author: W. FLETCHER, Circuit Judge:

text:
    IN RE APPLE IPHONE ANTITRUST LITIGATION, Robert Pepper; Stephen H. Schwartz; Edward W. Hayter; Eric Terrell, Plaintiffs-Appellants, v. Apple Inc., Defendant-Appellee.
    No. 14-15000
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted February 10, 2016 San Francisco, California
    Filed January 12, 2017

      Mark C. Rifkin (argued), Alexander H. Schmidt, and Michael Liskow, Wolf Hal-denstein Adler Freeman & Herz LLP, New York, New York; Francis M. Grego-rek and Rachele R. Rickert, Wolf Halden-stein Adler Freeman & Herz LLP, San Diego, California; for Plaintiffs-Appellants.
    Daniel M. Wall (argued), Christopher S. Yates, and Sadik Huseny, Latham & Watkins LLP, San Francisco, California; J. Scott Ballenger, Latham & Watkins LLP, Washington, D.C.; for Defendant-Appel-lee.
    Before: A. WALLACE TASHIMA and WILLIAM A. FLETCHER, Circuit Judges, and ROBERT W. GETTLEMAN, District Judge.

       The Honorable Robert W. Gettleman, United States District Judge for the Northern District of Illinois, sitting by designation.

   OPINION

W. FLETCHER, Circuit Judge:

In their current complaint, Plaintiffs allege that they purchased iPhones and iPhone applications (“apps”) between 2007 and 2013, and that Apple has monopolized and attempted to monopolize the market for iPhone apps. In ruling on Apple’s fourth motion to dismiss, the district court held that Plaintiffs lacked antitrust standing under Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).

We must decide two questions. First, we must decide whether Rule 12(g)(2) barred the district court from considering on the merits Apple’s fourth motion to dismiss, brought under Rule 12(b)(6), in which Apple contended that Plaintiffs lack statutory standing under Illinois Brick. We conclude that the district court may have erred in considering this motion on the merits, but that its error, if any, was harmless. Second, we must decide whether Plaintiffs lack statutory standing under Illinois Brick. We hold that Plaintiffs are direct purchasers from Apple within the meaning of Illinois Brick and therefore have standing.

I. Factual Allegations

The following factual narrative is drawn from Plaintiffs’ current complaint. Because the district court dismissed Plaintiffs’ suit under Rule 12(b)(6) for failure to state a claim, we take as true all plausible allegations.

Apple released the iPhone in 2007. The iPhone is a “closed system,” meaning that Apple controls which apps—such as ring-tones, instant messaging, internet, video, and the like—can run on an iPhone’s software. In 2008, Apple launched the “App Store,” an internet site where iPhone users can find, purchase, and download iPhone apps. Apple has developed some of the apps sold in the App Store, but many of the apps sold in the store have been developed by third-party developers. Apple earns a commission on each third-party app purchased for use on an iPhone. When a customer purchases a third-party iPhone app, the payment is submitted to the App Store. Of that payment, 30% goes to Apple and 70% goes to the developer.

Apple prohibits app developers from selling iPhone apps through channels other than the App Store, threatening to cut off sales by any developer who violates this prohibition. Apple discourages iPhone owners from downloading unapproved apps, threatening to void iPhone warranties if they do so.

II. Procedural History

The procedural history of this case is complex. We describe as much of the history as is necessary to resolve the procedural question before us. Four named plaintiffs filed a putative antitrust class action complaint (“Complaint 1”) against Apple on December 29, 2011. Counts I and II of Complaint 1 alleged monopolization and attempted monopolization of the iPhone app market by Apple. Count III alleged a conspiracy between Apple and AT&T Mobility, LLC (“ATTM”) to monopolize the voice and data services market for iPhones. Plaintiffs alleged that they had purchased iPhones, but did not allege that they had ever purchased, or attempted to purchase, iPhone apps. On March 2, 2012, Apple moved to dismiss the entire complaint under Rule 12(b)(7) for failure to join ATTM as a defendant. This motion to dismiss was mooted when the district court consolidated the action with another action.

Seven named plaintiffs, including the original four plaintiffs, then filed a consolidated putative class action complaint (“Complaint 2”) against Apple on March 21, 2012. The allegations in Complaint 2 were essentially the same as those in Complaint 1, and the same three Counts were alleged. None of the named plaintiffs alleged that they had bought, or attempted to buy, an iPhone app. ATTM was not added as a defendant. On April 16, 2012, Apple moved again to dismiss the entire complaint under Rule 12(b)(7) for failure to join ATTM as a defendant. In the alternative, it moved to dismiss Count III under Rule 12(b)(6) for failure to state a claim for conspiracy between Apple and ATTM. The district court granted without prejudice the motion to dismiss the entire complaint, even though Counts I and II alleged no wrongdoing by ATTM. The court specifically ordered Plaintiffs either to add ATTM as a defendant or to forgo Count III. It denied without prejudice Apple’s motion to dismiss Count III under Rule 12(b)(6) on the ground that, in the absence of ATTM, the motion was premature.

Plaintiffs filed an amended consolidated complaint (“Complaint 3”) on September 28, 2012. Complaint 3 was essentially the same as Complaint 2, except that Count III was now labeled as “Preserved for Appeal.” None of the named plaintiffs alleged that they had ever purchased, or sought to purchase, iPhone apps, and ATTM was not named as a defendant. On November 2, 2012, Apple moved under Rule 12(f) to strike Claim III on the ground that ATTM had still not been named as a defendant. As part of the same motion, Apple moved to dismiss Counts I and II under Rule 12(b)(1) for lack of Article III standing, and under Rule 12(b)(6) for lack of statutory standing under Illinois Brick. This was the first time Apple had moved to dismiss Counts I and II. Relying on Rule 12(g)(2), Plaintiffs opposed Apple’s motion to dismiss under Rule 12(b)(6) on the ground that Apple had not moved to dismiss these claims under Rule 12(b)(6) in its two previous motions under Rule 12.

The district court granted the Rule 12(f) motion to strike Count III. The district court also granted the Rule 12(b)(1) motion to dismiss Counts I and II for lack of subject matter jurisdiction, holding that Plaintiffs lacked Article III standing to bring those counts because Plaintiff failed to allege that they, had purchased or attempted to purchase an iPhone app. The court declined to rule on the Rule 12(b)(6) motion to dismiss under Illinois Brick, concluding that, in the absence of an alleged Article III injury, any ruling would be advisory. The district court dismissed with leave to amend.

Plaintiffs filed a second amended consolidated complaint (“Complaint 4”) on September 5, 2013. Complaint 4 alleged only the iPhone app monopolization claims, which had been Counts I and II of all of the earlier complaints. For the first time, Plaintiffs alleged that they had purchased iPhone apps, thereby alleging sufficient injury under Article III to support Counts I and II. Complaint 4 added the following allegation specifically addressed to statutory standing under Illinois Brick

When an iPhone customer buys an app from Apple, it pays the full purchase price, including Apple’s 30% commission, directly to Apple.... Apple sells the apps (or, more recently, licenses for the apps) directly to the customer, collects the entire purchase price, and pays the developers after the sale. The developers at no time directly sell the apps or licenses to iPhone customers or collect payments from the customers.

On September 30, 2013, Apple filed a motion to dismiss under Rule 12(b)(6), contending that Plaintiffs lacked statutory standing under Illinois Brick. The district court agreed and dismissed Complaint 4 with prejudice. Plaintiffs timely appealed.

III. Standard of Review

We review de novo alleged errors of law in interpreting Rule 12. See Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010). We review de novo dismissals for failure to state a claim under Rule 12(b)(6). Carlin v. DairyAmerica, Inc., 705 F.3d 856, 866 (9th Cir. 2013).

IV. Discussion

Plaintiffs make three arguments on appeal, of which we need to reach only two. First, Plaintiffs argue that Rule 12(g)(2) barred Apple from raising its Illinois Brick statutory standing defense in its fourth Rule 12 motion to dismiss, and that the district court erred in deciding the motion on the merits. Second, Plaintiffs argue that the district court erred in characterizing them as indirect purchasers from Apple, and therefore without statutory standing under Illinois Brick. We address these two arguments in turn.

