Pencheng Si v. Laogai Research Foundation Foundation

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
PENCHENG SI, )
)
Plaintiff, )
)
v. ) Civil Action No. 09-cv-2388 (KBJ)
)
LAOGAI RESEARCH FOUNDATION, )
et al., )
)
Defendants. )
)
MEMORANDUM OPINION
Relator Pencheng Si (“Relator”) is a computer technician who once worked for
Defendants Laogai Research Foundation (“LRF”) and the China Information Center
(“CIC”) in the District of Columbia. Relator brings this action under the False Claims
Act (“FCA”), 31 U.S.C. §§ 3729-3733 (2012), seeking to challenge the business
practices of LRF and CIC (together, “Corporate Defendants”) and their executive
director, Harry Wu (collectively, “Defendants”) with respect to Defendants’ alleged
misuse of federal grant funding. 1 Relator’s central contention is that, during the five
years that he worked for Defendants, he observed them undertaking myriad acts that
Relator believes violate the FCA, including making gross overstatements regarding the
qualifications of Wu and other employees in grant applications, engaging in improper
lobbying activities, and using grant funding for personal expenses. (See Am. Compl.,
ECF No. 43, ¶¶ 126-180.) The complaint also maintains that Defendants terminated
1
The initial complaint was filed under seal as a qui tam action in December of 2009. (Compl., ECF
No. 2.) The government declined to intervene in March of 2012 (U.S.’s Notice of Election to Decline
Intervention, ECF No. 14), after which the Court unsealed the complaint for service. ( See Order, ECF
No. 15.)
1
Relator’s employment in retaliation for his having unearthed and reported the purported
misuse of grant funds. (Id. ¶¶ 181-186.)
Before this Court at present is Defendants’ second motion to dismiss Relator’s
complaint with respect to this matter. (Defs.’ Mot. to Dismiss Pl.’s Am. Compl.
(“Defs.’ Mot.”), ECF No. 49.) This Court previously agreed with Defendants that
Relator’s initial complaint was deficient under Federal Rule of Civil Procedure 9(b) and
permitted Relator to amend his complaint, see Si v. Laogai Research Found., No. 09-
2388, 2013 WL 4478953, at *1-2 (D.D.C. Aug. 21, 2013), which Relator has now done.
In the instant motion, Defendants argue that the amended complaint too must be
dismissed because Relator’s renewed allegations continue to fall short of the
requirements of Rule 9(b) and also fail to state a claim upon which relief can be granted
for the purpose of Rule 12(b)(6). (Defs.’ Mem. in Supp. of Defs.’ Mot. (“Defs.’
Mem.”), ECF No. 50, at 12-23.) 2
On September 30, 2014, this Court issued an order granting in part and denying
in part Defendants’ motion to dismiss, and stating that the Court would release a
subsequent memorandum opinion explaining the Court’s reasoning. (Order (“Sept. 30
Order”), ECF No. 59.) The instant document is that memorandum opinion. In short,
the lynchpin of the Court’s ruling in this case is the fact that, although Relator appears
to have gone back to the proverbial drawing board in crafting the amended complaint
(his amended complaint is nearly double the length of his original pleading and
provides more detail regarding Defendants’ business practices and internal finances),
the amended complaint nevertheless still lacks a sufficient factual basis for any
2
Page numbers throughout this Opinion refer to those that the Court’s electronic filing system assigns.
2
plausible fraud claim under the FCA, and fails even to identify clearly how the alleged
facts support each purported claim for relief. Therefore, Relator has not cured the
deficiencies in the original complaint with respect to the FCA counts (Counts I-IV), and
Defendants’ motion to dismiss must be GRANTED with respect to those counts. As for
Relator’s remaining contention—that the termination of his employment constituted
retaliation for engaging in protected activity in furtherance of the FCA (Count V)—the
amended complaint does contain sufficient allegations to raise a plausible inference that
Relator engaged in activity that the FCA protects and was fired fo r that reason.
Consequently, Defendants’ motion to dismiss is DENIED with respect to the retaliation
count.
I. BACKGROUND
A. The Parties
Defendants LRF and CIC are both non-profit corporations based in the District of
Columbia. (Am. Compl. ¶¶ 9-10.) LRF has the “the purported purpose to educate
Chinese people about the Laogai system” (id. ¶ 15), which, according to the New
Oxford American Dictionary, is “a system of labor camps, many of whose inmates are
political dissidents.” New Oxford Am. Dictionary 952 (2nd ed. 2005); see also id.(noting that the word “laogai” means “reform through labor” in Chinese). CIC was
created and funded “to promote an independent media outlet for Chinese citizens in
China unaffected by Chinese government influences.” (Am. Compl. ¶ 17.) Both
corporations rely on federal grants from the State Department’s National Endowment
for Democracy (“DOS/NED”) program. (Id. ¶¶ 14-18.)
3
Relator worked for LRF and CIC from May of 2003 until he was fired in June of
2008. (Id. ¶ 7.) Defendants originally hired Relator as a computer technician, but
during his time as an employee of LRF and CIC, Relator acquired new titles—such as
Assistant Director of CIC—and new responsibilities. (Id.) At the same time that
Relator was advancing professionally, he also began learning more about the inner
workings of the organizations and became increasingly concerned about what he viewed
as unlawful conduct. (See id.) Such conduct ranged from alleged minor frauds (e.g.,
Defendant Wu exaggerating his life story) to alleged egregious illegalities (e.g.,
Defendant Wu embezzling Corporate Defendants’ money).
It appears undisputed that Defendant Wu was, for all intents and purposes, the
controlling force behind LRF and CIC when Relator worked for those organizations.
(Id. ¶ 12.) Before arriving in the United States from China in the 1980s, Wu spent
some period of time detained in a Chinese forced labor camp. ( See id. ¶¶ 30-42(pointing to inconsistencies in Wu’s story but not disputing that he spent some time in a
Chinese prison)). Wu is now President and Executive Director of LRF and the
Publisher of CIC. (Id. ¶ 12.) According to Relator, Wu is also a font of ethical and
financial impropriety.
B. The Amended Complaint
This lawsuit stems primarily from a series of allegedly unlawful acts that Relator
purportedly witnessed in his capacity as an employee of LRF and CIC, as well as facts
relating to the manner in which Relator was fired. Relator’s sprawling amended
complaint contains more than one hundred paragraphs of allegations that, as a general
matter, appear to emphasize six different types of allegedly unlawful behavior on the
4
part of Defendants: (1) Defendant Wu made misrepresentations regarding his personal
story; (2) LRF and CIC engaged in illicit lobbying; (3) Defendants made improper
payments to third parties in violation of their grant obligations; (4) Defendant Wu
submitted fraudulent claims for reimbursement; (5) Defendants made
misrepresentations in grant applications; and (6) Defendants unlawfully terminated
Relator’s employment in retaliation for his having raised concerns about the
aforementioned conduct. (Id. ¶¶ 24-125.) The amended complaint provides myriad
examples of specific acts that relate to each of these categories of conduct, and
according to Relator, these facts raise plausible legal claims that relate to five different
provisions of the FCA. (See id. ¶¶ 126-186 (alleging violations of 31 U.S.C.
§ 3729(a)(1)(A) (Count I), 31 U.S.C. § 3729(a)(1)(B) (Count II), 31 U.S.C.
§ 3729(a)(1)(G) (Count III), 31 U.S.C. § 3729(a)(1)(C) (Count IV), and 31 U.S.C.
§ 3730(h) (Count V)).) The alleged facts and asserted causes of action are summarized
as follows.
1. Allegations Of Fact
a. Defendant Wu Misrepresented His Personal Story
The first type of misconduct Relator alleges in his amended complaint is that
Defendant Wu “aggrandize[d] and embellish[ed] his experiences and background in
China so as to create a persona of the persecuted, victimized intellectual who had to
flee China.” (Id. ¶ 26.) To bolster this claim, Relator points to a number of examples
of Wu providing inconsistent explanations regarding the reasons for his imprisonment
in a forced labor camp and the length of time he spent in that camp. ( Id. ¶¶ 30-37(pointing to at least four different explanations Wu has given for his own imprisonment:
5
(1) he had criticized the Soviet invasion of Hungary, (2) he had skipped school, (3) he
had stolen money, and (4) he was wealthy and Catholic).) Relator also claims that Wu
has lied about the activities he engaged in after arriving in the United States from China
by falsely claiming to have been a visiting geology professor at the University of
California, for example, and by exaggerating his connection to the Hoover Institution of
Stanford University. (Id. ¶¶ 38-42.)
b. LRF And CIC Engaged In Illicit Lobbying
The amended complaint also catalogues in great detail dozens of examples of
circumstances in which Corporate Defendants allegedly engaged in lobbying in
contravention of an explicit certification that no grant funding would be spent on such
activities. (Id. ¶¶ 50-75.) 3 For example, Corporate Defendants allegedly lobbied a
number of congressmen with the intent that they would support an increase in the
budgets of LRF and CIC. (Id. ¶¶ 52-54, 56, 58, 63.) The amended complaint also
alleges that Defendants “hosted conferences and/or receptions [for] members of
Congress” (id. ¶ 66), wrote letters to and met with members of Congress, advocating for
certain bills and policy positions (id. ¶¶ 59, 61, 65, 67-70), and even contributed
financially to at least one election campaign (id. ¶ 64).
Notably, in addition to providing numerous examples of Corporate Defendants’
allegedly illegal lobbying efforts, the amended complaint also alleges that the
government specifically warned Defendants about their improper lobbying efforts on at
least two occasions. In 2004, government officials overseeing the DOS/NED grant
process purportedly warned Defendants not to lobby with federal funds. (Id. ¶ 71.)
3
Relator maintains that, in order to receive and retain their federal grant money, Corporate Defendants
had to certify that none of the money would be spent on lobbying. (Am. Compl. ¶ 44.)
6
Then in 2006, government officials went even further, sending an email “express[ing]
. . . disappointment with the fact that a significant portion of LRF’s work was
influencing the U.S. Government and inform[ing] Defendant Wu that LRF need[ed] to
shift its efforts to LRF’s ‘goal’ of ending gross human rights violations.” ( Id. ¶ 49.)
c. Defendants Made Improper Payments To Third Parties In Violation of
Their Grant Obligations
Relator also alleges that LRF and CIC—through Defendant Wu—made numerous
fraudulent payments to third parties using federal grant money. Much like the list of
alleged lobbying violations, Relator gives extensive examples of these supposedly
improper payments—e.g., payments to friends of Wu for work that was never
performed, payments to other non-profit corporations, payments to contractors
providing personal services to Wu rather than services to Corporate Defendants , and
payments to Wu himself for personal expenses. (Id. ¶¶ 76-82, 86.)
