United States of America et al v. Bell Transit Corporation et al

Filing 123

ORDER by Judge Hamilton granting in part and denying in part 114 Motion to Dismiss; granting 115 Motion to Dismiss. (pjhlc3S, COURT STAFF) (Filed on 8/18/2021)

Case 4:16-cv-06994-PJH Document 123 Filed 08/18/21 Page 1 of 15

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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UNITED STATES OF AMERICA, ex rel.,
STEVEN FALLON, et al.,

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Case No. 16-cv-06994-PJH

Plaintiffs-Relators,

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v.

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BELL TRANSIT CORP., et al.,
Defendants.

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ORDER GRANTING IN PART AND
DENYING IN PART MOTIONS TO
DISMISS THIRD AMENDED
COMPLAINT
Re: Dkt. Nos. 114, 115

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United States District Court
Northern District of California

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Before the court are two motions to dismiss the third amended complaint (“TAC”).

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The first was filed by defendants Matthew Wayne, Miriam Delgadillo, Luci Rogers, and

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Tammy Watson. See Dkt. 114. The second motion to dismiss was filed by defendant

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Bell Transit Corporation. See Dkt. 115. Having read the parties’ papers and carefully

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considered their arguments and the relevant legal authority, and good cause appearing,

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the court hereby rules as follows.
BACKGROUND

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This is a False Claims Act case. Plaintiff-relator Steven Fallon is a former

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employee of Hayward Unified School District (“HUSD”), and in his complaint, he alleges a

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five-year scheme by HUSD employees and others to defraud California and the United

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States out of millions of dollars paid to HUSD for providing transportation services to

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disabled students.
Defendants Wayne, Delgadillo, Rogers, and Watson (collectively, the “HUSD

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defendants”) were HUSD employees during the time period relevant to this lawsuit.

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Specifically, Wayne was HUSD associate superintendent, Delgadillo1 was a HUSD office

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Defendants’ motion refers to Delgadillo as “Miriam Gonzalez,” but for consistency with
the complaint, this order will continue to refer to her as defendant Delgadillo.

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specialist, Rogers was HUSD chief financial officer, and Watson was HUSD director of

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special education. TAC, ¶¶ 17, 18, 20, 22. Defendant Bell Transit is a transportation

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company that provided transportation services to HUSD from at least 2011 through 2016.

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TAC, ¶ 15.

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The operative third amended complaint was filed on April 6, 2021. See Dkt. 113.

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Prior to the TAC being filed, the court issued an order granting in part and denying in part

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defendants’ motions to dismiss the second amended complaint, and allowing Fallon to

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file an amended complaint as to the dismissed claims, largely “out of an abundance of

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caution.” See Dkt. 109 at 12, 14, 17.

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The court’s previous dismissal order set forth the underlying factual allegations.

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Northern District of California

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The court explained that the false claim allegations fell into three categories: (1) inflating

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the number of special needs students in need of individual student transportation, (2)

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splitting transportation bids to avoid the $45,000 threshold for requiring school board

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approval and competitive bidding, and (3) failing to disclose a conflict of interest. See

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Dkt. 109 at 2. The court concluded that Fallon had sufficiently stated a claim as to (1),

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but not as to (2) or (3).

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The now-operative third amended complaint reasserts the allegations of
categories (1) and (2), but also adds a new category (3).
As to category (1), Fallon alleges that a school district typically uses individual

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student transportation (also referred to as “taxi transportation”) for approximately 15

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students out of every 100,000 students. TAC, ¶ 46. However, when Fallon started

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working at HUSD, he observed that a “disproportionate and suspicious number” of

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students were being transported by taxi. TAC, ¶ 48. Taxi transportation accounted for

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42% of HUSD’s transportation budget for the 2015-16 school year. Id. Fallon

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complained about the problem, and the next year, the number of taxi-transported

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students fell from 149 to 13. TAC, ¶ 49. In the five years preceding Fallon’s complaint,

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the number of taxi-transported students had never been below 135. TAC, ¶ 50. Fallon

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alleges that his complaint revealed that over 90% of the students receiving individual
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transportation did not actually need it. TAC, ¶ 49. As mentioned above, the court

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previously concluded that Fallon had adequately stated a claim based on these

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allegations, as to defendants Wayne, Watson, and Delgadillo, but not Rogers. See Dkt.

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109 at 11-12. The court will more fully discuss the specific allegations and claims against

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each defendant in the Discussion section of this order.

