Head v. the Kane Company

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
UNITED STATES OF AMERICA, )
)
ex rel. )
)
ANTHONY HEAD )
)
Plaintiff, )
)
v. ) Civil Action No. 05-317 (GK)
)
THE KANE COMPANY, et al., )
)
Defendants. )
______________________________)
MEMORANDUM OPINION
Relator Anthony Head brings this qui tam action, pursuant to
the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., against
Defendants Kane Company (“the Company”), Settles Associates, Inc.,
the Perara Group, Inc., Management Alternatives, Inc., Harris
Design Group, P.C., as well as Kane Company officers, John Kane,
Ronald Meliker, James Durfee, William Auchter, and Buck Whitman.1
Relator also brings breach of contract and state law tort claims
against Defendants Kane Company, John Kane, and Ronald Meliker.
The U.S. Government has intervened in Relator’s qui tam action
and brings suit for violations of the FCA against Defendants Kane
1
According to the docket, Defendants Settles Associates, Inc.,
the Perara Group, Inc., Management Alternatives, Inc., Harris
Design Group, P.C., as well as Kane Company officers, James Durfee,
William Auchter, and Buck Whitman have never been served by
Relator. Consequently, the Court does not have jurisdiction to
consider Relator’s claims against these Defendants.
Company and its subsidiaries, including Office Movers, Inc., and
Office Installers, Inc.
This matter is presently before the Court on Defendants’
Motion to Dismiss, (Nov. 15, 2010) [Dkt. No. 115], Relator’s Third
Amended Complaint, (“3d. Am. Compl.”) (Oct. 13, 2010) [Dkt. No.
113], and the United States’ Complaint in Intervention (“U.S.
Compl.”) (Apr. 27, 2009) [Dkt. No. 47], pursuant to Federal Rules
of Civil Procedure 12(b)(6) and 9(b).2 Upon consideration of the
Motion, Opposition, Reply, and the entire record herein, and for
the reasons set forth below, the Motion to Dismiss is granted in
part and denied in part.
I. Background3
Relator Anthony Head began working for Defendant Kane Company
on December 1, 1997. 3d. Am. Compl. ¶ 14. Defendant Kane Company is
a Maryland corporation providing office moving and other services
to corporate and government clients. Id. ¶ 16. Defendant John Kane
2
Defendants’ Motion to Dismiss the Third Amended Complaint has
been jointly brought by Defendants Kane Company, John Kane, and
Ronald Meliker. Unless otherwise noted, in this opinion the term
“Defendants” shall refer to the Kane Company, John Kane, and Ronald
Meliker.
3
For purposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir.
2008); Shear v. Nat’l Rifle Ass’n of Am., 606 F.2d 1251, 1253 (D.C.
Cir. 1979). Therefore, the facts set forth herein are taken from
Relator’s Third Amended Complaint, the United States’ Complaint in
Intervention, and the undisputed facts in the record.
-2-
is President and CEO of Kane Company, and Defendant Ronald Meliker
is Executive Vice President and COO of Kane Company. Id. ¶¶ 17, 19.
During his employment by the Company, Relator served in
various positions, including Project Manager Coordinator and Vice
President of various Kane Company subsidiaries. Id. In these
capacities, Relator attended various Company meetings, including at
the executive-level, and reviewed a number of Kane Company’s
government contracts. Id. ¶ 36.
Since at least 1980, Kane Company has entered into various
agreements, governed by the Service Contract Act (“SCA”), 41 U.S.C.
§ 351 et seq., to provide moving and other services to various
Government agencies. Id. ¶ 6. Beginning some time in 1998, Relator
learned that Kane Company had regularly failed to pay SCA-required
wage determinations on a number of these government contracts.4 Id.
¶¶ 36-44. On various occasions, Relator spoke to Kane Company
officers, including Defendants John Kane and Ronald Meliker, about
these problems. Id. To Relator’s knowledge, these officials took
no action to correct these practices. Id.At different times between 2002 and 2005, Relator also
attended various executive-level meetings in which Kane Company
4
The SCA establishes minimum labor standards for service
contracts between the Government and private contractors. 41 U.S.C.
§ 351(a). Among other things, the SCA requires contractors to: (1)
pay “a minimum monetary wage” to employees who work on federal
contracts; and (2) provide “fringe benefits” to covered employees.
Id. § 351(a)(1) - (a)(2).
-3-
officials, including Defendants John Kane and Ronald Meliker,
discussed the following illegal practices: (1) fraudulently billing
the Government for employee services that were not provided and
double billing for employee work;(2) overcharging the Government
for fuel costs; and (3) refraining from providing the “best price,”
i.e. the price paid by the Company’s comparable commercial
customers, as required by 48 C.F.R. § 552.215-72, when “negotiating
to enter” the Government’s General Services Administration (“GSA”)
Schedule or when submitting bids for GSA Schedule Contracts. Id. ¶¶
45-52.
In 2004, Relator met with Mary Perara, CEO of the Perara
Group, a member of the Small Business Administration’s (“SBA”)
Section 8(a) program for certified minority-owned businesses. Id.
¶ 53. At this meeting, the parties discussed a possible partnership
between Defendant Kane Company and the Perara Group on government
contracts reserved for Section 8(a) companies. Id. Following this
meeting, Relator did not recommend proceeding with the partnership,
since the Perara Group had no experience with the type of services
Defendant Kane Company provided. Id. After leaving Kane Company,
Defendant learned that the Perara Group had obtained several
Section 8(a) contracts with the Government. Id. ¶ 54. Relator
believed that Defendant Kane Company entered into an illegal
agreement with the Perara Group to perform most of the work on
-4-
these contracts in exchange for a portion of the Section 8(a)
contract funds. Id. ¶¶ 54-55.
On January 10, 2005, Defendant Kane Company terminated Relator
for poor performance. Id. ¶ 14; Defendants’ Motion to Dismiss
Relator’s Second Amended Complaint and United States’ Complaint in
Intervention, 4 (“Defs.’ Mot.”) (Mar. 8, 2010) [Dkt. No. 82].
Approximately two weeks later, Relator and Defendant Kane Company
entered into a Separation Agreement in connection with Relator’s
termination. Defendant Kane Company’s Answer and Counterclaims, Ex.
A. ¶ 4 (July 24, 2009) [Dkt. No. 56-1].
On February 11, 2005, Relator filed a sealed Complaint in this
Court, which he subsequently amended on March 1, 2007 [Dkt. No.
15]. In these Complaints, Relator alleges that Defendants Kane
Company, John Kane, and Ronald Meliker violated the FCA by engaging
in the aforementioned fraudulent schemes.
On March 26, 2009, following a four year investigation into
Relator’s allegations, the United States intervened in this case
[Dkt. No. 45]. On April 27, 2009, the Government filed its
Complaint in Intervention. On July 24, 2009, Defendant Kane Company
filed an Answer and Counterclaims to the U.S. Complaint and
Relator’s First Amended Complaint [Dkt. No. 56], raising two
-5-
affirmative defenses against the Government’s allegations and
twelve state law counterclaims against Relator.5
On February 16, 2010, Relator filed a Second Amended Complaint
[Dkt. No. 77], raising claims of unlawful retaliation under the
FCA, breaches of the Separation Agreement, and common law tort
claims against Defendants. On March 8, 2010, Defendants filed a
Motion to Dismiss Relator’s Second Amended Complaint and United
States’ Complaint in Intervention. On April 19, 2010, the United
States filed an Opposition to Defendants’ Motion to Dismiss (“U.S.
Opp’n”) [Dkt. No. 92]. On May 4, 2010, Relator filed an Opposition
to Defendants’ Motion to Dismiss (Rel. Opp’n) [Dkt. No. 94]. On May
7, 2010, Defendants filed a Reply in Support of Their Motion to
Dismiss (Defs.’ Reply) [Dkt. No. 95]. On May 27, 2010, Relator
filed a Notification of Supplemental Authority and Surreply to
Defendants’ Reply in Support of Their Motion to Dismiss
(“Surreply”) [Dkt. No. 98].
On October 13, 2010, Relator Head filed a Third Amended
Complaint, adding several new factual allegations and raising a
claim for injunctive relief to prevent Defendants from further
violating the Separation Agreement. On November 15, 2010,
Defendants filed a Motion to Dismiss Relator’s Third Amended
5
Defendants John Kane and Ronald Meliker did not join in
Defendant Kane Company’s counterclaims against Relator. On November
12, 2009, this Court dismissed nine of Defendants’ counterclaims
and one of their affirmative defenses [Dkt. No. 65].
-6-
Complaint, responding to the new allegations raised in the Third
Amended Complaint and incorporating the arguments from their Motion
to Dismiss the Second Amended Complaint.6 On November 23, 2010,
Relator filed a Memorandum in Opposition (“Rel. Supp. Opp’n”) [Dkt.