The amended complaint contains only two instances where Corporate Defendants
are alleged to have made statements to the government regarding payments to third
parties: at one point, Relator alleges that LRF and CIC “submit[ted] falsified
documentation” to the government regarding use of grant funding that was, in fact, used
for personal expenses (id. ¶ 86), and at another point, Relator alleges that Corporate
Defendants falsely reported that no government funds were being spent on an ongoing
lawsuit (id. ¶ 96). No details are provided about the form or nature of these
submissions to the government.
d. Defendant Wu Made Fraudulent Claims For Reimbursement And
Improperly Retained Fees
Relator’s allegations regarding Defendant Wu’s false or fraudulent receipt of
funds for his own personal use appear to come in two varieties. First, Relator alleges
7
that Defendant Wu “often travelled for personal reasons but had [the State Department]
pay for that travel.” (Id. ¶ 88.) According to the amended complaint, in order to
accomplish this, “Wu, with the assistance of his wife, created false timesheets, travel
authorizations, receipts for hotels and other expenses,” and that these false documents
formed the basis of the reimbursement. (Id.) Defendants had apparently certified at
some unspecified prior time that timesheets submitted for reimbursement would be
accurate. (Id. ¶ 89.)
Second, in addition to claiming fraudulent reimbursements for personal travel
expenses, Relator claims that Wu failed to turn over additional speaking and travel fees
to Corporate Defendants. (Id. ¶¶ 87, 94.) By keeping this money as well as the
reimbursement from the government, Wu allegedly obtained “double recovery.” (Id.)
Although Relator does not say so explicitly, the amended complaint suggests that such
double recovery is improper and that Wu had an obligation to disclose these speaking
and travel fees to the government. The amended complaint claims that Wu did not
disclose this double recovery to the government. (Id.)
e. Defendants Made False Representations In Grant Applications
The broad contention that Defendants made false representations in grant
applications is repeated at various times throughout the amended complaint. Relator
begins by alleging that LRF has been receiving grant funding from the State Department
since at least 1992, and that CIC has been receiving grant funding from that same
source since at least 2002. (Id. ¶¶ 15, 17.) Relator also states that CIC’s funding is
renewed annually. (Id. ¶ 17.) Regarding the alleged misrepresentations in those
applications, the amended complaint mostly contains very general contentions. (See,
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e.g., id. ¶ 2 (“Corporate Defendants, with the assistance of Defendant Wu, knowingly
submitted, caused to be submitted and/or facilitated the submission of false and
fraudulent documents . . . in order to secure payments which were used by Defendants
for prohibited and unauthorized uses.”).)
The complaint provides two examples of allegedly false statements in
Defendants’ grant applications. First, according to Relator, the grant applications
falsely included the exaggerations about Defendant Wu’s life story described above.
(Id. ¶¶ 29, 41-42.) Second, the complaint alleges that Defendants’ grant applications
misrepresented who was on their board of directors. (Id. ¶ 109-11.) For example,
Defendants allegedly listed a Professor Yu Ying-shih as a “Director,” when in fact he
had merely agreed to advise the board. (Id. ¶ 109.)
f. Defendants Unlawfully Terminated Relator Because He Raised
Concerns About Their Unlawful Conduct
The final category of factual allegations in the amended complaint concerns
Relator’s contention that he was terminated in retaliation for engaging in protected
activity under the FCA. (See id. ¶¶ 181-186.) Relator recounts several conversations in
which he allegedly expressed concern about Defendants’ misuse of funds and “the
billing of the DOS/NED Program for monies that Corporate Defendants were not
entitled to receive[.]” (Id. ¶ 113.)
First, Relator alleges that he approached Wu in 2005 to “sp[eak] with him about
the absence of a proper system to account for Corporate Defendant[s’] financial a nd
cash management.” (Id.) According to the amended complaint, Wu responded by
telling Relator to “mind [his] own business,” and then offered to reimburse Relator for
the cost of his personal laptop using company funds. ( Id. (alteration in original).)
9
Relator alleges that he met with Wu again in February of 2006 to discuss Wu’s misuse
of funds for personal expenses (id. ¶ 115), and that he also discussed with Wu the
misuse of funds for a private lawsuit in April of 2007 (id. ¶ 116). Relator next alleges
that he had a conversation with Wu’s wife, Chinglee Chen (Corporate Defendants’
accountant) in January of 2008, in which Relator told Chen that she should come to the
office to work instead of staying home. (Id. ¶ 117.)
Relator also contends that, in March of 2008, he spoke with a member of the
board of both Corporate Defendants, Tienchi Martin, to discuss “possible actions,
internal and external, that could be taken to correct Defendant Wu’s improper,
unethical, and illegal conduct with respect to the inappropriate use of funds” for the
aforementioned private lawsuit. (Id. ¶ 118.) According to Relator, Martin shared the
concerns with other board members, and Wu found out about these conversations. (Id.
¶¶ 118-19.) Three months later, Wu terminated Relator’s employment, allegedly noting
that Relator “kn[ew] too much about what [Wu is] doing” and issuing threats and bribes
to prevent Relator from revealing the alleged fraud. (Id. ¶ 120.) According to Relator,
since his termination, Wu and other employees of the Corporate Defendants have
continued to retaliate against him through slander and intimidation. (See id. ¶¶ 121-
125.)
2. Legal Actions (Counts)
Without specifically linking any of the types of conduct or examples that Relator
details to any particular legal cause of action, Relator’s amended complaint maintains
generally that all of the actions of Defendants described above constitute one or more
violations of the FCA. Citing different provisions of that statute, Relator sets forth five
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FCA-related counts. Count I is brought under 31 U.S.C. § 3729(a)(1)(A), and maintains
that “Defendant[s] knowingly presented or caused to be presented, false or fraudulent
claims to the United States Government for payment or approval [.]” (Id. ¶ 127.) Count
II is brought under 31 U.S.C. § 3729(a)(1)(B), and maintains that “Defendants
knowingly made, used, or caused to be made or used false records and statements, to
get the false or fraudulent claims paid or approved by the Government [.]” (Id. ¶ 140.)
Count III is brought under 31 U.S.C. § 3729(a)(1)(G), and maintains that “Defendants
knowingly made, used, or caused to be made or used, a false record or statement
material to an obligation to pay or transmit money or property to the Government
and/or knowingly concealed or knowingly and improperly avoided or decreased an
obligation to pay or transmit money or property to the Government[.]” (Id. ¶ 164.)
Count IV is brought under 31 U.S.C. § 3729(a)(1)(C), and maintains that “Defendants
conspired to defraud the Government[.]” (Id. ¶ 179.) Finally, Count V is brought under
31 U.S.C. § 3730(h), and maintains that “Defendant[s] terminated Relator because he
had objected to Defendants fraudulent conduct[.]” (Id. ¶ 184.)
Notably, although each of the counts specifically states that certain paragraphs of
the prior recitation of facts are “re-allege[d] and incorporat[ed] by reference” (id.
¶¶ 126, 139, 152, 166), the same comprehensive set of paragraph citations—all of the
facts previously alleged in the complaint—are listed for each of the complaint’s first
four counts. This means that none of the fraud counts in the amended complaint
specifies which particular set of facts Relator believes support the count. Moreover, the
first four counts themselves contain no meaningful differentiation, since the same ten
paragraphs of broad boilerplate text are recited as the substance of each count,
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including such generalized statements as “LRF and CIC sought grants and funds from
[the] United States and in order to receive the grants and funds made representations
that were not true and made these misrepresentations intentionally” (id. ¶¶ 128, 141,
153, 167), and “[t]he Defendants not only were awarded grant funds when they should
not have been but they also caused most of the grant funds, if not all of the grant
funds[,] to be misused because they were used primarily for lobbying, which fell
outside the stated purpose of the grant” (id. ¶¶ 135, 148, 160, 174).
C. Procedural History
Relator first filed the instant lawsuit on December 17, 2009 . (See Compl., ECF
No. 2.) After the Government declined to intervene in March of 2012 ( see U.S.’s
Notice of Election to Decline Intervention, ECF No. 14), Relator served the initial
complaint on Defendants in January of 2013. (See Affs. of Service, ECF Nos. 23-26.)
In April of 2013, Defendants moved to dismiss that complaint. (See Defs.’ Mot. to
Dismiss, ECF No. 29.)
On August 21, 2013, this Court ruled on Defendants’ motion to dismiss, ordering
Relator to clarify the complaint. In particular, the Court faulted the recitation of counts
in the complaint for “realleg[ing] and incorporat[ing] by reference all sixty -three
paragraphs of factual background” without providing any “indication of the specific
facts pertaining to each claim.” Si, 2013 WL 4478953, at *1. The Court also found
that, because the complaint did not clearly establish which allegations pertain to which
count, “the Court [was] unable to determine whether Si states a claim for relief under
each count with sufficient specificity.” Id. (citation omitted). The Court also warned
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Relator that the complaint, as written, failed to plead fraud with particularity as Federal
Rule of Civil Procedure 9(b) requires. See id.In the wake of this Court’s ruling regarding the deficiency of the init ial
complaint, Relator filed an amended complaint in which he added 104 new paragraphs
containing a barrage of new facts, most of which give color to Defendants’ business
practices and finances, and describe conduct that does not appear to be related to
statements or submissions to the government. 4 Defendants now seek dismissal once
again, arguing that the amended complaint fares no better than its predecessor. ( See
Defs.’ Mot. at 1.) Defendants’ motion to dismiss has been fully briefed, and is now ripe
for the Court’s consideration. 5
II. LEGAL STANDARDS
A. Motions To Dismiss Under Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) provides that a party may move to
dismiss a complaint on the grounds that it “fail[s] to state a claim upon which relief can
be granted.” Fed R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion, a complaint
must comply with Rule 8, which requires “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). This requirement is
meant to “give the defendant fair notice of what the . . . claim is and the grounds upon
4
The amended complaint also withdrew claims against Defendant Chinglee Chen, Wu’s wife, who
served as the accountant for Corporate Defendants. ( See Relator’s Mem. in Supp. of his Opp’n to
Defs.’ Mot. (“Relator’s Opp’n”), ECF No. 52, at 2 n.1 (“[I]n an attempt to streamline this litigation,
Relator has dropped the claims against Chinglee Chen.”).)
5
The animosity between Relator and Defendants comes through clearly in the various filings the parties
have submitted in support of, and in opposition to, th e motion to dismiss—Defendants accuse Relator
of slandering them “for his own political purposes and/or in an effort to extort some financial
settlement” (Defs.’ Mem., at 6), while Relator accuses Defendants of “smearing [Relator’s] reputation”
(Relator’s Opp’n at 3). It is not this Court’s role to deal with unsubstantiated accusations not contained
in the pleadings, however; consequently, this Court is only concerned with the viability of the
complaint’s allegations relating to Defendants’ breach of the F CA.
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which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
quotation marks and citation omitted).