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As to category (2), Fallon alleges that the special education taxi contracts were
subject to school board approval and competitive bidding requirements if they exceeded

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$45,000. TAC, ¶ 57. Fallon alleges that the bid-splitting rendered the taxi contracts void,

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and that any claim for payment on those void contracts was false/fraudulent. TAC, ¶¶ 58-

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59. The court previously concluded that Fallon had not adequately stated a claim against

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United States District Court
Northern District of California

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any defendant as to the category (2)-related allegations, and granted defendants’ motion

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to dismiss with leave to amend. Dkt. 109 at 13. The court will more fully discuss whether

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the amended allegations state a claim in the Discussion section of this order.

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As to category (3), in the previous iteration of the complaint, Fallon alleged a

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conflict of interest between defendant Delgadillo and her son, alleged to be an employee

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of Bell Transit. See Dkt. 109 at 13-14. The court granted defendants’ motion to dismiss

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as to these allegations, but permitted Fallon to amend “out of an abundance of caution.”

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Id. at 14.

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In the now-operative complaint, Fallon no longer alleges a conflict of interest

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involving defendant Delgadillo. Instead, the operative complaint alleges that Bell Transit

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was not licensed by the state Public Utilities Commission (“PUC”) to transport special

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education students, thus rendering all of its transportation contracts fraudulent. TAC,

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¶¶ 68, 71.

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Separate from the three categories of alleged false claims, Fallon also alleges

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employment retaliation. Specifically, Fallon alleges that, as a result of reporting the

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alleged false claims, he was subjected to “severe harassment” including “multiple threats

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of termination of employment,” and that his job was ultimately eliminated due to a

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pretextual “budget shortfall.” TAC, ¶ 77. The court previously dismissed Fallon’s
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retaliation claims, with leave to amend, because Fallon did not allege any specific

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conduct by the individual defendants. Dkt. 109 at 15-17.
Based on the above allegations, Fallon asserts six causes of action:

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(1) Presentation of false claims in violation of the federal False Claims Act, 31 U.S.C.
§ 3729(a)(1)(A), against all defendants,

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(2) Making materially false records or statements in violation of the federal False
Claims Act, 31 U.S.C. § 3729(a)(1)(B), against all defendants,

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(3) Presentation of false claims in violation of the California False Claims Act, Cal.
Gov’t Code § 12651(a)(1), against all defendants,

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(4) Making materially false records or statements in violation of the California False
Claims Act, Cal. Gov’t Code § 12651(a)(2), against all defendants,

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(5) Retaliation in violation of 31 U.S.C. § 3730(h), against defendants Wayne, Rogers,
and Watson, and

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United States District Court
Northern District of California

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(6) Retaliation in violation of Cal. Labor Code § 1102.5, against defendants Wayne,
Rogers, and Watson.

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The HUSD defendants and Bell Transit have both filed motions to dismiss the TAC

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in its entirety, without leave to amend.
DISCUSSION

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A.

Legal standard
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the

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legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, 349 F.3d 1191,

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1199–1200 (9th Cir. 2003). Under Federal Rule of Civil Procedure 8, which requires that

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a complaint include a “short and plain statement of the claim showing that the pleader is

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entitled to relief,” Fed. R. Civ. P. 8(a)(2), a complaint may be dismissed under Rule

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12(b)(6) if the plaintiff fails to state a cognizable legal theory, or has not alleged sufficient

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facts to support a cognizable legal theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th

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Cir. 2013).

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While the court is to accept as true all the factual allegations in the complaint,

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legally conclusory statements, not supported by actual factual allegations, need not be

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accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). The complaint must proffer

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sufficient facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. v.
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Twombly, 550 U.S. 544, 555, 558–59 (2007) (citations and quotations omitted).
A claim has facial plausibility when the plaintiff pleads factual content that allows

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the court to draw the reasonable inference that the defendant is liable for the misconduct

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alleged.” Iqbal, 556 U.S. at 678 (citation omitted). “[W]here the well-pleaded facts do not

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permit the court to infer more than the mere possibility of misconduct, the complaint has

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alleged—but it has not ‘show[n]’—that the pleader is entitled to relief.’” Id. at 679. Where

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dismissal is warranted, it is generally without prejudice, unless it is clear the complaint

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cannot be saved by any amendment. Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir.

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2005).

