United States Ex Rel. Petras v. Simparel, Inc.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 15-4020
________________
UNITED STATES OF AMERICA ex rel. ANDRE PETRAS,
Appellant
v.
SIMPAREL, INC., DAVID ROTH, RON GRILLI,
LOG LOGISTICS, MONTERP ENTERPRISES,
a Canadian Corporation f/k/a RON CACCHIONE LLC
________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3-13-cv-02415)
District Judge: Hon. Freda L. Wolfson
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
September 20, 2016
Before: McKEE, Chief Judge,1 HARDIMAN and RENDELL,
Circuit Judges.
(Opinion Filed: May 18, 2017)
___________
ROSS BEGELMAN
MARC M. ORLOW
Begelman, Orlow & Melletz
411 Route 70 East
Suite 245
Cherry Hill, N.J. 08034
Counsel for Appellant
1
Judge McKee concluded his term as Chief of the U.S. Court
of Appeals for the Third Circuit on September 30, 2016.
DIANE KREBS
Gordon Rees Scully Mansukhani, LLP
One Battery Park Plaza, 28th Floor
New York, New York 10004
Counsel for Appellee Simparel, Inc.
PAUL H. SHUR
MARK SKOLNICK
Platzer, Swergold, Levine, Goldberg, Katz & Jaslow, LLP
475 Park Avenue South, 18th Floor
New York, New York 10016
Counsel for Appellees David Roth and Ron Grilli
_____________
OPINION OF THE COURT
_____________
McKEE, Chief Judge.
Andre Petras appeals the District Court’s dismissal of
his reverse False Claims Act suit against his former employer,
Simparel, Inc.; David Roth, Simparel’s founder and Chief
Technology Officer; and Ron Grilli, Simparel’s Chief
Executive Officer (collectively, “the Simparel defendants”).2
Petras initially alleged a reverse FCA claim3 and
retaliation claim4 under the False Claims Act against the
Simparel defendants, as well as a conspiracy claim5 against
all of the defendants. The District Court dismissed the
reverse FCA claim without prejudice, but the remaining
conspiracy and retaliation claims were dismissed with
prejudice. Petras reasserted the reverse FCA claim against
the Simparel defendants in a Second Amended Complaint,
which the District Court again dismissed.
2
In his First Amended Complaint, Petras also sued Log
Logistics, another company Roth founded; and MontERP
Enterprises, f/k/a Ron Cacchione LLC, a Canadian consulting
company.
3
31 U.S.C. § 3729(a)(1)(G).
4
Id. § 3730(h).
5
Id. § 3729(a)(1)(C).
2
On appeal, Petras challenges the District Court’s
dismissal of both Complaints. For the reasons that follow, we
will affirm.
I.
A. Background
Simparel sells proprietary software to apparel
manufacturing companies. Simparel’s original investor was
L Capital, a venture capital firm licensed by the Small
Business Administration, a federal agency. The SBA
provided over $90 million to L Capital through the purchase
of certain securities, over $4 million of which was invested in
Simparel. In return, L Capital received preferred shares of
Simparel representing 50.1% of that entity. That amount was
later reduced to 37.88% after the firm sold some shares.
The Amended and Restated Certificate of
Incorporation (“the Certificate”) specified two conditions that
would require Simparel to pay preferred shareholders, such as
L Capital, accrued dividends. The Certificate provided for
such payments if Simparel’s Board exercised its discretion to
pay the dividends or if Simparel underwent an involuntary or
voluntary liquidation, dissolution, or windup.
From 2007 to 2012, Petras was Simparel’s Chief
Financial Officer, David Roth was CTO, and Ron Grilli was
its CEO. The SBA was appointed as receiver of L Capital in
2012 after Simparel failed to comply with its SBA funding
agreement. Petras contends that this failure resulted in the
SBA becoming a preferred shareholder in Simparel, thus
triggering the Certificate’s provisions and entitling the SBA
to accrued dividends as a direct shareholder.