“Although ‘detailed factual allegations’ are not necessary to withstand a Rule
12(b)(6) motion to dismiss for failure to state a claim, a plaintiff must furnish ‘more
than labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of
action.’” Busby v. Capital One, N.A., 932 F. Supp. 2d 114, 133 (D.D.C. 2013) (quoting
Twombly, 550 U.S. at 555). In other words, the plaintiff must provide “more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). “[M]ere conclusory statements” of misconduct are not enough to
make out a cause of action against a defendant. Id. Rather, a complaint must contain
sufficient factual allegations that, if true, “state a claim to relief that is plausible on its
face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
In deciding whether to grant a motion to dismiss under Rule 12(b)(6), “[t]he
court must view the complaint in [the] light most favorable to the plaintiff and must
accept as true all reasonable factual inferences drawn from well -pleaded factual
allegations.” Busby, 932 F. Supp. 2d at 134. Even so, “the court need not accept
inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in
the complaint.” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).
Nor is the court “bound to accept as true a legal conclusion co uched as a factual
allegation.” Twombly, 550 U.S. at 555 (internal quotation marks and citation omitted).
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B. Motions To Dismiss Under Rule 9(b)
Federal Rule of Civil Procedure 9(b) applies to FCA fraud actions. See United
States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002)
(noting that every circuit to consider the issue has held that Rule 9(b) applies to FCA
complaints). Rule 9(b) provides that “[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or mistake” but “[m]alice, intent,
knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R.
Civ. P. 9(b). Motions to dismiss for failure to plead fraud with sufficient particularity
are evaluated in light of the overall purposes of Rule 9(b), which are: to “ensure that
defendants have adequate notice of the charges against them to prepare a defense,”
United States ex rel. McCready v. Columbia/HCA Healthcare Corp. , 251 F. Supp. 2d
114, 116 (D.D.C. 2003); to discourage “suits brought solely for their nuisance value ,”
United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981); and to
“‘protect reputations of . . . professionals from scurrilous and baseless allegations of
fraud.’” Id. at 1385 n.103 (alteration in original) (quoting Felton v. Walston & Co.,
Inc., 508 F.2d 577, 581 (2d Cir. 1974)).
Rule 9(b) does not abrogate Rule 8, and must be read in light of Rule 8’s
requirement that allegations be simple, concise, and direct, and that the complaint
contain short and plain statements of each claim. Joseph, 642 F.2d at 1386; see also
United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc. , 238 F. Supp. 2d
258, 269 (D.D.C. 2002) (“While . . . Rule 9(b) requires more particularity than Rule 8,
. . . Rule 9(b) does not completely vitiate the liberality of Rule 8.”). In an FCA fraud
action, Rule 9(b) requires, at a minimum, that the pleader “state the time, place and
15
content of the false misrepresentations, the fact misrepresented and what was retained
or given up as a consequence of the fraud” and “individuals allegedly involved in the
fraud.” United States ex rel. Williams v. Martin-Baker Aircraft Co., Ltd., 389 F.3d
1251, 1256 (D.C. Cir. 2004) (internal quotations marks and citation omitted). “In sum,
although Rule 9(b) does not require plaintiffs to allege every fact pertaining to every
instance of fraud when a scheme spans several years, defendants must be able to
‘defend against the charge and not just deny that they have done any thing wrong.’” Id.
at 1259 (quoting United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048,
1052 (9th Cir. 2001)); see also McCready, 251 F. Supp. 2d at 116 (noting that 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’” (quoting Harrison v. Westinghouse Savannah River Co., 176
F.3d 776, 784 (4th Cir. 1999)).
C. Fraud And Retaliation Actions Brought Under The FCA
Generally speaking, the FCA “provides a cause of action for private parties,
known as ‘relators,’ to bring suits on behalf of the federal government for false or
fraudulent statements made to the government.” United States ex. rel. Tran v.
Computer Sciences Corp., No. 11-CV-0852 (KBJ), 2014 WL 2989948, at *7 (D.D.C.
July 3, 2014). At the time of the great majority of the conduct giving rise to the instant
litigation, the FCA used slightly different nomenclature and a different numbering
convention than exists in the statute today; it imposed liability on any person who
(1) knowingly presents, or causes to be presented, to an officer
or employee of the United States Government . . . a false or
16
fraudulent claim for payment or approval; [or] (2) knowingly
makes, uses, or causes to be made or used, a false record or
statement to get a false or fraudulent claim paid or approved by
the Government[.]
31 U.S.C. § 3729(a)(1)-(2) (2008). Then, as now, an actionable false “claim” for the
purpose of the FCA was defined broadly 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 portion of the
money or property which is requested or demanded[.]” Id. § 3729(c). In addition, all
plaintiffs bringing private actions under the FCA were, and are, required to allege that
the allegedly false claim was material to the government’s decision to make the
payment at issue. See United States ex rel. Head v. Kane Co., 798 F. Supp. 2d 186, 194
(D.D.C. 2011). “A false statement is ‘material’ under the FCA if it has a natural
tendency to influence agency action or is capable of influencing agency action.” United
States ex rel. Purcell v. MWI Corp., 824 F. Supp. 2d 12, 28 (D.D.C. 2011); see also
United States ex rel. Ervin & Assocs., Inc. v. Hamilton Secs. Grp., Inc. , 370 F. Supp. 2d
18, 46 (D.D.C. 2005) (“For a violation to give rise to false claims liability . . .
compliance with the presented claim must have been so important to the contract that
the government would not have honored the submission for payment on the claim if it
were aware of the violation.”).
On May 20, 2009, Congress amended the FCA by enactin g the Fraud
Enforcement and Recovery Act of 2009 (“FERA”), Pub. L. No. 111 -21, 123 stat. 1617.
The current, post-FERA version of the FCA establishes liability for any person who
(A) knowingly presents, or causes to be presented, a false or
fraudulent claim for payment or approval; [or] (B) knowingly
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makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim.
31 U.S.C. § 3729(a)(1)(A)-(B) (2012). With the exception of FCA suits that have been
brought under 31 U.S.C. § 3729(a)(1)(B) and that were pending on June 7, 2008, t he
FERA amendments to the FCA are not retroactive, which means that the pre-FERA
version of the statute applies to conduct that occurs prior to May 20, 2009 —the date on
which the amendments were enacted.
1. Presentment and False Statement Actions
A lawsuit alleging that a defendant made a false claim for payment in violation
of section 3729(a)(1)(A) (or its predecessor section 3729(a)(1)) is commonly known as
a “presentment” action. See Joel M. Androphy, Federal False Claims Act & Qui Tam
Litigation § 4.03[1] (2014); see also Head, 798 F. Supp. 2d at 196. In such actions, the
relator maintains that the defendant made a material “presentment claim”—i.e., an
“explicitly false or fraudulent demand[] for payment[.]” Head, 798 F. Supp. 2d at 196.
A count brought under 31 U.S.C. § 3729(a)(1)(A) has three elements: “‘(1) the
defendant submitted a claim [for payment] to the government, (2) the claim was false,
and (3) the defendant knew the claim was false.’” United States ex rel. Folliard v.
CDW Tech. Servs., Inc., 722 F. Supp. 2d 20, 26 (D.D.C. 2010) (quoting United States ex
rel. Westrick v. Second Chance Body Armor, Inc., 685 F. Supp. 2d 129, 134 (D.D.C.
2010)).
A lawsuit brought under section 3729(a)(1)(B)—referred to herein as a “false
statement action”—is “complementary” to a count brought under section 3729(a)(1)(A),
because subsection (a)(1)(B) is “designed to prevent those who make false records or
statements [in order] to get claims paid or approved from escaping liability solely on
18
the ground that they did not themselves present a claim for payment or approval.”
United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488, 501 (D.C. Cir. 2004)
(emphasis in original). Reflecting this, the elements for a count brought under section
3729(a)(1)(B) are practically identical to the requirements for a count brought under
section 3729(a)(1)(A). See Folliard, 722 F. Supp. 2d at 36. The only notable
difference is that, as the language suggests, section 3729(a)(1)(B) requires evidence that
the defendant made a false statement to the government, as opposed to the submission
of a false claim for payment. Compare 31 U.S.C. § 3729(a)(1)(B) with id.§ 3729(a)(1)(A).
A number of different legal theories can support a cause of action brought under
either or both of sections 3729(a)(1)(A) and 3729(a)(1)(B). While the “paradigmatic”
presentment action maintains that the defendant made “‘an incorrect description of
goods or services provided or a request for reimbursement for goods or services never
provided[,]’” United States v. Sci. Applications Int’l Corp., 626 F.3d 1257, 1266 (D.C.
Cir. 2010) (quoting Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001), this is just the
most common means of establishing a presentment count—not the only means—and is
therefore just one of a number of possible theories that can support liability under
section 3729(a)(1)(A). Indeed, in addition to the classic ‘presentation of a false claim’
or ‘making of a false statement’ scenario, some courts permit a relator to establish a
presentment or false statement count on the basis of (a) a fraudulent inducement theory,
see, e.g., United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc. , 393 F.3d
1321, 1326 (D.C. Cir. 2005), United States v. Toyobo Co., 811 F. Supp. 2d 37, 46
(D.D.C. 2011), (b) a false certification theory, see, e.g., United States ex rel. Hendow v.
19
Univ. of Phx., 461 F.3d 1166, 1171-73 (9th Cir. 2006); Foglia v. Renal Ventures Mgmt.,
LLC, 830 F. Supp. 2d 8, 17 n.9 (D.N.J. 2011), and/or (c) a worthless service theory, see,
e.g., United States ex rel. Spay v. CVS Caremark Corp. , 913 F. Supp. 2d 125, 158 (E.D.
Pa. 2012). The fraudulent inducement and false certification theories arise in the
context of this case, and thus warrant a brief description.
The fraudulent inducement theory prescribes liability “for each claim 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;
see also S. Rep. No. 99-345, at 9 (1986) (“[E]ach and every claim submitted under a
contract, loan guarantee, or other agreement which was originally obtained by means of
false statements or other corrupt or fraudulent conduct, or in violation of any statute or
applicable regulation, constitutes a false claim.”). The theory turns on the defendant’s
“eligibility” for payment by the government—“had the government known about the
fraud in the inducement, it never would have entered the contract, and no payments
would have been made.” United States ex rel. Hockett v. Columbia/HCA Healthcare
Corp., 498 F. Supp. 2d 25, 69 n.33 (D.D.C. 2007).
The D.C. Circuit has also long recognized an “implied” false certification theory,
which provides that FCA liability may attach where the relator shows that the defendant
“withheld information about its noncompliance with material contractual requirements”
despite having earlier promised—i.e., certified—that it would comply with those
requirements. Sci. Applications Int’l Corp., 626 F.3d at 1269; see also Head, 798 F.