A Late-filed Motions to Dismiss under Rule 12(b)(6)

Rule 12(g)(2) provides, “Except as provided in Rule 12(h)(2) or (3), a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion.” The consequence of omitting a defense from an earlier motion under Rule 12 depends on type of defense omitted. A defendant who omits a defense under Rules 12(b)(2)—(5)—lack of personal jurisdiction, improper venue, insufficient process, and insufficient service of process—entirely waives that defense. Fed. R. Civ. P. 12(h)(1)(A). A defendant who omits a defense under Rule 12(b)(6)—failure to state a claim upon which relief can be granted—does not waive that defense. Rule 12(g)(2) provides that a defendant who fails to assert a failure-to-state-a-elaim defense in a pre-answer Rule 12 motion cannot assert that defense in a later pre-answer motion under Rule 12(b)(6), but the defense may be asserted in other ways. Fed. R. Civ. P. 12(h)(2).

Our sister circuits disagree about the proper interpretation and application of Rule 12(g)(2). The Seventh Circuit has held that Rule 12(g)(2) does not foreclose a motion to dismiss under Rule 12(b)(6) when there has been a previous motion to dismiss under Rule 12. See Ennenga v. Starns, 677 F.3d 766, 773 (7th Cir. 2012) (“Rule 12(g)(2) does not prohibit a new Rule 12(b)(6) argument from being raised in a successive motion.”). The Seventh Circuit misunderstands Rule 12, reading Rule 12(h)(1) to provide the only sanction for failure to raise a Rule 12 defense in a prior motion under the Rule. It is true that Rule 12(h)(1) singles out several Rule 12 defenses for an especially severe sanction. If a defense under Rule 12(b)(2)-(5) is not asserted in the first Rule 12 motion to dismiss, Rule 12(h)(1) tells us that the defense is entirely waived. But Rule 12(h)(2) provides a less severe sanction for failure to assert a defense under Rule 12(b)(6). If a failure-to-state-a-claim defense under Rule 12(b)(6) was not asserted in the first motion to dismiss under Rule 12, Rule 12(h)(2) tells us that it can be raised, but only in a pleading under Rule 7, in a post-answer motion under Rule 12(c), or at trial. See, e.g., English v. Dyke, 23 F.3d 1086, 1091 (6th Cir. 1994) (correctly describing the operation of the rule).

The Third and Tenth Circuits have read Rule 12 correctly, but have been very forgiving of a district court’s failure to follow Rule 12(g)(2). See Leyse v. Bank of Am. Nat. Ass’n, 804 F.3d 316, 321-22 (3d Cir. 2015) (“So long as the district court accepts all of the allegations in the complaint as true, the result is the same as if the defendant had filed an answer admitting these allegations and then filed a Rule 12(c) motion for judgment on the pleadings, which Rule 12(h)(2)(B) expressly permits.”); Albers v. Bd. of Cty. Comm’rs of Jefferson Cty., Colo., 771 F.3d 697, 704 (10th Cir. 2014) (“[Wjhether the district court dismissed the complaint based on a motion under Rule 12(b)(6) or rule 12(c) makes no difference for purposes of our review. Therefore, any procedural error that may have been been committed would be harmless and does not prevent us from reaching the merits of the district court’s decision.”).

We agree with the approach of the Third and Tenth Circuits. We read Rule 12(g)(2) in light of the general policy of the Federal Rules of Civil Procedure, expressed in Rule 1. That rule directs that the Federal Rules “be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.” Fed. R. Civ. P. 1. Denying late-filed Rule 12(b)(6) motions and relegating defendants to the three procedural avenues specified in Rule 12(h)(2) can produce unnecessary and costly delays, contrary to the direction of Rule 1.

District courts in this circuit and others are well aware of this. For example, as the late Judge Pfaelzer recently wrote:

Rule 12(g) is designed to avoid repetitive motion practice, delay, and ambush tactics. If the Court were' to evade the merits of Defendants’ ... defenses here, Defendants would be required to file answers within 14 days of this Order. They would presumably assert [the same defenses] in those answers. Defendants would then file Rule 12(c) motions, the parties would repeat the briefing they have already undertaken, and the Court would have to address the same questions in several months. That is not the intended effect of Rule 12(g), and the result would be in contradiction of Rule l’s mandated]

Allstate Ins. Co. v. Countrywide Fin. Corp., 824 F.Supp.2d 1164, 1175 (C.D. Cal. 2011) (citations omitted); see also Banko v. Apple, Inc., No. 13-02977 RS, 2013 WL 6623913, at *2 (N.D. Cal. Dec. 16, 2013) (internal quotations omitted) (“Although Rule 12(g) technically prohibits successive motions to dismiss that raise arguments that could have been made in a prior motion ... courts faced with a successive motion often exercise their discretion to consider the new arguments in the interests of judicial economy.”); Davidson v. Countrywide Home Loans, Inc., No. 09-CV-2694-IEG JMA, 2011 WL 1157569, at *4 (S.D. Cal. Mar. 29, 2011) (internal quotations omitted) (“Rule 12(g) applies to situations in which a party files successive motions under Rule 12 for the sole purpose of detest.]"); Doe v. White, No. 08-1287, 2010 WL 323510, at *2 (C.D. Ill. Jan. 20, 2010) (citing the “substantial amount of case law which provides that successive Rule 12(b)(6) motions may be considered where they have not been filed for the purpose of delay, where entertaining the motion would expedite the case, and where the motion would narrow the issues involved”). Moore’s Federal Practice endorses this approach. See 2-12 Moore’s Federal Practice—Civil § 12.23 (“[B]ecause [a 12(b)(6) defense] is so basic and' was not waived, [a district] court might properly entertain a second motion if it were convinced it was not interposed for delay and that addressing it would expedite disposition of the case on the merits.”).

Recognizing the practical wisdom of these district courts, and of the Third and Tenth Circuits, we conclude that, as a reviewing court, we should generally be forgiving of a district court’s ruling on the merits of a late-filed Rule 12(b)(6) motion. With that in mind, we turn to the case now before us.

Apple’s first two motions to dismiss under Rule 12(b)(7), directed to Complaints 1 and 2, were designed to force Plaintiffs to add ATTM as a necessary and indispensable party under Rule 19. These were appropriate motions, given that Count III alleged a conspiracy between Apple and ATTM to monopolize voice and data services, and given that Plaintiffs had sufficiently alleged Article III injury to make that claim. After Plaintiffs filed Complaint 3, which had been amended to recognize the success of Apple’s motions under Rule 12(b)(7), Apple moved again to dismiss. It now moved for the first time to dismiss Counts I and II, relying on Rules 12(b)(1) and 12(b)(6). A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, including for failure to allege injury sufficient for Article III standing, may be made at any time. See F. R. Civ. P. 12(b)(1) and 12(h)(3). Apple’s earlier Rule 12 motions to dismiss thus in no way foreclosed its late-filed motion to dismiss Counts I and II for lack of Article III standing. The district court granted Apple’s Rule 12(b)(1) motion to dismiss. It refused to decide Apple’s Rule 12(b)(6) motion to dismiss for lack of statutory standing on the ground that, in the absence of an Article III case or controversy, a ruling on the motion would be an advisory opinion.

. Complaint 4 realleged Counts I and II, and finally alleged, for the first time, that Plaintiffs had purchased iPhone apps. That is, Complaint 4 finally alleged sufficient injury to confer Article III standing to support Counts I and II. Apple moved to dismiss for the fourth time, this time only under Rule 12(b)(6) for lack of statutory-standing under Illinois Brick.

Apple’s motions to dismiss for lack of standing under Rule 12(b)(6), made in its third and fourth motions to dismiss under Rule 12, may not have been late-filed within the meaning of Rule 12(g)(2). Indeed, there is an argument that Apple’s motion to dismiss Complaint 3 under Rule 12(b)(6), made as part of its third Rule 12 motion to dismiss, was not late but premature. At that point, Plaintiffs had not alleged injury sufficient to confer subject matter jurisdiction over Counts I and II. For that reason, the district court properly refused to rule on Apple’s Rule 12(b)(6) motion, holding that, in the absence of an allegation of Article III standing, any ruling would be advisory. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). The district court was willing to decide Apple’s Rule 12(b)(6) motion to dismiss for lack of statutory standing only when Plaintiffs finally alleged, in Complaint 4, sufficient injury to confer Article III standing to bring the challenged counts.