Petras does not allege that the Simparel Board ever
declared that dividends would be paid, or that Simparel
underwent liquidation, dissolution, or windup. He instead
claims that the Simparel defendants engaged in certain
fraudulent conduct—to which he objected—in order to avoid
paying the SBA these contingent dividends. For example, he
contends that the Simparel defendants engaged in tactics such
as hiding Simparel’s deteriorating financial condition from
the SBA, failing to hold board meetings to review quarterly
results, and neglecting to send Simparel’s financial statements
3
to the SBA, as well as other tactics. According to Petras, the
Simparel defendants did this to prevent the SBA from placing
Simparel into involuntary liquidation, which would have
triggered the accrued dividends payment. Petras also alleged
that the Simparel defendants avoided dividend payments by
diverting customers and technology from Simparel to Log
Logistics, which is a company Roth had formed, and
MontERP, a Canadian consulting company formed to provide
computer programming services to aid Simparel’s software
development.
After Petras was terminated from employment with
Simparel, he filed this suit under the FCA in District Court.
B. The District Court’s Dismissal Orders
Generally, an FCA action under 31 U.S.C. §
3729(a)(1) targets fraudulent efforts to obtain money from the
United States Government.6 A “reverse” FCA suit under §
3729(a)(1)(G), however, arises from fraudulent efforts to
reduce or avoid an obligation to pay the Government.7 More
specifically, § 3729(a)(1)(G) imposes liability on anyone who
“knowingly conceals or knowingly and improperly avoids or
decreases an obligation to pay . . . money . . . to the
Government.”
6
See Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176,
182 (3d Cir. 2001) (stating that a plaintiff must show that:
“(1) the defendant presented or caused to be presented to an
agent of the United States a claim for payment; (2) the claim
was false or fraudulent; and (3) the defendant knew the claim
was false or fraudulent”); United States ex rel. Customs
Fraud Investigations, LLC. v. Victaulic Co., 839 F.3d 242,
247 (3d Cir. 2016) (observing that FCA actions “[t]ypically . .
. allege that a person or company submitted a bill to the
government for work that was not performed or was
performed improperly, resulting in an undeserved payment
flowing to that person or company”).
7
See United States ex rel. Atkinson v. Pa. Shipbuilding Co.,
473 F.3d 506, 514 n.12 (3d Cir. 2007) (explaining that a
reverse FCA claim is “centered around an alleged fraudulent
effort to reduce a liability owed to the government rather than
to get a false or fraudulent claim allowed or paid”).
4
The District Court first dismissed with prejudice all of
the claims against the Simparel defendants and former
defendants (Log Logistics and MontERP) except for the
reverse FCA claim, which the District Court dismissed
without prejudice. The court held that Petras had not
adequately pled that the Simparel defendants had an
obligation to pay money to the Government because the
“obligations” Petras identified in his First Amended
Complaint were “outside the scope of the FCA’s definition of
an obligation.”8 The dismissal of those substantive claims
resulted in dismissal of Petras’s conspiracy claim. The
District Court also dismissed the retaliation claim, concluding
that Petras could not establish the required causal nexus
between the alleged retaliatory conduct and his FCA claim
because he had not pled that the defendants knew of his claim
or the related conduct.9
Petras responded by filing a Second Amended
Complaint in which he reasserted a reverse FCA claim
against the Simparel defendants and attempted to support it
with additional allegations.10 The attempt was unsuccessful,
as the District Court again dismissed the FCA claim against
the Simparel defendants. The District Court concluded that
the alleged obligation to pay the Government that was the
8
J.A., 0024.
9
The District Court also declined to find that Roth or Grilli
were “de facto employers” of Petras to hold them liable for
Petras’s retaliation claim. J.A., 0031.