No. 116]. On December 3, 2010, Defendants filed a Reply in Support
of Their Motion to Dismiss Relator’s Third Amended Complaint
(“Defs.’ Supp. Reply”)[Dkt. No. 117].7
6
On October 13, 2010 the Court dismissed Relator’s Second
Amended Complaint and granted his motion to file a Third Amended
Complaint. See Order Granting Relator’s Motion for Leave to File
Third Amended Complaint (“Oct. 13, 2010 Order”) [Dkt. No. 112].
This Court also issued an Order dismissing Defendants’ Motion to
Dismiss the Second Amended Complaint as moot (Dec. 9, 2010)[Dkt.
No. 118]. However, the Court permitted Defendants to include all
arguments from their Motion to Dismiss the Second Amended Complaint
in their Motion to Dismiss the Third Amended Complaint. Oct. 13,
2010 Order. The Court further indicated that any supplemental
briefing should only address Relator’s new allegations. Id.Accordingly, in deciding Defendants’ Motion to Dismiss the Third
Amended Complaint, the Court will consider the parties’ arguments
relating to both the Second Amended and Third Amended Complaints.
7
On January 3, 2011, Defendants filed a Notice of Supplemental
Authority Related to Motions to Dismiss [Dkt. No. 119]. In addition
to apprising the Court of a recent D.C. Circuit case, this Notice
also contained extensive new arguments relating to the underlying
Motion. On January 13, 2011, the Government filed a Response to
Defendants’ “Notice of Supplemental Authority” [Dkt. No. 121]. On
January 14, 2011, Relator filed a Response to Defendants’ Notice of
Supplemental Authority Related to Motions to Dismiss [Dkt. No.
122]. On January 21, 2011, Defendants filed a Reply Regarding
Notice of Supplemental Authority [Dkt. No. 123].
The Supplemental Authority on which Defendants relied is
United States v. Science Applications Int’l Corp., 626 F.3d 1257,
1266 (D.C. Cir. 2010)[hereinafter “SAIC”]. Defendants have
misrepresented the holding and rationale of their supplemental
case, and the Court finds their arguments to be unpersuasive.
-7-
II. Standard of Review
A. Rule 12(b)(6)
Under Rule 12(b)(6), a plaintiff need only plead “enough facts
to state a claim to relief that is plausible on its face” and to
“nudge[] [his or her] claims across the line from conceivable to
plausible.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
“[A] complaint [does not] suffice if it tenders naked assertions
devoid of further factual enhancement.” Ashcroft v. Iqbal, 129
S.Ct. 1937, 1949 (2009) (internal quotations omitted) (citing
Twombly, 550 U.S. at 557). Instead, the complaint must plead facts
that are more than “merely consistent with” a defendant’s
liability; “the pleaded factual content [must] allow[] the court to
draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. at 1940 (citing Twombly, 550 U.S. at 556).
In deciding a Rule 12(b)(6) motion, the court may consider any
documents attached to or incorporated into the complaint, matters
of which the court may take judicial notice, and matters of public
record. E.E.O.C. v. St. Francis Xavier Parochial Sch., 117 F.3d
621, 624 (D.C. Cir. 1997).
“[O]nce a claim has been stated adequately, it may be
supported by showing any set of facts consistent with the
allegations in the complaint.” Twombly, 550 U.S. at 563. Under the
standard set forth in Twombly, a “court deciding a motion to
dismiss must . . . assume all the allegations in the complaint are
-8-
true (even if doubtful in fact) . . . [and] must give the plaintiff
the benefit of all reasonable inferences derived from the facts
alleged.” Aktieselskabet, 525 F.3d at 17 (citations and internal
quotations omitted). See also Tooley v. Napolitano, 586 F.3d 1006,
1007 (D.C. Cir. 2009) (declining to reject or address the
government’s argument that Iqbal invalidated Aktieselskabet).
B. Rule 9(b)
Rule 9(b) requires that a “party [] state with particularity
the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person’s mind may be alleged
generally.” Claims brought under the FCA state an action in fraud,
and therefore are subject to Rule 9(b)’s pleading requirements.
U.S. ex. rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251,
1256 (D.C. Cir. 2004).
Courts must not rigidly apply the requirements of Rule 9(b),
but rather should analyze the Rule on a case by case basis. U.S. ex
rel. Pogue v. Diabetes Treatment Centers of Am. Inc., 238 F. Supp.
2d 258, 269-70 (D.D.C. 2002). Thus, while some courts have required
greater specificity in the allegations of fraud, such heightened
pleading requirements may not be appropriate in each and every
case. Id. at 270.
In deciding Rule 9(b) cases, courts should also be guided by
the Rule’s purpose to “discourage the initiation of suits brought
solely for their nuisance value, and [to] safeguard potential
-9-
defendants from frivolous accusations of moral turpitude . . . .
And because fraud encompasses a wide variety of activities, the
requirements of Rule 9(b) guarantee all defendants sufficient
information to allow for preparation of a response.” Martin-Baker,
389 F.3d at 1256 (citations and internal quotations omitted)
(alteration in original). A court should “hesitate to dismiss a
complaint under Rule 9(b) if the court is satisfied (1) that the
defendant has been made aware of the particular circumstances for
which she will have to prepare a defense at trial, and (2) that
plaintiff has substantial prediscovery evidence of those facts.”
U.S. ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F. Supp.
2d 28, 34 (D.D.C. 2003).
III. Analysis
Plaintiffs allege that various Defendants violated the FCA by
conspiring to and in fact defrauding the U.S. Government. 3d. Am.
Compl., Counts 1-3; U.S. Compl., Count 1.
In his Third Amended Complaint, Relator also brings the
following additional claims. First, Relator claims that Defendant
Kane Company violated Section 3730(h) of the FCA by retaliating
against him for his protected activities.8 3d. Am. Compl., Count 4.
8
In the Third Amended Complaint, Relator also raises an FCA
retaliation claim against Defendants John Kane and Robert Meliker.
3d. Am. Compl. ¶ 130. However, in his Motion papers, Relator
abandons this claim. Rel. Opp’n 40 n. 21. The Court, therefore,
will only consider Relator’s retaliation claim against Defendant
Kane Company.
-10-
Second, Relator raises claims against Defendant Kane Company for
breach of the Separation Agreement, and also brings various tort
law claims against Defendants Kane Company, John Kane, and Ronald
Meliker. Id. Counts 5-12.9 Finally, Relator requests a temporary
restraining order, as well as preliminary and permanent injunctive
relief, enjoining Defendant Kane Company and its officers from
further breaching the Separation Agreement. Id. Count 13.
Defendants have moved to dismiss all the foregoing claims. In
his Opposition to Defendants’ Motion to Dismiss the Third Amended
Complaint, Relator has withdrawn his claim for injunctive relief in
Count 13. Rel. Supp. Opp’n 1 n.1. The Court, therefore, will
dismiss that Count with prejudice. The Court will now consider
Defendants’ arguments against Plaintiffs’ remaining claims.
A. Plaintiffs’ Fraud Claims Under the FCA
The FCA provides a civil penalty and treble damages against
any individual who: (1) knowingly presents or causes to be
presented a false or fraudulent claim for payment or approval by
the United States, 31 U.S.C. § 3729(a)(1); (2) knowingly makes,
9
In Counts 5-6, Relator raises two breach of contract claims
against Defendant Kane Company, alleging multiple violations of the
Separation Agreement. In Count 7, Relator raises defamation claims
against Defendants Kane Company, John Kane, and Robert Meliker.
Counts 8-11 raise claims for intrusion upon seclusion,
appropriation of likeness/name, and invasion of privacy against
Defendants Kane Company and John Kane. In Count 12, Relator brings
an abuse of legal process claim against Defendant Kane Company,
alleging that it filed twelve counterclaims against Relator for
improper purposes.
-11-
uses, or causes to be made or used, a false record or statement
material to getting a false or fraudulent claim paid or approved by
the Government, id. § 3729(a)(2); or (3) conspires to defraud the
United States by getting a false or fraudulent claim allowed or
paid, id. § 3729 (a)(3).10 To enforce these and other provisions of
the FCA, a private person, known as a “relator,” may bring a civil
or “qui tam” action in the Government’s name. 31 U.S.C. §
3730(b)(1). If the Government decides to intervene, it shall then
have the primary responsibility for prosecuting the action,
although the relator may continue as a party to the case, subject
to certain limitations enumerated in the statute. Id. § 3730(c)(1).
Relying on the foregoing provisions, Relator alleges that
Defendants Kane Company, John Kane, and Ronald Meliker violated
Sections 3729(a)(1), (a)(2), and (a)(3) of the FCA by avoiding
payment of SCA-required wages to employees working on the Company’s
government contracts. 3d. Am. Compl. ¶¶ 103-15, 116-119, 125-26. In
10
In 2009, the FCA was amended by the Fraud Enforcement and
Recovery Act of 2009 (“FERA”), Pub. L. No. 111-21, 123 Stat. 1617.
Most of the FERA amendments went into effect on May 20, 2009 and
apply only to conduct occurring on or after that date. However,
FERA made certain amendments retroactive to June 7, 2008 and
applicable to all “claims” pending on or after that date. Id. at
Sec. 4(f). “Courts that have considered this clause have noted
[that] ‘claims’ refers only to a defendant’s request for payment,
and not to pending cases.” U.S. ex rel. Bender v. N. Am.
