United States Of America et al v. Morpho S.A., et al

Filing 120

Order by Judge Lucy H. Koh Granting in part 99 Motion for Attorney Fees.(lhklc2S, COURT STAFF) (Filed on 1/25/2018)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION United States District Court Northern District of California 11 12 UNITED STATES OF AMERICA, et al., Plaintiffs, 13 ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY'S MOTION FOR ATTORNEYS’ FEES v. 14 15 Case No. 15-CV-00746-LHK SAFRAN GROUP, S.A., et al., Re: Dkt. No. 99 Defendants. 16 17 On August 25, 2017, the Court granted Defendants’ motion to dismiss Relators’ third 18 19 amended complaint with prejudice. ECF No. 85. Before the Court is a motion for attorneys’ fees 20 filed by Defendant Morpho, S.A. a.k.a. Safran Identity & Security, S.A. (“Safran Security”). ECF 21 No. 99-1 (“Mot.”). Having considered the submissions of the parties, the relevant law, and the 22 record in this case, the Court GRANTS in part Safran Security’s motion for attorneys’ fees. 23 I. 24 25 BACKGROUND A. Factual Background The facts of this case are set out in detail in this Court’s order granting Defendants’ motion 26 to dismiss Relators’ third amended complaint with prejudice. They are briefly summarized as 27 relevant here. 28 1 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 This case is a qui tam action under the federal False Claims Act (“FCA”), 31 U.S.C. § 2 3729 et seq., and the California False Claims Act (“California FCA”, Cal. Gov’t Code § 12651 et 3 seq. Relators Vincent Hascoet and Phillipe Desbois (collectively, “Relators”) sued Defendants 4 Safran Group, S.A. (“Safran Global”), Safran Security, and Safran U.S.A., Inc. (“Safran USA”) 5 (collectively, “Defendants”) under the FCA and California FCA on behalf of the United States and 6 California. Relators are former employees of Defendants, and Relators brought this action to 7 recover on fraudulent claims for payment that Defendants allegedly submitted to the United States 8 and California. 9 Specifically, Relators’ claims against Safran Security were based on three allegations. First, Relators alleged that Safran Security sold fingerprint identification products that it created to 11 United States District Court Northern District of California 10 the United States and California, and that Safran Security “falsely claimed that the algorithms used 12 in such fingerprint identification technology was, and is, French technology,” when in fact it was 13 “prohibited Russian technology.” TAC ¶ 16. Second, Relators alleged that Safran Security 14 expressly or impliedly certified that Safran Security was in compliance with the Federal 15 Acquisition Regulation (“FAR”) and the Sherman Antitrust Act, 15 U.S.C. §§ 1–7, when in fact 16 all Defendants had an agreement with a Russian company called Papillon not to compete in each 17 other’s markets. Third, Relators alleged that Safran Security expressly or impliedly certified that 18 it was in compliance with the Trade Act, 19 U.S.C. §§ 2501–581, even though Safran Security 19 was allegedly in violation of the Trade Act. 20 21 B. Procedural History On February 17, 2015, Relators filed this case under seal in this Court. ECF No. 1. On 22 April 19, 2016, the United States declined to intervene. ECF No. 5. On July 29, 2016, California 23 also declined to intervene. ECF No. 13. On August 5, 2016, this case was unsealed. ECF No. 14. 24 25 26 27 28 On August 10, 2016, Relators filed a first amended complaint. ECF No. 16. On October 25, 2016, Relators filed a second amended complaint (“SAC”). ECF No. 38. On November 8, 2016, Safran USA filed a motion to dismiss the SAC. ECF No. 45. Relators opposed the motion to dismiss on November 22, 2016. ECF No. 45. Safran USA filed a 2 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 2 reply on November 29, 2016. ECF No. 46. On January 19, 2017, this Court dismissed the SAC without prejudice. ECF No. 54. 