In dismissing the claims against former defendants
Log Logistics and MontERP, the District Court first observed
that Petras withdrew his reverse FCA claim against the two
parties and accordingly dismissed that claim. The District
Court determined that with no underlying FCA claim,
Petras’s conspiracy claim could not stand. It also separately
concluded that it lacked personal jurisdiction over MontERP
anyway. Moreover, Petras’s conspiracy claim, according to
the District Court, did not meet Fed. R. Civ. P. 9(b)’s
pleading requirements.
10
In his Second Amended Complaint, Petras did not reassert
claims against Log Logistics and MontERP.
5
basis of the FCA claim was too “speculative” to give rise to
an obligation under the FCA.11
Petras now appeals the District Court’s dismissal of
both his First Amended Complaint and his Second Amended
Complaint.12
II.
A. Legal Standards
Our review of the District Court’s dismissal is
plenary.13 We have previously explained that a private
individual, known as a “relator,” may bring a civil action in
the name of the United States to enforce the FCA.14
Nevertheless, a relator’s action survives a motion to dismiss
11
J.A., 0049 –50. The District Court specifically rejected
Petras’s three central allegations as to how Appellees
prevented the dividend payout. The District Court, for
example, noted that Petras had not alleged that Simparel was
unable to pay the full value of accrued dividends if they ever
came due, or that had the shareholders known the information
about which he speculated, they would have dissolved
Simparel. It also observed that the shareholders had not
sought dissolution even after Petras’s allegations came to
light by way of this lawsuit. Finally, the District Court cited
the lack of factual allegations to support a conclusion that had
the Board meetings occurred, dividends would have been
declared. The District Court therefore concluded that Petras
did not state a claim under the FCA.
12
Petras does not appeal the dismissal of his retaliation
claims as against Roth and Grilli, individually, and we
therefore do not consider them. While Petras did not reassert
claims against Log Logistics and MontERP in his Second
Amended Complaint, he nonetheless now attempts to revive
the conspiracy claim against Log Logistics and MontERP that
he pled in his First Amended Complaint.
13
Customs Fraud Investigations, F.3d 242 at 248 (“We
review a District Court’s judgment of dismissal pursuant to
Federal Rule of Civil Procedure 12(b)(6) de novo.” (citing
Bronowicz v. Allegheny Cnty., 804 F.3d 338, 344 (3d Cir.
2015)).
14
U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d
295, 305 (3d Cir. 2011) (citing 31 U.S.C. § 3730(b) & (d)).
6
under Rule 12(b)(6) of the Federal Rules of Civil Procedure
only if the factual allegations “raise a right to relief above the
speculative level.”15 Thus, the complaint must state a
“plausible claim for relief.”16
Beyond this general standard, we have also explained
that FCA claims in particular must be pled with particularity
under Rule 9(b).17 Under Rule 9(b), “the circumstances
constituting fraud or mistake shall be stated with
particularity,”18 and a party must plead his claim with enough
particularity to place defendants on notice of the “precise
misconduct with which they are charged.”19
With these standards in mind, we will proceed to
evaluate the District Court’s dismissal of each of Petras’s
claims.20
B. Petras’s Reverse FCA Claim
Petras’s reverse FCA claim alleges that the Simparel
defendants knowingly and improperly avoided a contingent
obligation to pay the accrued dividends to L Capital after L
Capital had been placed into receivership and was being
operated by the SBA. On appeal, Petras argues that the
District Court ignored the plain meaning of the FCA’s
definition of “obligation” and that the court’s ruling
contravenes Congress’s intent to broadly construe that term,
15
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
16
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
17
Customs Fraud Investigations, 839 F.3d at 258 (assessing
the sufficiency of a reverse FCA claim using Fed. R. Civ. P.
9(b)); United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d
235, 242 n.9 (3d Cir. 2004).
18
In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198,
216 (3d Cir. 2002) (quoting Fed. R. Civ. P. 9(b)).
19
Lum v. Bank of Am., 361 F.3d 217, 223–24 (3d Cir. 2004),
abrogated in part on other grounds by Twombly, 550 U.S. at
557.