Supp. 2d at 196. A relator may establish implied false certification by pointing to
“express contractual language linking compliance to eligibi lity for payment[,]” or in
20
other ways, such as by alleging that “both parties to the contract understood that
payment was conditional on compliance with the requirement at issue.” Sci.
Applications Int’l Corp., 626 F.3d at 1269. Importantly, a relator “must prove by a
preponderance of the evidence that compliance with the legal requirement in question is
material to the government’s decision to pay.” Id. at 1271.
2. “Reverse” FCA Actions
Section 3729(a)(1)(G) of Title 31 of the U.S. Code provides a cause of action
where the defendant has made what is commonly known as a “reverse” false claim .
United States ex rel. Landis v. Tailwind Sports Corp., No. 10-cv-00976, 2014 WL
2772907, at *30 (D.D.C. June 19, 2014). A reverse false claim is any fraudulent
conduct that “‘results in no payment to the government when a payment is obligated.’”
Hoyte v. Am. Nat’l Red Cross, 518 F.3d 61, 63 n.1 (D.C. Cir. 2008) (quoting United
States ex rel. Bain v. Ga. Gulf Corp., 386 F.3d 648, 653 (5th Cir. 2004)). Section
3729(a)(1)(G) specifically imposes liability on any person who
knowingly makes, uses, or causes to be made or used, a false
record or statement material to an obligation to pay or
transmit money or property to the Government, or knowingly
conceals, or knowingly and improperly avoids or decreases
an obligation to pay or transmit money or property to the
Government[.]
31 U.S.C. § 3729(a)(1)(G). Whereas a traditional false claim action involves a false or
fraudulent statement made to the government to support a claim for money from the
government, a typical reverse false claim action involves a defendant knowingly
making a false statement in order to avoid having to pay the government when payment
is otherwise due. United States v. Caremark, Inc., 634 F.3d 808, 814-15 (5th Cir.
2011).
21
Notably, the existing “reverse false claim” statutory provision is broader than the
pre-FERA version, which had imposed liability on any person who “knowingly makes,
uses, or causes to be made or used, a false record or statement to conceal, avoid, or
decrease an obligation to pay or transmit money or property to the Government.” 31
U.S.C. § 3729(a)(7) (2006). The amended statute made two major revisions relevant to
reverse false claim actions. First, it expanded the type of conduct underlying a reverse
false claim action to include presentment (i.e., making a claim-related submission) as
well as a material false statement, thereby mirroring sections 3729(a)(1)(A) and
3729(a)(1)(B). See S. Rep. No. 111-10, at 14 (2009) (“[FERA] closes this loophole and
incorporates an analogous provision to 3729(a)(1) for ‘reverse’ false claims liability.”).
Second, it broadened the relevant payment “obligation” to address what Congress saw
as the overly narrow interpretation of the word “obligation” that some courts had
adopted. See S. Rep. No. 111-10, at 13-15 (discussing judicial disagreement over the
definition); see also id. at 15 (recognizing that the new definition extends liability to
situations where a party willfully prevents having to repay the government for sums
mistakenly received). Whereas the pre-FERA version of the FCA did not contain any
definition of obligation, thereby leaving that task to judicial interpretation, current
section 3729(b)(3) 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 regulation, or
from the retention of any overpayment[.]” 31 U.S.C. § 3729(b)(3).
As will be described below, the parties here vigorously dispute which definition
of “obligation” is applicable to the circumstances presented in this case.
22
3. Conspiracy
Also relevant here is 31 U.S.C. § 3729(a)(1)(C), which imposes liability for
“conspir[ing] to commit a violation of” the FCA. To state a cause of action for
conspiracy under this statutory provision, the relator must allege (1) that “an agreement
existed to have false or fraudulent claims allowed or paid” to the government, (2) that
each alleged member of the conspiracy “joined that agreement,” and (3) that “one or
more conspirators knowingly committed one or more overt acts in furtherance of the
object of the conspiracy.” United States ex rel. Miller v. Bill Harbert Int’l Constr.,
Inc., 608 F.3d 871, 899 (D.C. Cir. 2010) (citations omitted). General civil conspiracy
principles apply to FCA-based conspiracy actions. Head, 798 F. Supp. 2d at 201(D.D.C. 2011). For example, following these general civil conspiracy principles, courts
have applied the intra-corporate (or intra-enterprise) conspiracy doctrine in conspiracy
actions brought under the FCA. Id. Under this doctrine, one entity “cannot conspire
with its employees, and its employees, when acting within the scope of their
employment, cannot conspire among themselves.” Id. (internal quotation marks and
citation omitted). Another important civil conspiracy principle is that no conspiracy
can exist without “some underlying tortious act.” Halberstam v. Welch, 705 F.2d 472,
477 (D.C. Cir. 1983). In the context of the FCA, this means that there can be no
liability for conspiracy where there is no underlying violation of the FCA. See United
States ex rel. Amin v. George Washington Univ., 26 F. Supp. 2d 162, 165 (D.D.C. 1998)
(dismissing a conspiracy action because, among other things, the alleged fraudu lent
actions of defendants were “entirely lawful” and did not violate the FCA).
23
4. Retaliation
Finally, the FCA also provides some measure of protection against retaliation for
relators who choose to take action “in furtherance of” the objectives of the FCA. See
31 U.S.C. § 3730(h). The statute that was in effect when Relator’s employment was
terminated specifically provided that
[a]ny employee who is discharged, demoted, suspended,
threatened, harassed, or in any other manner discriminated
against in the terms and conditions of employment by his or
her employer because of lawful acts done by the employee
on behalf of the employee or others in furtherance of an
action under this section, including investigation for,
initiation of, testimony for, or assistance in an action filed or
to be filed under this section, shall be entitled to all relief
necessary to make the employee whole.
31 U.S.C. § 3730(h) (2006). 6 The retaliation provision of the FCA “was designed to
protect persons who assist the discovery and prosecution of fraud and thus to improve
the federal government’s prospects of deterring and redressing crime.” United States ex
rel. Schweizer v. Océ N.V., 677 F.3d 1228, 1237 (D.C. Cir. 2012) (internal quotation
marks and citation omitted). To state a cause of action for retaliation, a relator “must
demonstrate that: (1) he engaged in protected activity, that is, ‘acts done . . . in
furtherance of an action under this section’; and (2) he was discriminated against
‘because of’ that activity.” United States ex rel. Yesudian v. Howard Univ., 153 F.3d
731, 736 (D.C. Cir. 1998) (quoting 31 U.S.C. § 3730(h)).
6
Defendants terminated Relator in June of 2008. (Am. Compl. ¶ 120.) Because that action occurred
prior to the FERA amendments in May of 2009, the pre-FERA statute applies. See Head, 798 F. Supp.
2d at 194 n.10. Although Relator also alleges that Defendants have continued to retaliat e against
Relator after his termination by, inter alia, threatening and harassing him and defaming his name on the
internet and in the Chinese community, the amended complaint makes clear that these actions occurred
after he left his job at Corporate Defendants. (See Am. Compl. ¶¶ 121-122.) Thus, this purportedly-
retaliatory conduct did not affect “the terms and conditions of employment,” which is the only conduct
that the FCA retaliation provision protects. 31 U.S.C. § 3730(h).
24
III. ANALYSIS
In the swirl of facts presented in Relator’s amended complaint, it is exceedingly
difficult to determine which of the specific factual allegations regarding the
Defendants’ conduct are intended to support each count. Indeed, with the exception of
the allegations of fact that relate to Relator’s firing, Relator has not clear ly specified
which alleged facts relate to each count, and to the extent that some of the FCA fraud
actions can be proved by multiple theories, Relator has also failed to indicate which
legal theory underpins each count. For this reason alone, a conclusion that Relator’s
fraud-related FCA counts should be dismissed for failure to state a claim under Rule
12(b)(6)—or at the very least for failure to satisfy Rule 8(a)(2)’s command of a “short
and plain statement of the claim showing that the pleader is entitled to relief” —is
warranted. See Rice v. Dist. of Columbia, 774 F. Supp. 2d 25, 33 (D.D.C. 2011) (“An
individual count must contain a plausible recitation of enough facts to support it.” ).
But even if the nearly impenetrable nature of the complaint is overlooked, it is clear
that Relator’s fraud actions fall short of the applicable pleading standards. As
explained below, this Court has examined the alleged facts and claims from every angle
and has evaluated Defendants’ dismissal arguments based on what Realtor may have
intended with respect to how the facts relate to the causes of action he brings. And
even when the amended complaint is so liberally construed, this Court still can only
discern sufficient allegations to support Relator’s retaliation count. In other words,
because Relator has manifestly failed to craft a pleading that states any fraud action in a
manner that satisfies the standards of Rules 12(b)(6) and 9(b), Counts I–IV of the
amended complaint must be dismissed.
25
A. Relator’s Presentment And Material False Statement Actions (Counts
I-II) Do Not Satisfy The Requirements Of Rules 12(b)(6) Or 9(b)
The first two counts of the amended complaint are for presentment of false or
fraudulent claims for payment under 31 U.S.C. § 3729(a)(1)(A) (Count I), and knowing
use of false records and statements to get false claims paid or approved under 31 U.S.C.
§ 3729(a)(1)(B) (Count II). 7
1. Relator’s Presentment Theory
As stated above, a cause of action under 31 U.S.C. § 3729(a)(1)(A) has three
elements: “(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.
Of all the facts alleged in Relator’s amended complaint, the only examples that appear
to qualify as potentially meeting the elements of a presentment action are those
allegations that are related to Defendant Wu being improperly reimbursed for travel
expenses. Relator alleges that Wu fraudulently submitted falsified travel expenses to
the government and was reimbursed for those expenses. (Am. Compl. ¶¶ 87-93.) If
Relator did, in fact, intend for the allegations regarding reimbursement to form the basis
of his presentment action, these facts satisfy the requirements of Rule 12(b)(6) because
Relator sufficiently alleges that Wu deliberately requested money for work-related
expenses even though these expenses were not work -related. (See id.)
However, even though Relator may have stated a presentment theory with respect
to the reimbursement allegations for the purpose of Rule 12(b)(6), that theory
7
Relator’s claims under Counts I and II do not implicate the changes c ontained in the FERA
amendments because, with respect to presentment actions, the thrust of the amendments was to make it
easier to bring an FCA action when the misrepresentation was presented to a contractor or grantee as
opposed to an employee of the government, see S. Rep. No. 111-10, at 11-12, and none of Relator’s
allegations involve false claims made to gover nment contractors or grantees.
