Swift v. ClearCaptions, LLC ( 2024 )

1 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 EASTERN DISTRICT OF CALIFORNIA 11 12 SCOTT SWIFT, No. 2:20-cv-00731-MCE-DB 13 Plaintiff, 14 v. MEMORANDUM AND ORDER 15 CLEARCAPTIONS, LLC, 16 Defendant. 17 18 Plaintiff Scott Swift (“Plaintiff”) originally initiated this False Claims Act, 31 U.S.C. 19 §§ 3729, et seq. (“FCA”), action as a relator on behalf of the United States of America 20 alleging several claims directly under the FCA, including an FCA retaliation claim, along 21 with claims for unjust enrichment and payment under mistake of fact. ECF No. 1. The 22 United States declined to intervene, ECF No. 16, after which Plaintiff voluntarily 23 dismissed, with the United States’ consent, all of the claims in which the United States 24 maintained an interest, leaving only his retaliation claim for adjudication, ECF No. 31. 25 Plaintiff then filed the now operative First Amended Complaint (“FAC”), alleging only one 26 cause of action against Defendant ClearCaptions, LLC, (“Defendant”) for retaliation 27 under the FCA, 31 U.S.C. § 3730(h). Very generally, Plaintiff alleges that he believes 28 1 that after Defendant, a provider of telecommunications captioning for the hearing- and 2 speech-impaired, retaliated against Plaintiff for, as explained in greater detail below, 3 complaining that Defendant was allowing properly deactivated user accounts to be 4 reactivated so they could potentially be utilized by non-impaired users. Presently before 5 the Court is Defendant’s Motion to Dismiss that claim. ECF No. 41. For the reasons that 6 follow, that Motion is GRANTED with leave to amend.1 7 8 BACKGROUND2 9 10 A. Background on Defendant’s Operations 11 Under Title IV of the Americans with Disabilities Act, the FCC is charged with 12 ensuring the availability of “Telecommunications Relay Services” (“TRS”), which allow 13 hearing or speech-impaired individuals to place telephone calls to other individuals for 14 the same cost as non-disabled callers. To achieve TRS availability, the FCC relies on 15 Internet Protocol Captioned Telephone Service (“IP CTS”), a system designed to allow 16 hearing-impaired individuals to place calls on special telephones provided by one of 17 approximately five IP CTS providers across the country. Defendant is one such 18 provider. 19 These special telephones incorporate a screen, similar to an iPad or tablet, that 20 displays real-time captions of what the other party to the conversation is saying. The 21 special telephone connects to the standard telephone line and the internet concurrently; 22 the callers speak over the telephone line, while a Communications Assistant (“CA”) 23 employed by the IP CTS provider listens in and captions the call for the hearing-impaired 24 user. 25 IP CTS providers then get paid from the FCC through its Interstate Cost Recovery 26 1 Because oral argument would not be of material assistance, the Court ordered this matter submitted on the briefs. See E.D. Cal. Local R. 230(g). 27 2 The following facts are taken, primarily verbatim, from Plaintiff’s FAC. 28 1 Plan (known as the “TRS Fund”). The reimbursement rate is calculated per minute for 2 each captioned call. Calls involving callers without relevant impairments are not 3 reimbursable by the TRS Fund. The mandatory minimum standards require that IP CTS 4 providers register their clients with detailed personal information, and require the 5 customer provide a written “self-certification” that they are hearingor speech-impaired. 6 See 47 C.F.R. § 64.611(j). 7 To obtain reimbursement from the TRS Fund, each IP CTS provider submits a 8 monthly claim for reimbursement to the TRS Fund administrator for each registered, 9 certified customer. Each such claim for payment lists the requesting provider’s total 10 number of compensable minutes of conversation time, to which the reimbursement rate 11 is applied. Additionally, providers of TRS are entitled to recover their reasonable costs 12 of providing service in compliance with the FCC’s service rules. 13 To be compensated from the TRS Fund for the costs incurred in providing 14 services to eligible users, IP CTS providers must first be certified by the FCC. The IP 15 CTS registration and certifications requirements are very specific, setting out exactly how 16 IP CTS providers and users must comply with federal laws. Applicants must also submit 17 “a description of measures taken . . . to ensure that they do not and will not request or 18 collect payment from the TRS Fund for service to consumers who do not satisfy the 19 registration and certification requirements in § 64.604(c)(9), and an explanation of how 20 these measures provide such assurance.” 