20
The District Court had jurisdiction over Petras’s FCA
claims under 31 U.S.C. § 3732(a) and 28 U.S.C. § 1331. We
have jurisdiction to review the District Court’s final order
under 28 U.S.C. § 1291.
7
as evidenced by recent amendments to the FCA.21 Petras also
challenges the District Court’s finding that the obligation he
alleged was too “speculative.”22 On that specific issue,
according to Petras, the standard is not whether it is “possible
that the triggering events for payment of accrued dividends
may never occur,” but rather simply whether it is “plausible”
under his Second Amended Complaint’s well-pleaded facts
that the contingencies “could reasonably occur.”23
We begin our analysis with the relevant statutory text.
For Petras to assert a viable reverse FCA claim, he must show
that the Simparel defendants “knowingly and improperly
avoid[ed] or decrease[d] an obligation to pay or transmit
money or property to the Government.”24 The Simparel
defendants reiterate their argument on appeal that Petras’s
reverse FCA claim fails because the SBA was not the
“Government” when it was acting as the receiver for L
Capital, a private entity. The District Court did not address
this issue. However, since it is an issue of first impression
before this court, we will take this opportunity to address it.
We conclude that the SBA, when acting as a receiver
under the circumstances here, was not acting as the
Government. In the absence of controlling precedent, we find
the decisions of our sister circuit courts of appeal helpful. In
United States v. Beszborn, for example, the Court of Appeals
for the Fifth Circuit held that the Resolution Trust
Corporation, an entity the Federal Government created to
handle failed financial institutions’ affairs, was not a
Government actor when operating as receiver of a failed
bank.25 As receiver, the RTC sued the former officers and
directors of the failed bank and obtained a judgment that
included punitive penalties.26 When the Government later
criminally charged the officers and directors for the same
conduct, the Fifth Circuit rejected the defendants’ double
jeopardy defense.27 The Fifth Circuit concluded that the
21
Appellant’s Br., at 28–29.
22
Id. at 29.
23
Id.24
31 U.S.C. § 3729(a)(1)(G) (emphasis added).
25
21 F.3d 62, 68 (5th Cir. 1994).
26
Id. at 67.
27
Id. at 67–68.
8
RTC, as receiver, was not a Government entity because it had
merely stood in the failed bank’s shoes.28
More recently in United States ex rel. Adams v. Aurora
Loan Servs., Inc., the Court of Appeals for the Ninth Circuit
applied a similar principle under the FCA.29 There, relators
brought a traditional FCA suit against lenders and loan
servicers, alleging that they had submitted false certifications
to the mortgage entities, the Federal National Mortgage
Association (“Fannie Mae”) and the Federal Home Loan
Mortgage Corporation (“Freddie Mac”), by selling loans to
those companies.30 The relators argued that the false
certifications to Fannie Mae and Freddie Mac constituted
“claims” under the FCA because they were requests for
payment “‘presented to an officer, employee, or agent of the
United States.’”31 The court rejected the relators’ argument,
concluding that the mere fact of the Federal Housing Finance
Agency’s conservatorship of Fannie Mae and Freddie Mac
did not mean those companies had become “federal
instrumentalities.”32 The Ninth Circuit explained that the
Federal Housing Finance Agency, as conservator, assumed all
of Fannie Mae’s and Freddie Mac’s rights, titles, powers, and
privileges, “plac[ing] [the] FHFA in the shoes of Fannie Mae
and Freddie Mac, and giv[ing] the FHFA their rights and
duties, not the other way around.”33
The same logic applies here. As a general matter,
when a federally chartered—but private—entity is placed into
28
Id. at 68. See also Herron v. Fannie Mae, 857 F. Supp. 2d
87, 94–95 (D.D.C. 2012) (dismissing the plaintiff’s claim
under Bivens v. Six Unknown Named Agents of Fed. Bureau
of Narcotics, 403 U.S. 388 (1971) against the Federal
National Mortgage Association (“Fannie Mae”) and
emphasizing that it “was not converted into a government
entity when it was placed into conservatorship; instead, [the
Federal Housing Finance Agency] stepped into the shoes of
Fannie Mae”).