Even if we assume arguendo that Apple’s motion to dismiss under Rule 12(b)(6), made in its fourth Rule 12 motion, was late, any error by the district court in considering the motion on the merits was harmless. First, the four motions to dismiss, culminating in the motion to dismiss Complaint 4 under Rule 12(b)(6), do not appear to have been filed for any strategically abusive purpose. Apple promptly moved to dismiss each of Plaintiffs’ four complaints. Apple’s first two motions to dismiss were made on March 2 and April 16, 2012, immediately after the filing of Plaintiffs’ first two complaints. Plaintiffs filed Complaint 3 on September 28, 2012. Apple moved to dismiss under Rules 12(b)(1) and 12(b)(6) on November 2, 2012. Plaintiffs filed Complaint 4 on September 5, 2013. Apple moved to dismiss under Rule 12(b)(6) on September 30, 2013. We recognize that Apple could have moved, along with its motion to dismiss for failure to join ATTM under Rule 12(b)(7), to dismiss Counts I and II for lack of subject matter jurisdiction under Rule 12(b)(1). If that motion had been made and granted, Plaintiffs would likely have amended their complaint earlier to allege purchases of iPhone apps. But we see no harm to Plaintiffs caused by Apple’s delay in making its Rule 12(b)(1) motion. Second, resort to any of the three default alternatives specified in Rule 12(h)(2)—a pleading under Rule 7(a), a post-answer motion to dismiss on the pleadings under Rule 12(c), or a defense asserted at trial—would have substantially delayed resolution of the Illinois Brick statutory standing question, and would have done so for no apparent purpose. The district court’s decision on the merits of Apple’s Rule 12(b)(6) motion materially expedited the district court’s disposition of the case, which was a benefit to both parties.

We therefore conclude that any error committed by the district court in ruling on Apple’s motion to dismiss under Rule 12(b)(6) for lack of statutory standing under Illinois Brick, if indeed there was error, was harmless. We now turn to the merits of the district court’s decision.

B. Standing Under Illinois Brick

1. The Direct-Purchaser Rule

Under § 4 of the Clayton Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue .,. and shall recover threefold the damages by him sustained[.]” 15 U.S.C. § 15(a). Notwithstanding the statutory term “any person,” the Supreme Court has limited those who may sue for antitrust damages. The general rule is that only “the overcharged direct purchaser, and not others in the chain of manufacture or distribution,” has standing to sue. Illinois Brick Co. v. Illinois, 431 U.S. 720, 729, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).

Thé rule originated in Hanover Shoe v. United Shoe Machinery Co., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). Hanover, a shoe manufacturer, alleged that the United Shoe Machinery Corporation had used its monopoly over shoe-manufacturing machinery to lease machines to Hanover at supracompetitive rates. Id. at 483-84, 88 S.Ct. 2224. United argued that Hanover had no legally cognizable injury under the antitrust laws because it had passed any illegal overcharge on to its customers. Id. at 491, 88 S.Ct. 2224. The Court rejected United’s “defensive” use of the pass-on theory. For purposes of antitrust damages, the Court held, the direct purchaser is injured by the full amount of the overcharge irrespective of who ultimately bears the cost of that injury. Id. at 494, 88 S.Ct. 2224.

The Court gave two reasons for its holding. First, the dollar figures necessary to demonstrate that an intermediary has avoided economic injury by passing an overcharge onto his customers were, the Court found, “virtually unascertainable.” Id. at 493, 88 S.Ct. 2224. A litigant would need to show, among other things, that the intermediary raised the price of his product as a result of the illegal overcharge; that the higher price charged by the intermediary did not affect the intermediary’s profits by reducing the volume of sales; and that the intermediary could not or would not have raised its price absent the overcharge. The challenges to making such a showing, the Court observed, would “normally prove insurmountable.” Id. Second, if an antitrust violator were permitted to defend against suit by showing that the intermediary passed the alleged overcharge onto its customers, those customers would logically be entitled to damages for any portion of the overcharge they paid. In many cases, however, there would be a large number of customers, each of whom would have “only a tiny stake in a lawsuit,” and who, in the view of the Court, would thus have “little interest in attempting a class action.” Id. at 494, 88 S.Ct. 2224. As a result, according to the Court, antitrust violators would “retain the fruits of their illegality because no one ... would bring suit against them.” Id.

Nine years after Hanover Shoe, the Supreme Court rejected an attempt to use the pass-on theory “offensively.” In Illinois Brick, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), the State of Illinois sued a concrete block manufacturer for allegedly fixing the price of concrete blocks. The manufacturer had sold the blocks to masonry contractors who had used the blocks to build masonry structures. The masonry contractors sold the structures to general contractors who put the structures in buildings they sold to the State. The State alleged that the contractors had passed on the manufacturer’s illegal overcharge at both stages of the distribution chain, driving up the State’s costs by $3 million.

The Supreme Court refused to recognize the passed-on overcharges as a basis for antitrust standing. As in Hanover Shoe, the challenges of tracing the effects of an overcharge at each stage of a distribution chain were, in the Court’s view, insurmountable. Even if indirect purchasers could meet these challenges, sorting out the complicated variables would clog the courts with protracted and expensive litigation. Id. at 732, 97 S.Ct. 2061. And even then problems of administrability and enforcement would remain. Allowing an indirect purchaser to sue for whatever portion of an overcharge it was assessed would either “create a serious risk of multiple liability for defendants,” id. at 730, 97 S.Ct. 2061, or reduce the effectiveness of antitrust laws by diluting the share of damages better-situated direct purchasers might secure by bringing suit. Id. at 731-35, 97 S.Ct. 2061.

The Supreme Court has reaffirmed the Hanover Shoe/Illinois Brick rule in a case where the practical considerations that gave rise to the rule were not nearly as compelling as in the two foundation cases. In Kansas v. UtiliCorp United, Inc., 497 U.S. 199, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990), customers of public utilities sued natural gas producers for alleged violations of Section 4 of the Clayton Act. Plaintiffs conceded that they were direct purchasers from the public utilities and indirect purchasers from the producers. But they argued that the direct purchasers, because they were regulated public utilities, had the incentive and ability to build into their pricing structure their entire cost of purchasing natural gas. Id. at 205, 110 S.Ct. 2807. On the other side of the coin, because they were public utilities, they had the obligation to pass on the entirety of any cost savings resulting from a reduced purchasing cost. Id. at 212, 110 S.Ct. 2807. Therefore, the complications in determining the amount of illegal overcharge that had been, or could be, passed on that had so concerned the Court in Hanover Shoe and Illinois Brick were largely absent. The Court nonetheless applied the direct/indirect purchaser rule, holding that “[i]n the distribution chain,” the customers were “not the immediate buyers from the alleged antitrust violators.” UtiliCorp, 497 U.S. at 207, 110 S.Ct. 2807.

The transactions in Hanover Shoe and Illinois Brick have the same structure. In both cases, a monopolizing or price-fixing manufacturer sold or leased a product to an intermediate manufacturer at a supra-competitive price. The intermediate manufacturer (in Illinois Brick, two intermediate manufacturers) then used that product to create another product, which was ultimately sold to the consumer. The details in UtiliCorp are different, but the basic structure is the same. In UtiliCorp, a monopolizing producer sold a product to a distributor at an allegedly supracompetitive price. The distributor then sold the product to the consumer. In all three cases, the consumer was an indirect purchaser from the manufacturer or producer who sold or leased the product to the intermediary. The consumer was a direct purchaser from the intermediate manufacturer (Hanover Shoe and Illinois Brick) or from the distributor (UtiliCorp). The consumer did not have standing to sue the manufacturer or producer, but did have standing to sue the intermediary, whether the intermediate manufacturer or the distributor.

