United States of America ex rel. et al v. ERMI, LLC et al
Filing
90
OPINION AND ORDER denying 85 Motion to Dismiss for Failure to State a Claim. Signed by Judge Thomas W. Thrash, Jr. on 02/27/2024. (jkb)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
UNITED STATES OF AMERICA ex
rel.
ELIZABETH A. COOLEY,
Plaintiff,
v.
CIVIL ACTION FILE
NO. 1:20-CV-4181-TWT
ERMI, LLC f/k/a ERMI, INC., et al.,
Defendants.
OPINION AND ORDER
This is a False Claims Act case. It is before the Court on Relator
Elizabeth Cooley’s Motion to Dismiss [Doc. 85] Defendant ERMI, LLC’s
counterclaims. For the reasons explained below, the Relator’s Motion to
Dismiss [Doc. 85] is DENIED.
I.
Background 1
This case is about allegedly fraudulent claims for reimbursement for
durable medical equipment. Defendant ERMI manufactures and leases
equipment that assists orthopedic patients regain range of motion. (First Am.
Countercls. ¶ 2). Relator Elizabeth Cooley worked for ERMI as its Chief
Compliance Officer from November 2018 until October 2019. (Id. ¶ 5). Based
on allegedly fraudulent actions that ERMI engaged in while she was an officer,
The Court accepts the facts as alleged in the First Amended
Counterclaims as true for purposes of the present Motion to Dismiss. Wildling
v. DNC Servs. Corp., 941 F.3d 1116, 1122 (11th Cir. 2019).
1
Cooley filed the present qui tam action under the False Claims Act. (See
generally Third Am. Compl.). After the Court’s order on the Defendants’ most
recent Motion to Dismiss, Cooley has three claims remaining. See United
States ex rel. Cooley v. ERMI, LLC, 2023 WL 3587543, at *8 (N.D. Ga. May 22,
2023). The first two allege that ERMI engaged in unlicensed and fraudulent
activity in Florida that constituted making or using false records and
statements material to false claims. (Third Am. Compl. ¶¶ 442-85) The third
surviving count maintains that ERMI retaliated against Cooley because of her
efforts to bring ERMI into compliance with the law and because she threatened
to bring a whistleblower suit against ERMI if it did not let her do her job. (Id.
¶¶ 486-92). The Court’s previous orders in this case spell out in more detail the
Relator’s allegations. See, e.g., United States ex rel. Cooley v. ERMI, LLC, 2023
WL 3587543 (N.D. Ga. May 22, 2023); United States ex rel. Cooley v. ERMI,
LLC, 2022 WL 4715679 (N.D. Ga. Sept. 30, 2022); United States ex rel. Cooley
v. ERMI, LLC, 2022 WL 1185155 (N.D. Ga. Apr. 21, 2022).
In response to these claims, the Defendants ERMI and End Range of
Motion Improvement, Inc. filed an answer. (Answer at 1). ERMI also filed
counterclaims against Cooley for breach of fiduciary duty, negligence per se,
and breach of contract as well as a request for litigation expenses. (Countercls.
¶¶ 1, 27-52) 2. In an Opinion and Order entered on November 2, 2023, the Court
ERMI’s original counterclaims were on the same document as the
Answer [Doc. 68], but the paragraphs of each were separately counted.
2
2
granted the Relator’s motion to dismiss ERMI’s breach of fiduciary duty and
negligence per se claims. United States ex rel. Cooley v. ERMI, LLC, 2023 WL
7224174 (N.D. Ga. Nov. 2, 2023). Since then, ERMI has amended its
counterclaims and now asserts claims for breach of fiduciary duty and breach
of contract in addition to requesting litigation expenses. (First Am. Countercls.
¶¶ 28-48). Cooley again moves to dismiss ERMI’s counterclaims.
II.
Legal Standard
A complaint should be dismissed under Rule 12(b)(6) only where it
appears that the facts alleged fail to state a “plausible” claim for relief. Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009); Fed. R. Civ. P. 12(b)(6). A complaint may
survive a motion to dismiss for failure to state a claim, however, even if it is
“improbable” that a plaintiff would be able to prove those facts; even if the
possibility of recovery is extremely “remote and unlikely.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 556 (2007). In ruling on a motion to dismiss, the court
must accept the facts pleaded in the complaint as true and construe them in
the light most favorable to the plaintiff. See Quality Foods de Centro Am., S.A.
v. Latin Amwi. Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th Cir.