29
813 F.3d 1259, 1260 (9th Cir. 2016).
30
Id.31
Id. (quoting 31 U.S.C. § 3729(b)(2)(A)(i)).
32
Id. at 1260–61.
33
Id. at 1261–62 (affirming the district court’s dismissal of
the relators’ FCA claim).
9
receivership, the relevant federal agency, acting as receiver,
“takes over the day-to-day operations and assumes the powers
of shareholders, board of directors, and management.”34 In
other words, the agency usually “steps into the private status
of the entity” 35 and does not retain any federal authority.
A governmental entity acting in its capacity as receiver
thus does not necessarily qualify as the “Government” for
purposes of the FCA. Here, the SBA, as the receiver of L
Capital, an indisputably private entity, assumed “all powers,
authorities, rights and privileges heretofore possessed by the
general partner, managers, officers, directors, investment
advisors and other agents of L Capital.”36 The SBA did so
“for the purpose of marshalling and liquidating in an orderly
manner all of L Capital’s assets and satisfying the claims of
creditors thereof in the order of priority as determined by
[the] Court.”37 The SBA thus temporarily “stepped into” L
Capital’s private shoes for the sole purpose of winding up the
firm. The authority for doing so was purely contractual in
nature. Accordingly, the SBA did not qualify as the
Government for purposes of the FCA.
We realize, of course, that the Ninth Circuit’s decision
in Adams concerned the FDIC and a traditional FCA claim.
However, that is a distinction without a difference. We see no
reasoned basis for reaching a different result for the reverse
FCA action before us. Indeed, the SBA’s own internal
operating procedures support the conclusion that the SBA
was not acting as a governmental actor for purposes of
Petras’s reverse FCA claim:
34
Herron, 857 F. Supp. at 93; see also, e.g., United States ex
rel. Todd v. Fid. Nat’l Fin., Inc., No. 1:12-CV-666-REB-
CBS, 2014 WL 4636394, at *9 (D. Colo. Sept. 16, 2014).
35
Herron, 857 F. Supp. 2d at 94; see also O’Melveny &
Myers v. FDIC, 512 U.S. 79, 86 (1994) (“[T]he FDIC as
receiver ‘steps into the shoes’ of the failed [financial
institution].”); Beszborn, 21 F.3d at 68 (“The RTC as receiver
of an insolvent financial institution stands in the shoes of the
bank assuming all debts of the bank.”).
36
J.A. 0210.
37
J.A. 0209.
10
After SBA is appointed as Receiver (SBA-
Receiver), SBA is a fiduciary, responsible to the
court and to all creditors, including SBA-
Creditor, and parties in the interest of the proper
operation and/or liquidation of the debtor. The
Receiver is a separate legal entity and, as such,
its funds, records, claims, assets, and liabilities
are not the funds, records, claims, assets, and
liabilities of SBA or the Government. SBA-
Receiver’s decisions must be made for the
benefit of the entire Receivership estate.38
Accordingly, Petras’s reverse FCA claim must fail at the
outset.39
Moreover, even if the SBA could qualify as the
Government, Petras’s reverse FCA claim would nevertheless
fail for the reasons set forth by the District Court.
The FCA defines “obligation” as “an established duty,
whether or not fixed, arising from an express or implied
contractual, grantor-grantee, or licensor-licensee relationship,
from a fee-based or similar relationship, from statute or
38
SBA, SBIC Liquidation SOP 10 07 1, at 52,
available at
https://www.sba.gov/sites/default/files/sops/serv_tool
s_sops_1007_1_0.pdf (first and third emphases in
original and remaining emphases added).
39
Despite Petras’s suggestion, our conclusion does not
conflict with dicta we provided in Hutchins, 253 F.3d at 176.