2. Plaintiffs Are Direct Purchasers

The question before us is whether Plaintiffs purchased their iPhone apps directly from the app developers, or directly from Apple. Stated otherwise, the question is whether Apple is a manufacturer or producer, or whether it is a distributor. Under Hanover Shoe, Illinois Brick, and UtiliCorp, if Apple is a manufacturer or producer from whom Plaintiffs purchased indirectly, Plaintiffs do not have standing. But if Apple is a distributor from whom Plaintiffs purchased directly, Plaintiffs do have standing.

We do not write on a clean slate in this circuit. In Delaware Valley Surgical Supply, Inc. v. Johnson & Johnson, 523 F.3d 1116 (9th Cir. 2008), plaintiff Bamberg County Memorial Hospital & Nursing Center (“Bamberg”) brought suit against Johnson & Johnson (“J & J”) alleging that J & J “impermissibly leveraged its monopoly power in sutures to create a monopoly” in the market for endomechanieal products. Id. at 1118. Bamberg did not purchase medical supplies directly from J & J. Instead,.a group purchasing organization (“GPO”), of which Bamberg was a member, negotiated purchasing contracts with J & J and a distributor, Owens & Minor (“0 & M”). J & J and 0 & M, in turn, had a distributorship agreement specifying that 0 & M would pay J & J the price negotiated by the GPO. Bamberg would purchase from 0 & M, paying 0 & M this price plus a set percentage markup. Pursuant to this agreement, J & J supplied products to the distributor, 0 & M, which in turn sold and delivered the products to Bamberg, at a price equal to the cost 0 & M paid for the products plus the set markup determined by a contract between 0 & M and Bamberg. Id. at 1119.

Applying the “straightforward,” “bright line” rule of Illinois Brick, we held in Delaware Valley that Bamberg was an indirect purchaser from J & J, the manufacturer, and a direct purchaser from 0 & M, the distributor. Id. at 1122, 1120. That Bamberg and J & J had a contract setting the wholesale price of the products, and that the price Bamberg paid 0 & M was “set, in part, by an agreement negotiated ... on behalf of Bamberg” with J & J were not determinative. Id. at 1122. The determinative fact was that 0 & M was a distributor who sold the products directly to Bamberg. Because Bamberg bought directly from 0 & M, the distributor, it lacked standing to sue J & J, the manufacturer. The necessary corollary of Delaware Valley is that Bamberg would have had standing to sue 0 & M, the distributor.

The Eighth Circuit has considered a transaction closely resembling the transaction in the ease before us. In Campos v. Ticketmaster Corp., 140 F.3d 1166 (8th Cir. 1998), plaintiffs alleged that Ticketmaster used its monopolistic control over concert ticket distribution services to charge supracompetitive fees for those services. The majority in Ticketmaster held that a party’s status as a “direct” or “indirect” purchaser turned on whether “an antecedent transaction between the monopolist and another, independent purchaser” absorbed or passed on all or part of the monopoly overcharge. Id. at 1169. Plaintiffs bought concert tickets directly from Ticketmaster, but the majority nevertheless concluded that plaintiffs were indirect purchasers who lacked standing under Illinois Brick. Id. at 1171. Using an analysis keyed to the “antecedent transaction,” the majority concluded that the ticket buyers were indirect purchasers.

We disagree with the majority’s analysis in Ticketmaster. As Judge Morris Arnold pointed out in dissent, the majority’s “antecedent transaction” analysis has no basis in Supreme Court precedent. Id. at 1174 (M. Arnold, J., dissenting). Illinois Brick held that where plaintiffs are in a “direct vertical chain of transactions” and an intermediary “pass[es] on” monopolistic overcharges originating further up the chain, subsequent buyers lack standing. Id. (internal quotation marks omitted). In Ticketmaster, “[t]he monopoly product at issue ... is ticket distribution services, not tickets.” Id. The distributor who “supplies the product directly to” plaintiffs, rather than the producer of the product, is the appropriate defendant in an antitrust suit; Id.

Apple argues that it does not sell apps but rather sells “software distribution services to developers.” In Apple’s view, because it sells distribution services to app developers, it cannot simultaneously be a distributor of apps to app purchasers. Apple analogizes its role to the role of -an owner of a shopping mall that “leases physical space to various stores.”-Apple’s analogy is unconvincing. In the case before us, third-party developers of iPhone apps do not have their own “stores.” Indeed, part of the anti-competitive behavior alleged by Plaintiffs is that, far from allowing iPhone app developers to sell through their own “stores,” Apple specifically forbids them to do so, instead requiring them to sell iPhone apps only through Apple’s App Store.

We do not address the question whether Apple sells distribution services to app developers within the meaning of Illinois Brick. If it did, this would necessarily imply that the developers, as direct purchasers of those services, could bring an antitrust suit against Apple. But whether app developers are direct purchasers of distribution services from Apple in the sense of Illinois Brick makes no difference to our analysis in the case now before us.

We do not rest our analysis on the fact that Plaintiffs pay the App Store, which then forwards the payment to the app developers, less Apple’s thirty percent commission. Whether a purchase is direct or indirect does not turn on the formalities of payment or bookkeeping arrangements. See Freeman v. San Diego Ass’n of Realtors, 322 F.3d 1133, 1146 (9th Cir. 2003). If Plaintiffs were direct purchasers from Apple solely because Apple collected their payments, Apple could escape antitrust liability simply by tinkering with the order in which digital banking data zips through cyberspace during a sales transaction.

Nor do we rest our analysis on the form of the payment Apple receives in return for distributing iPhone apps. Apple does not take ownership of the apps and then sell them to buyers after adding a markup of thirty percent. Rather, it sells the apps and adds a thirty percent commission. But the distinction between a markup and a commission is immaterial. The key to the analysis is the function Apple serves rather than the manner in which it receives compensation for performing that function.

Nor, finally, do we rest our analysis on who determines the ultimate price paid by the buyer of an iPhone app. In the case before us, the price is determined as a practical matter by the app developer who sets a price, to which Apple’s thirty percent commission is added automatically. Our opinion in Delaware Valley makes clear that this does not make app purchasers direct buyers from the app developers. In Delaware Valley, the price paid by the distributor, 0 & M, to the manufacturer, J & J, was determined through a negotiation between J & J and a GPO of which Bam-berg was a member. Despite the fact that Bamberg, through its GPO, had a say in the wholesale price charged by J & J to 0 & M, to which the distributor added its predetermined markup, we held that Bam-berg was a direct purchaser from 0 & M. Here, the case is even stronger in favor of Plaintiffs. Unlike Bamberg, Plaintiffs have no say whatsoever in determining the price set by the app developer to which the distributor adds its predetermined commission.

Instead, we rest our analysis, as compelled by Hanover Shoe, Illinois Brick, UtiliCorp, and Delaware Valley, on the fundamental distinction between a manufacturer or producer, on the one hand, and a distributor, on the other. Apple is a distributor of the iPhone apps, selling them directly to purchasers through its App Store. Because Apple is a distributor, Plaintiffs have standing under Illinois Brick to sue Apple for allegedly monopolizing and attempting to monopolize the sale of iPhone apps.

Conclusion

We conclude that any error, if indeed there was error, in the district court’s consideration of the merits of Apple s Rule 12(b)(6) motion to dismiss for lack of statutory standing was harmless. We conclude further that Plaintiffs are direct purchasers of iPhone apps from Apple under Illinois Brick and that they therefore have standing to sue. The district court dismissed Plaintiffs’ complaint on the ground that they lacked statutory standing under Illinois Brick. We therefore reverse and remand for further proceedings.

REVERSED and REMANDED.


source: Caselaw Access Project

author: TALLMAN, Circuit Judge:

license: Public Domain

text:
    UNITED STATES EX REL. Darryn KELLY, Plaintiff-Appellant, v. SERCO, INC., a New Jersey Corporation, Defendant-Appellee.
    No. 14-56769
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted October 19, 2016 Pasadena, California
    Filed January 12, 2017

      Derek J. Emge (argued), Emge & Associates, San Diego, California, for Plaintiff-Appellant.
    Francis J. Burke, Jr. (argued), Foley & Lardner LLP, San Francisco, California; James M. Harris and Daniel P. Wierzba, Seyfarth Shaw LLP, Los Angeles, California; for Defendant-Appellee.
    Before: RICHARD C. TALLMAN, BARRINGTON D. PARKER, JR., and MORGAN B. CHRISTEN, Circuit Judges.