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Because at least some of plaintiff’s claims sound in fraud, the complaint must also

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Northern District of California

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meet the heightened pleading standard of Federal Rule of Civil Procedure 9(b). See

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Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). Rule 9(b) requires a

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party alleging fraud or mistake to state with particularity the circumstances constituting

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fraud or mistake. To satisfy this standard, the “complaint must identify the who, what,

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when, where, and how of the misconduct charged, as well as what is false or misleading

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about the purportedly fraudulent statement, and why it is false.” Salameh v. Tarsadia

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Hotel, 726 F.3d 1124, 1133 (9th Cir. 2013).

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Review is generally limited to the contents of the complaint, although the court can

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also consider a document on which the complaint relies if the document is central to the

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claims asserted in the complaint, and no party questions the authenticity of the

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document. See Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007). The court may

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consider matters that are properly the subject of judicial notice, Knievel v. ESPN, 393

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F.3d 1068, 1076 (9th Cir. 2005); Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th

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Cir. 2001), and may also consider exhibits attached to the complaint, see Hal Roach

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Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989), and

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documents referenced extensively in the complaint and documents that form the basis of

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a the plaintiff’s claims. See No. 84 Emp’r-Teamster Jt. Counsel Pension Tr. Fund v. Am.

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W. Holding Corp., 320 F.3d 920, 925 n.2 (9th Cir. 2003).
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If dismissal is warranted, it is generally without prejudice, unless it is clear that the

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complaint cannot be saved by any amendment. Sparling, 411 F.3d at 1013.

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B.

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Legal Analysis
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The HUSD defendants’ motion to dismiss
a.

False Claim Act-related claims

The HUSD defendants argue that all of Fallon’s allegations related to the False

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Claims Act fail to meet the pleading standards of Rule 9(b). See Dkt. 114 at 13-14. The

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HUSD defendants argue that, even as to category (1) of the complaint’s allegations, the

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pleading standard is not met. Id. at 14-16.

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However, in the court’s previous order, it already set out the relevant pleading

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Northern District of California

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standard under Rule 9(b), including the specific Ninth Circuit case law that “spell[s] out

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the level of detail needed to withstand a Rule 9(b) challenge in a false claims case,” and

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found that Fallon’s allegations did meet that standard as to category (1) of the complaint’s

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allegations. See Dkt. 109 at 8-12 (citing Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993,

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998 (9th Cir. 2010)). As discussed above, the court previously concluded that Fallon had

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stated a claim as to defendants Wayne, Delgadillo, and Watson, but not as to Rogers, on

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the category (1)-related allegations.

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Specifically, the court cited the complaint’s allegations that “[s]pecial education taxi

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contracts were handled by defendants Watson and Delgadillo,” and Fallon also alleges

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that “Delgadillo was the HUSD employee responsible for designating HUSD special

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education students as eligible for taxi service.” TAC, ¶ 53. As to Wayne, the court noted

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the complaint’s allegations that Wayne presented documents to the school board that

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“substantially overstated the number of students” receiving taxi transportation, and

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concluded that Fallon had adequately alleged the “particular details of a scheme” to

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submit false claims along with “reliable indicia that lead to a strong inference” that the

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claims were actually submitted, and that defendant Wayne’s inflation of numbers was

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alleged to be part of the same scheme as Watson and Delgadillo’s alleged inflation of

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numbers. See Dkt. 109 at 12.
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The HUSD defendants now argue that, even if the above allegations show falsity,

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they do not meet the other elements of a False Claim Act cause of action because they

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do not show that a false claim was actually presented, or that the falsity was material in

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the government’s decision to pay the claim. The first argument is directly contradicted by

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the Ninth Circuit’s guidance in Ebeid, which explained that a plaintiff need not necessarily

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identify representative examples of false claims to support every allegation, but rather

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that it is sufficient to allege particular details of a scheme, combined with reliable indicia

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that lead to a strong inference that claims were actually submitted. See Dkt. 109 at 10

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(citing Ebeid, 616 F.3d at 998-99). As explained above, Fallon was an employee of
HUSD with firsthand knowledge of its operations, and, importantly, he alleges that after

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Northern District of California

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he complained about the number of students receiving taxi transportation, the number

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dropped by over 90%. See TAC, ¶ 49. That sequence of events not only serves as

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reliable indicia supporting the inference that claims were actually submitted, but also

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supports the inference that the number of students needing transportation was a material

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part of the government’s decision to pay the claim. Accordingly, as it held in its previous

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order, Fallon has adequately stated a claim under the False Claims Act as to defendants

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Wayne, Delgadillo, and Watson on the category (1)-related allegations.

