United States District Court, E.D. Washington
UNITED STATES OF AMERICA, ex rel., RANDOLPH PETERSON and TRI-CITY RAILROAD COMPANY, LLC, Plaintiffs,
PORT OF BENTON COUNTY, et al., Defendants.
ORDER GRANTING DEFENDANT THE PORT OF BENTON'S
MOTION FOR PARTIAL SUMMARY JUDGMENT RE: QUI TAM
O. RICE CHIEF UNITED STATES DISTRICT JUDGE.
THE COURT is Defendant the Port of Benton's Motion for
Partial Summary Judgment to Dismiss Plaintiffs' Qui
Tam False Claims Act Claims (ECF No. 148). A hearing was
held on October 7, 2019. The Court has reviewed the record
and files herein, heard oral argument and is fully informed.
For the reasons discussed below, the motion (ECF No. 148) is
case arises out of a qui tam claim asserted by
Tri-City Railroad Company, LLC, (“TCRY”) and
Randolph Peterson (collectively “Plaintiffs”)
based on Plaintiffs' contention that Defendant the Port
of Benton (“the Port”) perpetrated a fraud on the
United States Government. The Port is a public port district
under Washington law and its primary, and
statutorily-defined, purpose is to foster economic growth in
its district. ECF No. 148 at 13. TCRY is a private company
that operates a short line railroad owned by Plaintiff
material facts are relatively simple and are not in dispute.
The Port acquired land and trackage from the Department of
Energy in 1998 (the “Amendment to Indenture”
agreement). Pursuant to the Amendment to Indenture, the Port
agreed to devote all lease payments or other sources of
revenue from the real property and railroad to first cover
maintenance of the railroad; any surplus revenue can be used
at the Port's discretion. ECF No. 148 at 19. The Port
also agreed to honor BNSF Railway Company's
(“BNSF”) operating rights previously established
by contract. ECF No. 152-4 at 8.
Port first contracted with Livingston Rebuild Center
(“Livingston”) for the maintenance and operation
of the trackage in order to fulfill the Port's duty to
maintain the trackage. ECF No. 152-4 at 2. Livingston
subsequently assigned its rights and obligations under the
agreement to TCRY. In 2002, the Port entered into a new
agreement with TCRY to lease to TCRY trackage, a large
building, and acreage for a laydown yard for $2, 000 a month,
subject to periodic consumer price index adjustments. ECF No.
148 at 19; see ECF No. 78-4 (2002 Lease Agreement).
In return for the minimal rental payment-before the 2002
lease agreement, TCRY was paying $288, 000 per year to lease
the same property- TCRY agreed to maintain the trackage
at its sole expense. ECF No. 148 at 19-20. This
agreement was in effect at all times relevant to this
2002 and 2015, the Port leased additional acreage to TCRY for
a laydown yard at a reduced rate with the intent of providing
additional funding for TCRY to maintain the trackage-over the
course of the lease for this property, TCRY paid $2, 295, 231
in rent while collecting $4, 630, 186 from its subtenant. ECF
No. 148 at 20.
2000 and 2009, TCRY was the only railroad that operated on
the trackage. In 2009, BNSF asserted its rights to use the
trackage pursuant to its contractual right granted by the DOE
long before TCRY came onto the scene. ECF Nos. 148 at 14;
152-4 at 1-2. TCRY requested the Port terminate BNSF's
operating rights, which was within the Port's
prerogative. ECF No. 148 at 14. The Port declined, finding
such would be determinantal to the Port's stated goal of
promoting economic growth. ECF No. 148 at 14-15.
2009, TCRY erected a physical barrier to block BNSF's
access; in response, BNSF filed suit against TCRY in the
United States District Court for the Eastern District of
Washington. See ECF No. 152-4 at 4. The Honorable
Edward F. Shea held that BNSF and Union Pacific
(“UP”) had “full rights to operate”
on the trackage, and TCRY's lease was subject to those
rights. BNSF Ry. Co. v. Tri-City & Olympia R.R. Co.
LLC, No. CV-09-5062-EFS, 2012 WL 12951546, at *8 (E.D.