Telecomm’ns, Inc., 750 F. Supp. 2d 1, 5 (D.D.C. 2010). As the
parties in this case have not argued for application of the FERA
amendments and because these amendments do not affect resolution
of the instant Motion, the Court shall refer only to the pre-
amendment version of the FCA for the remainder of this opinion.
-12-
its Complaint in Intervention, the Government joins in this
allegation, but brings its claim only against Defendant Kane
Company and its subsidiaries, including Office Movers and Office
Installers, Inc. See generally, U.S. Compl.
Defendants urge the Court to dismiss Plaintiffs’ FCA claims on
four grounds. First, Defendants argue that Plaintiffs “have not
pled the requisite objective false statement underlying their FCA
[Section 3729(a)] claims.”11 Defs.’ Reply 9. Second, Defendants
argue that Plaintiffs have not “demonstrate[d] that SCA compliance
was material to the Government’s decision to pay” under the Kane
Company’s government contracts. Id. at 14. Third, Defendants argue
that some of Relator’s conspiracy claims under Section 3729(a)(3)
must be dismissed pursuant to Rule 12(b)(6). Defs.’ Mot. 11 n.4;
Defs.’ Reply 15 n.16. Fourth, Defendants argue that all claims
brought by Plaintiffs under Section 3729(a) of the FCA must be
dismissed for failure to meet Rule 9(b)’s pleading requirements.
Defs.’ Mot. 8-11.
11
The Court notes that Defendants raise this argument, as well
as a number of others, for the first time in their reply brief. See
generally, Defs.’ Reply. Although “we have generally held that
issues not raised until the reply brief are waived,” Gen. Elec. Co.
v. Jackson, 610 F.3d 110, 123 (D.C. Cir. 2010)(citations and
internal quotations), these issues are not deemed to have been
waived since Relator was afforded the opportunity to respond to
Defendants’ arguments in his Surreply.
-13-
1. Plaintiffs Have Adequately Alleged “False Claims”
Under the FCA
Although Defendants rely on Rule 9(b) to argue that Plaintiffs
have failed to plead the “objective false statement[s]” underlying
their fraud claims, Defs.’ Reply 9-17, they are in actuality
raising a Rule 12(b)(6) challenge. U.S. ex rel. Folliard v. CDW
Tech. Servs., 722 F. Supp. 2d 20, 27-28 (D.D.C. 2010)(citation and
internal quotations omitted). Defendants argue that both Relator
and the Government fail to allege that “any” false claims were made
to the Government. It is axiomatic that a plaintiff bringing an
action for fraud under the FCA must, first and foremost, allege
that an actual “false claim” was presented to the Government. See
U.S. ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551 (D.C.
Cir. 2002) (holding that the FCA “attaches liability [] not to
underlying fraudulent activity, but to the claim for payment”)
(citation and internal quotations omitted).
The FCA defines “claims” to include “any request or demand,
whether under a contract or otherwise, for money or property which
is made to a contractor, grantee, or other recipient if the United
States Government provides any of the money or property which is
requested or demanded.” 31 U.S.C. § 3729(c). Congress has
emphasized that the FCA should be broadly interpreted “to reach all
types of fraud . . . that might result in financial loss to the
Government.” United States v. Neifert-White Co., 390 U.S. 228, 232,
8 S. Ct. 959 (1968). Accordingly,“‘[f]alse claims’ under the FCA
-14-
take a variety of forms.” SAIC, 626 F.3d at 1266. These include:
(1) presentment claims; (2) fraudulent inducement claims; and (3)
false certification (express or implied) claims. See U.S. ex rel.
Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321, 1326
(D.C. Cir. 2005)(recognizing that claims based upon fraudulent
inducement are actionable under the FCA); SAIC, 626 F.3d 1257, 1266
(endorsing implied false certification theory as basis for FCA
claims in D.C. Circuit).
The elements of a presentment claim are that “(1) the
defendant submitted a claim to the government, (2) the claim was
false, and (3) the defendant knew the claim was false.” Folliard,
722 F. Supp. 2d at 26. Fraudulent inducement claims consist of
“claim[s] submitted to the Government under a contract which was
procured by fraud, even in the absence of evidence that the claims
were fraudulent in themselves.” Bettis, 393 F.3d at 1326. False
certification claims “rest[] on a false representation of
compliance with an applicable federal statute, federal regulation,
or contractual term.” SAIC, 626 F.3d at 1266.
While presentment claims consist of explicitly false or
fraudulent demands for payment, id., fraudulent inducement and
false certification claims do not depend on the existence of such
explicitly false payment requests. Instead, those two types of
claims require the making of initial false representations to the
Government. See Bettis, 393 F.3d at 1328 (fraudulent inducement);
-15-
SAIC, 626 F.3d at 1266-67 (implied false certification). An initial
false representation occurs when a party makes promises at the time
of contracting that it intends to break. Bettis, 393 F.3d at 1329.
Relying on these forms of fraud, Plaintiffs allege that
Defendants submitted “false claims” to the Government. Defendants
contend, however, that Plaintiffs’ allegations fail to qualify as
“false claims” because: (1) they have not alleged any explicitly
false or fraudulent demands for payment on which to base a
presentment claim; and (2) they have not alleged any “[initial
false representation] or certification on which to base a fraud-in-
the-inducement or implied certification [claim].” Defs.’ Reply 9-
11, 12-16.12 Defendants’ arguments fail for the following reasons.
a. Plaintiffs’ Presentment Claims Adequately
Allege Explicitly False or Fraudulent Demands
for Payment
Defendants argue that Plaintiffs’ presentment claims do not
“identify” any explicitly false or fraudulent demands for payment
made by Defendants to the Government. Defs.’ Reply 9-11, 15-16.
This argument misstates the standard Plaintiffs must meet in a Rule
12(b)(6) motion. Although a plaintiff must, of course, provide
12
Defendants also argue that Plaintiffs’ allegations merely
claim breaches of contractual, statutory, or regulatory violations,
which are not actionable under the FCA. Defs.’ Reply 11-12. While
it is true that the FCA does not attach liability to these types of
breaches, U.S. ex rel. Hockett v. Columbia/HCA Healthcare, 498 F.
Supp. 2d 25, 70 (D.D.C. 2007), Plaintiffs’ allegations qualify as
cognizable claims under the FCA, for different reasons, as
demonstrated infra.
-16-
evidence of these false statements at some point, she is not
required to do so at the early stages of litigation. See Krieger v.
Fadely, 211 F.3d 134, 136 (D.C. Cir. 2000) (holding that “using
Rule 12(b)(6) . . . to weed out what appear to be factually-
deficient cases may be incompatible with Rule 8”). Rather, to
survive a 12(b)(6) motion, plaintiff need only “plead factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” U.S. ex rel.
Westrick v. Second Chance Body Armor, Inc., 685 F. Supp. 2d 129,
133 (D.D.C. 2010) (citation and internal quotations omitted). In
short, the complaints “need not plead law or match facts to every
element of a legal theory.” Krieger, 211 F.3d at 136 (citation and
internal quotations omitted).
Plaintiffs’ presentment claims adequately allege the
existence of explicitly false or fraudulent demands for payment.
First, the Government clearly alleges that Defendant Kane Company
submitted explicitly false invoices to the Government under SCA
contracts. See U.S. Compl. ¶ 15. Second, Relator also alleges that
explicitly false demands for payment were made under several Kane
Company contracts governed by the SCA. See, e.g., 3d. Am. Compl. ¶¶
39-40. Finally, Relator’s claims regarding the fraudulent billing
of employee work and fuel surcharges are based, at least in part,
-17-
on allegations that explicitly false bills were submitted to the
Government.13 See id. ¶¶ 46, 62, 65.
b. Plaintiffs’ Fraudulent Inducement and False
Certification Claims Adequately Allege Initial
False Representations
i. Fraudulent Inducement
Relator argues that, because Defendants originally obtained
various government contracts through fraud, the theory of
fraudulent inducement supports treating all subsequent demands for
payment pursuant to those contracts as “false claims.” Rel. Opp’n
13-15. Specifically, Relator’s allegations raise the reasonable
inference that Defendants implicitly made or caused to be made, in
the course of executing their government contracts, the following
false or fraudulent representations to the Government.
First, with regard to the SCA claims, Relator alleges that
Defendant Kane Company entered into numerous Government contracts,
intending to flout the contracts’ SCA wage requirements. See
generally, U.S. Compl. See also 3d. Am. Compl. ¶¶ 35-44, 56-61.
This allegation raises the reasonable inference that, in executing
13
Defendants argue that Relator’s claims for fraudulent
billing of employee work and fuel surcharges are not FCA claims,
“but [rather are] unjust enrichment claim[s] that [do] not hinge on
whether a false claim was presented to the United States.” Defs.’
