Jones & Wert Construction Specialties Inc v. Straub Construction Inc.

Filing 34

ORDER Granting In Part and Denying In Part 26 Motion to Dismiss. Accordingly, the Court grants Straub's motion to dismiss for failure to meet the heightened pleading requirements of Rule 9(b). The Court dismisses without prejudice J&W's complaint. J&W may file an amended complaint curing the noted deficiencies within 14 days of the date that this Order is electronically docketed. Signed by Judge Janis L. Sammartino on 9/12/2013. (jao)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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UNITED STATES OF AMERICA, ex
rel. JONES & WERT
CONSTRUCTION SPECIALTIES,
INC.,
vs.

Plaintiff,

CASE NO. 10CV1415 JLS (RBB)
ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS
(ECF No. 26)

STRAUB CONSTRUCTION, INC.,
Defendant.
Presently before the Court is Defendant Straub Construction, Inc.’s

18 (“Defendant,” or “Straub”) Motion to Dismiss For Failure to State a Claim for
19 Which Relief Can Be Granted. (ECF No. 26). Also before the Court is qui tam
20 relator Jones & Wert Construction Specialties, Inc.’s (“Relator,” or “J&W”)
21 response in opposition, (Resp. in Opp’n, ECF No. 30), and Straub’s reply in support,
22 (Reply in Supp., ECF No. 32). The United States of America, which declined to
23 intervene in this suit, has nonetheless filed a Statement of Interest Concerning
24 Defendant’s Motion to Dismiss, (Statement of Interest, ECF No. 29), which is also
25 before the Court.
26

The motion hearing set for February 28, 2013 was vacated and the matter

27 taken under submission without oral argument pursuant to Civil Local Rule
28 7.1(d)(1). Having considered the parties’ arguments and the law, the Court
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1 GRANTS IN PART and DENIES IN PART Straub’s motion to dismiss and
2 DISMISSES WITHOUT PREJUDICE J&W’s complaint.
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BACKGROUND
J&W brings this action against Straub under the False Claims Act, 31 U.S.C.

5 § 3729 et seq., based on Straub’s conduct as a general contractor on two military
6 construction projects—the Nellis Air Force Base Aircraft Maintenance project
7 (“Nellis Project”) and the Fort Hunter Liggett Army Reserve Center project
8 (“Hunter Liggett Project”). J&W contends that Straub concealed from the Army
9 Corps of Engineers several unauthorized changes to building plans and falsely and
10 misleadingly certified that its work was in accord with approved contract terms in
11 order to receive payment.
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J&W filed this action under seal on July 7, 2010 and the complaint was

13 subsequently served on the United States Attorney General on September 23, 2010.
14 This Court granted five requests for extension of time for the United States to decide
15 whether or not to intervene in this litigation. On August 28, 2012, the United States
16 filed notice of its election to decline intervention. The case was unsealed on the
17 same day.
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Significantly, J&W also filed a prior suit against Straub in this district

19 pursuant to the Miller Act, 40 U.S.C. § 3131 et seq., on October 8, 2009. J&W’s
20 Miller Act suit rested on similar allegations arising from Straub’s work on the Nellis
21 and Hunter Liggett projects. J&W and Straub resolved the initial suit and the parties
22 filed a joint motion to dismiss on June 14, 2011. The motion was granted, and the
23 case closed, on June 15, 2011.1
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LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion

26 the defense that the complaint “fail[s] to state a claim upon which relief can be
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The Court GRANTS Straub’s request for judicial notice of three documents
28 from the prior suit, namely, the complaint, the joint motion to dismiss with prejudice,
and the court’s order dismissing the case with prejudice.
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1 granted,” generally referred to as a motion to dismiss. The Court evaluates whether
2 a complaint states a cognizable legal theory and sufficient facts in light of Federal
3 Rule of Civil Procedure 8(a), which requires a “short and plain statement of the
4 claim showing that the pleader is entitled to relief.” Although Rule 8 “does not
5 require ‘detailed factual allegations,’ . . . it [does] demand[] more than an unadorned,
6 the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662,
7 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other
8 words, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to
9 relief’ requires more than labels and conclusions, and a formulaic recitation of the
10 elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (citing
11 Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Nor does a complaint suffice if it
12 tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556
13 U.S. at 677(citing Twombly, 550 U.S. at 557).
14