26
nevertheless fails to satisfy the heightened pleading standards of Rule 9(b). Rule 9(b)
requires that “a party must state with particularity the circumstances constituting fraud
or mistake[,]” Fed. R. Civ. P. 9(b), but Relator fails to provide basic information about
any submission of a claim for payment or Wu’s receipt of a reimbursement. One
indicia of the lack of clear information about the alleged reimbursements is the fact that
Relator mixes allegations that Wu was improperly paid with grant funds with
allegations that Wu was improperly reimbursed by the government. (See id. ¶ 87
(alleging that Wu received improper payments from the government and then clarifying
that these payments came from Corporate Defendants rather than directly from the
government).) In this regard, Relator maintains that the government “reimbursed
Defendant Wu and his wife based on” “false timesheets, travel authorization, receipts
for hotels and other expenses” (id. ¶ 88), but it is not at all clear whether Relator is
alleging that Wu was directly reimbursed by the government or whether he just
improperly received additional money from Corporate Defendants’ grant funding—a
specificity that matters because one of the main elements of a presentment action is the
submission of a claim to the government. Folliard, 722 F. Supp. 2d at 26. A similar
haze surrounds Relator’s claim that Wu was improperly reimbursed for personal
expenses. Relator alleges that Wu “was paid by the DOS/NED program” (id. ¶ 92), but
fails utterly to explain how the payments were made and whether Wu got paid after
submitting a false claim to the government. In short, because the amended complaint
lacks specificity regarding how the claims for reimbursement were submitted and how
Wu was reimbursed based on these claims, it plainly fails to satisfy Rule 9(b)’s
heightened pleading standard. See Martin v. Arc of D.C., 541 F. Supp. 2d 77, 83
27
(D.D.C. 2008) (“[T]he complaint . . . fails to provide any of the purported details such
as the time, place, and contents of the alleged false representation.”).
Relator argues, with some support, for a relaxed application of Rule 9(b) when
the fraud at issue is relatively complex. See Head, 798 F. Supp. 2d at 203 (“For
fraudulent schemes that are particularly complex or extensive, Rule 9(b)’s pleading
requirements may be further relaxed.”); accord United States ex rel. Bender v. N. Am.
Telecomm., Inc., 686 F. Supp. 2d 46, 52 (D.D.C. 2010); United States ex rel. Harris v.
Bernad, 275 F. Supp. 2d 1, 7-8 (D.D.C. 2003). To the extent that there is complexity to
this case, however, it appears to be complexity of Relator’s own making. As this Court
has emphasized, the examples of Defendants’ behavior that in any way relate to claims
made to the government for payment are actually quite few in number —the deluge of
irrelevant examples of supposed misconduct on the part of Defendants cannot be
permitted to obscure Relator’s failure to plead adequately those allegations that are
within the scope of the FCA.
Relator also points to misconduct other than reimbursement of falsified travel
expenses as potentially giving rise to a presentment action (see Relator’s Mem. in Supp.
of his Opp’n to Defs.’ Mot. (“Relator’s Opp’n”), ECF No. 52, at 20-22), but none of
those instances satisfy the three elements noted above. For example, Relator notes that
Defendants did not fully abide by the terms of their grant funding (id. at 21). This may
be so; however, failure to abide by the terms of a grant does not, in itself, involve
submitting a claim to the government. Relator also argues that the amended complaint
provides details about other circumstances in which employees improperly billed the
government (id.), and he cites two paragraphs that illustrate this improper billing (see
28
Am. Compl. ¶¶ 80, 107). The first paragraph establishes no such thing—it states only
that the employees were paid with grant funds, not that they were d irectly paid by the
government—and the second merely says that incorrect information “was reported” to
the government without any allegation that this report was in any way connected to a
claim for payment. Only Relator’s reimbursement allegation satisfies Rule 12(b)(6) and
even that claim fails to satisfy Rule 9(b).
2. Relator’s Fraudulent Inducement Theory
As explained above, a cause of action can be stated under FCA section
3729(a)(1)(B) when, among other things, a defendant has made a false statement that
fraudulently induced payment or approval by the government. In his opposition brief,
Relator maintains that the alleged factual basis for finding that the FCA was violated
under a “false inducement” theory is the supposed exaggeration of Defendant Wu’s li fe
story and misrepresentations about other “key personnel,” (Relator’s Opp’n at 25-26),
including, presumably, misrepresentations about the directors of Corporate Defendants.
(See Am. Compl. ¶¶ 109-111.) The amended complaint does list several examples of
reportedly false statements or inconsistencies that Wu made in publications, brochures ,
and other media (see, e.g., id. ¶¶ 30-37), and also in a 2007 affidavit to the Department
of Justice’s Executive Office of Immigration review (id. ¶ 38). But, as alleged, these
examples generally bear no relationship to a false statement made to the government in
connection with a requested claim for payment. See United States ex rel. Westrick v.
Second Chance Body Armor, Inc., 685 F. Supp. 2d 129, 136 (D.D.C. 2010) (“[F]raud is
pled if a plaintiff alleges fraud in the inducement for payment.”).
29
Only one example in the complaint satisfies the foundational requirement that
the defendant has made a false statement to the government in connection with a
request for money: the allegation that the exaggerations regarding Wu’s background
were included in Defendants’ grant applications. (See Am. Compl. ¶¶ 29, 41-42.) With
respect to that one potential instance of fraud, however, Relator fails to allege
materiality, even while devoting many paragraphs to describing the manner in which
Wu overstated or misstated his qualifications as a labor camp veteran. That is to say,
although Relator has detailed several statements allegedly made in grant applications
that he maintains are gross mischaracterizations of Wu’s history, Relator has ignored
his obligation to allege facts from which this Court could infer that the State
Department would not have awarded Corporate Defendants funding had they known that
Wu had spent fewer years imprisoned in a Chinese prison labor camp than he reported.
(See id. ¶¶ 28-43.) And the same deficiency applies to Relator’s allegation that
Corporate Defendants falsely listed certain individuals as serving on their board of
directors in their grant applications. (Id. ¶¶ 109, 111) Rule 12(b0(6) is not satisfied
because Relator fails to offer any factual basis, plausible or otherwise, for thinking that
such a misrepresentation was material to the government’s funding decision.
It is also clear that, even if one was to set aside or excuse Relator’s failure to
allege materiality, the amended complaint lacks the specificity Rule 9(b) requires. In
the fraudulent inducement context, a relator must “set out in detail the time, place, and
content of the false representations and identif[y] individuals allegedly involved in the
fraud[.]” Toyobo Co., 811 F. Supp. 2d at 47. But, here, the amended complaint states
only that, “[f]rom as early as 2001,” Defendants “submitted grant applications,
30
proposals, and reports which included this inaccurate background and also inflated Mr.
Wu’s qualifications.” (Am. Compl. ¶ 29.) There are no other details narrowing down
the type of submission, the payment sought, or the timing. Relator has therefore failed
to state with particularity the circumstances surrounding the alleged fraudulent
inducement.
3. Relator’s False Certification Theory
Liability for an FCA violation arises under a false certification theory where (1)
a party certifies that he or she will comply with a particular contractual condition, (2)
that party then fails to comply with that condition, (3) the party misrepresents this
noncompliance, and (4) compliance with the condition is “material to the government's
decision to pay.” Sci. Applications Int’l Corp., 626 F.3d at 1269-71. Relator’s false
certification theory centers on Defendants’ lobbying activities and the fact that
Defendants supposedly certified that grant funds would not be spent on those activities.
(Am. Compl. ¶¶ 22, 44-45.) Allegedly, Defendants not only failed to comply with this
condition, they misrepresented their noncompliance to the government. (Id.) However,
this Court concludes that Relator’s false certification theory satisfies neither Rule 9(b)
nor Rule 12(b)(6) because the amended complaint does not specify the contents of the
certification or the circumstances in which the certification was made, and it fails to
allege adequately that a violation of the certification was material to the government’s
grant funding award.
It is well established that Rule 9(b) requires a relator to plead “the who, what,
when, where, and how with respect to the circumstances of” a fraudulent certification.
Tran, 2014 WL 2989948, at *11. Here, with respect to the fact of certification, Relator
31
merely offers the vague allegation that “the Grant recipients had to certify that n o NED
funds would be used for lobbying or had been used for lobbying[,]” which purportedly
“included certifying the funds could not be used to influence or attempting [sic] to
influence any federal employee or members of Congress or their staff.” ( Id. ¶ 44.)
Relator does not provide any details as to the specific contents of the certification, the
timing of the certification, how many times this certification was made over the course
of his employment or, indeed, who made the certification on Defendants’ behalf. In
other words, although Relator provides numerous examples of allegedly barred
lobbying activity (see id. ¶¶ 52-70); points to a statute that sets forth limitations on use
of grant funding (see id. ¶ 44 (citing 31 U.S.C. § 1352)); and vaguely references—
without any explanation—“Grant Provision 15(f)” (id. ¶ 64), the details of any
certification, whether prohibiting lobbying or requiring compliance with the statutory
conditions of grant funding, are entirely absent. Even apart from the materiality
element, then, Relator’s claim is deficient.
But materiality cannot be set aside as far as FCA fraud claims are concerned.
See Sci. Applications Int’l Corp., 626 F.3d at 1271 (holding that materiality is a central
element in proving false certification, and that its presence must be “rigorously”
enforced). Thus, even if Relator’s conclusory allegations regarding the certification
were sufficient to survive a Rule 9(b) motion, the amended complaint would still fail to
satisfy Rule 12(b)(6). Relator’s amended complaint contains no allegation regarding
the actual materiality of any certification; rather, states only that, if any lobbying
occurred, “the grantee” was required to complete a disclosure form, and apparently in
that context, the grantee had to “note[] that the lobbying certification was ‘a material
32
representation of fact upon which reliance was placed when this transaction was made
or entered into[.]’” (Am. Compl. ¶¶ 22, 44.) Even ignoring the fact that the Court is
left to speculate about the source of this purported quotation, 8 Relator’s attempts to
assert materiality are entirely conclusory—unmoored from any factual allegations—and
thus miss the mark of a satisfactory statement of a false certification count for the
purpose of Rule 12(b)(6). See ASA Accugrade, Inc. v. Am. Numismatic Ass’n, 370 F.
Supp. 2d 213, 215 (D.D.C. 2005) (“To survive a motion to dismiss, the plaintiff must
make factual allegations that are neither vague nor conclusory and that cover all the
elements that comprise the theory for relief.” (internal quotation marks and citation
omitted)).
In sum, this Court concludes that neither the presentment count (Count I) nor the
false statement count (Count II) can survive Defendants ’ motion to dismiss for failure
to comply with the requirements of Rule 9(b) and/or 12(b)(6).