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However, as to Rogers, the court previously held that “the complaint does not

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allege that defendant Rogers was involved in any alleged number-inflation.” Dkt. 109 at

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12. Fallon has not amended his complaint to allege any involvement by Rogers in the

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category (1)-related allegations, so defendants’ motion to dismiss is GRANTED as to

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Rogers on the False Claim Act-related causes of action, and no further leave to amend

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shall be granted.

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Category (2) covers the allegations that the HUSD defendants split bids to avoid

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the $45,000 threshold for requiring school board approval and competitive bidding. See

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TAC, ¶¶ 53-67. The court previously noted that Fallon had cited a 1942 California

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Supreme Court case holding that municipal contracts approved without the required

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competitive bidding process are “void,” but ultimately concluded that “Fallon does not
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connect the dots and provide examples of courts applying [the 1942 case] to the context

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of the False Claims Act.” Dkt. 109 at 13. Accordingly, the court dismissed the category

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(2)-related allegations, but permitted Fallon to amend.

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In the operative complaint, Fallon largely repeats the allegations of the previous

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complaint, but adds a footnote stating that he is “keenly mindful” of the court’s

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observation that he did not “connect the dots,” but that he is “uncertain whether the court

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wishes the citation of such authorities to be made within this third amended complaint or,

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instead, wishes that issue to be addressed in a subsequent motion to dismiss.” TAC at 9,

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n.1. That distinction is now moot, because the court has considered both the third
amended complaint and the opposition to the HUSD defendants’ motion to dismiss, and

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Northern District of California

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concludes that Fallon still does not connect the dots and provide examples of courts

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applying his cited authority to the context of the federal or state False Claim Act. In fact,

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Fallon’s opposition does not address the category (2)-related allegations at all. See Dkt.

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119. Thus, having failed to correct the deficiencies of the previously-dismissed

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complaint, the HUSD defendants’ motion to dismiss is GRANTED, without leave to

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amend, as to all HUSD defendants on all claims arising out of category (2)’s allegations.

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Category (3) of the operative complaint alleges that Bell Transit was not licensed

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by the state Public Utilities Commission (“PUC”) to transport special education students,

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thus rendering all of its transportation contracts fraudulent. TAC, ¶ 68, 71. As mentioned

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above, these allegations were not present in the previous version of the complaint. The

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HUSD defendants argue that Fallon has had multiple previous opportunities to include

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these allegations, and provides no justification for his delay. Dkt. 114 at 19. The court

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agrees, and GRANTS the HUSD defendants’ motion to dismiss, without leave to amend,

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as to all HUSD defendants on all claims arising out of category (3)’s allegations.

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b.

Retaliation claims

The next issue is the viability of Fallon’s retaliation claims against the individual

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HUSD defendants. The operative complaint asserts a both a federal and a state

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retaliation claim against defendants Wayne, Rogers, and Watson.
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As an initial matter, the court notes that Fallon’s opposition brief appears to

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proceed as if the district itself is a defendant on the retaliation claims. In its previous

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order, the court concluded that Fallon had “waived any opposition” to the argument that

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the school district is immune from liability on retaliation claims. Dkt. 109 at 16. Fallon’s

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brief now argues in a footnote that he “intended to concede immunity only for claims

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under the federal and California False Claims Act” and he maintains that “the school

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district is not immune under a state law claim for retaliation.” Dkt. 119 at 2, n.1. Later in

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the brief, Fallon argues that the school district is “not immune from claims of employment

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retaliation under both the federal and state retaliation” laws. Id. at 5-7.

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There are multiple problems with Fallon’s argument as to the school district. First,

United States District Court
Northern District of California

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and most importantly, Fallon did fail to respond to this argument in response to

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defendants’ previous motion to dismiss, which is why the court held that Fallon had

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“waived any opposition to the argument.” Dkt. 109 at 15-16; see also Dkt. 97. The court

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also notes that Fallon did not file a motion for reconsideration in response to the court’s

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order. Moreover, the court notes that the third amended complaint does not name the

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district as a defendant on either retaliation claim. See TAC, ¶¶ 99 (federal retaliation

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claim, asserted against only Wayne, Rogers, and Watson), 100 (state retaliation claim,

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asserted against only Wayne, Rogers, and Watson). Nor is the district listed as a

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defendant in the case caption of the complaint. Accordingly, the court will not consider

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any argument as to retaliation claims purportedly asserted against the school district.