In Hutchins, a paralegal notified the United States Trustee
that his law firm employer was submitting fraudulent billing
statements to the United States Bankruptcy Court for payment
from the U.S. Treasury. As Petras notes, we stated in
Hutchins—with no additional analysis—that it was
“undisputed that the United States Trustee and the United
States Bankruptcy Courts are government agents for purposes
of the False Claims Act.” Id. at 182. The U.S. Trustee and
U.S. Bankruptcy Courts were not implicated as receivers in
that case, and neither party otherwise challenged whether
those entities were governmental actors. Thus, this Court’s
statement in Hutchins regarding those entities is of little
guidance on the specific issues here.
11
regulation, or from the retention of any overpayment.”40
Petras argues that the Simparel defendants’ obligation to pay
accrued dividends, while contingent on either the Board’s
declaration of dividends or the company’s liquidation,
nonetheless satisfies the FCA’s definition of an “obligation.”
To support his argument that this FCA definition includes
contingent obligations, Petras asks us to focus on “an
established duty, whether or not fixed.”41 According to
Petras, such qualifying language demonstrates that the term,
“obligation,” includes instances in which a legal duty did not
exist at the time of the FCA-prohibited conduct.
The FCA provision does not define “established duty;”
nor does it explain the meaning of the phrase, “whether or not
fixed.” Given the statute’s ambiguity, we will address the
parties’ arguments regarding legislative history.42
That legislative history confirms the District Court’s
conclusion that the contingent nature of the “obligations” at
issue here precludes a finding that they are sufficiently
definite to be included within the provisions of the FCA. The
current definition of “obligation” for reverse FCA claims
resulted from the 2009 amendments to the FCA that were part
of the Fraud Enforcement and Recovery Act of 2009
(“FERA”).43 The FERA Senate Report states that the new
definition of “obligation” was intended to address “confusion
among courts that have developed conflicting definitions.”44
The legislative history, as discussed below, reveals that an
“established duty” more likely refers to one owed at the time
that the alleged improper conduct under the FCA occurred.
Contrary to Petras’s argument, the term does not include a
duty that is dependent on a future discretionary act.
As originally proposed by United States Senators
Leahy and Grassley, the FCA provision defined obligation as
40
§ 3729(b)(3).
41
Id.
42
See United States v. Kouevi, 698 F.3d 126, 133 (3d Cir.
2012) (“Legislative history is only an appropriate aid to
statutory interpretation when the disputed statute is
ambiguous.”).
43
Pub. L. No. 111–21, 123 Stat. 1617 (2009).
44
S. Rep. 111-10, at 14 (2009).
12
“a fixed duty, or a contingent duty arising from an express or
implied contractual . . . or similar relationship.”45 Senator
Kyl suggested revising the definitional language, “a fixed
duty, or a contingent duty,” to instead state: “an established
duty, whether or not fixed.”46 Senator Kyl was concerned
that under the original language Senators Leahy and Grassley
had proposed, relators would feel emboldened to sue to
enforce fines before the Government had “formally
established” the duty to pay them.47 For example, if a
corporation had falsely claimed compliance with a regulation,
a relator could then bring a reverse FCA suit based on this
conduct and assert that the corporation was improperly
avoiding an obligation to pay discretionary fines that the
Government might levy for this conduct. Senator Kyl
proposed his revision to prevent relators from bringing such
speculative FCA claims, and his proposal for the alternative
language was ultimately adopted.
Again, although the factual circumstances here are
different, the difference is without a distinction. The same
basic principle animating Senator Kyl’s concern applies.
Petras should not be able bring a reverse FCA claim alleging
that the Simparel defendants improperly avoided an
obligation to pay the Government because the obligation did
not exist when the defendants’ alleged misconduct occurred.
Even if we assume Petras’s allegations that the Simparel
defendants withheld financial information from the SBA and
diverted resources to other entities are true, the allegations do
not make out an FCA claim under the circumstances here.
