United States v. Hughes ( 2020 )

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 EASTERN DISTRICT OF CALIFORNIA 8 9 UNITED STATES OF AMERICA, No. 2:20-cv-00321-JAM-KJN 10 Plaintiff, 11 v. ORDER DENYING DEFENDANT’S MOTION TO DISMISS 12 OWEN HUGHES, 13 Defendant. 14 15 This matter is before the Court on Owen Hughes’ 16 (“Defendant”) Motion to Dismiss for failure to plead with 17 particularity and failure to state a claim upon which relief can 18 be granted. Mot., ECF No. 6. The Government filed an 19 opposition to Defendant’s motion. Opp’n, ECF No. 8. Defendant 20 did not reply. After consideration of the parties’ briefing on 21 the motion and relevant legal authority, the Court DENIES 22 Defendant’s Motion to Dismiss.1 23 I. BACKGROUND 24 On February 11, 2020, the Government filed suit against 25 Defendant to recover treble damages and civil penalties under 26 27 1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled 28 for May 5, 2020. 1 the False Claims Act, 31 U.S.C. §§ 3729-3733. See Compl., ECF 2 No. 1. Defendant was the sole proprietor of Eon Research 3 Corporation (“Eon”), a for-profit biotechnology research 4 company. Compl. ¶ 2. On September 5, 2008, Defendant received 5 a Small Business Innovation Research (“SBIR”) grant of $815,215 6 from the Hazardous Substance Response Trust Fund (“Superfund”). 7 Compl. ¶ 16. The grant’s terms and conditions require that 8 Defendant implement certain financial management policies and 9 standards. Compl. ¶ 3. Defendant represented the funds would 10 be safeguarded and used for proper purposes, in accordance with 11 the terms and conditions. Id. But the Government alleges 12 Defendant failed to comply with any of the required financial 13 management policies and standards. Id. 14 II. OPINION 15 A. Legal Standard 16 A Rule 12(b)(6) motion attacks the complaint as not 17 alleging sufficient facts to state a claim for relief. “To 18 survive a motion to dismiss [under 12(b)(6)], a complaint must 19 contain sufficient factual matter, accepted as true, to state a 20 claim to relied that is plausible on its face.” Ashcroft v. 21 Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and 22 citation omitted). While “detailed factual allegations” are 23 unnecessary, the complaint must allege more than “[t]hreadbare 24 recitals of the elements of a cause of action, supported by mere 25 conclusory statements.” Id. at 678. 26 However, a claim brought under the False Claims Act is 27 subject to the heightened pleading standards of Rule 9(b). Rule 28 9(b) requires a party to “state with particularity the 1 circumstances constituting fraud or mistake.” Fed. R. Civ. P. 2 9(b). The “who, what, when, where and how of the misconduct 3 charged” must be stated with particularity. Ebeid ex rel. U.S. 4 v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010) (internal 5 quotation marks and citation omitted). But all “other facts may 6 be plead generally, or in accordance with Rule 8.” United 7 States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 991 (9th 8 Cir. 2011). Including “malice, intent, knowledge, and other 9 conditions of a person’s mind . . . .” Fed. R. Civ. P. 9(b). 10 B. Analysis 11 1. False Claims Act 12 The Government brings its first two claims against 13 Defendant under the False Claims Act, 31 U.S.C. § 3729(a)(1)(A)- 14 (B). Compl. ¶¶ 54–60. The False Claims Act imposes liability 15 on anyone who “knowingly presents, or causes to be presented, a 16 false or fraudulent claim for payment or approval,” or 17 “knowingly makes, uses, or causes to be made or used, a false 18 record or statement material to a false or fraudulent claim.” 19 31 U.S.C. § 3729(a)(1)(A)-(B). 20 The complaint sets forth the occasions on which Defendant 21 represented Eon would comply with the grant’s terms and 22 conditions. See, e.g., Compl. ¶¶ 13–15, 17, 29. The complaint 23 alleges that each time Defendant agreed to comply over the 24 period of time that Eon received grant funds, he did so knowing 25 Eon would not, in fact, comply. See Compl. ¶¶ 36, 42–43, 48. 26 Moreover, the complaint describes the failures of Eon’s 27 financial management systems, procedures, and accounting 28 records, and cites to specific examples of Eon’s financial WACe COU UNV OCLAUVPAIVTTINGIN PYVOUUPEIOCII ta FNM Verte PF AY OT OU 1 management failures. See Compl. FI@ 37-59. 2 Thus, the complaint provides the “who, what, when, where, 3 | and how” Defendant’s false claims occurred. See Ebeid, 616 F.3d 4 at 998. Accordingly, the Court finds the Government’s complaint 5 contains sufficient detail to put Defendant on notice “of the 6 | particular misconduct which is alleged to constitute the fraud 7 charge so that [he] can defend against the charge and not just 8 deny that [he has] done anything wrong.” United States ex rel. 9 Swoben v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th 10 Cir. 2016) (internal quotation marks and citation omitted). 11 2, Common Law Claims 12 The Government’s final two claims against Defendant are for 13 unjust enrichment and payment by mistake. These claims are 14 | viable under California law. See Astiana v. The Hain Celestial 15 Group, Inc., 783 F.3d 753, 762-63 (9th Cir. 2015). And the 16 Government has not asserted that the grant was a binding 17 contract, thus, claims under quasi-contract theories are not 18 invalid at this stage. 19 Til. ORDER 20 For the reasons set forth above, the Court DENIES 21 Defendant’s Motion to Dismiss. Defendant shall file his answer 22 to the complaint within twenty days of the date of this Order. 23 IT IS SO ORDERED. 24 Dated: May 14, 2020 25 Me 26 Benlek, sunk 27 28