Wash. Feb. 14, 2012); see ECF Nos. 148 at 15; 152-4
at 4. The Court ordered and approved an Operating Plan
designating the Port as the arbitrator of disputes between
TCRY, BNSF, and UP. ECF No. 148 at 15.
2012, the Port applied for and was awarded a Washington State
Appropriations grant to complete large-scale improvement
projects on the trackage, to which the Port replaced an old,
wood-constructed railroad bridge with a steel bridge and
upgraded a three-mile portion of curved track by replacing
non-conforming ballast (rock), re-aligning the rails, and
replacing ties. ECF No. 148 at 21. At this time, the Port
became aware of a high percentage of tie failures in the
area, to which TCRY attributed to heavier trains operating on
the rail line and the non-conforming ballast; according to
the Port, the Port later learned that TCRY deferring
maintenance was the source of the problem. ECF No. 148 at
21-22. The Port repeatedly requested maintenance records from
TCRY, but TCRY refused. ECF No. 148 at 22.
September 2016, TCRY lodged a complaint with the Railroad
Retirement Board's (“RRB”) Office of
Inspector General fraud hotline alleging that the Port was
defrauding the government by not paying Railroad Retirement
Act (“RRA”) taxes and for not paying into the
railroad unemployment insurance fund pursuant to the Railroad
Unemployment Insurance Act (“RUIA”). ECF No. 148
Port were a “covered employer” it would have to
pay taxes and pay into the unemployment insurance fund under
the Railroad Retirement Tax Act (“RRTA”). The RRB
is the United States entity that determines whether a
railroad is a covered employer; the IRS assesses and collects
RRTA taxes and pursues remedies when an entity fails to pay
the required tax. ECF No. 148 at 11-12. Importantly, an
entity that leases or contracts with another for the
operation of the rail line is not a “covered
employer” if the entity (1) does not have a primary
business purpose to profit from railroad activities; (2) does
not operate or retain the capacity to operate the rail line,
which is met if (a) another entity is the certified operator
of the rail line and actually conducts the railroad service
or (b) the entity leases out the rail line and does not
retain control over the day-to-day operations of the line;
and (3) the operator/lessee of the rail line is already a
covered employer or would be found to be covered under the
RRTA, the RUIA, and RRA. ECF No. 148 at 13.
arguing the Port is a covered employer, TCRY represented to
the RRB Office of Inspector General that the Port controlled
the operations, specifically identifying the Operating Plan,
the Port's control over demurrage and tariffs, the
Port's negotiations with the City of Richland for
railroad easements and crossing, and the Port's
undertaking of capital improvement projects on the trackage,
among other things. ECF No. 148 at 17.
looked into the matter and, on April 9, 2018, the RRB
reaffirmed its 2001 decision (previously finding the Port was
not a “covered employer”) and declared that the
Port was (still) not a covered employer, finding the Port
“did not engage in control over the day-to-day
operations of the rail line and does not operate nor has the
capacity to operate the rail line” and that TCRY was
“a covered employer” that operated the rail line.
ECF No. 148 at 18.
September 2018, the Port applied for a Freight Rail
Assistance Program grant and a Freight Rail Investment Bank
loan from the State of Washington; in the application, the
Port cited to the Amendment to Indenture, this lawsuit, and
TCRY's alleged failure to abide by its maintenance
obligations. ECF No. 148 at 22. On January 15, 2018,
counsel for TCRY sent a letter to the State, advising it of
“potential inaccuracies” in the Port's
application, referencing this lawsuit and the Port's
alleged failure to comply with the Amendment to Indenture.
ECF No. 148 at 23. Despite TCRY raising the alarm, the State
of Washington granted the Port's 2018 application.
Plaintiffs conceded at oral argument that they have no proof
that any federal dollars are involved in the grants.
brought this action on June 5, 2017, asserting a qui
tam action under 31 U.S.C. §§ 3729-3737 based
on alleged “false or fraudulent claims” and
“false records and statements” used “to
obtain payment (and double payment) or approval for payment
in violation of the Federal False Claims Act . . . .”