1983); see also Sanjuan v. American Bd. of Psychiatry & Neurology, Inc., 40
F.3d 247, 251 (7th Cir. 1994) (noting that at the pleading stage, the plaintiff
“receives the benefit of imagination”). Generally, notice pleading is all that is
required for a valid complaint. See Lombard’s, Inc. v. Prince Mfg., Inc., 753
F.2d 974, 975 (11th Cir. 1985). Under notice pleading, the plaintiff need only
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give the defendant fair notice of the plaintiff’s claim and the grounds upon
which it rests. See Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citing Twombly,
550 U.S. at 555).
III.
Discussion
Cooley seeks dismissal of all counterclaims. She asserts that the breach
of fiduciary duty should be dismissed because it is contrary to public policy,
based wholly on a breach of contractual duty, and barred by the economic loss
rule. (Pl.’s Br. in Supp. of Mot. to Dismiss, at 2-9). Cooley moves to dismiss the
breach of contract claim as prohibited by public policy and by the terms of the
Confidentiality, Non-Competition, and Intellectual Property Agreement
(“Confidentiality Agreement”). (Id. at 10-12). Finally, she seeks dismissal of
the claim for litigation expenses because it is derivative of the other claims
which assertedly fail. (Id. at 12). The Court considers these arguments in turn.
A. Breach of Fiduciary Duty
ERMI alleges that Cooley owed it a fiduciary duty as a corporate officer
and breached that duty in three different ways: (1) leading ERMI to believe
that it was receiving legal advice from Cooley, (2) falsely suggesting that the
AHCA renewal process was going well and that ERMI should receive a renewal
shortly, and (3) retaining ERMI’s property after her employment ended. (First
Am. Countercls. ¶¶ 29-34). These breaches allegedly caused ERMI to be
injured because ERMI did not receive the legal advice it expected to receive
when it hired Cooley, was forced to defend a lawsuit filed against it by a
4
competitor due to Cooley’s actions, and has not had its property returned to it.
(Id. ¶ 35). Consequently, ERMI seeks relief in the form of disgorgement of
Cooley’s salary when she was breaching her fiduciary duties, costs that ERMI
incurred while defending the competitor’s lawsuit, and nominal damages. (Id.
¶¶ 36-37). Cooley attacks these allegations on various grounds.
i.
Public Policy
First, she argues that permitting this counterclaim would violate public
policy by discouraging whistleblowers from coming forward. (Pl.’s Br. in Supp.
of Mot. to Dismiss, at 4-6). The Court outlined the reach of the public policy
bar in its November 2 Order:
Several cases have held that at least some counterclaims
are barred by the FCA under this public policy rationale. See, e.g.,
Mortgs., Inc. v. U.S. Dist. Court for Dist. Of Nev. (Las Vegas), 934
F.2d 209 (9th Cir. 1990); United States ex rel. Vainer v. DaVita,
Inc., 2013 WL 1342431, at *4 (N.D. Ga. 6 Feb. 13, 2013); United
States ex rel. Rodriquez v. Wkly. Publ’ns, 74 F. Supp. 763
(S.D.N.Y. 1947).…
“The unavailability of contribution and indemnification for
a defendant under the False Claims Act now seems beyond
peradventure.” United States ex rel. Miller v. Bill Harbert Intern.
Const. Inc., 505 F. Supp. 2d 20, 26 (D.D.C. 2007) (compiling cases)
(“Miller”). Moreover, “there can be no right to assert state law
counterclaims that, if prevailed on, would end in the same result”
as an indemnification or contribution counterclaim. Mortgs., Inc.,
934 F.2d at 214. On the other hand, a qui tam defendant can bring
counterclaims if they are based on “independent damages.”
United States ex rel. Head v. Kane Co., 668 F. Supp. 2d 146, 153
(D.D.C. 2009) (“Head”). In fact, it would violate procedural due
process to dismiss a defendant’s compulsory counterclaim based
on independent damages. United States ex rel. Madden v. Gen.