B. Relator’s Reverse FCA Action (Count III) Is Inadequately Pled Even
Under The Post-FERA Legal Standard
In the third count of the amended complaint, Relator asserts that Defendants’
conduct violates the provision of the FCA that prescribes the making of reverse false
claims. As noted, section 3729(a)(1)(G) currently prohibits the making of false claims
or statements for the purpose of avoiding an “obligation” to pay the government, and
Congress intended the relevant triggering “obligation” to be defined broadly in the post-
8
The quote could have come from an exhibit to Relator’s original complaint titled “Grant Provision
18.” (See Grant Provision 18, Exh. 3 to Compl., ECF No. 2-4; compare Compl. ¶ 25 with Am. Compl.
¶ 44.) Alternatively, the language may come from Standard Form LLL: Disclosure of Lobbying
Activities, which is referenced in the amended complaint. ( See Am. Compl. ¶ 44.) This form contains
a disclaimer noting that “disclosure of lobbying activities is a material representation of fact upon
which reliance was placed by the tier above when this transaction was made or entered into.” Standard
Form LLL: Disclosure of Lobbying Activities, available at http://www.whitehouse.gov/sites/default/file
s/omb/grants/sflllin.pdf. However, by Relator’s own account, Defendants never filed this form. (Am.
Compl. ¶¶ 22, 44.)
33
FERA version of the statute, in contrast to the narrow interpretation of that term some
courts adopted before the FERA amendments. With respect to the reverse false
statement count in this case, the parties vigorously dispute which definition of
“obligation” should apply in this context.
Defendants maintain that the alleged conduct underlying Relator’s reverse false
claim action occurred prior to the passage of the FERA amendments and the current,
broad definition of “obligation” is therefore inapplicable. (Defs.’ Mem. at 24-25.)
Further, Defendants take the position that, prior to FERA, an “obligation” only meant
“an existing, concrete obligation to pay, whether through contract, regulation, or
judgment.” (Id. at 25.) Defendants argue that Relator would be unable to prevail under
this definition, because he has not pointed to any specific contractual or statutory duty
to pay that existed at the time of the purported misrepresentations. ( Id. at 25-26.) For
his part, Relator’s consistent citation to section 3729(a)(1)(G) (the new provision)—as
opposed to section 3729(a)(7) (the old provision)—suggests that he believes the broader
post-FERA provisions apply. (See, e.g., Am. Compl. ¶¶ 127, 138). Relator’s opposition
brief suggests that Defendants had a duty to repay certain funds that were spent
improperly, such as the funds spent on lobbying (Relator’s Opp’n at 27), and that such
an “obligation” could trigger a reverse FCA action under the existing post-FERA
definition of that term. See 29 U.S.C. § 3729(b)(3) (defining “obligation” such that it
includes “the retention of any overpayment”); see also United States ex rel. Matheny v.
Medco Health Solutions, Inc., 671 F.3d 1217, 1223 (11th Cir. 2012) (holding that “[a]n
express contractual obligation to remit excess government property is a definite and
clear obligation for FCA purposes”).
34
Notably, the parties’ dispute over the appropriate scope of the relevant
“obligation” was apparently so intriguing that the U.S. government waded into this
matter to present its position on the issue, even though it had declined to intervene with
respect to the prosecution of this FCA case. (See U.S.’s Stmt. of Interest Concerning
Defs.’ Renewed Mot. to Dismiss Qui Tam Compl., ECF No. 56, at 3 -13.) The
government’s “statement of interest” speaks only to the law, and it argues that the pre-
FERA “obligation” definition in section 3729(a)(7) reaches situations where there is
either merely a potential obligation or there is a general “duty to pay money or to
transmit property to the Government[,]” even if the particular amount owed is not fixed.
(Id. at 6.)
Although the government apparently could not resist the temptation to weigh in
on the parties’ “obligation” dispute, this Court finds that there is no reason for the
Court to do so under the present circumstances because Relator’s amended complaint
clearly fails to satisfy the requirements of Rules 9(b) and 12(b)(6) even if the complaint
and the applicable law are construed in the light most favorable to Relator. See Brooks
v. Grundmann, 748 F.3d 1273, 1278 (D.C. Cir. 2014) (“While [plainti ff] urges us to
pass upon the merits of her . . . claim, the inartful and inadequate state of [plaintiff’s]
pleadings prevents us from doing so.”). To be specific, Relator attempts to use the
language of a reverse FCA claim when he alleges that Defendants were “obligated to
not use and/or disgorge grant funds improperly paid to them [.]” (Am. Compl. ¶ 163.)
However, based on what little else the amended complaint says about the circumstances
surrounding the alleged grant funding, Relator has failed to plead with sufficient
specificity the particular monetary obligation that Defendants owed to the government
35
in a manner that would support a finding of any type of actionable obligation in this
case.
Indeed, only three paragraphs in the entire amended complaint reference
anything that could be construed as an obligation to the government. Two of those
paragraphs appear under the recitation of Count III and are simply conclusory
statements disconnected from the rest of the complaint. (See id. (“Defendants were
obligated to not use and/or disgorge grant funds improperly paid to them by virtue of
the fact that they were either prohibited or unallowable costs.”) ; id. ¶ 164. (“Defendants
knowingly made, used, or caused to be made or used, a false record or statement
material to an obligation to pay or transmit money or property to the Government [.]”).)
It is well established that “the Federal Rules do not require courts to credit a
complaint’s conclusory statements without reference to its factual context.” Iqbal, 556
U.S. at 686.
The third relevant paragraph states in part that Defendants’ misrepresentation of
their lobbying activities was “made with the intent to avoid any sort of repayment of
federal funds already spent” (Am. Compl. ¶ 71), which is apparently an attempt to
assert that Defendants’ improper use of government funds triggered some s ort of
repayment obligation, and that, by lying about this improper use, Defendants concealed
this obligation in violation of section 3729(a)(1)(G). (Relator’s Opp’n at 28-29.) But
that assertion is not supported by any specific allegations of fact —all the amended
complaint has to say about any duty to repay is contained in that one paragraph noted
above—and there is certainly nothing in Relator’s amended pleading that comes
anywhere close to establishing the source of any such obligation. See United States ex
36
rel. Tamanaha v. Furukawa Am., Inc., 445 F. App'x 992, 994 (9th Cir. 2011) (holding
that relator must “allege the specific sources of [the defendant’s] preexisting
obligation” in order to satisfy Rules 12(b)(6) and 9(b) ). In addition to failing to provide
any details about the source of the alleged obligation, Relator also fails to specify the
parameters of that obligation, such as what triggers the duty to repay and what sort of
repayment it requires. Because the amended complaint provides none of this
information, it is plainly insufficient under Rule 9(b). See United States ex rel. Dennis
v. Health Mgmt. Associates, Inc., No. 3:09-CV-00484, 2013 WL 146048, at *11 (M.D.
Tenn. Jan. 14, 2013) (holding that the relator fails to satisfy Rule 9(b) because he
“fail[ed] to provide any specific factual allegations about what fraudule nt record or
statement the defendants made that caused them to avoid or decrease an obligation to
pay the government . . . or its contents”); see also Matheny, 671 F.3d at 1223 (finding
that the relator’s complaint satisfied Rule 9(b) because it “contains detailed allegations
relating to the Defendants’ contractual obligation to identify, report, and remit excess
government money in accordance with the” government contract). 9
In his opposition to the present motion, Relator attempts to argue that an
obligation arose out of Defendants’ concealment of their allegedly fraudulent activity.
(Relator’s Opp’n at 27-29.) Under this telling, the concealment (which is alleged in the
complaint) prevented the government from uncovering fraud and requiring repayment of
9
Relator’s lack of specificity regarding the instant Defendants’ alleged duty to pay—i.e., the lack of a
clear answer to the question of what, exactly, was the obligation owed? —highlights the irrelevance of
this Court’s efforts to determine which definition of “obligation” applies in the context of this case.
Although the government’s brief insists that the Court should adopt the broadest definition of
“obligation” as the legal standard even when a complaint’s allegations relate to conduct that occurred
prior to FERA, breadth does not help Relator in this case, where the complaint has not specified any
clear payment duty on the part of Defendants. Put another way, in the absence of a specific allegation
regarding exactly what payment (or repayment) Defendants owed to the government, this Court has no
need to decide which universe of obligation s a complaint concerning pre-FERA conduct implicates.
37
the grant funds that the government had provided. (Id.) But by this logic, just about
any traditional false statement or presentment action would give rise to a reverse false
claim action; after all, presumably any false statement actionable under sections
3729(a)(1)(A) or 3729(a)(1)(B) could theoretically trigger an obligation to repay the
fraudulently obtained money. See United States ex rel. Taylor v. Gabelli, 345 F. Supp.
2d 313, 338 (S.D.N.Y. 2004) (“Close examination of these claims leads to the
inescapable conclusion that they are redundant—two ways of describing the same
transaction. Because [Relator’s] allegations state a claim under sections 3729(a)(1) and
(2), they cannot also form the basis for a claim under subsection (a)(7).”). And of
course, if the conduct that gives rise to a traditional presentment or false statement
action also satisfies the demands of section 3729(a)(1)(G), then there would be nothing
“reverse” about an action brought under that latter section of the FCA.
Finally, it is also apparent that Relator cannot now claim that there is a general
obligation to repay all instances of misuse of grant funds when the amended complaint
does not state as much. Nor can Relator satisfy Rule 12(b)(6) by pointing to examples
of other potential repayment obligations that simply do not appear anywhere in the
amended complaint. In his opposition brief, for example, Relator references a consent
decree (Relator’s Opp’n at 27); an “express repayment duty” (id.); and a
“reconciliation” of claims (id. at 28). 10 Even if this Court were to believe that a duty to
pay the government arose out of any of the sources Relator belatedly highlights, i t is
10
There is often a startling disconnect between what Relator argues his amended complaint says and
what the amended complaint actually says. In addition to the examples discussed here, Relator ’s briefs
also invoke the federal government’s right to disgorge profits (Relator’s Opp’n at 27 -29) and
Defendants’ “contractual obligation to pay any unused portions of grant money back[.]” (Relator’s
Resp. to U.S.’s Stmt. of Interest, ECF No. 58, at 5). Neither of these duties is present in the amended
complaint. Other examples abound and are typical of the way in which Relator consistently attempts to
bolster his arguments with allegations that should have been made in the amended complaint.
38
well established that, “[i]n deciding a motion brought under Rule 12(b)(6), a court does
not consider matters outside the pleadings[.]” Ward v. Dist. of Columbia Dep't of Youth
Rehab. Servs., 768 F. Supp. 2d 117, 119 (D.D.C. 2011). For these reasons, Relator
cannot prevail on his action under section 3729(a)(1)(G).
C. Relator’s Conspiracy Action (Count IV) Must Be Dismissed Under
Rule 12(b)(6)
In the fourth count of the amended complaint, Relator alleges that Wu and the
Corporate Defendants conspired to violate the FCA. (See Am. Compl. ¶¶ 166-180.)