       Senior United States Circuit Judge for the U.S. Court of Appeals for the Second Circuit, sitting by designation.

   OPINION

TALLMAN, Circuit Judge:

Relator Darryn Kelly brought this qui tom action under the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733, against his former employer, Serco, Inc., a technology and project management services provider, alleging that Serco submitted fraudulent claims for payment to the United States for work done under a government contract. Kelly also asserted claims for wrongful termination under California law. The district court granted Serco’s motion for summary judgment on all of Kelly’s claims. We affirm.

I

In 2007, Serco was awarded a $62 million, three-year contract by the Department of Defense, Navy Space and Naval Warfare Systems Command (SPAWAR) to provide project management, engineering design, and installation support services for a range of government projects. The Naval Electronic Surveillance Systems (NESS) Contract was a type of contract that “provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period.” 48 C.F.R. § 16.504(a). Pursuant to the NESS Contract, SPAWAR submitted individual Delivery Orders to Serco that detailed the specific work Serco was to perform.

In 2008, the Department of Homeland Security, Customs and Border Protection (DHS) entered into an interagency contract with SPAWAR to upgrade the wireless communications systems situated along the United States-Mexico border. This project became known as the Advanced Wireless Systems Spectrum Relocation Project (AWS Project). The contract required SPAWAR to implement a cost and progress tracking system known as an earned value management system (EVMS), “a project management tool that effectively integrates the project scope of work with cost, schedule and performance elements for optimum project planning and control.” 48 C.F.R. § 2.101.

SPAWAR, in turn, subcontracted with Serco to purchase the necessary equipment, perform non-construction upgrades, and provide project management services for the AWS Project. Because these services were covered under the NESS Contract, SPAWAR issued Delivery Orders #0049 and #0054 to Serco under the NESS Contract detailing the work that Serco was to perform on the AWS Project. Delivery Orders 49 and 54 provided for different periods of performance from September 2009 to January 2012, but were nearly identical in all other respects. Each Delivery Order contained a Statement of Work (SOW) that required Serco to provide project management and cost reports to SPAWAR, including EVM reports, “in accordance with the attached CDRLs [Contract Data Requirements Lists].” The attached CDRLs specified: “Contractor [Serco’s] format acceptable. Create reports using MS Office Applications.”

Serco’s employees manually recorded their hours on Serco’s internal accounting system using a single charge code for all tasks they performed on the AWS Project. Serco then compiled the time entries into Microsoft (MS) Excel spreadsheets to create monthly cost reports that it sent to SPAWAR. In January 2010, Serco informed SPAWAR that it could not automate its accounting system or accommodate the thousands of AWS Project task line-items that SPAWAR used in the reports it sent to DHS under its interagency contract. SPAWAR advised Serco that it would accept Serco’s monthly cost reports on MS Excel spreadsheets using information that Serco employees tracked and compiled manually. SPAWAR also advised that DHS was aware of Serco’s cost tracking format and had approved it.

Serco hired Kelly as an EVM analyst in October 2009 to monitor Serco’s performance on the AWS Project and identify any cost or schedule overruns. In April 2011, Kelly informed DHS that Serco’s monthly cost reports were unreliable because they tracked costs manually and with a single charge code in violation of the guidelines in the American National Standards Institute/Electronic Industries Alliance Standard 748 (ANSI-748). Kelly also informed DHS that Serco was falsifying its monthly reports to make its actual costs match the expected budget for the AWS Project. That same month, DHS and SPAWAR determined that EVM reports were no longer necessary or cost-justified for the AWS Project. SPAWAR directed Serco to reduce the number of EVM analysts working on the AWS Project. Kelly’s supervisors at Serco, unaware of his recent report to DHS, terminated Kelly in May 2011. Following his termination, Kelly’s position no longer existed at Serco.

Kelly filed suit against Serco as a qui tarn relator under the FCA, asserting the following claims for relief: (1) submitting false claims for payment in violation of the FCA under a theory of implied false certification, (2) making false records material to a false or fraudulent claim in violation of the FCA, (3) conspiring to violate the FCA, (4) retention of overpayments in violation of the FCA, and (5) unlawful termination in violation of public policy under California common law.

The district court granted summary judgment in favor of Serco on all of Kelly’s claims. The district court also denied as moot Serco’s motion to strike the opinion and deposition testimony of Kelly’s expert, Kevin Martin, on whether Serco’s compliance with ANSI-748 was incorporated by reference into the Delivery Orders and whether Serco’s internal system was capable of complying with ANSI-748. This timely appeal followed.

II

We have jurisdiction to review the district court’s grant of summary judgment under 28 U.S.C. § 1291. Strategic Diversity, Inc. v. Alchemix Corp., 666 F.3d 1197, 1205 (9th Cir. 2012). “We review de novo the district court’s grant of summary judgment.” Id. “Viewing the evidence in the light most favorable to the nonmoving party, we must determine whether there are genuine issues of material fact and whether the district court correctly applied the relevant substantive law.” Id. (quotation marks omitted). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Id. at 249-50, 106 S.Ct. 2505 (citations omitted).

“To survive summary judgment,' the relator must establish evidence on which a reasonable jury could find for the plaintiff.” United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995, 1001 (9th Cir. 2002) (citation and alterar tions omitted). “If the facts make a claim ‘implausible,’ the non-movant must present ‘more persuasive evidence than would otherwise be necessary’ in order to defeat a summary judgment motion.” United States ex rel. Anderson v. N. Telecom, Inc., 52 F.3d 810, 815 (9th Cir. 1995). “The district court’s grant of summary judgment may be affirmed if it is supported by any ground in the record, whether or not the district court relied upon that ground.” Summers v. Teichert & Son, Inc., 127 F.3d 1150, 1152 (9th Cir. 1997).

“The district court’s exclusion of evidence in a summary judgment motion is reviewed for an abuse of discretion.” Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002) (citing Gen. Elec. Co. v. Joiner, 522 U.S. 136, 141, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997)). Thus, “we must affirm the district court unless its eviden-tiary ruling was manifestly erroneous and prejudicial.” Id. (citing Joiner, 522 U.S. at 142, 118 S.Ct. 512).

Ill

Kelly’s principal contention on appeal is that the district court erroneously granted summary judgment on his FCA claim alleging that Serco submitted false or fraudulent claims for payment under an implied false certification theory of liability. See 31 U.S.C. § 3729(a)(1)(A). The FCA’s qui tarn provision permits a private person (known as a “relator”) to bring a civil action on behalf of the United States against any individual or company who has knowingly presented a false or fraudulent claim for payment to the United States. Id. § 3730(b); see id. § 3729(a)(1)(A) (imposing civil liability on “any person who ... knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval”). The FCA encourages insiders to disclose fraud by awarding successful qui tarn plaintiffs a portion of any judgment, plus reasonable attorneys’ fees and costs. Id. § 3730(d).

Under the implied false certification theory advanced by Kelly, a defendant’s act of submitting a claim for payment “impliedly certifies compliance with all conditions of payment.” Universal Health Servs., Inc. v. United States ex rel. Escobar, — U.S. -, 136 S.Ct. 1989, 1995, 195 L.Ed.2d 348 (2016). The district court determined that “it is only possible for a claimant to implicitly certify compliance with a law, rule, or regulation if there is a relevant ‘statute, rule, regulation, or contract’ in place that conditions payment of the claim on compliance with that underlying law, rule or regulation.” It therefore analyzed whether any statute, regulation, or contractual provision conditioned Serco’s right to payment on its compliance with ANSI-748.

The Federal Acquisition Regulation (FAR) provides that government contracts that require a contractor to use an EVMS must include a form clause stating that the EVMS shall comply with ANSI-748. 48 C.F.R. §§ 34.203(c), 52.234-4(a). Similarly, the Defense Federal Acquisition Regulation Supplement (DFARS) provides that government contracts valued at $20 million or more must include a form clause stating that the contractor shall use an EVMS that complies with ANSI-748. Id. §§ 234.203(2), 252.234-7002(b)(l). It is undisputed here that the NESS Contract and Delivery Orders 49 and 54 do not contain or incorporate by reference the FAR or DFARS form clauses requiring compliance with ANSI-748.