47 C.F.R. § 64.606(a)(2)(ii)(F). 21 On a monthly basis, an IP CTS provider, such as ClearCaptions, submits a claim 22 for payment to the FCC for the minutes the provider captioned for end-users. In each 23 monthly claim for payment, the IP CTS provider must have a senior executive with first- 24 hand knowledge certify that, among other things, compensation requests were handled 25 in compliance with the applicable laws and rules. 26 B. Plaintiff’s Concerns with Defendant’s practices 27 Since at least February 2017, Plaintiff believes Defendant improperly billed the 28 FCC for IP CTS calls made on its accounts that it knew or should have known were 1 deactivated or otherwise ineligible for FCC reimbursements. For example, if Defendant 2 learned that an end-user has died, the account must be deactivated. Once IP CTS 3 accounts are deactivated, any calls made under the account number or by the 4 associated telephone are unauthorized calls by uncertified and/or unregistered 5 individuals. Of Defendant’s approximately 45,000 customers, Plaintiff estimates that 5- 6 10 percent were deactivated on a yearly basis. Plaintiff believed that the minutes 7 generated by deactivated accounts could be in the millions. 8 Plaintiff was tasked each month with reviewing minutes associated with customer 9 service issues. This included, for instance, end-users’ minutes for calls they made to 10 Defendant’s customer service lines; Defendant’s employees’ outbound calls to 11 customers regarding customer service issues; solicitation calls to customers’ lines from 12 third-party telemarketers; and any international inbound and outbound calls. 13 As far back as early 2017, shortly after Plaintiff was hired, he noticed that end- 14 users’ deactivated accounts were often reactivated, and minutes associated with these 15 accounts were billed to the TRS Fund. Initially, Plaintiff assumed the IT department, or 16 another of Defendant’s processes, would filter out the non-compensable minutes. 17 Although the problem did not fall directly under his area of responsibility, Plaintiff 18 discussed it on several occasions beginning in or about 2017 with multiple members of 19 Defendant’s management team. Plaintiff thought the problem was being handled, but he 20 did not yet understand the scope of the compliance problem. 21 However, by January 2019, Plaintiff came to realize the problem persisted. He 22 noticed on many occasions that after he personally deactivated an account it would be 23 reactivated shortly after, generating minutes as someone used the telephone associated 24 with the account. As he dug deeper into the problem, he noticed that there would 25 usually be no reasons notated by anyone from Defendant for the reactivation of the 26 accounts. On a few occasions he did find that someone had connected with the 27 customer and legitimately reactivated the account – but that was extremely rare. 28 Plaintiff started discussing this issue with co-workers again. He wanted to make 1 sure Defendant complied with its legal obligations and he did not want his company to 2 get in trouble with the FCC. With the problem continuing in March and April 2019, 3 Plaintiff reported his concerns more aggressively up the chain to Paul Kocher, the 4 individual responsible for gathering and organizing the information that detailed the 5 billable minutes. Kocher admitted this was an ongoing problem and told Plaintiff that he 6 was frustrated by it and that it was unclear why the system reactivated accounts and 7 telephones. The problem was also discussed in Monday leadership meetings beginning 8 on or about February 18, 2019, but nothing was done to address the issue. 9 In an effort to monitor the problem, Kocher began giving Plaintiff lists of 10 deactivated accounts that the system had reactivated. There were approximately 50-70 11 accounts on each list, but Kocher told Plaintiff there were so many of these he could not 12 catch them all. Kocher sent Plaintiff lists every week, then every two to three weeks. 