The two events that would trigger an actual obligation to pay
dividends—either the Board’s declaration of the dividends or
Simparel’s liquidation—had not yet materialized, and Petras
does not allege that they had or that he even knew when they
would have materialized. Indeed, the obligation technically
would never materialize if the Board never exercised its
discretion to declare the dividends or if Simparel never
liquidated.
45
155 Cong. Rec. S. 4539 (2009) (daily ed. Apr. 22, 2009)
(statement of Sen. Kyl).
46
Id.47
Id.13
Moreover, the legislative history of the statute’s other
relevant language—“whether or not fixed”—suggests a
reference to “whether or not the amount owed” was fixed at
the time of the violation, not “whether an obligation to pay
was fixed.”48 In discussing the meaning of “obligation,” the
Senate Judiciary Report explained that an “obligation arises
across the spectrum of possibilities from the fixed amount
debt obligation . . . to the instance where there is a
relationship between the Government and a person that
results in a duty to pay the Government money, whether or
not the amount owed is yet fixed.”49 This understanding of
the phrase conflicts with Petras’s argument that the “whether-
or-not-fixed” phrase refers to the contingent obligation in this
case—that is, the obligation to pay accrued dividends that
arises when the Board declares dividends, or if Simparel is
liquidated.
We conclude then that for a reverse FCA claim, the
definition of an “obligation” refers to one existing at the time
of the improper conduct to pay the Government funds, the
amount of which may not be fixed at the time of the improper
conduct.50 Our rationale accords with other appellate courts’
similar conclusions in other contexts.51
48
See United States ex rel. Boise v. Cephalon, Inc., No. 08-
287, 2015 WL 4461793, at *1 n.1 (E.D. Pa. July 21, 2015)
(internal quotation marks omitted) (quoting 1 John T. Boese,
Civil False Claims and Qui Tam Actions § 2.01[L], 2–83
(2014)).
49
S. Rep. No. 111-10, at 14 (2009) (emphases added)
(citations omitted) (internal quotation marks omitted).
50
In our recent consideration of whether a failure to pay
marking duties on imported products could give rise to a
reverse FCA claim, we consulted the history of the 2009
FERA amendments and observed that the amendments’ new
definition of obligation “favor[ed] a more broadly inclusive
definition” of the FCA’s reverse-false claim provision. See
Customs Fraud Investigations, 839 F.3d at 254. In that case,
the plaintiff had alleged that the defendant company,
Victaulic, neglected to notify the United States Bureau of
Customs and Border Protection (CBP) of its pipe fittings’
non-conforming status. This failure to notify resulted in the
pipe fittings being released into the stream of commerce in
the United States and, consequently, owed marking duties not
14
being paid. Id. at 254–55. The district court concluded that
Victaulic’s conduct was not grounds for false claims liability
because such duties “were too attenuated and contingent to
qualify as the types of obligations to pay money to the
government covered by the FCA.” Id. at 248. We rejected
the district court’s rationale. We explained that because the
duty accrued at the time of importation, “without
exception,”—which the plaintiff alleges Victaulic knew—all
the plaintiff had to prove to hold Victaulic liable under the
FCA was that Victaulic knew of its obligation under federal
law to properly mark its goods (or otherwise notify the CBP)
and that Victaulic failed to do so before its goods cleared
customs. Id. at 254–55 (observing that the 2009 United
States Senate Report “discussed customs duties for
mismarking country of origin, and how such duties would be
covered by the amended reverse false claims provision”
(internal quotation marks and citation omitted)).
Here, by contrast, the District Court’s concern about
the accrued dividends being too “speculative” to implicate
FCA liability is justified. For one, Petras has not alleged
either of the two conditions under which the Simparel
defendants’ obligations would have arisen. Petras never
alleges that the Board declared the dividends or had an
inclination to do so; nor had Simparel entered into
liquidation, and Petras does not allege as much. The District
Court did not, as Petras suggests, conflate the terms
“contingent” and “speculative.” Instead, the District Court
properly concluded that regardless of the proper definition of
“contingent,” the scenarios Petras advanced were so
speculative that they could not be considered a contingent
obligation. J.A., 0047. We agree with that conclusion.