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A second threshold matter is raised by Fallon’s state-law retaliation claim under

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Cal. Labor Code § 1102.5. In its previous order, the court noted that other courts have

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been unwilling to apply section 1102.5 to individual employee-defendants, even though

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the statute was amended in 2014 to allow liability against “any person acting on behalf of

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an employer.” See Dkt. 109 at 16-17; see also Minor v. FedEx Office & Print Services,

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182 F.Supp.3d 966, 990 (N.D. Cal. 2016) (“the court declines to determine whether

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individual liability is available under § 1102.5.”); see also United States ex rel. Lupo v.

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Quality Assurance Services, Inc., 242 F.Supp.3d 1020, 1030 (S.D. Cal. 2017) (“the court
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concludes that if the California Supreme Court were ever to consider the issue, it would

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hold that there can be no individual liability under section 1102.5.”).

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While the court did allow Fallon leave to amend the state-law claim “out of an

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abundance of caution,” it is still not persuaded that section 1102.5 should be applied to

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individual employee-defendants. Important in the court’s consideration is the fact that

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there is no controlling Ninth Circuit authority on the issue. While Fallon argues that the

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HUSD defendants have waived this argument by not raising it while this case was

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pending in state court, the HUSD defendants’ reply points out that the state court

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complaint named only the district as a defendant, not any individual HUSD defendants.
Thus, because the individual HUSD defendants were not parties to the case in state

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Northern District of California

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court, they could not have waived their defense to the section 1102.5 claim. Accordingly,

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the HUSD defendants’ motion to dismiss the state-law retaliation claim against

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defendants Wayne, Rogers, and Watson is GRANTED without leave to amend.

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As to the federal retaliation claim, the HUSD defendants set forth the three

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elements: (1) the employee engaged in protected activity, (2) the employer knew that the

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employee was engaging in protected activity, and (3) the employer discriminated against

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the employee because of the protected activity. Dkt. 114 at 21 (citing U.S. ex rel. Hopper

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v. Anton, 91 F.3d 1261, 1269 (9th Cir. 1996). In the context of the False Claims Act,

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protected activity consists of “investigating matters which are calculated, or reasonably

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could lead, to a viable FCA action.” Id.

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As to element (1), the HUSD defendants argue that Fallon “has not claimed that

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he was engaged in the furtherance of an action under the FCA” because he “was not

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investigating a known presentment of a claim to the government that was fraudulent or

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false.” Dkt. 114 at 22. In other words, the HUSD defendants argue that, because Fallon

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fails to state a claim under the FCA, he cannot state a claim for retaliation. However, as

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discussed above, the court has concluded that Fallon has stated a claim as to a subset of

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his FCA-related allegations. Thus, Fallon has adequately alleged element (1) of a federal

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retaliation claim under the FCA.
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As to element (2), the HUSD defendants argue that Fallon does not allege that

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they had knowledge of the protected activity. However, the complaint does specifically

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allege that Wayne, Rogers, and Watson each acted “in direct retaliation for and motivated

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by him having investigated and exposed the corruption, fraud, and illegal conduct he had

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discovered and reported.” TAC, ¶ 77. The court finds these allegations sufficient to

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allege element (2) of a federal FCA retaliation claim.

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As to element (3), the Ninth Circuit has held that “discrimination” for purposes of a

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FCA retaliation claim must be “sufficient to constitute an adverse employment action.”

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Moore v. California Institute of Technology Jet Propulsion Laboratory, 275 F.3d 838, 848
(9th Cir. 2002). Accordingly, Fallon must allege that each HUSD defendant’s conduct

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Northern District of California

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was “reasonably likely to deter employees from engaging in activity protected” by the

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FCA. Id.

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The court will consider the allegations against each defendant separately. As to

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defendant Wayne, Fallon alleges that Wayne made “false accusations” against him, “put

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him on involuntary leave prior to a termination of employment,” and ultimately

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“reorganized” Fallon’s department, and no others, “so that all his managers were

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terminated, falsely claiming a budget shortfall.” TAC, ¶¶ 78-81.