Reply 14. However, Relator’s allegation that the Government was
billed for employee work that was not performed and overcharged for
fuel costs are, in fact, paradigmatic FCA claims. See SAIC, 626
F.3d at 1266 (“In the paradigmatic [FCA] case, a claim is false
because it involves an incorrect description of goods or services
provided or a request for reimbursement for goods or services never
provided.”)(citation and internal quotations omitted).
-18-
these contracts, Defendant Kane Company, by and through its
officers, implicitly and falsely represented to the Government that
it would comply with the SCA.14
Second, with regard to Defendant Kane Company’s fraudulent
billing of employee work which was not performed, Relator alleges
that he participated in various executive-level meetings with Kane
Company officials in which “it was periodically discussed that
14
In challenging Plaintiffs’ SCA allegations, Defendants
primarily rely on U.S. ex rel. UNITE HERE v. Cintas Corp., 06-cv-
2413, 2008 WL 1767039 (N.D. Cal. Apr. 16, 2008). In that case,
relator relied on theories of fraudulent inducement and implied
false certification to allege that defendant violated the FCA by
“obtaining numerous contracts with the U.S. government under the
pretense that [defendant] would comply with the requirements of the
[SCA] and by falsely certifying that it had so complied.” Id. at
*1. The District Court for the Northern District of California
ultimately dismissed these claims under Rules 12(b)(6) and 9(b).
Defendants argue that UNITE HERE is “very similar” to the
instant case. Defs.’ Reply 13. However, the factual circumstances
in UNITE HERE are, in fact, very different from those presented in
this case. First, and most significantly, unlike Plaintiffs in
this case, relator in UNITE HERE failed to raise any allegation that
defendant initially obtained its government contracts “through
false statements or fraudulent conduct.” 2008 WL 1767039, at *9.
Second, relator in UNITE HERE lacked direct knowledge of
defendant’s alleged violations of the FCA and, consequently,
brought nearly all its claims based upon “information and belief.”
Id. at *3-4. By contrast, in this case, Plaintiffs’ allegations are
largely based on Relator’s personal knowledge of the SCA scheme.
See, e.g., 3d. Am. Compl. ¶ 56. Finally, while the Government has
intervened in the instant case, it declined to do so in UNITE HERE.
2008 WL 1767039, at *1. Although the Government’s failure to
intervene in a case is not dispositive, it deserves respect because
the Government makes such a decision “if, after assessing the
evidence presented by relator and conducting its own preliminary
investigation, it believes the action lacks merit.” U.S. ex rel.
Purcell v. MWI Corp., 209 F.R.D. 21, 26 (D.D.C. 2002).
-19-
there was misconduct concerning the billing and use of employees at
staff positions on two or more contracts for the same hours” and
“that there was a practice of employees at staff positions . . .
for Defendant Kane Company and its affiliates signing in on
government time sheets and then leaving the workplace to work on a
private sector project or other government job.” Id. This
allegation raises the reasonable inference that, in executing
government contracts, Defendant Kane Company, by and through its
officers, implicitly and fraudulently represented to the Government
that it would accurately bill for its services.
Third, with regard to Defendant Kane Company’s fraudulent
billing of fuel costs, Relator alleges that during executive-level
meetings in 2002-2003 he was told that “Defendant Kane Company
would be starting a new practice of adding an ‘energy surcharge’
for fuel. . . . However, Defendant Kane Company already
incorporated the fuel charge into its existing pricing and bills
submitted to the government.” Id. ¶ 47. This allegation raises the
reasonable inference that, in executing government contracts,
Defendant Kane Company, by and through its officers, implicitly and
fraudulently represented to the Government that it would accurately
bill for its fuel costs.
Fourth, with regard to Defendant Kane Company’s failure to
provide the GSA best price, Relator alleges that during executive-
level meetings in 2003 and 2004, several officers and employees of
-20-
Defendant Kane Company suggested that they “wanted to bill the
government under the GSA Schedule at higher rates than those
comparable commercial customers” and that they would “intentionally
withhold from the government these comparable commercial customers
who were provided [with] lower rates. . . . [so that] Kane company
could then negotiate to enter the GSA schedule at higher labor
rates than those provided to their best commercial customers.” Id.
¶ 49. These allegations raise the reasonable inference that, in
executing GSA contracts, Defendant Kane Company, by and through its
officers, implicitly and fraudulently represented to the Government
that it had provided accurate information for the GSA schedule.
Finally, with regard to Defendant Kane Company’s relationship
with the Perara Group, Relator alleges that: (1) the Kane Company
“used the Perara Group as a Section 8(a) ‘pass through’ such that
Office Movers, a Kane Company affiliate, can obtain money on
government contracts that are intended for SBA certified 8(a)
contractors,” id. ¶ 66; and (2) Defendant Kane Company, its
officers, and the Perara Group, Inc., knowingly made or caused to
be made “false statements to the SBA in which they certified or
caused others to certify that Defendant Perara Group [] was acting
in compliance with all pertinent laws and regulations, when in fact
[the Perara Group] was performing services for numerous government
agencies that it was not eligible to bid upon . . . .” Id. ¶ 121.
These allegations clearly and explicitly state that, in connection
-21-
with the Perara Group’s Section 8(a) government contracts,
Defendants implicitly made or caused to be made fraudulent
representations to the Government that the Perara Group would be
providing its services under those agreements.
ii. False Certification
The Government argues that “the subsequent invoices claiming
payment for satisfactory compliance with the [SCA] contract terms
create[d] implied false certification[s]” and thereby constitute
“false claims.”15 U.S. Opp’n 12-13. Like Relator, the Government
alleges that Defendant Kane Company entered into numerous
government contracts intending to ignore the SCA wage requirements.
See generally, U.S. Compl. These allegations raise the reasonable
inference that, in executing these contracts, Defendant Kane
Company, by and through its officers, implicitly and falsely
represented that it would comply with the SCA. The Government also
clearly alleges that Defendant Kane Company made express false
certifications of compliance with the SCA. Id. ¶¶ 13, 18
For the foregoing reasons, Relator and the Government have
adequately alleged the existence of “false claims.” The Court,
15
Like Relator, the Government claims that Defendant Kane
Company originally obtained the SCA contracts through fraudulent
inducement. U.S. Opp’n 12-13. However, the Government also
clearly relies on the theory of implied false certification to
argue that subsequent demands for payment under those contracts
constitute “false claims.” Id.-22-
therefore, denies Defendants’ Motion to Dismiss Plaintiffs’ FCA
fraud claims on these grounds.
2. Plaintiffs Have Adequately Alleged that the SCA Is
Material
Defendants also urge dismissal of Plaintiffs’ SCA-based claims
on the grounds that “[plaintiffs] allege nothing to demonstrate
that [] SCA compliance was material to the Government’s decision to
pay under the contract.”16 Defs.’ Reply 14-16. While Defendants
present this challenge under Rule 9(b), their argument, again,
amounts to a Rule 12(b)(6) claim.
To state a claim under the FCA, a complaint must allege that
the false or fraudulent statements were material. Bender v. N. Am.
Telecomm’ns, Inc., 686 F. Supp. 2d 46, 49 (D.D.C. 2010)[hereinafter
“Bender II”]. Generally, a false claim is material if “it has a
natural tendency to influence agency action or is capable of
influencing agency action.” U.S. ex rel. Fago v. M & T Mortg.
Corp., 518 F. Supp. 2d 108, 118 (D.D.C. 2007) (citing United States
v. TDC Mgmt. Corp., 24 F.3d 292, 298 (D.C. Cir. 1994)). See also
U.S. ex rel. Ervin and Assocs., Inc., v. Hamilton Sec. Group, Inc.,
370 F. Supp. 2d 18, 45 (D.D.C. 2005) (holding that false claim is
material if “compliance with the presented claims must have been so
important to the contract that the government would not have
16
Defendants have not brought a materiality challenge to any
of Relator’s remaining fraud claims under the FCA.
-23-
honored the submission for payment on the claim if it were aware of
the violation”).
Defendants argue that Plaintiffs have failed to cite
contractual language establishing that “SCA compliance is a
mandatory condition for the Government to pay under any contract.”17
Defs.’ Reply 14, and have therefore “allege[d] nothing to
demonstrate that [] SCA compliance was material . . . .” Id.Essentially, Defendants argue that, in order to establish
materiality, Relator and the Government must point to express
contractual language establishing that compliance with the SCA was
a mandatory condition of payment. This argument fails for two
reasons.
17
Defendants do acknowledge that the Government’s Complaint
includes express language regarding SCA compliance contained in a
2003 Kane Company GSA contract. See Defs.’ Reply 14. This contract
states that “[t]hese Labor Categories hourly rates are subject to
State of Alaska WD942107. These hourly rates shall be adjusted at
the Agency Task Order Level to comply with [Wage Determination]
Rates Specific to the designated geographic area, where
applicable.” U.S. Compl. ¶ 13. Defendants argue that because this
language does not expressly condition payment on compliance with
the SCA, it fails to establish the statute’s materiality. Defs.’
Reply 14. However, contrary to Defendants’ claims, as discussed
infra, materiality does not depend upon the existence of express
contractual language.