51
In United States ex rel. Simoneaux v. E.I. duPont de
Nemours & Co., for example, a relator sued his former
employer under a reverse FCA action, alleging that his
employer had failed to report chemical leaks to the EPA, as
the Toxic Substances Control Act requires. 843 F.3d 1033,
1034 (5th Cir. 2016). The plaintiff claimed that the
employer’s failure to do so allowed it to avoid government
penalties, which, under the TSCA, the EPA has the discretion
to assess. Id. at 1040. The plaintiff argued that after the 2009
FCA amendments, the definition of “obligation” covered
“contingent” penalties. But the Fifth Circuit clarified that the
15
In sum, under the FCA provision’s plain language, the
Simparel defendants could not have “knowingly and
improperly avoid[ed] or decrease[d] an obligation”52 to pay
the accrued dividends at the time of their alleged misconduct
because the obligation did not yet exist. Accordingly, even if
the SBA qualified as the Government for purposes of Petras’s
FCA action, we would still affirm the District Court’s
dismissal of Petras’s reverse FCA claim.
C. Petras’s Conspiracy and Retaliation Claims
Petras’s remaining claims are (1) that Log Logistics,
MontERP, and the Simparel defendants all conspired to
violate the reverse FCA provision; and (2) that the Simparel
defendants unlawfully retaliated against him by terminating
him after they became aware that he might file a FCA suit.
Our explanation of why the District Court was correct in
dismissing the FCA claim applies with equal force to the
dismissal of Petras’s conspiracy claim.53
The District Court dismissed Petras’s FCA retaliation
claim because Petras had failed to sufficiently plead that the
Simparel defendants knew that he would file an FCA claim
before they terminated him. In order to properly plead a FCA
retaliation cause of action, Petras needed to show that “(1) he
engaged in ‘protected conduct,’ (i.e., acts done in furtherance
of an action under [31 U.S.C.] § 3730) and (2) that he was
discriminated against because of his ‘protected conduct.’”54
Petras also was required to show that the Simparel defendants
were “on notice of the ‘distinct possibility’ of False Claims
Act litigation and retaliated against him because of his
‘protected conduct.’”55 Petras claims that the District Court
erroneously concluded that he had not made clear that he had
“new definition resolved uncertainty regarding whether the
amount of an obligation needs to be fixed” and “did not upset
the widely accepted holding that contingent penalties are not
obligations.” Id. at 1036.
52
31 U.S.C. § 3729(a)(1)(G).
53
See Pencheng Si v. Laogai Research Found., 71 F. Supp.
3d 73, 89 (D.D.C. 2014) (“[T]here can be no liability for
conspiracy where there is no underlying violation of the
FCA.”).
54
Hutchins, 253 F.3d at 186.
55
Id. at 191.
16
alerted the Simparel defendants of his intention to file an
FCA action.
Even if Petras had sufficiently alleged such notice—an
issue we do not address here—“the whistleblower protections
apply only to actions taken in furtherance of a viable False
Claims Act case,” though it need not be a “winning FCA
case.”56 Here, for the reasons already explained, Petras’s
reverse FCA action is not viable. Therefore, Petras’s
retaliation claim fails as well.
III.
For the reasons set forth above, we will affirm the
District Court’s dismissal of Petras’s complaint.
56
Dookeran v. Mercy Hosp. of Pittsburgh, 281 F.3d 105,
107–08 (3d Cir. 2002) (explaining that “courts . . . require
that there at least be a distinct possibility that a viable FCA
action could be filed . . . . If there is no way that [a plaintiff’s]
conduct of informing [his employer] about the allegedly
fraudulent application could reasonably lead to a viable FCA
action, then the whistleblower provision provides him no
protection.”); see also Hutchins, 253 F.3d at 188.
17