                           NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        JUL 3 2018
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

UNITED STATES ex rel. THOMAS A.                 No.    17-35083
BERG, TIMOTHY A. BERG, RYNE J.
LINEHAN, NAYER M. MAHMOUD, and                  D.C. No. 3:07-cv-215-SLG
STANLEY E. SMITH,

                Plaintiffs-Appellants,
                                                MEMORANDUM*
 v.

HONEYWELL INTERNATIONAL, INC.,
and HONEYWELL, INC.,

                Defendants-Appellees.



                   Appeal from the United States District Court
                            for the District of Alaska
                 Hon. Sharon L. Gleason, District Judge, Presiding

                       Argued and Submitted June 11, 2018
                               Anchorage, Alaska

Before: THOMAS, Chief Judge, and CALLAHAN and BEA, Circuit Judges.

      Relators appeal from the district court’s grant of summary judgment in favor

of Defendant Honeywell International, Inc. (“Honeywell”) on their qui tam action

under the False Claims Act (“FCA”). We have jurisdiction under 28 U.S.C. §


      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
1291. We review the district court’s grant of summary judgment de novo, United

States ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 329 (9th Cir. 2017), and we

affirm.1

      On this appeal, Relators allege FCA claims based on two categories of

alleged false statements: (1) false promises of savings Honeywell calculated upon

the “Electrical Baseline Adjustment,” and (2) false statements of savings calculated

upon the low “infiltration rates” assumed in Honeywell’s calculations. “[T]he

essential elements of [FCA] liability” are: “(1) a false statement or fraudulent

course of conduct, (2) made with scienter, (3) that was material, causing (4) the

government to pay out money or forfeit moneys due.” U.S. ex rel. Hendow v.

Univ. of Phoenix, 461 F.3d 1166, 1174 (9th Cir. 2006). The district court held that

Relators failed to raise triable issues as to the necessary “false statement” and

scienter elements. “To survive summary judgment, the relator must establish

evidence on which a reasonable jury could find for the plaintiff.” Kelly, 846 F.3d

at 330.

      1. The district court did not err in granting summary judgment in favor of

Honeywell on Relators’ Electrical Baseline Adjustment claim. First, Relators

failed to raise a triable issue as to the “false statement” element. As the district



      1
       As the parties are familiar with the facts and procedural history, we restate
them only as necessary to explain our decision.

                                           2                                     17-35083
court held, “[b]ecause Honeywell disclosed the assumptions and math underlying

its estimates, its statements in that regard were not ‘false’ within the meaning of

the False Claims Act.” At the time Honeywell prepared its proposals, it

understood that the government was independently planning to address its

electricity needs with a separate “privatization” plan, and, for accounting purposes,

the increased electricity costs were to be allocated to that project, not to the

Honeywell Energy Savings Performance Contract (“ESPC”). Unrebutted evidence

establishes that Honeywell therefore never purported to account for Ft.

Richardson’s increased electricity costs in its savings estimates (because they were

factored into the baseline) and that Honeywell provided and explained its inputs,

assumptions, and calculations. The scope of Honeywell’s statements and the

qualifications upon them were sufficiently clear, so that the statements—so

qualified—were not objectively false or fraudulent.2 See U.S. ex rel. Butler v.

Hughes Helicopters, Inc., 71 F.3d 321, 328 (9th Cir. 1995) (holding statements

were “not false” where they “actually disclose[d] what [the relator] claim[ed] they

conceal[ed]”).

          Relators present no evidence to the contrary, but instead argue that



      2
        Because we conclude that Honeywell’s statements of the energy baseline
and the expected savings were not objectively false, we do not decide whether
“government knowledge” can serve to “negate” the element of falsity in addition to
the element of scienter, as that question is formulated in Relators’ Opening Brief.

                                            3                                      17-35083
Honeywell’s statements of energy savings were objectively false because the

Electrical Baseline Adjustment was improper under the statutory and regulatory

framework that governs ESPCs. But “the statutory phrase ‘known to be false’ does

not mean incorrect as a matter of proper accounting methods, it means a lie.”

Hagood v. Sonoma Cty. Water Agency, 81 F.3d 1465, 1478 (9th Cir. 1996). Nor is

the FCA “a vehicle for punishing garden-variety breaches of contract or regulatory

violations.” Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.

Ct. 1989, 2003 (2016). That the Army should have rejected Honeywell’s proposals

under the ESPC statutes and regulations does not mean that Honeywell’s detailed

calculations were false.

      Second, unrebutted evidence establishes that Honeywell disclosed the

“Electrical Baseline Adjustment” and the components of its calculations to the

Army. Defendants failed to present any evidence to rebut the inference, based on

this “highly relevant” evidence of government knowledge, that Honeywell did not

knowingly make a false claim. United States ex rel. Hagood v. Sonoma Cty. Water

Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). Relators rely on the deposition

testimony of Honeywell’s project manager, Suzanne Wunsch. But the district

court correctly found that “no reasonable jury could conclude that [Ms. Wunsch’s]

statements reflect an admission that Honeywell knew that its baseline, its projected




                                         4                                   17-35083
cost, or its ‘savings guarantee’ were ‘false’ within the meaning of the FCA.”3

Thus, Relators failed to raise a triable issue as to scienter.