Defendants also contend that the Government cannot rely on
this contractual language “for five out of the eight years at issue
in this case (1998-2003), because the statement had not even been
made yet.” Id. However, the Government clearly presented this
contractual clause as simply one example of the type of language
included in Defendant Kane Company’s GSA contracts. See U.S. Compl.
¶¶ 12-13.
-24-
First, Plaintiffs are not required under Rule 12(b)(6) to
provide such detailed factual evidence. As previously discussed,
all they must do at this early stage is plead the essential
elements of their claim. In this regard, the Government clearly
alleges that the SCA was material to its decision to pay. U.S.
Compl. ¶ 16. Relator also made allegations from which it can be
reasonably inferred that the SCA was material to the Government’s
payment decisions. See 3d. Am. Compl. ¶¶ 107, 114 (“The United
States reasonably relied upon Defendants[’] misrepresentations of
compliance and/or accuracy in paying all sums due and owing under
the [SCA] contracts . . . .”).18
Second, Defendants are incorrect that, under the FCA,
compliance with a statutory, regulatory, or contractual requirement
is material only if there is express contractual language linking
compliance to payment. In SAIC, our Court of Appeals directly
addressed this issue and concluded that materiality does not turn
on the presence of such express contractual language. In that case,
18
Both the Relator and the Government also cite to statutory
provisions that raise the reasonable inference that SCA compliance
was material to Defendant Kane Company’s government contracts. For
example, they both cite to SCA Section 351, which states that the
statute applies to Government contracts in excess of $2,500 “the
principal purpose of which is to furnish services in the United
States through the use of service employees,” 41 U.S.C. § 351. See
U.S. Compl. ¶ 9; 3d. Am. Compl. ¶ 27. The Government also cites to
48 C.F.R. 52.222-41, which was “incorporated into GSA multiple
award schedule contracts” obtained by Defendant Kane Company and
which subjects such contracts to the SCA’s requirements. U.S.
Compl. ¶ 14.
-25-
which involved an FCA claim based upon the theory of implied false
certification, the court held that:
The existence of express contractual language
specifically linking compliance to eligibility
for payment may well constitute dispositive
evidence of materiality, but it is not . . .
a necessary condition. The plaintiff may
establish materiality in other ways, such as
through testimony demonstrating that both
parties to the contract understood that
payment was conditional on compliance with the
requirement at issue.
SAIC, 626 F.3d at 1269. Accordingly, whether at the motion to
dismiss or merits stage of this litigation, Plaintiffs are not
required to point to express contractual language to establish that
SCA compliance was material to the Government’s decision to pay in
this case, and they “may establish materiality in other ways.”19 Id.For the foregoing reasons, Plaintiffs have adequately alleged
that compliance with the SCA was material to the Government’s
19
Although the argument is not explicitly made, Defendants
suggest that violations of the SCA cannot generally form the basis
of a FCA claim because the statute does not require contractors to
submit a “certificate of compliance” in order to receive payment
under SCA contracts. Defs.’ Reply 13-15 & nn.13-14. However, in
rejecting this argument, the court in SAIC noted that “‘implied
false certification occurs when an entity has previously undertaken
to expressly comply with a law, rule, or regulation, and that
obligation is implicated by submitting a claim for payment even
though a certification of compliance is not required in the process
of submitting a claim.’” 626 F.3d at 1270 (citing Ebeid ex rel.
United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010)).
Accordingly, the SCA’s lack of a certification requirement does
not, in and of itself, prevent violations of the statute from being
the basis of an FCA claim.
-26-
decisions to pay under the SCA-regulated contracts. Accordingly,
the Court denies Defendants’ Motion to Dismiss Plaintiffs’ SCA
fraud claim for failure to allege materiality.
3. Relator’s FCA Conspiracy Claims Must Be Dismissed
in Part for Failure to State a Claim
Pursuant to Rule 12(b)(6), Defendants move to dismiss two of
Relator’s FCA conspiracy claims. First, Defendants urge dismissal
of the broad claim that Defendant Kane Company variously conspired
with Defendants John Kane and Ronald Meliker to violate the FCA.
Defs.’ Mot. 11 n.4. Second, Defendants argue that the claim that
Defendants conspired with the Perara Group to use the company as a
“pass through” for Section 8(a) contracts should be dismissed with
respect to Defendants John Kane and Ronald Meliker because the
Perara Group has not been served or appeared in this case. Defs.’
Reply 15 n.16.
Section 3729(a)(3) of the FCA attaches liability to anyone who
“conspires to defraud the Government by getting a false or
fraudulent claimed allowed or paid.” Although the FCA does not
define the term “conspiracy,” the “courts have held that general
civil conspiracy principles apply to FCA conspiracy claims.”
Westrick, 685 F. Supp. 2d at 140. In this case, two principles of
civil conspiracy law are central to evaluating Defendants’
challenge: (1) the intra-corporate conspiracy doctrine, Fago, 518
F. Supp. 2d at 117; and (2) the principle that a civil conspiracy
claim need not be brought against all co-conspirators, Ass’n for
-27-
Intercollegiate Athletics for Women v. Nat’l Collegiate Athletic,
558 F. Supp. 487, 498 (D.D.C. 1983).
Under the intra-corporate conspiracy doctrine, “a corporation
cannot conspire with its employees, and its employees, when acting
in the scope of their employment, cannot conspire among
themselves.” Fago, 518 F. Supp. 2d at 117. Here, there is no
dispute that Defendants John Kane and Ronald Meliker have been
employees of the Kane Company at all times relevant to Relator’s
conspiracy claim. Accordingly, Defendant Kane Company could not
have “conspired” with Defendants John Kane and Ronald Meliker to
violate the FCA. Therefore, the Court must grant Defendants’ Motion
and dismiss this part of Relator’s conspiracy claim under Count 3.
See 3d. Am. Compl. Count 3 ¶¶ 117-20, 123.
Additionally, it is well-settled that “all co-conspirators
need not be joined to permit any one or more to be held liable for
an unlawful conspiracy.” Ass’n for Intercollegiate Athletics for
Women, 558 F. Supp. at 498. Accordingly, the Perara Group’s absence
from this case does not preclude a claim from being brought against
Defendants John Kane and Ronald Meliker for allegedly conspiring
with the Group to use it as a “pass through” for Section 8(a)
contracts. While Defendant Kane Company also stands accused of
participating in that conspiracy, the intra-corporate conspiracy
doctrine does not apply “because there are alleged participants in
the conspiracy who are not employees” of the Company. Lerner v.
-28-
District of Columbia, 362 F. Supp. 2d 149, 165 (D.D.C. 2005). The
Court, therefore, denies Defendants’ Motion to Dismiss Defendants
John Kane and Ronald Meliker from this part of Relator’s conspiracy
claim under Count 3. See 3d. Am. Compl. Count 3 ¶¶ 121-22.
4. Plaintiffs’ Fraud Allegations Satisfy Rule 9(b)
Defendants also argue that all of Plaintiffs’ fraud
allegations under Section 3729(a) of the FCA lack the necessary
details to meet the particularity requirement of Rule 9(b).
According to Defendants, these missing details include: (1) “the
specific invoices, statements or records submitted to the
Government that were supposedly false or fraudulent;” (2) “the
particular government contracts to which these invoices,
statements, or records pertain;” (3) “the allegedly false or
fraudulent information within each such document;” (4) “which
Defendant allegedly submitted such document;” (5) “where and when
the alleged document submission occurred;” and (6) “the details of
the Government’s payment, if any, as a result of Defendants’
allegedly false statements.”20 Defs.’ Mot. 2. In response, Relator
20
With respect to Relator’s Complaint, Defendants further
expand on the detailed allegations that should have been, but were
not, provided: (1) “the dates of the contracts;” (2) “the services
to be provided under the contracts;” (3) “the locality in which the
contracts are to be performed;” (4) “the basis for Relator’s
assertion that the SCA’s wage determination requirements applied to
these contracts;” (5) “what wage, if any, Kane Company should have
paid to each worker;” (6) “what wage, if any, Kane Company actually
paid to each worker;” (7) “any information showing that Kane
Company knew or should have known the wage determination to be paid
(continued...)
-29-
and the Government argue that: (1) Defendants’ understanding of
Rule 9(b) requires Relator and the Government to “plead evidence
instead of allegations” and is divorced from this Circuit’s case
law; and (2) the claims satisfy this Circuit’s Rule 9(b) pleading
standard for cases involving fraudulent schemes. Rel. Opp’n 1, 18-
26; U.S. Opp’n 8-16.
As is well-established in this Circuit, “the simplicity and
flexibility contemplated by the rules must be taken into account”
in reviewing a complaint under Rule 9(b). U.S. ex rel. McCready v.
Columbia/HCA Healthcare, 251 F. Supp. 2d 114, 117 (D.D.C. 2003).