Instead, the NESS Contract incorporated the form clause in 48 C.F.R. § 52.232-1, which provides that “[t]he Government shall pay the Contractor [Serco], upon the submission of proper invoices or vouchers, the prices stipulated in this contract for supplies delivered and accepted or services rendered and accepted.” Although the Delivery Orders referenced ANSI-748 under a list of “Applicable Documents,” significantly both orders provided that, “[i]n the event of a conflict between the text of [the Delivery Order] and the applicable document cited herein, the text of [the Delivery Order] should take precedence.” The Orders’ terms required Serco to deliver its project management reports in accordance with the attached CDRLs, which provided that Serco’s own format and its use of Microsoft Office applications—including Excel spreadsheets—to create the reports were acceptable.

In granting summary judgment for Ser-co, the district court concluded that Kelly’s implied false certification claim failed as a matter of law because “there is no regulation that expressly conditions payment for the vouchers ... on [Serco’s] compliance with ANSI 748,” and “neither the NESS Contract nor the Delivery Orders require[d] compliance with ANSI 748 as a condition of payment by the government.” It further held that, at best, any implied contractual requirement in the Delivery Orders that conditions Serco’s payment on compliance with ANSI-748 “is not a false claim, but a breach of contract.”

Kelly- argues on appeal that the district court applied the wrong legal standard by analyzing whether the underlying regulations or Delivery Orders expressly conditioned Serco’s payment on its compliance with ANSI-748. The proper analysis, Kelly argues, is whether Serco’s failure to disclose that its data was falsified and that its EVM reports did not comply with ANSI-748 was material to the government’s payment decision.

A

At the time of the district court’s ruling, federal circuits were split on whether an implied false certification theory under the FCA requires that payment be expressly conditioned on a defendant’s compliance with a statutory, regulatory, or contractual requirement. See United States ex rel. Kelly v. Serco, Inc., Civ. No. 11-2975 WQH RBB, 2015 WL 1191280, at *3 (S.D. Cal. Mar. 16, 2015). Recently, however, the Supreme Court clarified the circumstances supporting FCA liability under an implied false certification theory. Escobar, 136 S.Ct. at 1996.

In Escobar, the Supreme Court rejected the contention that a government contract or regulation must expressly designate a requirement as a condition of payment in order to trigger liability under the theory of implied certification. Id. The Court reasoned that “concerns about fair notice and open-ended liability ‘can be effectively addressed through strict enforcement of the Act’s materiality and scienter requirements,’ ” which “are rigorous.” Id. at 2002 (quoting United States v. Science Applications Int’l Corp., 626 F.3d 1257, 1270 (D.C. Cir. 2010) (SAZC)). Instead, the Supreme Court held:

False Claims Act liability for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment. Defendants can be liable for violating requirements even if they were not expressly designated as conditions of payment. Conversely, even when a requirement is expressly designated a condition of payment, not every violation of such a requirement gives rise to liability. What matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.

Id. at 1996.

The Court further held that “the implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths”—i.e., “representations that state the truth only so far as it goes, while omitting critical qualifying information.” Id. at 2000-01 (emphasis added).

B

Kelly argues that Serco’s compliance with ANSI-748 was an implied condition of its right to payment under Delivery Orders 49 and 54 because the Delivery Orders required Serco to deliver EVM reports, ANSI-748 is the only industry standard for EVM reporting, and the Delivery Orders referenced ANSI-748 under “Applicable Documents.” Thus, Kelly contends, Serco’s submission of its public vouchers for the Delivery Orders constituted an implied false certification that its deliverables met ANSI-748 guidelines and were not falsified.

Even assuming that Serco’s compliance with ANSI-748 was a condition of payment for its work under Delivery Orders 49 and 54, Kelly’s implied false certification claim nonetheless fails as a matter of law. First, there is no evidence that Serco’s public vouchers made any specific representations about Serco’s performance. See Escobar, 136 S.Ct. at 2001. Serco submitted forty-seven public vouchers totaling over $5.5 million to the Department of Defense for its work under Delivery Orders 49 and 54. Each voucher was submitted on U.S. Standard Form 1034 and provided the period of performance, total costs incurred during that period, and Serco’s fee applicable to that work. Each voucher also included a continuation sheet listing the dollar amounts for Serco’s costs for labor, travel, and materials. Serco additionally submitted backup documentation for each voucher, which included its internal project status reports containing even more detailed line-item descriptions of its services and total hours and costs.

Serco’s vouchers each contained a single express certification that the services listed in them were performed during the time periods stated. Contrary to Kelly’s contention that “Serco was paid predominately for its work delivering what the government thought was a valid EVM rather than for work [upgrading] the 85 border towers,” most of the costs for which Serco’s vouchers sought payment were for the software and hardware needed to upgrade the AWS, for travel to the cell towers to perform the upgrades, and for the labor costs of at least thirty employees. There is no evidence that these employees failed to do the work for which SPAWAR had contracted.

Second, there is no evidence that Serco’s public vouchers contained any false or inaccurate statements. Kelly’s dispute here is over the format that Serco used to report costs incurred. Even viewing Kelly’s evidence of Serco’s allegedly fraudulent cost reporting in the light most favorable to Kelly, his FCA claim fails because the FCA “attaches liability, not to the underlying fraudulent activity or to the government’s wrongful payment, but to the ‘claim for payment’”—here, Serco’s public vouchers. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) (citation omitted); see Aflatooni, 314 F.3d at 1002 (“The False Claims Act ... focuses on the submission of a claim, and does not concern itself with whether or to what extent there exists a menacing underlying scheme.”); United States ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166, 1173 (9th Cir. 2006) (“[F]or a false statement or course of action to be actionable ..., it is necessary that it involve an actual claim .... ”). As we have previously stated, “an actual false claim is the sine qua non of an FCA violation.” Cafasso, 637 F.3d at 1055 (citation and alterations omitted).

Finally, “[a] misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the False Claims Act.” Escobar, 136 S.Ct. at 1996. Courts can properly dismiss an FCA claim on summary judgment based on a claimant’s failure to meet the rigorous standard for materiality under the FCA. Id. at 2004 n.6. In Escobar, a unanimous Supreme Court clarified how rigorously the FCA’s materiality requirement must be enforced:

The materiality standard is demanding. The False Claims Act is not “an all-purpose antifraud statute” or a vehicle for punishing garden-variety breaches of contract or regulatory violations. A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial.

Id. at 2003 (citation omitted); see also SAIC, 626 F.3d at 1271 (“By enforcing [the materiality] requirement rigorously, courts will ensure that government contractors will not face ‘onerous and unforeseen FCA liability’ as the result of noncompliance with any of ‘potentially hundreds of legal requirements’ established by contract. Payment requests by a contractor who has violated minor contractual provisions that are merely ancillary to the parties’ bargain are neither false nor fraudulent.”). We think Kelly’s theory of liability falters on these shoals.

C

Kelly nonetheless argues that Ser-co’s omissions were material because the government relied on Serco’s reports to manage the AWS Project and its budget. Kelly states that, “[i]f Serco had disclossed [sic] that it did not have a compliant EVMS or that its EVM reports were fraudulent, it is doubtful Serco’s payment vouchers would have been paid.” In Esco-bar, the Supreme Court rejected a view that the test for materiality “is whether the person knew that the government could lawfully withhold payment.” Escobar, 136 S.Ct. at 2004 (citation omitted). The Supreme Court held that “[t]he False Claims Act does not adopt such an extraordinarily expansive view of liability,” and evidence that the government “would be entitled to refuse payment were it aware of the violation” is insufficient by itself to support a finding that the violation is material to the government’s payment decision. Id. Likewise, here, the possibility that the government would be entitled to refuse payment if it were aware of Serco’s alleged violations is insufficient by itself to support a finding of materiality.

Further, the Supreme Court held that, “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.” Id. at 2003. “Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.” Id. at 2003-04.