3 Specifically, the Court held that Relators had failed to plead a claim with sufficient particularity, 4 as required by Federal Rule of Civil Procedure 9(b). Id. The Court ordered that if Relators chose 5 to file an amended complaint, they must do so within twenty-one days. Accordingly, the deadline 6 for Relators to file an amended complaint was February 9, 2017. The Court noted that “[f]ailure 7 to meet the twenty-one day deadline to file an amended complaint or failure to cure the 8 deficiencies identified in this Order will result in a dismissal with prejudice of Relators’ deficient 9 claims and deficient prayer for damages.” Id. at 24. The Court also ordered that “Relators may not add new causes of action or parties without leave of the Court or stipulation of the parties.” Id. 11 United States District Court Northern District of California 10 On February 10, 2017, the day after the deadline for Relators to file a third amended 12 complaint, Defendants filed a Notice of Relators’ Non-Filing of Third Amended Complaint and 13 requested that the Court dismiss the SAC with prejudice and without leave to amend. ECF No. 14 59. That same day, Relators filed a third amended complaint. ECF No. 60. Relators also filed an 15 Ex Parte Application Pursuant to FRCP 60(b)(1) for Relief From January 19, 2017 Order Granting 16 Relators 21 Days to File Third Amended Complaint, Where Relators’ Counsel Mistakenly 17 Calendared the Due Date as February 10 and Thus E-Filed Such Third Amended Complaint One 18 Day Late. ECF No. 61 (“Ex Parte Application”). 19 Defendants filed an opposition to Relators’ Ex Parte Application on February 10, 2017. 20 ECF No. 64. In Defendants’ opposition, Defendants argued that Relators had acknowledged the 21 correct deadline to file a TAC in a separate filing to the Court on February 1, 2017, and so 22 Relators should not be permitted to file the TAC late. In addition, Defendants argued that new 23 parties had been added to the late-filed TAC, namely, MorphoTrak and MorphoTrust. Defendants 24 argued that Relators’ addition of the new Defendants without Court order was in violation of the 25 Court’s January 19, 2017 order dismissing the SAC. ECF No. 64. On February 12, 2017, 26 Relators filed a reply to Defendants’ opposition. ECF No. 65. Defendants filed a sur-reply on 27 February 14, 2017. ECF No. 67. 28 3 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 On February 17, 2017, the Court granted Relators’ Ex Parte Application and allowed 2 Relators to file the TAC past the February 9, 2017 deadline. ECF No. 68. However, the Court did 3 not allow Relators to add new defendants to the TAC. Rather, the Court noted that new parties 4 could only be added to the TAC by leave of Court, which Relators had not requested. ECF No. 5 68. 6 On February 28, 2017, Relators filed a Motion for Leave to File a Fourth Amended 7 Complaint, which sought leave of Court to add MorphoTrak and MorphoTrust as defendants. 8 ECF Nos. 73, 78. On March 14, 2017, Defendants filed an opposition, ECF No. 79. On March 9 20, 2017, Relators filed a reply. ECF No. 80. 10 On May 9, 2017, the Court denied Relators’ Motion for Leave to File Fourth Amended United States District Court Northern District of California 11 Complaint and struck MorphoTrust and MorphoTrak as defendants from the TAC. ECF No. 83. 12 On May 12, 2017, Relators filed a revised TAC removing MorphoTrust and MorphoTrak as 13 defendants. ECF No. 84. 14 On May 26, 2017, Defendants moved to dismiss the TAC. ECF No. 85. Relators filed an 15 opposition on June 9, 2017, ECF No. 86, and Safran Security filed a reply on June 16, 2017. ECF 16 Nos. 90. The other Defendants joined Safran Security’s reply on the same day. ECF No. 92. 17 On August 25, 2017, this Court dismissed the TAC with prejudice. ECF No. 97. Once 18 again, the Court found that Relators had failed to plead a claim with sufficient particularity to 19 satisfy Federal Rule of Civil Procedure 9(b). Id. The Court determined that dismissal with 20 prejudice was appropriate because “Relators ‘fail[ed] to cure deficiencies by amendments 21 previously allowed.’” Id. at 28 (quoting Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 22 892–93 (9th Cir. 2010)). 23 On September 8, 2017, Safran Security filed the instant motion for attorneys’ fees. Mot. 24 Relators filed an opposition to the motion for attorneys’ fees on October 20, 2018, ECF No. 108 25 (“Opp.”), and Safran Security filed a reply on November 3, 2017. ECF No. 113 (“Reply”). 