ECF No. 1 at ¶ 5.2. Because Plaintiffs asserted a
Federal False Claims Act cause of action, the United States
of America was provided with notice and an opportunity to
intervene. See ECF No. 2. On May 25, 2018, the
United States of America declined to intervene. ECF Nos. 9;
January 24, 2019, Peterson and TCRY requested the Court enter
partial summary judgment holding the Port “liable for
retaliating against Peterson and TRCY (for associating with
Peterson) for Peterson's petition against the Port for
unconstitutional conduct.” ECF No. 61 at 2. The Court
denied the motion, finding the underlying, complained-of
threat to file a counter-claim was based on a “facially
plausible concern that TCRY is, indeed, not paying a
sufficient amount of [Lease Excise Taxes]” given TCRY
was only paying the tax on the minimal amount of rent-which
was “grossly disproportionate to the value of the
property (at least $25M) at issue”-and not the
substantial value of the obligation to maintain the trackage.
ECF No. 85 at 21.
March 22, 2019, Peterson and TCRY requested the Court enter
summary judgment against the City of Richland based on
alleged retaliation for opposing the Center Parkway crossing
project. ECF No. 87. The Court, again, denied the motion,
In sum, despite Plaintiffs' mostly-bald assertions
otherwise, the evidence does not establish the City of
Richland took any action out of retaliation against TCRY.
Plaintiffs point to (1) an Options List that was not created
by the City of Richland and has nothing to do with the Center
Parkway crossing, (2) the City of Richland pursuing its
contractual rights towards a well-defined goal established in
2001, and (3) off-hand comments - taken out of context - that
merely demonstrate the attorney for the City of Richland
viewed TCRY as unscrupulous, at most. As such, despite
claiming the existence of “express” language
detailing such, Plaintiffs have failed to present any
concrete evidence of retaliatory intent.
ECF No. 108 at 20-21.
also requested approval from the Court to temporarily dismiss
certain claims and to file an amended complaint to reassert
the temporarily dismissed claims. The Court approved the
request in part. ECF No. 85 at 2-6. Plaintiffs subsequently
filed the Third Amended Complaint, which the Court struck
because it went beyond what was requested and approved.
Plaintiffs filed the Fourth Amended Complaint - the operative
complaint - on August 28, 2019. ECF No. 167.
Port's motion for summary judgment on Plaintiffs'
qui tam action is now before the Court. ECF No. 148.
movant is entitled to summary judgment if “there is no
genuine dispute as to any material fact and that the movant
is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(a). A fact is “material” if it
might affect the outcome of the suit under the governing law.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). An issue is “genuine” where the evidence
is such that a reasonable jury could find in favor of the
non-moving party. Id. The moving party bears the
“burden of establishing the nonexistence of a
‘genuine issue.'” Celotex Corp. v.
Catrett, 477 U.S. 317, 330 (1986). “This burden
has two distinct components: an initial burden of production,
which shifts to the nonmoving party if satisfied by the
moving party; and an ultimate burden of persuasion, which
always remains on the moving party.” Id.
Rule 56(c), the parties must support assertions by:
“citing to particular parts of the
record” or “showing that the materials cited do
not establish the absence or presence of a genuine dispute,
or than an adverse party cannot produce admissible evidence
to support the fact.” (emphasis added). The court is
not obligated “to scour the record in search of a
genuine issue of triable fact;” rather, the nonmoving
party must “identify with reasonable particularity the
evidence that precludes summary judgment.” Keenan
v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) (brackets
omitted) (quoting Richards v. Combined Ins. Co., 55
F.3d 247, 251 (7th Cir. 1995)
admissible evidence may be considered. Orr v. Bank of
America, NT & SA, 285 F.3d 764 (9th Cir. 2002). The
nonmoving party may not defeat a properly supported motion
with mere allegations or denials in the pleadings.
Liberty Lobby, 477 U.S. at 248. The
“evidence of the non-movant is to be believed, and all
justifiable inferences are to be drawn in [the
non-movant's] favor.” Id. at 255. ...