Here, it is undisputed that compliance with ANSI-748 was not an express term in Delivery Orders 49 and 54. It is also undisputed that the CDRLs governing Serco’s performance under those Delivery Orders provided for EVM reports in “contractor format” using Microsoft Office applications, which is what Serco delivered. It is further undisputed that SPAWAR— through its AWS Project Manager, John Mitchell, who in turn received DHS’s agreement—agreed that Serco could provide its reporting on MS Excel spreadsheets using manually tracked and compiled data rather than an EVM system. And it is undisputed that SPAWAR accepted monthly cost reports from Serco that utilized a single task charge code. In addition, it is undisputed that Serco periodically submitted public vouchers and received payment for its work on the AWS Project under both Delivery Orders.

Of particular importance here, it is undisputed that SPAWAR did not find Ser-co’s EVM reports helpful and did not use them to manage the AWS Project. SPA-WAR considered EVM “very hard to manage and hard to do,” and requiring a lot of work, time, and money. In April 2011, DHS and SPAWAR eliminated the EVM requirement because it provided minimal benefit and was not cost-justified. In addition, DHS and SPAWAR recognized that the Department of Defense’s 2005 Revision to its EVM Policy discouraged EVM for “level of effort” work, which was the type of work that Serco’s reporting team did here. On those grounds, SPAWAR directed Serco to reduce the number of EVM analysts working on the AWS Project, resulting in Kelly’s layoff.

Kelly has failed to establish a genuine issue of material fact regarding the materiality of Serco’s obligations to comply with ANSI-748 or provide valid EVM reports. Given the demanding standard required for materiality under the FCA, the government’s acceptance of Serco’s reports despite their non-compliance with ANSI-748, and the government’s payment of Serco’s public vouchers for its work under Delivery Orders 49 and 54, we conclude that no reasonable jury could return a verdict for Kelly on his implied false certification claim, See N. Telecom, Inc., 52 F.3d at 815-17 (“There is evidence that, when installed, the Letterkenny switch did not work properly. But no reasonable jury could draw an inference of presentation of a false or fraudulent claim from that [because the] Army knew the switch was un-satisfactory_”).

Accordingly, we affirm the district court’s grant of summary judgment on Kelly’s FCA claim for submitting false or fraudulent claims for payment under an implied false certification theoiy of liability.

IV

Kelly also challenges the district court’s grant of summary judgment on his FCA claim alleging that Serco made false records material to a false or fraudulent claim in violation of 31 U.S.C. § 3729(a)(1)(B). “[T]o establish a cause of action under § 3729(a)(1)(B), the United States or a relator must show that defendants knowingly made, used, or caused to be made or used, a false record or statement material to a false or fraudulent claim.” Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1048 (9th Cir. 2012). The existence of a false or fraudulent claim is therefore an essential element of a false records claim under § 3729(a)(1)(B). Because Kelly has failed to raise a genuine issue of material fact regarding the submission of a false or fraudulent claim, his false records claim fails as a matter of law. Accordingly, we affirm the district court’s grant of summary judgment on Kelly’s false records claim.

Y

Kelly also argues that, in granting summary judgment on his conspiracy claim, the district court “did not address or evaluate the additional evidence that Mr. Mitchell [the AWS Project Manager at SPAWAR] conspired with Serco to produce fraudulent EVM reports on a monthly basis.” The district court, however, considered “Mitchell’s uncontroverted testimony ... that he informed DHS of [Serco’s] modified hours tracking and DHS approved the change,” and found “no evidence of an agreement between John Mitchell and Serco personnel to submit a false claim.” The district court also rejected Kelly’s “unsubstantiated assertion of a secret agreement” between Mitchell and Serco to - submit a false claim.

Kelly does not identify the “additional evidence” that the district court failed to consider; nor does he explain why failing to consider such evidence resulted in error here. We have noted previously that we will not “consider matters on appeal that are not specifically and distinctly argued in appellant’s opening brief,” are argued only in passing, or that constitute bare assertions without supporting argument. Christian Legal Soc. Chapter of Univ. of Cal. v. Wu, 626 F.3d 483, 487-88 (9th Cir. 2010) (citations omitted). Because Kelly failed to argue this issue specifically and distinctly in his opening brief, we decline to consider it here. See id. at 487; In re Online DVD-Rental Antitrust Litig., 779 F.3d 914, 930 (9th Cir. 2015) (“Because these matters were not ‘specifically and distinctly argued’ in the open briefing, we will not consider them.” (citation omitted)).

VI

Further, Kelly challenges the district court’s grant of summary judgment on his FCA claim for wrongful retention of overpayments in violation of 31 U.S.C. § 3729(a)(1)(G). That FCA provision, known as the “reverse false claims” provision, creates liability for one who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” Id. “The ‘reverse false claims’ provision does not eliminate or supplant the FCA’s false claim requirement....” Cafasso, 637 F.3d at 1056. Because Kelly’s cause of action for submitting false or fraudulent claims for payment fails as a matter of law, so too does his “reverse false claims” cause of action.

VII

Kelly further argues that the district court erred in granting summary judgment against him on his Tameny claim for wrongful termination in violation of public policy. “[Wjrongful termination cases involving a Tameny cause of action are limited to those claims finding support in an important public policy based on a statutory or constitutional provision.” Green v. Ralee Eng’g Co., 19 Cal.4th 66, 79, 78 Cal.Rptr.2d 16, 960 P.2d 1046 (1998) (emphasis added). “This limitation recognizes an employer’s general discretion to discharge an at-will employee without cause under [the California Labor Code].” Id. Kelly argues that he was fired in violation of the fundamental public policy reflected in Labor Code § 1102.5, which prohibits employers from “retaliat[ing] against an employee for disclosing information ... to a government or law enforcement agency.” Cal. Lab. Code § 1102.5(b).

The district court here granted summary judgment in favor of Serco on Kelly’s claim for unlawful retaliatory discharge in violation of Labor Code § 1102.5, but Kelly did not challenge that ruling on appeal. Because “arguments not raised by a party in its opening brief are deemed waived,” Marsh, 194 F.3d at 1052, the district court’s determination that Serco did not violate Labor Code § 1102.5 forecloses Kelly’s Tameny claim based on a violation of § 1102.5 as a matter of law.

Kelly also premises his wrongful termination argument on the fact that he was terminated after he reported Serco’s time-charging practices to DHS. It is undisputed, however, that nobody at Serco knew Kelly had spoken to DHS prior to his termination: Tom Helman, Kelly’s supervisor, and Denise Ellison, Helman’s supervisor, both testified that they were not aware of Kelly’s reporting activities before he was terminated. Kelly has not controverted this testimony. Nor has he presented any evidence that would permit a reasonable inference that someone at Serco knew about his reporting activities before he was terminated.

In addition, Kelly acknowledges that he was an at-will employee for Serco. And it is undisputed that DHS and SPAWAR no longer needed an EVM analyst in Kelly’s position for the AWS Project. Kelly admits that he was provided this reason when he was laid off, and it is undisputed that Kelly’s position no longer existed after his termination. Accordingly, because it is undisputed that Serco employees were unaware that Kelly spoke to DHS prior to his termination, we affirm the district court’s grant of summary judgment on Kelly’s Tameny claim.

VIII

Kelly lastly contends that the district court erred in striking as moot the deposition testimony of his expert, Kevin Martin, because it consisted of (1) improper legal conclusions on whether ANSI-748 was incorporated by reference into the

Delivery Orders, and (2) irrelevant testimony concerning whether Serco had in fact complied with ANSI-748. “Under Federal Rule of Evidence 702, matters of law are inappropriate subjects for expert testimony.” Hooper, 688 F.3d at 1052. Even if expert testimony “may assist the trier of fact, the trial court has broad discretion to admit or exclude it.” Id. (quoting Beech Aircraft Corp. v. United States, 51 F.3d 834, 842 (9th Cir. 1995) (per curiam)).

Here, the district court was in the best position to determine whether Kevin Martin’s deposition testimony would be helpful to its analysis. Because the district coui't had concluded that Serco’s right to payment under the Delivery Orders was not conditioned on its compliance with ANSI-748, Martin’s testimony regarding the various ways Serco failed to comply with ANSI-748 was irrelevant to the court’s analysis. As such, the district court’s exclusion of Martin’s testimony was not manifestly erroneous or prejudicial, and it must therefore be affirmed. See Orr, 285 F.3d at 773.