Most importantly, Rule 9(b)’s particularity requirement must be
harmonized with Federal Rule of Civil Procedure 8(a), which
requires that a complaint only contain a “short and plain
statement” of the claim. See U.S. ex rel. Joseph v. Cannon, 642
F.2d 1373, 1386 (D.C. Cir. 1981) (holding that “[t]he requirement
of particularity does not abrogate Rule 8, and it should be
harmonized with the general directives . . . of Rule
8 . . . .”)(citations and internal quotations omitted); Allen v.
Beta Constr., 309 F. Supp. 2d 42, 46 (D.D.C. 2004).
20
(...continued)
for each worker;” (8) “the identification of each document in which
the Kane Company certified that its performance under these
contracts complied with the SCA;” (9) “the invoices or other
statements Kane Company provided to the agency in order to procure
payment;” and (10) “the payment received.” Defs.’ Mot. 9-10.
-30-
As Plaintiffs rightly argue, Defendants’ interpretation of
Rule 9(b) eviscerates this standard and, instead, requires
claimants to essentially provide detailed proof of their
allegations.21 It is, however, “inappropriate to require proof on
a 9(b) motion to dismiss.” Pogue, 238 F. Supp. 2d at 269. Rather,
at this early stage of the litigation, an “[FCA] plaintiff need not
allege with specificity every element of its cause of action if the
complaint contains allegations from which an inference may be drawn
that the plaintiff will produce evidence on the essential
elements.” U.S. v. Intrados/Int’l Mgmt. Group, 265 F. Supp. 2d 1,7
(D.D.C. 2002).
In contrast to Defendants’ narrow reading of Rule 9(b), its
language makes clear that “particularity [must be pled] only with
respect to the circumstances constituting fraud . . . .” Folliard,
722 F. Supp. 2d at 27 (emphasis in original) (citation and internal
quotations omitted). Furthermore, “[s]tating ‘with particularity
the circumstances constituting fraud’ does not necessarily and
always mean stating the contents of [the claim] . . . . It is the
21
Defendants argue that the level of Rule 9(b) particularity
that they seek has received support from “many cases.” Defs.’ Reply
5. However, Defendants cite to cases that are either from outside
this Circuit, and therefore are not binding on this Court (e.g.
UNITE HERE, 2008 WL 176703; Sanderson v. HCA-The Healthcare Co.,
447 F.3d 873 (6th Cir. 2006)), or that are from this jurisdiction
and do not support the stringent pleading standard Defendants
advocate (e.g. Martin-Baker, 389 F.3d 1251). In fact, Defendants
rely on one case, Allen, 309 F. Supp. 2d at 46, in which our
district court explicitly rejected an interpretation of Rule 9(b)
that is substantially similar to what Defendants urge here.
-31-
scheme in which particular circumstances constituting fraud may be
found that make it highly likely the fraud was consummated through
the presentment of false [claims].” U.S. ex rel. Grubbs v.
Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009) (emphasis added).
Thus, where an FCA claim is based on a fraudulent “scheme,”
Rule 9(b) mandates only that the details of that scheme be stated
with particularity. See Folliard, 722 F. Supp. 2d at 30 (“‘[A]
relator’s complaint, if it cannot allege the details of an actually
submitted false claim, may nevertheless survive by alleging
particular details of a scheme to submit false claims paired with
reliable indicia that lead to a strong inference that claims were
actually submitted.’”(quoting Grubbs, 565 F.3d at 190)).
In such cases, plaintiffs must “set out the details of the
specific scheme and its falsehoods, as well as supply the time,
place, and content of false representations, and link that scheme
to claims for payment made to the United States.” McCready, 251 F.
Supp. 2d at 117 (citing Totten, 286 F.3d at 551-52). See Martin-
Baker, 389 F.3d at 1256 (holding that Rule 9(b) “require[s] that
the pleader . . . state the time, place and content of the false
misrepresentation, the fact misrepresented and what was retained or
given up as a consequence of the fraud . . . [and] to identify
individuals allegedly involved in the fraud”). Where a “scheme
spans several years,” “Rule 9(b) does not require plaintiffs to
allege every fact pertaining to every instance of fraud. . . .”
-32-
Martin-Baker, 398 F.3d at 1259. In particular, plaintiffs are not
required to “affix actual claims for payment to the complaint,”
Pogue, 238 F. Supp. 2d at 269, or to specifically name which
employees of a corporate defendant submitted the false claims,
Westrick, 685 F. Supp. 2d at 139. For fraudulent schemes that are
particularly complex or extensive, Rule 9(b)’s pleading
requirements may be further relaxed.22 Bender II, 686 F. Supp. 2d
at 52; U.S. ex rel. Harris v. Bernard, 275 F. Supp. 2d 7, 7-8
(D.D.C. 2003).
a. Plaintiffs’ SCA-Based Fraud Claims Satisfy
Rule 9(b)
Plaintiffs’ allegations regarding the SCA scheme plainly meet
Rule 9(b)’s requirements.23 Both Relator and the Government detail
22
Although several of our district courts have applied a
relaxed pleading standard in cases involving complex fraud schemes,
our Court of Appeals has yet to rule on the issue. See Martin-
Baker, 389 F.3d at 1258.
23
Defendants argue against application of Rule 9(b)’s relaxed
pleading standard, claiming that Plaintiffs’ alleged fraud schemes
are not complex. Defs.’ Reply 7 n.9. Defendants analogize this
case to Bender v. North American Telecommunications, Inc. in which
this Court concluded that Rule 9(b)’s pleading standard should not
be relaxed because relator had only alleged “a fairly simple scheme
to misrepresent completed work and falsify claims for payment.” 686
F. Supp. at 52. By contrast, the instant case involves schemes to
defraud the Government that allegedly involve innumerable contracts
and demands for payment made over a number of years. Therefore,
contrary to Defendants’ argument, this case involves multiple,
complex fraud schemes and justifies application of Rule 9(b)’s
relaxed pleading standard. See, e.g., Harris, 275 F. Supp. 2d 1(applying Rule 9(b)’s relaxed pleading requirements to complex,
multi-year scheme to fraudulently bill the Government for medical
services).
-33-
the circumstances of the fraudulent scheme and the location, Kane
Company executive-level meetings, the Company’s government
contracts, and invoices submitted to the Government under those
contracts.24 U.S. Compl. ¶¶ 12, 20-29; 3d. Am. Compl. ¶¶ 36-44, 56-
60. With regard to time, the Government provides a specific time
period - from 1998-2003 and 2003-2006 - for the scheme. U.S. Compl.
¶ 12. While Relator provides a more open-ended time-period for the
fraudulent plan, alleging that it began in 199925 and continues to
“the present time,” even this lengthier time span is sufficient in
a case involving a complex, fraud scheme. 3d. Am. Compl. ¶¶ 6, 36.
See Harris, 275 F. Supp. 2d at 8 (allegations that complex fraud
scheme “began in 1993 and continues into the present” satisfies
Rule 9(b)); Pogue, 238 F. Supp. 2d at 268 (allegations that complex
fraud scheme occurred over a twelve year period satisfies Rule
9(b)).
24
Plaintiffs’ Complaints also provide information on the
geographic location where some of Defendant Kane Company’s SCA
contracts were performed. For example, Relator alleges that
Defendant Kane Company failed to pay wage determinations on a
“Department of Homeland Security contract in the District of
Columbia” and a “[Department of] Health and Human Services/APHIS
contract, including work performed in the District of Columbia.”
3d. Am. Compl. ¶ 57. In its Complaint in Intervention, the
Government specifically cites to a Kane Company contract with the
U.S. House of Representatives. U.S. Compl. ¶ 15.
25
Even though Relator’s Complaint contains allegations about
the SCA scheme that stretch back to 1998, he clearly states in
briefing on the Motion to Dismiss, that “the time period at issue
is from February 11, 1999 to the present. . . .” Rel. Opp’n 30
n.17.
-34-
Both Relator and the Government also specifically identify
those Kane Company personnel involved in perpetrating the scheme,26
and detail the content of the false and fraudulent representations,
namely that the Company would comply with SCA requirements when, in
fact, it had no intention of doing so. U.S. Compl. ¶¶ 12-29; 3d.
Am. Compl. ¶¶ 36-44, 56-60.27
Both Relator and the Government also link Defendants’ false
statements to claims for payment made to the United States. U.S.
Compl. ¶¶ 10, 15, 18; 3d. Am. Compl. ¶¶ 104-05, 111-12. In fact,
on this issue, the Government provides far more detail than Rule
9(b) requires. This includes: (1) providing a sampling of
government contracts28 in which Defendant Kane Company failed to
26
In addition to Defendants John Kane and Ronald Meliker, the
other Kane Company officials allegedly involved in the scheme
include William Auchter (Vice President for Facilities), Mark
Cavanaugh (Chief Financial Officer), James Durfee (Vice President
of Marketing), John Middlebrooks (Vice President of Government
Sales), and Buck Whitman (Vice President of Sales). U.S. Compl. ¶¶
20-28; 3d. Am. Compl. ¶¶ 36-44. Relator also alleges that these
officials were variously involved in the other fraudulent schemes
described in the Third Amended Complaint.
