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United States, ex rel., Peterson v. Port of Benton County

United States District Court, E.D. Washington

October 8, 2019

PORT OF BENTON COUNTY, et al., Defendants.



         BEFORE 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 granted.


         This 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 Randolph Peterson.

         The 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.

         The 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 dispute.

         Between 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.

         Between 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.

         In July 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.

         In 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.[2] ECF No. 148 at 21-22. The Port repeatedly requested maintenance records from TCRY, but TCRY refused. ECF No. 148 at 22.

         In 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 at 16.

         If the 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.

         In 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.

         The RRB 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.

         In 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.[3] 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.


         Plaintiffs 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; 10.

         On 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.

         On 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, concluding:

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.

         Plaintiffs 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.

         The Port's motion for summary judgment on Plaintiffs' qui tam action is now before the Court. ECF No. 148.


         A 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.

         Per 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)

         Only 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. ...

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