26 27 28 4 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 II. DISCUSSION A. Attorneys’ Fees Pursuant to the False Claims Act Safran Security seeks attorneys’ fees “incurred in connection with moving to dismiss the Third Amended Complaint.” Mot. at 2. Safran Security seeks these fees pursuant to the False Claims Act (“FCA”). As discussed above, Relators’ causes of action against Safran Security were based on three theories for why Safran Security’s claims were false: (1) Safran Security identified France as the origin of parts of the fingerprint identification software it sold to the United States and California, when in fact those parts came from Russia; (2) Safran Security expressly or impliedly certified that it was in compliance with the FAR and the Sherman Antitrust Act, when in fact it was not; (3) Safran Security expressly or implied certified that it was in compliance with the Trade Act, when in fact it was not. The Court finds that the latter two theories were clearly frivolous, and therefore, pursuant to the FCA, Safran Security is entitled to the attorneys’ fees it incurred in defending against those two theories while moving to dismiss the TAC. However, the Court also finds that Safran Security is not entitled to the attorneys’ fees it incurred in defending against Relators’ first theory of falsity. The Court explains each finding in turn. 1. False Certification of Compliance With Antitrust Laws and Trade Act The FCA provides that “[i]f the Government does not proceed with the action [brought pursuant to the FCA] and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys’ fees and expenses if (1) the defendant prevails in the action and (2) the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.” 31 U.S.C. § 3730(d)(4). An action is “clearly frivolous” when the argument is wholly without merit, or when the result is obvious. See Pfingston v. Ronan Eng’g Co., 284 F.3d 999, 1006 (9th Cir.2000). “An action is ‘clearly vexatious’ or ‘brought primarily for purposes of harassment’ when the plaintiff pursues the litigation with an improper purpose, such as to annoy or embarrass the defendant.” Id. (citing Patton v. Cty. of Kings, 857 F.2d 1379, 1381 (9th Cir.1988)). The Ninth Circuit has “stress[ed]” 5 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 that “[t]he award of fees under the False Claims Act is reserved for rare and special 2 circumstances.” Id. at 1006–07. 3 With regards to Relators’ theories that Safran Security falsely certified that it was in 4 compliance with (1) antitrust laws and regulations; and (2) the Trade Act, the Court found in its 5 January 19, 2017 order dismissing the SAC that the factual allegations in the SAC underlying both 6 of these false certification theories failed to meet the heightened pleading standard in Federal Rule 7 of Civil Procedure 9(b). Specifically, as to the alleged antitrust violations, the Court found that 8 Relators’ SAC did not specify who made the false certifications of compliance with antitrust laws 9 and regulations, when those false certifications were made, or in what context the false certifications were made. ECF No. 54 at 18–21. Similarly, as to the alleged Trade Act violations, 11 United States District Court Northern District of California 10 the Court found that Relators’ SAC failed to identify who made the false certifications of 12 compliance with the Trade Act and when such false certifications occurred. Id. at 19–20. Then, 13 despite being warned of these deficiencies in their SAC, Relators filed a TAC that pled no 14 additional facts about either theory. ECF No. 97 at 27–28. Thus, the Court concluded in its 15 August 25, 2017 order dismissing the TAC that “the TAC’s antitrust theory of falsity fails to 16 satisfy Rule 9(b) for the same reasons that led to the SAC’s dismissal” and that “the TAC’s Trade 17 Act theory of falsity fails to satisfy Rule 9(b).” Id. 18 Because the Court’s order dismissing the SAC detailed the ways in which the factual 19 allegations in the SAC underlying these two theories of falsity were insufficient to satisfy Rule 20 9(b), and because Relators subsequently reasserted these theories of falsity in their TAC without 21 adding any new factual allegations, the Court finds that these theories of falsity were “clearly 22 frivolous” pursuant to the FCA. See 31 U.S.C. § 3730(d)(4). In light of the Court’s order 23 dismissing the SAC, it was “obvious” that reasserting the same theories of false certification in the 24 TAC without adding any new facts would result in failure. Pfingston, 284 F.3d 999 at 1006. 25 Further, the fact that Relators could not muster any basic facts about the who, when, and where of 26 these false certifications despite being afforded multiple opportunities to do so, and despite 27 allegedly being “insiders privy to a fraud on the government,” Bly-Magee v. California, 236 F.3d 28 6 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 1014, 1019 (9th Cir. 2001), suggests that these theories of falsity were “utterly lacking in . . . 