27
In particular, the Government includes copies of two specific
contracts under which Defendant Kane Company purportedly falsified
its compliance with the SCA. U.S. Compl. ¶ 13, Ex A-1, A-2. Relator
also includes information on specific Kane Company contracts that
did not comply with the SCA’s requirements. See, e.g., 3d. Am.
Compl. ¶¶ 39-40, 60.
28
Defendants argue that the Government’s submission of sample
contracts does not meet Rule 9(b)’s pleading requirements. Defs.’
Reply 7-8. Citing Martin-Baker, Defendants claim that the D.C.
Circuit has “suggested” that pleading by statistical sample is not
permitted under Rule 9(b). Id. Martin-Baker does not, however,
(continued...)
-35-
comply with the SCA: (2) detailing the total amount paid by the
Government to Kane Company under those contracts, the amount
Defendant Kane Company underpaid employee wages and benefits under
these contracts, and the resulting financial loss to the
Government; and (3) invoices submitted by Defendant Kane Company to
the Government under some of these contracts. U.S. Compl. ¶ 15, Ex.
B-C. See also Folliard, 722 F. Supp. 2d at 27 (holding that “while
Rule 9(b)’s particularity requirement applies to the [contention]
that the request was fraudulent,” Rule 12(b)(6)’s “general
standards apply to the . . . existence of a request for payment”).
b. Relator’s Remaining Fraud Claims Satisfy Rule
9(b)
Relator’s remaining FCA claims have also been pled with
sufficient particularity under Rule 9(b).
28
(...continued)
make any such suggestion. By contrast, as Relator has correctly
pointed out, our district court has recognized that in FCA cases
involving complex fraud schemes pleading by statistical sample is
permitted under Rule 9(b). Harris, 275 F. Supp. 2d at 8.
In the alternative, Defendants argue that the Government’s
proffered contracts should not be treated as a statistical sample
because “[t]he Government has not asserted that the contracts
comprise a statistical sample of Defendants’ government contracts,
nor can it, given that all the contracts date from the last three
years (2003-2006) of the 1998-2006 time frame during which the
alleged fraudulent scheme occurred.” Defs.’ Reply 8 n.10. The
Government, however, clearly describes these contracts as
constituting a “sample.” U.S. Compl. ¶ 15. Because this is an issue
of fact, the Government’s allegation must be accepted as true in a
Rule 12(b)(6) motion to dismiss.
-36-
First, with regard to the scheme to fraudulently bill for
employee work hours which were not performed, Relator’s Complaint:
(1) references two specific contracts for which Relator possesses
personal knowledge of Kane Company’s fraudulent billing; (2)
indicates that the scheme was discussed during monthly Kane Company
executive-level meetings that occurred while Defendant was “working
for Defendant Kane [Company];” (3) names specific Kane Company
officials involved in the scheme; and (4) connects this scheme to
demands for payment made to the Government. 3d. Am. Compl. ¶¶ 45-
46, 62.
Second, with regard to the scheme to fraudulently bill for
fuel costs, Relator’s Complaint: (1) indicates that the scheme was
discussed during the aforementioned Kane Company executive-level
meetings with the same Kane Company officials; (2) states that the
scheme occurred in 2002-2003 and 2005; (3) details the nature of
the scheme; and (4) connects the fraudulent plan to demands for
payment made to the Government. Id. ¶¶ 47-48, 65.
Third, with regard to the GSA best price scheme, Relator’s
Complaint: (1) details the nature of the scheme; (2) clearly
indicates that it was discussed in 2003 and 2004 at Kane Company
executive-level meetings and continues to the present time; (3)
names the specific Kane Company officials involved in the scheme;
-37-
and (4) connects the scheme to demands for payment to the
Government. Id. ¶¶ 9, 49-52,63-64, 104, 111-12.29
29
Relator has made some allegations, including those regarding
the GSA best price and Perara Group schemes, on “information and
belief.” See, e.g., 3d. Am. Compl. ¶¶ 49, 54. Defendants argue
that, because these pleadings on “information and belief” do not
also allege “that the necessary information lies exclusively within
[] defendant’s control,” the Third Amended Complaint fails to meet
Rule 9(b)’s requirements. Defs.’ Reply 8. Although it is true that
Rule 9(b) permits pleadings on information and belief only where
plaintiff also alleges lack of access to necessary information,
Bender II, 686 F. Supp. 2d at 53, Defendants’ argument fails for
several reasons.
First, Defendants point to no authority establishing that
plaintiff must allege that the absent information is within
defendant’s “exclusive” control. In Martin-Baker, our Court of
Appeals held that, because plaintiffs bringing qui tam actions may
“often have difficulty getting access to their former employers’
documents,” they may be excused from meeting Rule 9(b)’s
particularity requirement by alleging lack of access to the
information. 389 F.3d at 1258. However, the court at no point
suggested that such information must be within defendant’s
“exclusive” control. See Kowal v. MCI Commc’n Corp., 16 F.3d 1271,
1279 n.3 (D.C. Cir. 1994) (“[P]leadings on information and belief
require an allegation that the necessary information lies within
the defendant’s control.”); Bender II, 686 F. Supp. 2d at 53(same).
Second, Relator has clearly alleged lack of access to
necessary information in his briefing on the Motion to Dismiss.
Rel. Opp’n 37. While it is true that by and large the Third
Amended Complaint lacks any such allegation, for Rule 9(b)
purposes, courts have allowed plaintiffs to allege lack of access
to necessary information in their opposition briefs. Bender II, 686
F. Supp. 2d at 53 (“While it is generally understood that the
complaint may not be amended in legal memoranda that are submitted
as opposition to motions for dismissal . . . courts have allowed,
for Rule 9(b) purposes, a party to supplement its complaint through
such legal memoranda for the sake of judicial economy.”(citation
and internal quotations omitted)). Thus, it is clear, based on this
case law, that Relator’s pleadings on “information and belief”
satisfy Rule 9(b).
-38-
Finally, with regard to the Perara Group scheme, Relator’s
Complaint: (1) details the nature of the scheme; (2) alleges the
specific contracts that were the subject of the scheme; (3) clearly
states that the scheme began after he left Kane Company and
continues “until the present time;” and (4) connects the fraudulent
scheme to demands for payment to the Government. Id. ¶¶ 10, 54, 55,
66, 104, 111-12. Although the Complaint does not specify the role
Defendants John Kane, Ronald Meliker, and other Kane Company
employees played in the fraudulent plan, given the other details
provided, Defendants are not disadvantaged by Relator’s failure to
include this information in his Complaint. Cf. Folliard, 722 F.
Supp. 2d at 32.
In sum, Plaintiffs’ allegations provide sufficient detail to
satisfy Rule 9(b)’s overriding purpose of guaranteeing Defendants
“‘sufficient information to allow for preparation of a response.’”30
Martin-Baker, 389 F.3d at 1256 (quoting Cannon, 642 F.2d at 1385).
“While significant details which will be necessary for plaintiff[s]
to succeed on the merits of the case are indeed absent, these
details are not necessary at this very preliminary stage of
litigation.” Allen, 309 F. Supp. 2d at 47 (emphasis in original).
Plaintiffs “must be allowed to fill in those details [through] the
30
Since Defendant Kane Company has already filed an Answer as
well as various affirmative defenses and counterclaims in this
case, it is now clear that the Company has received sufficient
notice to defend against Plaintiffs’ claims.
-39-
discovery process . . . .” Id. Contrary to Defendants’ claim, these
allegations do not require Defendants to submit to overly
burdensome discovery or allow Plaintiffs to conduct a “fishing
expedition.” Defs.’ Reply 2,7. Rather, on the basis of Plaintiffs’
detailed allegations, the Court is confident that “[d]iscovery can
be pointed and efficient.” Folliard, 722 F. Supp. 2d at 33.
For the foregoing reasons, the Court concludes that
Plaintiffs’ fraud allegations meet the requirements of Rule 9(b).
Accordingly, the Court denies Defendants’ Motion to Dismiss
Plaintiffs’ FCA fraud claims on these grounds.
B. Relator’s Retaliation Claim Under the FCA Fails to State
a Claim under Rule 12(b)(6)
Relator has accused Defendant Kane Company of violating
Section 3730(h) of the FCA by retaliating against him in response
to his filing of the instant qui tam action and participation in
the Government’s investigation of this case. 3d. Am. Compl. ¶ 130.
These alleged retaliatory acts include: (1) the filing of
counterclaims in 2009 in this case against Relator that “had no
basis in fact;” (2) the making of defamatory and disparaging
statements in 2009 and 2010 about Relator to the press and other
third parties; and (3) Defendant John Kane’s alleged impersonation
of Relator and the posting of Relator’s phone number on the
website, Craigslist.com. 3d. Am. Compl. ¶¶ 72-97, 100, 129-132.
In response to Relator’s claim, Defendants argue that these
alleged retaliatory activities occurred well after Relator’s
-40-
employment with Kane Company had ended and are, therefore, not
cognizable under Section 3730(h). Defs.’ Mot. 12-13; Defs.’ Supp.
Reply 2-5.