This count can be disposed of in short order for one simple reason: there can be no
conspiracy to commit fraud in violation of the FCA if an underlying false claim has not
been adequately alleged. See Halberstam, 705 F.2d at 477 (noting that “civil
conspiracy depends on performance of some underlying tortious act” and is not
actionable apart from an underlying tort); Amin, 26 F. Supp. 2d at 165 (dismissing a
conspiracy action because, among other reasons, defendants were not liable for any
underlying violation of the FCA). As explained, Relator’s actions under sections
3729(a)(1)(A), 3729(a)(1)(B), and 3729(a)(1)(G) fail, either because the facts in the
amended complaint are insufficient to state a fraud claim as Rule 12(b)(6) requires or
because the amended complaint fails to provide sufficient specificity to satisfy Rule
9(b)’s heightened pleading requirement; consequently, Relator’s action under section
3729(a)(1)(C) also must fail.
This Court need not proceed to address any other problems with Relator’s
conspiracy allegation, but it is worth mentioning that there are additional patently
obvious flaws with this count. For example, while Relator appears to maintain that Wu,
LRF, and CIC conspired to present false claims and false statements to the government,
39
under the intra-corporate conspiracy doctrine, one entity “cannot conspire with its
employees, and its employees, when acting within the scope of their employment,
cannot conspire among themselves.” Head, 798 F. Supp. 2d at 201 (internal quotation
marks and citation omitted). Thus, Wu cannot be said to have conspired with either
LRF or CIC as a matter of law. See id. Furthermore, to the extent that two corporate
entities can conspire with each other, see Estate of Heiser v. Islamic Republic of Iran,
466 F. Supp. 2d 229, 267 (D.D.C. 2006), the complaint makes clear that Wu was the
driving force behind the alleged illegality, and it is devoid of any facts from which this
Court could infer that CIC and LRF each separately agreed to join any conspiracy to
defraud the government. What is more, the amended complaint also specifically alleges
that CIC was a “wholly-controlled affiliate” of LRF (Am. Compl. ¶ 10), and it is well
established that one corporation and a wholly-owned subsidiary cannot conspire with
each other. See Corsi v. Eagle Publ’g, Inc., No. 07-cv-2004, 2008 WL 239581, at *3
n.2 (D.D.C. Jan. 30, 2008) (citing Dickerson v. Alachua Cnty. Comm’n, 200 F.3d 761,
767 (11th Cir. 2000) & Travis v. Gary Cmty. Mental Health Ctr., Inc., 921 F.2d 108,
110 (7th Cir. 1990)); see also Rawlings v. Dist. of Columbia, 820 F. Supp. 2d 92, 103
(D.D.C. 2011) (noting that “there is no conspiracy if the conspiratorial conduct
challenged is essentially a single act by a single corporation” (emphasis added)
(internal quotation marks and citation omitted)). Accordingly, Count III fails as a
matter of law for a variety of reasons, and thus must be dismissed.
D. Relator’s Retaliation Action (Count V) Is Pled Adequately And
Survives The Instant Motion To Dismiss
The amended complaint’s final count alleges that Defendants’ termination of
Relator’s employment violated the FCA’s anti-retaliation provision. (Am. Compl. ¶¶
40
181-186.) As a threshold matter, unlike the FCA fraud allegations in Counts I through
IV, allegations regarding retaliation in violation of the FCA “are ‘unconstrained by the
fraud pleading standard’ and ‘need satisfy only Rule 8’s general pleading
requirements.’” Sharma v. Dist. of Columbia, 881 F. Supp. 2d 138, 142 n.3 (D.D.C.
2012) (quoting Martin-Baker, 389 F.3d at 1259). Moreover, an action brought under
the FCA’s retaliation provision can survive even where the underlying FCA fraud
counts have been dismissed. See, e.g., Martin-Baker, 389 F.3d at 1254 (affirming
dismissal of the relator’s underlying FCA presentment action under Rule 9(b) but
reversing the district court’s 12(b)(6) dismissal of the relator’s whistleblower retaliation
count). As explained below, such is the case here.
1. The Complaint Contains Sufficient Allegations Of “Protected
Activity”
According to the amended complaint, Relator “brought to Defendants’ attention
what he reasonably believed to be improper and fraudulent acts” (Relator’s Opp’n at
38); specifically, he repeatedly complained to Wu about improper billing practices and
misuse of funds, and eventually informed a board member about the purportedly
unlawful conduct, suggesting that the board take action to stop it (Am. Compl. ¶¶ 113-
18). The pre-FERA retaliation provision of the FCA specifically listed “lawful acts”
for which an employee was entitled to protection, and this list “include[d] investigation
for, initiation of, testimony for, or assistance in an action to be filed” under the FCA.
31 U.S.C. § 3730(h) (2008). Explaining the meaning of “investigation” under this
statute, the D.C. Circuit has noted that the statute is meant to “protect employees while
they are collecting information about a possible fraud, before they have put all the
pieces of the puzzle together”; therefore, “it is sufficient that a [relator] be investigating
41
matters that ‘reasonably could lead’ to a viable False Claims Act case [.]” Yesudian, 153
F.3d at 740 (citation omitted). In other words, a plaintiff need not “have developed a
winning qui tam action” to be retaliated against in violation of the FCA. Id. at 739
(citing S. Rep. No. 99-345, at 35).
Of course, not all of a relator’s investigative efforts can necessarily support an
actionable retaliation count: the investigation “must concern ‘false or fraudulent’
claims[,]” rather than mere “non-compliance with federal or state regulations.” Id. at
740 (citations omitted); cf. Hoyte, 518 F.3d at 68-70 (affirming dismissal of the
relator’s FCA retaliation action where the complaint only referenced the defendants’
“mere regulatory noncompliance”—i.e., failure to follow procedures set forth in a
consent decree); see also McKenzie v. BellSouth Telecomms., Inc., 219 F.3d 508, 517
(noting that the relator’s reports of wrongdoing must be directed towards an
investigation into fraud on the government in order to qualify as “protected activity”
under the FCA). Be that as it may, “several courts have said that internal reporting of
false claims is itself an example of a protected activity” that can give rise to an FCA
retaliation action. Yesudian, 153 F.3d at 741 n.9 (collecting cases); see also Hutchins v.
Wilentz, Goldman & Spitzer, 253 F.3d 176, 186-87 (3d Cir. 2001) (noting that internal
reporting may constitute a protected activity). Ultimately, the determination of “what
activities constitute ‘protected activity’ is a fact specific inquiry[,]” Hutchins, 253 F.3d
at 187, and as the D.C. Circuit has noted, “protected activity” was meant to be
interpreted broadly. Yesudian, 153 F.3d at 741.
For example, in United States ex rel. Yesudian v. Howard University, 153 F.3d at
745, the D.C. Circuit considered whether relator’s internal reports and investigation
42
were a sufficient basis to establish that relator had engaged in protected activity for the
purpose of his FCA retaliation action. In that case, the relator worked in the Purchasing
Department at Howard University, which received federal funding and had contracts
with the General Services Administration. Id. at 734-35. The relator contended that his
supervisor retaliated against him after he repeatedly reported to his supervisor’s
superiors that the supervisor had engaged in a number of financial improprieties related
to the University’s receipt of federal funding from the General Services Administration.
Id. At those superiors’ requests, the relator collected evidence from ot her employees to
substantiate his reports, id.; the supervisor terminated the relator’s employment shortly
after learning of the relator’s efforts, id. at 735. The D.C. Circuit affirmed the district
court’s entry of summary judgment in defendant’s favor on all of the underlying false
claims counts, but it found that the relator had alleged and established sufficient facts
for a reasonable jury to find a violation of the FCA’s retaliation provision because the
relator was “investigating matters that reasonably could lead to a viable [FCA] case.”
Id. at 740 (internal quotation marks omitted).
Here, too, the retaliation count survives even as the underlying FCA fraud counts
do not. Unencumbered by the specificity requirement in this context, the amended
complaint can easily be read to allege that Relator engaged in some level of
investigation to determine the scope and frequency of the suspected fraud, given the
allegation that Relator “sought to ascertain other facts to determine how far in sc ope
and how often these irregularities were occurring.” (Am. Compl. ¶ 24.) What is more,
the complaint alleges that Relator brought the information that he had learned during
the course of this investigation to Wu’s attention. Although some of Relator’s reported
43
conversations appear to reflect Wu’s own statements about Corporate Defendants’
internal reimbursement practices and therefore do not relate directly to defrauding the
government (see, e.g., id. ¶ 115 (noting that Wu told Relator that he could debit
Corporate Defendants’ accounts to compensate Relator for personal expenses) ; id. ¶ 117
(noting Chen’s practice of staying home from work while still getting paid)), Relator
does allege that he was investigating suspected fraudulent acts related to grant funding
and other activities, and the amended complaint contains facts that, if true, put Wu on
notice of the possibility that Relator’s investigations may reasonably have led to an
FCA action. In particular, Relator alleges that, in 2005, he met with Wu to discuss “the
billing of the DOS/NED Program for monies that Corporate Defendants were not
entitled to receive[.]” (Id. ¶ 113.) Relator also alleges that, in 2007, he warned that Wu
should “not use federal money to sponsor a lawsuit against Yahoo!” specifically
because “federal monies were only to be spent on DOS/NED program-related
expenses.” (Id. ¶ 116.) Relator further alleges that he raised certain improper spending
concerns with board member Martin and discussed “possible actions, internal and
external, that could be taken to correct” the conduct. ( Id. ¶ 118.) Drawing all
inferences in Relator’s favor and following the D.C. Circuit’s instruction that
“protected activity” should be interpreted broadly, see Yesudian, 153 F.3d at 740, these
allegations create a plausible inference that Relator was engaged in activities “that
reasonably could lead to a viable False Claims Act case.” Id. (internal quotation marks
omitted).
Defendants’ argument that Relator’s investigation into, and reports of, fraud do
not give rise to an actionable RCA retaliation action because they were part of his
44
ordinary job responsibilities (see Defs’ Mem. at 28 (contending that the complaint
“does not raise the inference that Si did anything but perform his job functions and
report to a supervisor”)) is unavailing. It is true that “plaintiffs alleging that
performance of their normal job responsibilities constitutes protected activity must
overcome the presumption that they are merely acting in accordance with their
employment obligations to put their employers on notice” of any protected activity.
Martin-Baker, 389 F.3d at 1261 (internal quotation marks and citation omitted); see
also Schweizer, 677 F.3d at 1239 (noting that the relator’s retaliation action could not
succeed because her “job was to ensure compliance with government contracts”). But
the amended complaint belies Defendants’ argument that this so-called “Martin-Baker
presumption” applies here. Relator has alleged that he worked for Corporate
Defendants as a “computer technician” and later became either “Assistant Director” or
“Computer/office manager.” (Am. Compl. ¶ 7.) The amended complaint specifically
notes that Relator was never “responsible for Defendants’ compliance” but merely had
access to “some billing and accounting information.” (Id.) Taking these allegations of
fact as true, Relator’s alleged investigation into Corporate Defendants’ billing
practices, and also his suggestion to Martin that they take possible external actions to
stop further wrongdoing, was outside the scope of Relator’s job responsibilities, and
thus satisfies the “protected activity” element of an FCA retaliation action.