“To survive a motion to dismiss, a complaint must contain sufficient factual

15 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id.
16 (quoting Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is
17 facially plausible when the facts pled “allow[] the court to draw the reasonable
18 inference that the defendant is liable for the misconduct alleged.” Id. (citing
19 Twombly, 550 U.S. at 556). That is not to say that the claim must be probable, but
20 there must be “more than a sheer possibility that a defendant has acted unlawfully.”
21 Id. Facts “‘merely consistent with’ a defendant’s liability” fall short of a plausible
22 entitlement to relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court
23 need not accept as true “legal conclusions” contained in the complaint. Id. This
24 review requires context-specific analysis involving the Court’s “judicial experience
25 and common sense.” Id. at 678 (citation omitted). “[W]here the well-pleaded facts
26 do not permit the court to infer more than the mere possibility of misconduct, the
27 complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to
28 relief.’” Id.
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1

Moreover, “for a complaint to be dismissed because the allegations give rise

2 to an affirmative defense[,] the defense clearly must appear on the face of the
3 pleading.” McCalden v. Ca. Library Ass’n, 955 F.2d 1214, 1219 (9th Cir. 1990).
4 The Court will grant leave to amend unless it determines that no modified contention
5 “consistent with the challenged pleading . . . [will] cure the deficiency.” DeSoto v.
6 Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schriber
7 Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)).
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ANALYSIS

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Straub moves for dismissal on the ground that (1) J&W’s qui tam claim is

10 barred by res judicata because a final judgment on the merits was reached in the
11 previous suit; and, (2) J&W fails to allege facts regarding Straub’s purported fraud
12 with the particularity required by Rule 9(b). The Court addresses each argument in
13 turn.
14 1. Res Judicata
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“‘The doctrine of res judicata provides that a final judgment on the merits bars

16 further claims by parties or their privies based on the same cause of action,’ and ‘is
17 central to the purpose for which civil courts have been established, the conclusive
18 resolution of disputes within their jurisdiction.’” Headwaters Inc. v. U.S. Forest
19 Serv., 399 F.3d 1047, 1051–52 (9th Cir. 2005) (quoting In re Schimmels, 127 F.3d
20 875, 881 (9th Cir. 1997)). “The elements necessary to establish res judicata are: ‘(1)
21 an identity of claims, (2) a final judgment on the merits, and (3) privity between
22 parties.’” Id. (quoting Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg’l Planning
23 Agency, 322 F.3d 1064, 1077 (9th Cir. 2003)).
24

Due to the unique characteristics of qui tam litigation, however, the resolution

25 of a private suit never, or rarely, precludes a subsequent qui tam action. See United
26 States ex. rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009) (“[T]he
27 outcome of a private employment suit never precludes a qui tam action (or a False
28 Claims Act suit directly by the United States).”); United States ex. rel. Laird v.
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1 Lockheed Martin Eng’g and Sci. Services Co., 336 F.3d 346, 357 (5th Cir. 2003),
2 abrogated on other grounds by Rockwell Int’l Corp. v. United States, 549 U.S. 457,
3 472 (2007). Persuasive authority indicates that this outcome follows from the
4 “special status” of the United States in a qui tam action. See Lusby, 570 F.3d at 852.
5 The United States is always a “real party in interest” in a qui tam suit, regardless of
6 whether it chooses to intervene in the litigation. Id. (“It would be inappropriate to
7 snuff out [the federal government’s interest] just because a potential relator
8 thoughtlessly omitted a qui tam claim from a personal suit.”).
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Moreover, qui tam litigation is governed by unique statutory requirements,