2 evidentiary support.” U.S. ex. rel. J. Cooper & Assocs., Inc. v. Bernard Hodes Grp, Inc., 422 F. 3 Supp. 2d 225, 237 (D.D.C. 2006). As a result, the Court concludes that Safran Security is entitled 4 to the attorneys’ fees it incurred in defending against these two obviously insufficiently pled 5 theories of falsity while moving to dismiss the TAC. 6 2. Concealing the Russian Origin of the Fingerprint Identification Software 7 Unlike the two theories of falsity discussed above, the Court finds that Relators’ theory 8 that Safran Security concealed the Russian origin of the fingerprint technology it sold was not 9 “clearly frivolous,” “clearly vexatious,” or “brought primarily for purposes of harassment” within the meaning of the FCA. 31 U.S.C. § 3730(d)(4). As to this particular theory of falsity, in its 11 United States District Court Northern District of California 10 order dismissing the SAC, the Court found that Relators failed to sufficiently allege (1) the “who, 12 what, where, when, and how” of the alleged scheme to conceal the Russian origin of the 13 fingerprint identification products; and (2) “who the sales [of the fingerprint identification 14 products] were made to and when the sales were made.” ECF No. 54 at 17–21 (quoting Vess v. 15 Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003). Relators then filed a TAC that 16 alleged additional facts regarding Relators’ false identification of origin theory. Specifically, in an 17 apparent effort to cure the deficiencies that the Court found in the SAC, Relators’ TAC included 18 more details about the alleged scheme to conceal the Russian origin of the fingerprint 19 identification products, and also detailed “roughly four sales or contracts that they allege are 20 fraudulent for failure to disclose the alleged Russian origin of the fingerprint identification 21 software.” ECF No. 97 at 22. 22 Based on these new facts in the TAC, the Court found in its order dismissing the TAC that 23 “Relators have sufficiently pled the ‘who, what, when, where, and how’ of the general misconduct 24 that Relators allege underpins [Safran Security’s] false claims.” Id. The Court eventually 25 concluded that Relators’ TAC had failed to cure all of the deficiencies that the Court previously 26 identified in its order dismissing the SAC because Relators had not pled sufficient facts to either 27 plausibly suggest that “Safran Security submitted or caused to be submitted any false claims for 28 7 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES payment” or otherwise “connect[] [Safran Security] to the scheme.” Id. at 26. However, in light 2 of the additional facts in the TAC regarding Relators’ false identification of origin theory, the 3 Court cannot say that Relators’ attempt to bring that theory into compliance with the heightened 4 pleading standard of Rule 9(b) was “clearly frivolous,” “clearly vexatious,” or “brought primarily 5 for purposes of harassment.” 31 U.S.C. § 3730(d)(4). Unlike with the other two theories of 6 falsity, Relators were able to provide some essential facts about the alleged scheme to pass off 7 Russian fingerprinting technology as French fingerprinting technology, and did not merely 8 reassert the same insufficient factual allegations from the SAC in the TAC. Thus, Relators’ 9 ultimate failure to satisfy Rule 9(b)’s heightened pleading standard as to their false identification 10 of origin theory was a “bas[i]s for dismissal, [but] not for an award of fees” under the FCA. Ping 11 United States District Court Northern District of California 1 Chen ex rel. U.S. v. EMSL Analytical, Inc., 966 F. Supp. 2d 282, 307 (S.D.N.Y. 2013). 12 B. Attorneys’ Fees Pursuant to the Court’s Inherent Power 13 The parties also argue over whether the Court may in theory award Safran Security 14 attorneys’ fees pursuant to the Court’s inherent power to impose sanctions. See Opp. at 10; Reply 15 at 5–6. These arguments are irrelevant because Safran Security does not move for attorneys’ fees 16 pursuant to the Court’s inherent power. In the introduction of the instant motion, Safran Security 17 states that it “requests an award of attorneys’ fees, as set forth herein, pursuant to 31 U.S.C. § 18 3730(d)(4).” Mot. at 2. The introduction mentions no other grounds for recovering attorneys’ 19 fees. Further, Safran Security devotes an entire section of its motion to asserting that “The Court 20 Should Award Attorneys’ Fees As Authorized By The