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As to defendant Watson, Fallon alleges that she “wrote threatening emails” to his

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superior “containing false accusations of dishonesty and job performance issues,” and

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provided his “personal telephone number to angry executives at Bell Transit, knowing

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they would (and, in fact, did) harass [him] with telephone calls when the district reduced

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ridership in mid-2016 due to [his] discovery and reporting.” TAC, ¶ 82.

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As to defendant Rogers, Fallon alleges that she refused to approve dozens of

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purchase orders, “effectively shutting down [Fallon’s] department and impeding [his]

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ability to perform his job,” imposed “crippling ‘new rules’” that further impeded Fallon’s

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ability to perform his job, sent him 400 emails “implicitly threatening” his termination, and

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told Fallon “not to dwell on the taxi stuff” and to “move forward,” which he “reasonably

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perceived and understood this conversation to be an ultimatum and threat that, if he did
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not stop complaining about the illegality of the Bell Transit contracts, he would lose his

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job.” TAC, ¶ 83-84.

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Fallon further alleges that all of the alleged conduct constituted the “involuntary
constructive termination” of his employment. TAC, ¶ 85.
The HUSD defendants argue that the individual defendants’ conduct did not rise to
the level of an adverse employment action. However, the HUSD defendants make this

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argument only in the context of Fallon’s state-law retaliation claim, not his federal-law

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retaliation claim. The court observes that the California Supreme Court has adopted a

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test for assessing an “adverse action” that differs from the test adopted by the Ninth

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Circuit. Specifically, the California Supreme Court requires an adverse action under

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Northern District of California

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section 1102.5 to be one that “materially affects the terms, conditions, or privileges of

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employment,” while the Ninth Circuit has held that an adverse action under 31 U.S.C.

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§ 3730(h) need be “reasonably likely to deter employees from engaging in activity

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protected” by the FCA. See Yanowitz v. L’Oreal USA, Inc., 36 Cal.4th 1028, 1052

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(2005); Moore, 275 at 848.

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Because, as discussed above, the court has dismissed Fallon’s state-law claim

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under section 1102.5, it will consider only the Ninth Circuit’s standard in Moore applicable

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to federal FCA retaliation claims. And under that standard, the court concludes that the

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conduct alleged by Wayne, Watson, and Rogers was “reasonably likely to deter

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employees from engaging in activity protected” by the FCA. Specifically, Wayne is

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alleged to have “reorganized” Fallon’s department as a pretext to eliminate his job, and, if

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true, that conduct would be reasonably likely to deter employees from reporting potential

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FCA violations. Watson is alleged to have falsely characterized Fallon’s job performance

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and to have caused Bell Transit executives to make harassing phone calls, and, if true,

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that conduct would be reasonably likely to deter employees from reporting potential FCA

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violations. Finally, Rogers is alleged to have sent Fallon 400 emails that implicitly

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threatened his termination, and, if true, that conduct would be reasonably likely to deter

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employees from reporting potential FCA violations
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Finally, while the HUSD defendants argue that there is no causal link between

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Fallon’s complaints and the alleged retaliation, that argument is dependent on

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defendants’ previous argument that they were not aware of any protected activity.

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Because the court has already concluded that Fallon has adequately alleged the HUSD

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defendants’ awareness of the protected activity, this argument must be rejected.
2.

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In its previous order, the court dismissed all claims against Bell Transit after

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finding that the complaint’s allegations “do not make clear how Bell Transit was involved

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in the actual presentation of a false claim (or any related false records/statements).” Dkt.

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109 at 18. The court did allow Fallon an opportunity to amend his allegations against Bell

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United States District Court
Northern District of California

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Bell Transit’s motion to dismiss

Transit, in order to “allege[] facts showing that Bell Transit was involved in either

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presenting a false claim, or causing a false claim to be presented, or causing a false

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record to be made or used.” Id.

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Fallon’s third amended complaint does not cure the deficiencies of the previous

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complaint. In fact, Fallon does not add any new substantive allegations regarding Bell

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Transit’s involvement in the number-inflation scheme alleged as part of the category (1)

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allegations, or the bid-splitting allegations of category (2). To the extent the TAC adds

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new allegations against Bell Transit, they largely relate to the entirely new theory that Bell

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Transit was not properly licensed by the state PUC, i.e., category (3), described above.

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And as discussed above, Fallon did not seek leave to add the new licensing-related

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allegations, so they are dismissed and will not be considered as part of this motion.