10 which make it difficult, if not impossible, to combine a qui tam action with a
11 personal action. See id.; Laird, 336 F.3d at 359–60. For example, the False Claims
12 Act provides that a relator’s complaint must be filed in camera and remain under
13 seal for at least 60 days to permit the Government to investigate a relator’s
14 allegations and to make an informed decision as to whether to intervene in the suit.
15 See 31 U.S.C. § 3730(b)(2). The False Claims Act also allows the Government to
16 exercise ultimate control over the suit, regardless of whether it intervenes in the
17 litigation. See id. at §§ 3730(b)(1), (c)(2)(A). These procedural differences suggest
18 that a potential relator’s decision to split a personal claim and a qui tam claim
19 “should be respected,” even if the two claims arise from the same nucleus of
20 operative fact and constitute the same cause of action. See Lusby, 570 F.3d at 853.
21

Here, Straub contends that J&W’s prior action against Straub pursuant to the

22 Miller Act precludes J&W from bringing this qui tam action. According to Straub,
23 J&W’s Miller Act suit arose from the same nucleus of operative fact as its qui tam
24 claim and ended in a final judgment on the merits after the parties filed a joint
25 motion to dismiss with prejudice.
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J&W’s Miller Act claim does not bar this action, however, because the United

27 States is a real party in interest here. The Government’s interest should not be
28 “snuffed out” based on J&W’s conduct in the previous suit, over which the
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1 Government had no control. See Lusby, 570 F.3d 852. Furthermore, J&W could not
2 have reasonably combined its qui tam claim with its Miller Act claim and its
3 decision to split the two claims is defensible.2
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Straub contends that the status of the United States as a real party in interest is

5 irrelevant here because the United States has decided not to intervene in this
6 litigation. According to Straub, a dismissal with prejudice on the basis of res
7 judicata would only bar J&W from proceeding with this action and would not affect
8 the United States, such that the Government could file a subsequent action against
9 Straub under the False Claims Act if it wished to do so.
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Straub’s argument fails because the United States is “‘bound by the judgment

11 in all FCA actions, regardless of its participation in the case.’” Lusby 570 F.3d at
12 853 (quoting U.S. ex. rel. Eisenstein v. City of N.Y., 556 U.S. 928, 936 (2009)). A
13 dismissal with prejudice as to J&W on the basis of res judicata would preclude
14 subsequent suits by the Government or other potential relators. See id. Such an
15 outcome would be improper in light of the Government’s inability to participate in,
16 or prevent the resolution of, J&W’s original Miller Act suit. See id. Accordingly,
17 the Court DENIES Straub’s motion to dismiss the complaint on the basis of res
18 judicata.3
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Indeed, the United States took more than two years to complete its investigation
in this case, far more than the 120-day limit set forth in Federal Rule of Civil Procedure
21 4(m) for service of the summons and complaint. See Lusby, 570 F.3d at 852.
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This outcome appears to be consistent with the Ninth Circuit’s analytical
framework for evaluating a relator’s pre-filing release of a False Claims Act claim. See
23 U.S. ex. rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230, 233 (9th Cir. 1997);
U.S. ex. rel. Green v. Northrop Corp., 59 F.3d 953, 966 (9th Cir. 1995). This
24 framework, which has been adopted by other circuits, see e.g., United States v. Purdue
Pharma L.P., 600 F.3d 319, 329–33 (4th Cir. 2010), indicates that a qui tam action is
25 barred by a pre-filing release only when the Government has been previously informed
of, and has had an opportunity to investigate, the relator’s allegations of fraud. Thus,
26 when the Government initially learns about fraud allegations from a relator’s complaint,
a release is not enforceable.
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A post-filing settlement and release resulting in a dismissal with prejudice in a
concurrently litigated breach-of-contract suit arising out of the same facts and
28 circumstances as the qui tam action implicates a different set of interests. Here, the
outcome turns not on the Government’s mere awareness of the fraud allegations, but
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1 2. Rule 9(b)
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Federal Rule of Civil Procedure 9(b) provides that “In alleging fraud . . . a