13 Plaintiff used the lists in an attempt to monitor the problem, but it was 14 overwhelming. Moreover, by the summer of 2019, Kocher stopped sending the lists and 15 the problem was neglected. Plaintiff continued to discuss the problem with members of 16 Defendant’s leadership team, but still, nothing was done. 17 In July or August 2019, still concerned by Defendant’s inaction, Plaintiff resumed 18 his complaints about the problem. For instance, he confronted Kocher in his office about 19 the escalating issue, but Kocher just listened and did not respond. Plaintiff also emailed 20 senior management about deactivations and reactivations. As was becoming the 21 custom, they did not reply. 22 On or about September 23, 2019, at a leadership meeting, Plaintiff again brought 23 up the deactivated accounts and telephones. Management skirted the issue again. At 24 this point, Plaintiff felt the company was in serious jeopardy, because Defendant was 25 flouting federal regulations by billing for minutes generated by uncertified, unregistered 26 accounts, and management knew it. He also thought members of the leadership team 27 may be overlooking additional problems that could violate FCC rules and regulations. 28 On the night of September 23, 2019, Plaintiff emailed Kocher to reignite their 1 previous work on the problem: “Per our conversation today, really want to get a handle 2 on this. Is there anything I or my group can do to assist in correcting this? I’m 3 concerned.” Kocher responded in the early morning of the next day, “Thanks for 4 reaching out. I’ll have the team sink our teeth into this today and report back to you on 5 scope.” 6 Later, on the night of September 23, 2019, Plaintiff emailed Michael Strecker, 7 Defendant’s VP of Regulatory & Strategic Policy, about these problems. Plaintiff had not 8 discussed the scheme directly with Strecker in the past and sent him an email explaining 9 the issue with deactivated accounts being reactivated stating, in part, that the problem 10 meant “deactivated captioned calls and thus billable calls are going through the system 11 without being filtered.” Strecker did not respond, and Plaintiff’s employment was 12 terminated the following morning. 13 This action followed. 14 15 STANDARD 16 17 On a motion to dismiss for failure to state a claim under Federal Rule of Civil 18 Procedure 12(b)(6),3 all allegations of material fact must be accepted as true and 19 construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. 20 Co., 80 F.3d 336, 337–38 (9th Cir. 1996). Rule 8(a)(2) “requires only ‘a short and plain 21 statement of the claim showing that the pleader is entitled to relief’ in order to ‘give the 22 defendant fair notice of what the . . . claim is and the grounds upon which it rests.’” Bell 23 Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 24 47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require 25 detailed factual allegations. However, “a plaintiff’s obligation to provide the grounds of 26 his entitlement to relief requires more than labels and conclusions, and a formulaic 27 recitation of the elements of a cause of action will not do.” Id. (internal citations and 28 3 All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure. 1 quotations omitted). A court is not required to accept as true a “legal conclusion 2 couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 3 Twombly, 550 U.S. at 555). “Factual allegations must be enough to raise a right to relief 4 above the speculative level.” Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & 5 Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) (stating that the 6 pleading must contain something more than “a statement of facts that merely creates a 7 suspicion [of] a legally cognizable right of action”)). 8 Furthermore, “Rule 8(a)(2) . . . requires a showing, rather than a blanket 9 assertion, of entitlement to relief.” Twombly, 550 U.S. at 555 n.3 (internal citations and 10 quotations omitted). Thus, “[w]ithout some factual allegation in the complaint, it is hard 11 to see how a claimant could satisfy the requirement of providing not only ‘fair notice’ of 12 the nature of the claim, but also ‘grounds’ on which the claim rests.” Id. (citing Wright & 13 Miller, supra, at 94, 95). A pleading must contain “only enough facts to state a claim to 14 relief that is plausible on its face.” Id. at 570. If the “plaintiffs . . . have not nudged their 15 claims across the line from conceivable to plausible, their complaint must be dismissed.” 