Under Section 3730(h) of the FCA, an employee who has been
discriminated against for engaging in a protected activity may
bring a civil action against her employer. The statute provides
that:
Any employee, contractor, or agent shall be
entitled to all relief necessary to make that
employee, contractor, or agent whole, if that
employee, contractor, or agent is discharged,
demoted, suspended, threatened, harassed, or
in any manner discriminated against in the
terms and conditions of employment because of
lawful acts done by the employee . . . in
furtherance of an action under this section or
other efforts to stop 1 or more violations of
this subchapter.
31 U.S.C. § 3730(h) (emphasis added).
While few courts have addressed whether Section 3730(h)
applies to cases of post-employment retaliation, this Court has
previously ruled on this issue. See U.S. ex rel. Head v. Kane Co.,
668 F. Supp. 2d 146, 152 n.5 (D.D.C. 2009). In that opinion, the
Court rejected the Government’s argument that Defendant Kane
Company’s counterclaims against Relator should be dismissed as
contrary to the “spirit” of Section 3730(h). Id. Specifically, the
Court held that “[b]ecause Head was terminated prior to the filing
of this Complaint, § 3730(h) does not apply to this action. ” Id.
As the issue was not central to the arguments made by the parties
-41-
at that time, the Court did not discuss it in any detail. However,
having considered the parties’ recent round of briefing on this
issue, the Court will affirm its earlier holding and elaborate on
the reasons for reaching its conclusion.
In interpreting a statute, “courts must presume that a
legislature says in a statute what it means and means in a statute
what it says there.” Conn. Nat’l Bank v. Germain, 503 U.S. 249,
253-54, 112 S. Ct. 1146 (1992). In order to defeat application of
this cannon of statutory construction, a party must “show either
that, as a matter of historical fact, Congress did not mean what it
appears to have said, or that, as a matter of logic and statutory
structure, it almost surely could not have meant it.” Engine Mfrs.
Ass’n v. EPA, 88 F.3d 1075, 1089 (D.C. Cir. 1996).
In the Court’s earlier opinion, it emphasized the statutory
language of Section 3730(h), particularly the phrase “in the terms
and conditions of employment.” Head, 668 F. Supp. 2d at 152 n.5.
The plain language of this phrase clearly establishes that Section
3730(h) applies only to the employment context and, therefore,
cannot extend to claims for retaliatory action occurring solely
after a plaintiff has been terminated from his job.31 Relator has
31
Relator cites to a handful of FCA cases to bolster his
argument. Rel. Opp’n 41-42 n.23. However, these cases all involve
retaliation claims for unlawful termination, which obviously do
relate to the “terms and conditions of employment.” Therefore, they
are totally distinguishable and do not support Relator’s position.
Georgandellis v. Holzer Clinic, Inc., 2:08-cv-626, 2009 WL 1585772(continued...)
-42-
not provided the Court with any persuasive authority that would
support a contrary ruling.32
31
(...continued)
(S.D. Ohio June 5, 2009)(case involving FCA retaliation claim for
unlawful termination); Machado v. Sanjurjo, 559 F. Supp. 2d 67(D.P.R. 2008)(same); Nguyen v. City of Cleveland, 121 F. Supp. 2d
643 (N.D. Ohio 2000) (same); U.S. ex rel. Kent v. Aiello, 836 F.
Supp. 720 (E.D. Cal. 1993) (same).
32
Relator relies heavily on cases construing the anti-
retaliation provisions of Title VII of the Civil Rights Act of
1964, 42 U.S.C. § 2000e-3, and of the Age Discrimination in
Employment Act (“ADEA”), 29 U.S.C. § 623. Rel. Opp’n 40-41. As
Relator accurately notes, some cases in this Circuit have
recognized post-employment retaliation claims, even those which did
not relate to the “terms and conditions of employment,” under these
statutes. See Rochon v. Gonzalez, 438 F.3d 1211 (D.C. Cir. 2006);
Passer v. Am. Chem. Soc’y, 935 F.2d 322 (D.C. Cir. 1991).
However, Relator has failed to demonstrate that this case law
mandates recognition of the kind of post-employment, non
employment-related FCA retaliation claim alleged in this case.
First, unlike the FCA, the retaliation provisions of Title VII
and the ADEA do not contain language limiting their scope to the
employment context. As Relator’s proffered case law demonstrates,
it is primarily for this reason that courts have construed the
anti-retaliation provisions of Title VII and the ADEA to include
actions beyond the terms and conditions of employment. See
Burlington N. and Santa Fe Ry., Co. v. White, 548 U.S. 53, 1265 S.
Ct. 2405 (2006) (holding that Title VII’s anti-retaliation
provision lacks language limiting the statute to “the terms and
conditions of employment,” and it therefore covers employer actions
that cause harm outside the workplace and that do not directly
affect employment).
Second, the Title VII and ADEA cases cited by Plaintiff which
have recognized post-employment retaliation, involve plaintiffs who
had raised discrimination and/or retaliation claims while still
employed. See Rochon, 438 F.3d 1211; Passer, 935 F.2d 322. By
contrast, in this case, Relator has not alleged that he engaged in
any FCA-protected activity while an employee at Kane Company, that
his 2005 termination by Kane Company was retaliatory, or that he
was otherwise discriminated against by Defendant Kane Company or
(continued...)
-43-
For the foregoing reasons, the Court holds that Section
3730(h) does not apply to retaliatory actions Defendant Kane
Company allegedly took against Relator after his employment with
the Company ended and which did not involve “the terms and
conditions of [his] employment.”33 Accordingly, the Court will grant
Defendants’ Motion and dismiss this claim for failure to state a
cause of action under Rule 12(b)(6).
C. Supplemental Jurisdiction over Relator’s State Law Claims
Is Proper
Defendants argue that the Court should decline to exercise
supplemental jurisdiction over Relator’s state law claims as those
claims “are not sufficiently related to the FCA claims.” Defs.’
Mot. 13 n.6; Defs.’ Reply 18-19 & n.19. Relator responds that
supplemental jurisdiction is proper because of “the overlap in
facts, witnesses, and parties.” Rel. Opp’n 2.
Although Relator’s Complaint does not specify the basis for
the Court’s jurisdiction over these claims, it is clear that 28
U.S.C. § 1367 provides such jurisdiction. Under that provision, “in
32
(...continued)
its officials while he was employed at the Company.
33
Relator also argues for recognition of his retaliation claim
on the grounds that “a primary purpose of anti-retaliation
provisions” is to maintain “unfettered access to statutory remedial
mechanisms.” Rel. Opp’n 41. While Relator has a strong policy
argument, “the court’s role is not to ‘correct’ the text so that it
better serves the statute’s purposes, for it is the function of the
political branches not only to define the goals but also to choose
the means for reaching them.” Engine Mfrs. Ass’n, 88 F.3d at 1089.
-44-
any civil action of which the district courts have original
jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to claims in
the action within such original jurisdiction that they form part of
the same case or controversy under Article III of the United States
Constitution.”
In order for a federal and state law claim to form part of the
“same case of controversy,” the “claims must derive from a common
nucleus of operative facts.” United Mine Workers of America v.
Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130 (1966). Claims may be said
to “derive from a common nucleus of operative facts” where
plaintiff would be expected to try them all in one judicial
proceeding, such as when they involve common issues of proof and
the same witnesses. Id.; Reuber v. United States, 750 F.2d 1039,
1048 (D.C. Cir. 1984), overruled on other grounds by Kauffman v.
Anglo-Am. Sch. of Sofia, 28 F.3d 1223 (D.C. Cir. 1994). In
applying this standard, courts should be guided by considerations
of judicial economy as well as convenience and fairness to the
parties. Reuber, 750 F.2d at 1048.
In this case, Relator’s state law claims derive, in large
part, from allegations that Defendants took various unlawful
actions against Relator arising from his decision to bring the
instant qui tam action. 3d. Am. Compl. ¶¶ 72-97, 100, Counts 5, 7-
12. Relator’s FCA and state law claims, therefore, do arise from a
-45-
common nucleus of facts and are properly tried in the same case.
Accordingly, principles of judicial economy and fairness to the
parties mandate the exercise of the Court’s supplemental
jurisdiction.
For the foregoing reasons, the Court denies Defendants’ Motion
to Dismiss Relator’s state law claims for lack of supplemental
jurisdiction.
IV. Conclusion
For all the reasons stated herein, Defendants’ Motion to
Dismiss is granted in part and denied in part. Specifically,
pursuant to Rule 12(b)(6), the Court grants Defendants’ Motion to
Dismiss Relator’s FCA retaliation claim as well as Relator’s claim
that Defendants Kane Company, John Kane, and Ronald Meliker
conspired together to violate the FCA. The Court denies, pursuant
to both Rule 9(a) and 12(b)(6), Defendants’ Motion to Dismiss
Plaintiffs’ remaining FCA fraud claims and Relator’s state law
claims.
An Order will accompany this Memorandum Opinion.
July 25, 2011 /s/
Gladys Kessler
United States District Judge
Copies via ECF to all counsel of record
-46-