      Finally, “[a] misrepresentation . . . must be material to the Government’s

payment decision in order to be actionable under the False Claims Act.”4 Escobar,

136 S. Ct. at 1996. “[T]he Government’s decision to expressly identify a provision

as a condition of payment is relevant, but not automatically dispositive.” Id. at

2003; see also Kelly, 846 F.3d at 334. Indeed, “if the Government pays a

particular claim in full despite its actual knowledge that certain requirements were

violated, that is very strong evidence that those requirements are not material.”

Escobar, 136 S. Ct. at 2003. Here, the Army began paying Honeywell’s claims in

2003, and continued up to at least 2008, despite being aware of Relators’ fraud

allegations since 2002, the results of its own audit since 2003, and the problems

with the infiltration rates since 2004. Accordingly, Relators also failed to raise a




      3
         Relators argue that the district court erred by failing to “seriously question[]
whether Wunch’s [sic] ‘assumptions’ regarding privatization were valid, reasonable
or ever confirmed by anyone within the government with actual decision-making
authority.” But this argument “raises questions of contract interpretation rather than
false claims.” Butler, 71 F.3d at 326 (“To the extent that [Butler] alleges that . . .
those making modifications had no authority to do so, Butler’s is a contract
dispute.”).
       4
         The district court did not consider this issue below, but the parties briefed it
and this court may affirm on any basis supported in the record. In re Oracle Corp.
Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010).

                                            5                                    17-35083
triable issue as to the element of materiality on the “demanding” standard

established in Escobar and Kelly.5

      2. Nor did the district court err in granting summary judgment in favor of

Honeywell on Relators’ claim based on the infiltration rates. Where, as here, “the

non-moving party bears the burden of proof at trial, the moving party need only

prove that there is an absence of evidence to support the non-moving party’s case.”

In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010). There is no

evidence here that Honeywell knew its infiltration rates were impossible to achieve

at Ft. Richardson. Thus, Relators failed to raise a triable issue as to the required

element of scienter.

      Relators point to a 2006 statement by Steven Craig, a Honeywell executive,

but Mr. Craig’s statements show only that Honeywell understood that its

infiltration projections depended upon someone (whether the government or

Honeywell) undertaking to improve the base’s heating system controls and reduce

open windows and doors. Relators also submitted the declaration of an expert

witness who opined in 2016 that Honeywell made a “conscious and deliberate

decision” to use “an extremely low . . . airflow leakage rate.” But Honeywell does



      5
       Relators attempt to distinguish Escobar on the basis that the noncompliance
here was not “minor or insubstantial.” But Escobar’s rule applies to substantial
noncompliance (which is not sufficient to establish materiality) “in addition” to
“insubstantial” noncompliance. See Escobar, 136 S. Ct. at 2003 (emphasis added).

                                           6                                    17-35083
not dispute that it chose infiltration rates “deliberate[ly]”; the issue is whether

Honeywell knew they were impossible to achieve. The expert witness’s opinion

does not provide more than a scintilla of circumstantial evidence6 as to that crucial

issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986) (“The mere

existence of a scintilla of evidence in support of the plaintiff’s position will be

insufficient; there must be evidence on which the jury could reasonably find for the

plaintiff.”); U.S. ex rel. Anderson v. N. Telecom, Inc., 52 F.3d 810, 816–17 (9th

Cir. 1995), as amended (May 26, 1995) (finding “no evidence from which a jury

could reasonably draw an inference” in an FCA action that the defendant

“knowingly presented a false or fraudulent claim” where there was “no direct

evidence” and the submitted declaration was ambiguous on that issue).

      Furthermore, the government’s knowledge also negates scienter as to the

infiltration rates.7 Unrebutted record evidence establishes that Ft. Richardson, the

Army, and Honeywell all knew of and agreed to the “aggressive” (i.e., optimistic)

rates, and Army officials approved the input variables submitted by Honeywell.




      6
          The declarant had no personal or contemporaneous knowledge of
Honeywell’s state of mind in 2000 because the Army hired the declarant’s company
to audit the Honeywell project in 2006.
       7
         Honeywell raised this argument below, but the district court declined to
reach it. However, this court may affirm on any basis supported in the record. In re
Oracle Corp., 627 F.3d at 387.

                                           7                                      17-35083
Relators failed to rebut this “highly relevant” evidence of government knowledge.

Hagood, 929 F.2d at 1421.

      Finally, for the reasons discussed above, Relators also failed to raise a triable

issue as to the element of materiality on the “demanding” standard established in

Escobar, 136 S. Ct. at 2003, and Kelly, 846 F.3d at 334.

      AFFIRMED.




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