16 Id. However, “a well-pleaded complaint may proceed even if it strikes a savvy judge that 17 actual proof of those facts is improbable, and ‘that a recovery is very remote and 18 unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). 19 A court granting a motion to dismiss a complaint must then decide whether to 20 grant leave to amend. Leave to amend should be “freely given” where there is no 21 “undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice 22 to the opposing party by virtue of allowance of the amendment, [or] futility of [the] 23 amendment . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v. 24 Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to 25 be considered when deciding whether to grant leave to amend). Not all of these factors 26 merit equal weight. Rather, “the consideration of prejudice to the opposing party . . . 27 carries the greatest weight.” Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 28 185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it is clear that 1 “the complaint could not be saved by any amendment.” Intri-Plex Techs., Inc. v. Crest 2 Group, Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 3 1006, 1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 4 (9th Cir. 1989) (“Leave need not be granted where the amendment of the complaint . . . 5 constitutes an exercise in futility . . . .”)). 6 7 ANALYSIS 8 9 “Congress added 31 U.S.C. § 3730(h) to the FCA in 1986 to protect 10 ‘whistleblowers,’ those who come forward with evidence their employer is defrauding the 11 government, from retaliation by their employer.” U.S. ex rel. Hopper v. Anton, 91 F.3d 12 1261, 1269 (9th Cir. 1996). “[T]here are three elements the plaintiff must prove in any § 13 3730(h) claim: 1) the employee must have been engaging in conduct protected under 14 the Act; 2) the employer must have known that the employee was engaging in such 15 conduct; and 3) the employer must have discriminated against the employee because of 16 her protected conduct.” Id. “Section 3730(h) only protects employees who have acted 17 ‘in furtherance of an action’ under the FCA.” Id. “Specific awareness of the FCA is not 18 required.” Id. “However, the plaintiff must be investigating matters which are calculated, 19 or reasonably could lead, to a viable FCA action.” Id. According to Defendant, Plaintiff 20 has failed to sufficiently allege any of the elements of a FCA retaliation claim. The Court 21 agrees. 22 A. Plaintiff has not alleged that he engaged in protected conduct. 23 Defendant contends that “[Plaintiff’s] concerns regarding account 24 reactivations . . . lack a plausible nexus to the FCA.” Def.’s Mot., ECF No. 41-1, at 5. 25 The gist of Defendant’s argument is that while Plaintiff focused his complaints and 26 concerns on the reactivation of accounts, he never alleges that he raised concerns 27 regarding whether reactivation was causing Defendant to bill the TRS fund for those 28 improperly reactivated accounts. Rather, Plaintiff’s allegations indicate that he was 1 clearly concerned with reactivated accounts, but not that he conveyed to leadership that 2 his concerns related to a fraud component. “[T]he generation of captioned minutes by 3 deactivated accounts alone is not a violation of the FCA, nor does it run afoul of the 4 mandatory minimum standards established for Internet-based TRS providers.” Def.’s 5 Mot., ECF No. 41-1, at 5. Defendant would have had to bill for any such minutes to run 6 the risk of falling under the FCA. 7 The Court agrees that Plaintiff’s allegations fall short of alleging that he engaged 8 in conduct protected under the FCA because he does not allege that he raised concerns 9 to Defendant’s management team regarding billing practices as opposed to simply just 10 going to reactivation itself. Plaintiff does not allege that those reactivated accounts were 11 actually used to make unauthorized captioned calls or that any such captioned minutes 12 went undetected or were not accounted for. Because Plaintiff does not allege that he 13 was concerned with Defendant’s liability for fraud as opposed to, for example, the 14 possibility reactivation was resulting in Defendant wasting company resources captioning 15 calls that would not qualify for reimbursement, he has not alleged his speech was 16 protected under the FCA. See Brazill v. Cal. Northstate College of Pharmacy, LLC, 