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While Fallon argues in his opposition that “the licensing issue is not a new claim but is in

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further support for a claim of violation of the False Claims Act which has been pending

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since the filing of this action in 2016,” the fact remains that the allegations related to Bell

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Transit’s alleged lack of PUC licensing were not in any previous version of the complaint

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in this action. The fact that the action has been pending since 2016 only underscores the

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length of Fallon’s delay in asserting these new allegations. Accordingly, Bell Transit’s

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motion to dismiss is GRANTED as to the category (3) allegations, without leave to
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amend.
Moving to the other categories of allegations, the court has already concluded that

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the category (2) allegations do not state a claim against the HUSD defendants, and it

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also concludes that the category (2) allegations do not state a claim against Bell Transit,

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for the same reason. Specifically, Fallon fails to identify any authority for applying his

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cited California Supreme Court case to the False Claims Act context, and Bell Transit’s

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motion to dismiss is GRANTED as to the category (2) allegations, without leave to

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amend.

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As to the category (1) allegations, Fallon simply fails to identify any role that Bell
Transit allegedly played in the presentation of false claims. As stated above, the third

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United States District Court
Northern District of California

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amended complaint does not add any new allegations regarding this category of conduct

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beyond those in the second amended complaint, which this court has already found to be

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insufficient. In his opposition brief, Fallon offers only the following boilerplate regarding

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Bell Transit’s role: “[i]t cannot be rationally disputed that Bell was inextricably intertwined

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with employees of the school district in creating, planning and implementing a fraudulent

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scheme centered on the use of its taxicabs to transport disabled students.” Dkt. 119 at

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10. This is exactly the type of legally conclusory statement, unsupported by any factual

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allegations, that need not be accepted under Iqbal. Accordingly, Bell Transit’s motion to

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dismiss is GRANTED as to the category (1) allegations. Because Fallon has already

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amended his complaint multiple times, no further leave to amend will be granted.

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CONCLUSION

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For the foregoing reasons, the court rules as follows.

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As to the HUSD defendants, the motion to dismiss is GRANTED in part and

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DENIED in part. Specifically, the HUSD defendants’ motion to dismiss is DENIED as to

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defendants Wayne, Delgadillo, and Watson on the first, second, third, and fourth causes

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of action, to the extent those causes of action are based on the allegation that defendants

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inflated the number of students needing individual transportation. The HUSD defendants’

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motion to dismiss is GRANTED, without leave to amend, as to all individual defendants
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on the remaining portions (i.e., the bid-splitting allegations and the conflict-of-interest

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allegations) of the first, second, third, and fourth causes of action. The HUSD

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defendants’ motion to dismiss is also GRANTED as to defendant Rogers on the entirety

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of the first, second, third, and fourth causes of action, without leave to amend.

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The HUSD defendants’ motion to dismiss is DENIED as to the fifth cause of action

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(FCA retaliation) asserted against Wayne, Watson, and Rogers. The HUSD defendants’

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motion to dismiss is GRANTED, without leave to amend, as to all individual defendants

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on the sixth cause of action for retaliation under state law.
Bell Transit’s motion to dismiss is GRANTED in its entirety, without leave to

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amend.
Thus, only these claims and parties remain:

United States District Court
Northern District of California

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(1) Presentation of false claims in violation of the federal False Claims Act, 31 U.S.C.
§ 3729(a)(1)(A), only as to the category (1)-related allegations, against defendants
Wayne, Delgadillo, and Watson,
(2) Making materially false records or statements in violation of the federal False
Claims Act, 31 U.S.C. § 3729(a)(1)(B), only as to the category (1)-related
allegations, against defendants Wayne, Delgadillo, and Watson,
(3) Presentation of false claims in violation of the California False Claims Act, Cal.
Gov’t Code § 12651(a)(1), only as to the category (1)-related allegations, against
defendants Wayne, Delgadillo, and Watson,
(4) Making materially false records or statements in violation of the California False
Claims Act, Cal. Gov’t Code § 12651(a)(2), only as to the category (1)-related
allegations, against defendants Wayne, Delgadillo, and Watson, and
(5) Retaliation in violation of 31 U.S.C. § 3730(h), against defendants Wayne,
Watson, and Rogers.
The court sets a case management conference for September 16, 2021, at 2:00

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p.m.
IT IS SO ORDERED.
Dated: August 18, 2021
/s/ Phyllis J. Hamilton
PHYLLIS J. HAMILTON
United States District Judge

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