3 party must state with particularity the circumstances constituting fraud . . . .” This
4 heightened pleading standard for allegations of fraud applies to False Claims Act
5 claims. See Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001).
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A complaint alleging violation of the False Claims Act must provide the

7 “who, what, when, where, and how” of the fraud. See Ebeid ex rel. United States v.
8 Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010). In particular, the complaint must
9 provide detailed information regarding actual false claims submitted to the
10 Government. It is not sufficient to allege that a contract or regulation has been
11 violated without alleging an objectively false or fraudulent claim or its attendant
12 circumstances. See U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., 637 F.3d 1047,
13 1057 (9th Cir. 2011).
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Here, J&W maintains that Straub installed defective anchor rods and made

15 various other unauthorized changes during work on the Nellis Project that “severely
16 diminished” the “seismic, cosmetic, and structural integrity” of the project and fell
17 substantially short of contract specifications. Similarly, with respect to the Hunter
18 Liggett Project, J&W alleges that Straub installed concrete walls of improper
19 dimension and, instead of reconstructing its walling system, chose to improvise the
20 remainder of the building by utilizing substandard structural steel support and
21 weakening rebar reinforcement.
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J&W’s complaint also includes general allegations that Straub failed to inform

23 the Army Corps of Engineers of these “material and structural deviations” from the
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rather on the impropriety of binding the Government through the resolution of a private
25 suit over which it had no control.
Indeed, the Government typically has the right to block a relator’s resolution of
26 a qui tam action so long as the complaint remains under seal and the Government has
yet to complete its investigation. See United States ex rel. Killingsworth v. Northrop
27 Corp., 25 F.3d 715, 723–24 (9th Cir. 1994) (interpreting 31 U.S.C. § 3730(b)(1)). It
would appear to be inconsistent with this statutory right to give res judicata effect to a
28 relator’s settlement and dismissal of a concurrently filed private suit negotiated without
the Government’s knowledge or consent and before the unsealing of the case.
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1 approved building plans and instead “present[ed] . . . claims to the United States to
2 be paid while representing that the [projects] had been completed in accordance with
3 plans and specifications.”
4

J&W’s fraud allegations are inadequate under Rule 9(b). Although J&W

5 makes specific allegations regarding Straub’s failure to comply with contract terms,
6 J&W offers no facts or details regarding Straub’s purported submission of false
7 claims to the Government, the “sine qua non” of a False Claims Act claim. U.S. ex
8 rel. Clausen v. Laboratory Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir. 2002).
9 J&W must plead with particularity “if or when any actual improper claims were
10 submitted” to the Government, see Cnty. of Santa Clara v. Astra U.S., Inc., 428 F.
11 Supp. 2d 1029, 1037 (N.D. Cal. 2006), or at least allege the specific details of a
12 fraudulent scheme together with some indicia of reliability supporting a conclusion
13 that false claims were actually submitted to the Government, see Ebeid at 998–99. It
14 is insufficient to plead regulatory or contract violations and simply assume that false
15 claims were presented.
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Moreover, J&W’s contention that it needs discovery to obtain information

17 regarding the nature and timing of Straub’s false claims lacks merit. Plaintiffs
18 alleging fraud must comply with Rule 9(b) upon the filing of the complaint and are
19 not entitled to proceed to discovery to satisfy this basic pleading requirement. See
20 Clausen, 290 F.3d at 1313 n.24.
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Accordingly, the Court GRANTS Straub’s motion to dismiss for failure to

22 meet the heightened pleading requirements of Rule 9(b). The Court DISMISSES
23 WITHOUT PREJUDICE J&W’s complaint.
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CONCLUSION
For the reasons stated above, the Court GRANTS IN PART AND DENIES

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28 ///
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1 IN PART Straub’s motion to dismiss and DISMISSES WITHOUT PREJUDICE
2 J&W’s complaint. J&W may file an amended complaint curing the noted
3 deficiencies within 14 days of the date that this Order is electronically docketed.
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IT IS SO ORDERED.

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6 DATED: September 12, 2013
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Honorable Janis L. Sammartino
United States District Judge

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