False Claims Act.” Id. at 8–13. Safran 21 Security’s motion has no separate section that requests attorneys’ fees pursuant to the Court’s 22 inherent power. Indeed, the only mention of the Court’s inherent power in the instant motion is a 23 passing reference that “[t]he Court may also award fees and expenses pursuant to its inherent 24 power.” Id. at 8. Because the legal analysis in the instant motion focuses exclusively on the 25 standard for awarding attorneys’ fees pursuant to the FCA, the instant order does the same. 26 27 28 However, analysis of Safran Security’s request for attorneys’ fees pursuant to the Court’s inherent power would not change the result of this order. “[T]o impose sanctions under the 8 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 Court’s inherent power, this Court would have to make a finding of bad faith.” Boyd v. Accuray, 2 Inc., 2012 WL 4936591, *6 (N.D. Cal. Oct. 17, 2012). For the same reasons stated above 3 regarding why Relators’ identification of origin theory of falsity was not “clearly frivolous,” 4 “clearly vexatious,” or “brought primarily for purposes of harassment” within the meaning of the 5 FCA, 31 U.S.C. § 3730(d)(4), the Court finds that Relators did not reassert that theory of falsity in 6 bad faith. Further, although Relators may well have reasserted their two other theories of falsity in 7 bad faith, the Court has already determined that Safran Security is entitled to the attorneys’ fees it 8 incurred in defending against those two theories pursuant to the FCA because they were “clearly 9 frivolous.” Thus, the Court will not exercise its inherent power to award Safran Security any attorneys’ fees beyond those to which Safran Security is entitled under the FCA. 11 United States District Court Northern District of California 10 III. CONCLUSION 12 For the foregoing reasons, the Court GRANTS in part Safran Security’s motion for 13 attorneys’ fees. Specifically, the Court concludes that Safran Security is entitled to the attorneys’ 14 fees it incurred in defending against two of Relators’ three theories of falsity while moving to 15 dismiss the TAC: (1) that Safran Security falsely certified that it was in compliance with antitrust 16 laws and regulations; and (2) that Safran Security falsely certified that it was in compliance with 17 the Trade Act. As explained above, when Relators reasserted these theories in the TAC, the 18 eventual failure of those theories was obvious because Relators made no attempt to cure the 19 pleading deficiencies identified by the Court in its order dismissing the SAC. 20 However, none of Safran Security’s submissions provide any way to ascertain or 21 reasonably estimate the attorneys’ fees that Safran Security incurred specifically in defending 22 against these two clearly frivolous theories of falsity. Safran Security submits only a declaration 23 from one of its attorneys, Paul Salvaty (a partner at the law firm Hogan Lovells US LLP), 24 indicating that (1) he, another partner, and a senior attorney performed a combined 76.3 hours of 25 work “after dismissal of the SAC and in support of Defendants’ efforts to secure dismissal of the 26 TAC”; and (2) based on their respective hourly rates of $750/hour, $750/hour, and $565/hour, and 27 the number of hours each of them worked, their total attorneys’ fees for those 76.3 hours of work 28 9 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES 1 2 amounted to $45,558.00. ECF No. 99-2 ¶¶ 7–10. As a result, the Court ORDERS counsel for Safran Security to submit a declaration that 3 provides and details a reasonable estimate of the attorneys’ fees Safran Security incurred in 4 defending against the two clearly frivolous theories of falsity asserted in Relators’ TAC by 5 February 1, 2018. Thereafter, Relators shall have until February 8, 2018 to file any objections to 6 the estimate submitted by counsel for Safran Security. If a hearing is necessary, the hearing will 7 be held on February 15, 2018, at 1:30 p.m. However, the Court anticipates that the amount of 8 attorneys’ fees can be determined on the papers. 9 IT IS SO ORDERED. 10 United States District Court Northern District of California 11 12 13 Dated: January 25, 2018 ______________________________________ LUCY H. KOH United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 Case No. 15-CV-00746-LHK ORDER GRANTING IN PART DEFENDANT SAFRAN SECURITY’S MOTION FOR ATTORNEYS’ FEES

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