2. The Complaint Contains Sufficient Facts From Which To Infer
The Requisite Causal Connection
The allegations in the amended complaint also state a plausible claim that Wu
was terminated because of his protected activity. The “causation” element of a
retaliation action requires a relator to show both that “(a) ‘the employer had knowledge
45
the employee was engaged in protected activity’; and (b) ‘the retaliation was motivated,
at least in part, by the employee’s engaging in [that] protected activity.’” Yesudian,
153 F.3d at 736 (alteration in original) (quoting S. Rep. No. 99-345, at 35); Sharma v.
Dist. of Columbia, 791 F. Supp. 2d 207, 218 (D.D.C. 2011) (same); see also Saunders v.
Dist. of Columbia, 958 F. Supp. 2d 222, 228 (D.D.C. 2013) (noting that the relator need
only show that protected FCA activity was a “‘contributing factor’” in the employment
action (quoting Payne v. Dist. of Columbia, 722 F.3d 345, 353 (D.C. Cir. 2013)). The
D.C. Circuit has called the standard for notice “flexible: ‘the kind of knowledge the
defendant must have mirrors the kind of activity in which the plaintiff must be
engaged[,]’” Martin-Baker, 389 F.3d at 1260 (quoting Yesudian, 153 F.3d at 742),
except that “‘the employer [has to be] aware that the employee is investigating fraud’”;
otherwise, “‘the employer could not possess the retaliatory intent necessary to establish
a violation of § 3730(h)[,]’” id. at 1260-61 (quoting Yesudian, 153 F.3d at 744).
Moreover, with respect to causation, courts have noted that the standard a relator must
meet to survive a motion to dismiss is “not onerous; the [relator] merely has to [show]
that the protected activity and the negative employment action are not completely
unrelated.” United States ex rel. George v. Boston Scientific Corp., 864 F. Supp. 2d
597, 609 (S.D. Tex. 2012) (internal quotation marks and citation omitted).
The amended complaint here alleges that Relator expressed his concerns about
Corporate Defendants’ billing practice as it related to the rec eipt of DOS/NED grant
funding directly to Wu, and also that Relator had suggested to a board member that they
take “possible actions” to stop the alleged fraud. (Id. ¶ 118.) These allegations are
46
plainly sufficient at this stage of the litigation to support a plausible contention that
Defendants were on notice of Relator’s protected activity.
Relator also has alleged sufficient facts to support an inference that his
engagement in protected activity was what motivated Defendants to terminate his
employment. In assessing the causal link between protected activity and a relator’s
termination, courts often consider the temporal proximity between the employer’s
notice of the conduct and the relator’s termination. See, e.g., Schweizer, 677 F.3d at
1240 (finding a causal connection where relator was fired two weeks after disclosing
his fraud suspicions to defendants); Martin-Baker, 389 F.3d at 1262 (holding that,
because “his suspension and termination occurred just after he disclosed” the allegedly
fraudulent conduct “to his superior, [the relator] has satisfactorily alleged” causation
(emphasis added)); Pitts v. Howard Univ., No. 13-1398, 2014 WL 69032, at *1, *4
(D.D.C. Jan. 9, 2014) (finding a sufficiently alleged causal connection where plaintiff
was demoted one year after raising concerns about his employer’s tax practices); see
also Strong v. Univ. Healthcare Syst., LLC, 482 F.3d 802, 808 (5th Cir. 2007) (noting
that, while temporal proximity alone may not be enough to prove causation, it can be
sufficient to establish a prima facie case). Applying this factor to the case at bar, the
amended complaint’s allegation that Wu terminated Relator within months of learning
that Relator had reported fraudulent billing practices to a board member (see Am.
Compl. ¶¶ 118-120) is sufficient to give rise to an inference of causation, see
Schweizer, 677 F.3d at 1240; Martin-Baker, 389 F.3d at 1262; Pitts, 2014 WL 69032, at
*3.
47
Defendants attempt to avoid this conclusion by focusing on the three-year gap
between when Relator first reported possible fraud (in 2005) and when he was
eventually terminated (in 2008). (See Defs.’ Mem. at 31 (“It is implausible that
Defendants waited, not three weeks, but three years to terminate Si in supposed
‘retaliation’ for reporting his concerns.”). But the allegations in the amended complaint
involve not an isolated misconduct report but repeated attempts on Relator’s part to
address the situation in a manner that reflects a pattern of escalating concern: after
Relator’s repeated discussions of fraud that were voiced directly to Wu fell on deaf
ears, Relator finally went above Wu’s head and raised his concerns about Defendants’
misuse of grant funds with a member of the board of directors. (Am. Compl. ¶ 118.)
And it was only three months after that event—which included Relator’s articulated
threat of possibly taking external action—that Defendants terminated Wu’s
employment. Given these facts, it is entirely plausible to infer that Defendants decided
to terminate Relator when Relator took his concerns to the board and threatened to act
on them.
3. Relator Can Maintain This Action Against Wu In His Individual
Capacity
Finally, despite Defendants’ protest, this Court finds that the complaint contains
enough allegations of fact regarding the relationship between Defendant Wu and the
Corporate Defendants that, at least for now, the retaliation count in the amended
complaint can be maintained not only against LRF and CIC but also against Defendant
Wu in his individual capacity. Unlike other provisions of the FCA, which impose
liability on “any person” who violates the statute, see, e.g., 31 U.S.C. § 3729(a)(1), (3)
(emphasis added), pre-FERA section 3730(h) only imposes liability on an “employer.”
48
Although “the word ‘employer’ does not normally apply to a supervisor in his
individual capacity[,]” Yesudian ex rel. United States v. Howard Univ., 270 F.3d 969,
972 (D.C. Cir. 2001) (emphasis added), there is an exception to this rule: as the
district court explained in United States ex rel. Siewick v. Jamieson Science and
Engineering, Inc., 191 F. Supp. 2d 17, 20-21 (D.D.C. 2002), an individual supervisor
can be held liable as an employer under section 3730(h) when the supervisor “can be
considered to be an alter ego of the company, and therefore an ‘employer’” based on the
11
familiar principle of piercing the corporate veil.
In this circuit, a two-pronged test is used to determine whether to pierce the
corporate veil: “(1) is there such a unity of interest and ownership that the separate
personalities of the corporation and the individual no longer exist?; and (2) if the acts
are treated as those of the corporation alone, will an inequitable result follow?”
Siewick, 191 F. Supp. 2d. at 21 (quoting Labadie Coal Co. v. Black, 672 F.2d 92, 96
(D.C. Cir. 1982)). With respect to this test, courts consider such factors as “domination
of the organization by a single individual” and failure to maintain corporate formalities,
including “diversion of the corporation’s funds or assets to non -corporate uses such as
personal use by the . . . dominant, controlling person.” United States v. Emor, 850 F.
Supp. 2d 176, 207 (D.D.C. 2012). And not all factors need to be present to justify
piercing; rather, the court’s analysis “depends more on the facts than on any sharply
defined underlying legal standard[.]” United States v. Pena, 731 F.2d 8, 13 (D.C. Cir.
1984).
11
Courts can pierce the corporate veil of non-profit corporations just the same as their for -profit
counterparts. See United States v. Emor, 850 F. Supp. 2d 176, 206 (D.D.C. 2012).
49
Relator’s amended complaint alleges in no uncertain terms that Relator was an
employee of LRF and CIC, and that Wu was working “on behalf of Corporate
Defendants” when he terminated Relator. (Am. Compl. ¶ 183; see also ¶ 4.) 12 The
complaint also includes ample allegations of fact that raise a plausible inference that
Wu and the Corporate Defendants shared a common identity such that piercing the
corporate veil may be appropriate. For example, Relator explicitly alleges that Wu had
“de facto control” over both organizations. (Am. Compl. ¶ 12). The amended
complaint thus alleges that Wu is the dominant, controlling force behind both Corporate
Defendants, which weighs in favor of piercing the corporate veil. See Emor, 850 F.
Supp. 2d at 207. Furthermore, the amended complaint repeatedly alleges that Wu
regularly used corporate funds for personal expenses (see, e.g., id. ¶¶ 82, 95), which, if
true, provides further justification for piercing the corporate veil, see Emor, 850 F.
Supp. 2d at 207 (citation omitted).
It may well turn out that, after the record is fully developed during discovery, the
facts of Wu’s relationship with the Corporate Defendants is other than Relator
represents and thus that veil-piercing is not appropriate. For example, further
information on the control exercised by the board of directors of LRF and CIC will
likely play an important role in deciding the extent to which Wu dominates those
organizations. But at this stage of the litigation, Relator has alleged sufficient facts to
raise a plausible inference that Wu is the alter ego of LRF and CIC, and thus this Court
12
While Relator argues in his opposition that he “allege[s] that he was jointly employed by Defendan ts
CIC, LRF, and Wu” (Relator’s Opp’n at 35), this allegation appears n owhere in the amended complaint;
rather, it is set forth in a state-court complaint attached as an exhibit to Defendants’ motion to dismiss
the original complaint in this action. ( See State Court Compl., Ex. A to Defs.’ Mem., ECF No. 30 -1.)
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rejects without prejudice Defendants’ argument that Relator cannot maintain his FCA
retaliation action against Defendant Wu in his individual capacity.
IV. CONCLUSION
For the reasons explained above, Relator has not satisfied the pleading standards
of Rule 9(b) regarding his actions against Defendants for the presentation of false
claims, the making of material false statements, concealment to reduce repayment
obligations, or conspiracy to violate the FCA (Counts I–IV), so those counts must be
dismissed. With respect to Relator’s retaliation action (Count V), the pleading
standards have been satisfied, and Relator has also provided sufficient factual
allegations to support an action against Wu in his individual capacity. It may well be
that, once discovery proceeds in this case, Relator will be unable to establish that there
is a factual basis for his retaliation action, perhaps because Relator did not actually
raise concerns about false claims, or because Wu did not, in fact, learn of Relator’s
report of fraud and suggestion of taking outside action to a board member , or otherwise.
But based on the facts alleged in the amended complaint, Relator has stated a plausible
retaliation action, even as he fails to state sufficiently any claim that fraud occurred in
violation of the FCA. Consequently, this Court has issued an order that GRANTS IN
PART and DENIES IN PART Defendants’ motion to dismiss. (See Sept. 30 Order.)
DATE: October 14, 2014 Ketanji Brown Jackson
KETANJI BROWN JACKSON
United States District Judge
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