IX

For Kelly to prevail on his implied false certification theory, the gravamen of his claim here, Kelly must satisfy the “rigorous” and “demanding” standard for materiality set forth in Escobar. He has failed to do so. Because Kelly’s implied false certification claim fails, his remaining FCA claims also fail as a matter of law. Nor has Kelly established a predicate for his Tame-ny claim. Lastly, the district court’s exclusion of Martin’s testimony was not an abuse of discretion, and Kelly has failed to show any prejudicial error.

AFFIRMED.

      . SPAWAR is the Navy's information systems and acquisition command. It designs, develops, and sustains communications and information systems for the United States military and federal agencies.

      . Although Serco worked on the AWS Project under other Delivery Orders as well, Delivery Orders 49 and 54 are the only ones at issue in this appeal.

      . Kelly asserted other state-law claims challenging his termination, but they are deemed waived for purposes of this appeal because he failed to raise them in his opening brief. See Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) ("[0]n appeal, arguments not raised by a party in its opening brief are deemed waived.”).

      . “In practice, the phrase [qui tarn] means ‘an action under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive,’ ” Aflatooni, 314 F.3d at 997 n.l (citation omitted),

      . The FCA's scienter requirement defines "knowing” and "knowingly” to mean that a person has "actual knowledge of the information," "acts in deliberate ignorance of the truth or falsity of the information,” or “acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b)(1)(A). We need not analyze scienter here because Kelly’s implied false certification claim fails on other grounds. Nevertheless, "[f|or a qui tarn action to survive summary judgment, the relator must produce sufficient evidence to support an inference of knowing fraud,” N. Telecom, Inc., 52 F.3d at 815.

      . A claim for wrongful termination in violation of public policy is a California common-law claim created by Tameny v. Atlantic Rich-field Co., 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330 (1980).


author: TASHIMA, Circuit Judge:

text:
    Chike OKAFOR, Plaintiff-Appellant v. UNITED STATES of America, Defendant-Appellee
    No. 14-17087
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted October 18, 2016 San Francisco, California
    Filed January 13, 2017

      Edward M. Burch (argued) and David M. Michael, Law Offices of David M. Michael, San Francisco, California, for Plaintiff-Appellant.
    Anne M. Voights (argued), Assistant United States Attorney; Barbara J. Valli-ere, Chief, Appellate Division; Melinda Haag, United States Attorney; United States Attorney’s Office, San Francisco, California; for Defendant-Appellee.
    Before: A. WALLACE TASHIMA and MILAN D. SMITH, JR., Circuit Judges, and EDWARD R. KORMAN, District Judge.

       The Honorable Edward R. Korman, United States District Judge for the Eastern District of New York, sitting by designation.

   OPINION

TASHIMA, Circuit Judge:

Chike Okafor appeals the decision of the district court denying his motion for return of property. See Fed. R. Crim. P. 41(g). We have jurisdiction under 28 U.S.C. § 1291, and we affirm the district court’s ruling.

In 2013, at San Francisco International Airport, Drug Enforcement Administration (“DEA”) agents seized $99,500 in cash from Okafor’s carry-on bag. The DEA sent Okafor a notice on May 1, 2013, informing him that the money was subject to forfeiture under 21 U.S.C. § 881 because it had been used in, or acquired as a result of, a violation of the Controlled Substances Act. The notice stated that the deadline for Okafor to file a claim to contest the forfeiture was June 5, 2013.

Okafor asserts that, on June 4, 2013, his attorney tendered Okafor’s claim to FedEx Corporation (“FedEx”) for overnight delivery to the DEA. The DEA, however, did not receive the claim until June 6. Thus, the DEA deemed Okafor’s claim untimely. Okafor’s attorney sent several letters to the DEA requesting that the agency consider Okafor’s claim as timely filed. The DEA construed these letters as a petition for remission, which it denied. The agency then administratively forfeited the property and issued a declaration of forfeiture.

Okafor subsequently filed a motion for return of property under Federal Rule of Criminal Procedure 41(g), arguing that the DEA had wrongfully deemed his claim untimely and that the district court should exercise its equitable jurisdiction to toll the filing deadline. The government opposed the motion on the ground that, under the Civil Asset Forfeiture Reform Act (“CAFRA”), the district court lacked jurisdiction to consider Okafor’s motion. The district court held that it had equitable jurisdiction to consider Okafor’s motion, but, on the merits, held that Okafor had failed to establish extraordinary circumstances warranting equitable tolling of the statutory filing deadline, and denied the motion. Okafor timely appealed.

I.

As a preliminary matter, we must determine whether the district court had jurisdiction to reach the merits of Okafor’s equitable tolling argument. “We review the district court’s ruling on subject matter jurisdiction de novo.” Alto v. Black, 738 F.3d 1111, 1122 (9th Cir. 2013).

Under CAFRA, an interested party who wishes to contest a forfeiture may elect to either commence a judicial forfeiture action in district court or file a petition for remission or mitigation with the agency. 18 U.S.C. § 983(a)(3)(A); 28 C.F.R. § 9.3. In order to elect a judicial proceeding, the party must file a claim with the seizing agency by the deadline set forth in the notice sent by the agency. 18 U.S.C. § 983(a)(2)(B). If a claim is not timely filed or the petition for remission or mitigation is denied, the seizing agency administratively forfeits the property and issues a declaration of forfeiture. 19 U.S.C. § 1609.

Once a declaration of forfeiture has been issued, “the exclusive remedy” for setting aside the declaration is a motion under 18 U.S.C. § 983(e). 18 U.S.C. § 983(e)(5). Section 983(e)(1) permits an interested party to move to set aside a declaration of forfeiture if the party did not receive written notice. A motion under § 983(e)(1) “shall be granted if—(A) the Government knew, or reasonably should have known, of the moving party’s interest and failed to take reasonable steps to provide such party with notice; and (B) the moving party did not know or have reason to know of the seizure within sufficient time to file a timely claim.” Id.

The government argues that § 983(e) is jurisdictional and therefore forecloses Okafor’s motion seeking equitable tolling. This argument lacks merit. In Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 161, 130 S.Ct. 1237, 176 L.Ed.2d 18 (2010), the Supreme Court warned against too quickly and too casually categorizing a claim-processing rule as jurisdictional. It will treat such a provision as jurisdictional only “[i]f the Legislature clearly states that a threshold limitation on a statute’s scope shall count as jurisdictional.” Id. (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 515-16, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006)). Section 983(e) does not state that it is jurisdictional, nor is there any evidence in CAFRA’s legislative history or otherwise on the record that it should be treated as such. Accordingly, we treat § 983(e) as a claim-processing rule. Because there is no clear jurisdictional limitation in CAFRA, the district court correctly determined that it had jurisdiction to hear Okafor’s motion for equitable relief.

II.

We therefore consider Okafor’s argument that he is entitled to equitable tolling. “Generally, a litigant seeking equitable tolling bears the burden of establishing two elements: (1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstance stood in his way.” Pace v. DiGuglielmo, 544 U.S. 408, 418, 125 S.Ct. 1807, 161 L.Ed.2d 669 (2005).

Okafor has failed to meet this burden. Even if, as Okafor contends, his counsel delivered his claim to FedEx for overnight delivery before the close of business on June 4, FedEx’s purported delivery delay does not constitute the kind of extraordinary circumstance that we have found to justify equitable tolling. We have noted that an attorney’s filing by mail shortly before a deadline expires constitutes routine negligence. Luna v. Kernan, 784 F.3d 640, 646 (9th Cir. 2015). We “do not recognize run-of-the mill mistakes as grounds for equitable tolling because doing so ‘would essentially equitably toll limitations periods for every person whose attorney missed a deadline.’ ” Id. at 647 (quoting Lawrence v. Florida, 549 U.S. 327, 336, 127 S.Ct. 1079, 166 L.Ed.2d 924 (2007)).

The district court did not err in holding that Okafor was not entitled to equitable tolling. Accordingly, we AFFIRM the district court’s denial of Okafor’s Rule 41(g) motion.