2012 17 WL 3204241, at *5 (E.D. Cal. 2012) (no protected conduct where “allegations only 18 suggest that [the plaintiff] was attempting to get the [defendant] to comply with federal 19 law and meet accreditation standards, not that he was trying to recover money for the 20 government or investigating fraud claims”).4 21 In opposition, Plaintiff contends that it should be inferred from his complaints that 22 he was alluding to fraud because that is the only reason to have been concerned about 23 the reactivations in the first place. However, not only does Plaintiff not allege in the FAC 24 that there could only be one motivation for bringing forth reactivation concerns, but 25 Defendant has also pointed out other possible motivations, namely the possibility that 26 4 Plaintiff’s general allegations that he expressed his “concerns” or discussed the “problem” or 27 “issue” are too generic and conclusory to be considered. While it is clear that Plaintiff believes Defendant fraudulently billed the FCC, he has not alleged that he conveyed that to Defendant while he was still 28 employed. 1 Defendant was wasting resources on calls that would not generate revenue, which 2 undermines the argument that everyone essentially should have known what Plaintiff 3 was purportedly thinking. 4 In addition, Plaintiff argues that he expressed fraud-related concerns in the last 5 email he sent the night before his employment was terminated, where he stated that 6 “deactivated captioned calls and thus billable calls are going through the system without 7 being filtered.” FAC, ¶ 100. Despite use of the word “billable,” Plaintiff again does not 8 allege that he was concerned with those calls being billed to the FCC as opposed to with 9 the implications to Defendant directly. In sum, the Court determines Plaintiff has failed to 10 sufficiently allege that he engaged in protected conduct under the FCA. 11 B. Nor has Plaintiff alleged facts sufficient to establish that Defendant was on notice Plaintiff was engaged in protected conduct. 12 As a threshold matter, since the Court has concluded that Plaintiff was not 13 engaged in protected conduct, Defendant obviously could not have been on notice to the 14 contrary. Even assuming protected conduct occurred, however, for the same reasons 15 already stated, that certainly wasn’t communicated to Defendant. See Hopper, 91 F.3d 16 1270 (“Even if [the defendant] were intimately familiar with [the plaintiff’s] complaints, 17 [the plaintiff] never gave any indication she was investigating the [employer] for 18 defrauding the federal government.”). 19 C. Finally, Plaintiff has failed to adequately allege that he was terminated 20 for engaging in conduct he contends was protected. 21 Plaintiff contends that the Court should infer from the temporal proximity of his 22 final email and his termination that the two are related. There are two problems with this 23 argument. First, Plaintiff had been complaining to members of Defendant’s management 24 team for years, beginning in 2017, and then picking back up again at the beginning of 25 2019, so the fact that his final email corresponded to his termination is not necessarily 26 persuasive. Plaintiff does not explain why that last email resulted in his termination after 27 he purportedly complained fairly consistently for years. Second, Plaintiff does not allege 28 that the recipient of that last email could or did take steps to ensure that Plaintiff was 1 | terminated. There is nothing in the FAC to indicate that the recipient had even read 2 | Plaintiff's email at 10:49 p.m. the night prior to the termination, let alone had the 3 | opportunity, the resources, or the power to ensure that Plaintiff was terminated the 4 | following morning. Accordingly, Plaintiff's allegations fall short on this element as well. 5 6 CONCLUSION 7 8 For the reasons just stated, Defendant’s Motion to Dismiss (ECF No. 41) is thus 9 | GRANTED with leave to amend. Not later than twenty (20) days following the date this 10 | Memorandum and Order is electronically filed, Plaintiff may, but is not required to, file an 11 || amended complaint. If no amended complaint is timely filed, this action will be deemed 12 | dismissed with prejudice upon no further notice to the parties. 13 IT |S SO ORDERED. 14 | Dated: February 29, 2024 Mater LEK Whig { AX Xo - ‘6 SENIOR UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 11