at the time of certification and thus BP falsely

certified the existence of such. Accordingly, Abbotts pleadings, when taken as true,

fulfill the requirements of both Rule 8 and 9, and BPs motion to dismiss should be

denied.

IV. C ONDITIONAL REQUEST TO REPLEAD

Abbott does not believe he needs to replead in order to assert viable claims in

this matter. Nevertheless, should the Court find Abbotts amended complaint lacking,

Abbott would request leave to more specifically plead or otherwise cure any

deficiencies. Leave in such circumstances is appropriate and routinely granted:

Leave to amend should be freely given, Fed. R. Civ. P. 15(a), and outrightrefusal to grant leave to amend without a justification such as unduedelay, bad faith or dilatory motive on the part of the movant, repeatedfailure to cure deficiencies by amendments previously allowed, undueprejudice to the opposing party by virtue of allowance of the amendment,futility of amendment, etc. is considered an abuse of discretion.

United States ex rel. Adrian v. Regents of the Univ. of California , 363 F.3d 398, 403 (5th Cir.

2004). No special circumstances exist in this case that would justify denying Abbott the

right to replead. As such, Abbott respectfully requests that should the Court find his

complaint insufficient, the Court allow Abbott the opportunity to replead.

CONCLUSION

Because Abbotts amended his complaint subsequent to BPs motion to dismiss,

the motion to dismiss should denied as moot. However, should the Court consider BPs

motion to dismiss, the Court should consider that to physically produce oil and gas, BP


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must have the requisite structures and tools necessary to extract oil and gas from the

OCS. As recognized by the Supreme Court, certain approvals must be obtained prior to

the physical production of oil and gas. In obtaining these approvals, BP submitted

certifications to the government falsely certifying compliance with regulations material

to obtaining production and required under BPs leases with the government. These

certificationshad they not been falsely submittedwould have prevented BP from

obtaining the valuable oil and gas beneath the OCS. Thus, the materiality of such

certifications is undeniable, and it is irrelevant whether the Government had the

authority to cancel BPs leases. What is relevant is the fraud committed by BP. It is the

perpetration of fraud against the governmentand that fraud alonethat creates

liability under the FCA, and any discretionary authority retained by the government

has no bearing on whether a valid claim has been stated under the FCA. Thus, BPs

motion to dismiss for failure to state a claim should be denied.

Additionally, BPs argument that Abbotts original complaint is devoid of the

necessary specificity is similarly meritless as BP draws the Courts attention to an

incorrect, self-serving pleading standard. The true standard, which allows for flexibility

given the nature of FCA actions, requires a plaintiff to plead facts sufficient to establish

a scheme of wrongdoing against the government. Here, Abbot has provided

painstaking detail of the events surrounding his knowledge of BPs document

deficiencies. In his original complaint, Abbott includes specific dates, names specific

persons and places, and provides the reasoning for the basis of his claims. Further,upon obtaining additional information from FOIA requests, Abbott amended his

complaint to provide the Court further detail. There is no shortage of specificity in

Abbotts amended complaint, and therefore, BPs motion to dismiss under Rule 9(b)

should be denied.


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Respectfully submitted:

/s/ Mikal C. Watts __________________________________ Mikal C. WattsState Bar No. 20981820Federal Bar No. 12419WATTS GUERRA & CRAFT, L.L.P.Four Dominion Drive,Bldg. Three, Suite 100San Antonio, Texas 78257Telephone: (210) 447-0500Fax (210) [email protected]

ATTORNEY IN CHARGE J. Hunter CraftState Bar No. 24012466Federal Bar No. [email protected]

Emily C. JeffcottState Bar No. 24069993Federal Bar No. [email protected]

ATTORNEYS FOR PLAINTIFF

OF COUNSEL

David L. PerryState Bar No. 15800000Federal Bar No. [email protected]

Ren HaasState Bar No. 21406800Federal Bar No. [email protected]

Perry & HaasP.O. Box 1500Corpus Christi, TX. 78403Telephone: (361) 880-7500


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Fax: (361) 887-9507


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CERTIFICATE OF FILING AND SERVICE

I hereby certify that the above and foregoing pleading was served on all counselof record through electronic notification pursuant to the electronic filing in the UnitedStates District Court for the Southern District of Texas this 10 th day of September, 2010.

/s/ Mikal C. Watts____________________________MIKAL C. WATTS

Response - BP Qui Tam Mtn to Dismiss

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