Dynamics Corp., 4 F.3d 827, 830-31 (9th Cir. 1993). There are two
types of counterclaims that are based on independent damages:
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(1) counterclaims in which “the conduct at issue is distinct from
the conduct underlying the FCA case” and (2) counterclaims in
which “the defendant's claim, though bound up in the facts of the
FCA case, can only prevail if the defendant is found not liable in
the FCA case.” Head, 668 F. Supp. 2d at 153 (citation omitted).…
A counterclaim will fall under the first category “if none of
the elements of [the counterclaim’s] caus[e] of action implicate
Defendant's liability under the FCA.” Id. at 154. For example, a
counterclaim asserting a breach of a non-disparagement
provision was allowed to proceed because liability for that
counterclaim depended on whether the relator “made disparaging
or critical statements to third parties in violation of his
contractual obligations after this suit was filed and completely
apart from this proceeding.” Id. at 153. By contrast, the same
court dismissed a claim for contractual indemnification even
assuming there had been willful misconduct and a breach of
contract because it was attempting to shift liability for the FCA
violations to the relator. Id. at 154.
ERMI, LLC, 2023 WL 7224174, at *2-3 (alteration omitted). The Court found
that part of ERMI’s allegations fit the requirements of the first category. Id. at
*3. It also found that the second category did not apply because there was
“nothing in the breach of fiduciary duty counterclaim [that] limits its success
to a finding of nonliability for Cooley’s FCA claim.” Id.
ERMI has not amended its pleading in any way that makes it so this
counterclaim “can only prevail if the defendant is found not liable in the FCA
case.” Head, 668 F. Supp. 2d at 153 (citation omitted). Thus, the second
category still does not apply. Whether the breach of fiduciary duty
counterclaim is barred by public policy therefore depends on whether “the
conduct at issue is distinct from the conduct underlying the FCA case.” Id. The
Court concludes that some of ERMI’s allegations are distinct from the conduct
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underlying Cooley’s claims.
The first way in which Cooley allegedly breached her fiduciary duty was
by misleading ERMI to believe it was receiving legal advice from Cooley. (First
Am. Countercls. ¶ 32). The Court previously concluded that this allegation is
distinct from the conduct of the FCA claims because “[t]he legal advice Cooley
repeatedly provided ERMI is alleged to include (a) regulatory compliance; (b)
corporate formation and conversion; (c) litigation strategy; (e) intellectual
property due diligence; and (f) other similar matters.” ERMI, LLC, 2023 WL
7224174, at *3 (quotation marks and citation omitted). 3 The same allegation
is made here. (First Am. Countercls. ¶ 14). Because the legal advice involved
subject matter that is entirely unrelated to the underlying FCA claims, the
Court maintains that ERMI is not barred by public policy from pursuing this
counterclaim on this basis.
ERMI also alleges Cooley breached her fiduciary duty by misleading
ERMI about the AHCA renewal process. (First Am. Countercls. ¶ 33). The
Court previously found that this was not distinct from the underlying FCA
claims because the FCA claims “deal mostly with ERMI’s activity in Florida
either without a license issued by AHCA or based on a license obtained because
The Court dismissed the counterclaim anyways because ERMI had not
stated any injury stemming from the alleged breach of fiduciary duty. ERMI,
LLC, 2023 WL 7224174, at *4. ERMI has now stated that it “was harmed by
not receiving the legal advice and consultation it expected to receive when it
hired Cooley.” (First Am. Countercls. ¶ 35). Cooley does not challenge this
injury as insufficient.
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3
of intentional misrepresentations made on AHCA license applications.” ERMI,
LLC, 2023 WL 7224174, at *3. “Claiming that Cooley should have to pay ERMI
because her actions caused this problem and cost ERMI money is nothing more
than a dressed-up (but still barred) claim for contribution or indemnification.”
Id. In amending its counterclaims, ERMI has added an allegation that Cooley’s
actions “subjected ERMI to costly litigation brought by one of its competitors.”
(First Am. Countercls. ¶ 33).
ERMI argues that because the competitor’s lawsuit raised a claim under
the Florida Deceptive and Unfair Trade Practices Act rather than the FCA,
this constitutes independent damages and is not barred by public policy. (Def.’s
Br. in Opp’n to Mot. to Dismiss, at 9-14). The Court agrees. Cooley accurately
points out that both her FCA claim and the competitor’s lawsuit involved
operating in Florida without a valid AHCA license. (Pl.’s Br. in Supp. of Mot.
to Dismiss, at 5). However, the conduct at issue can be found to be distinct
“even where there is a close nexus between the facts, so long as there is a clear
distinction between the facts supporting liability against relator and the facts
supporting liability against the FCA defendant.” Miller, 505 F. Supp 2d at 27;
(see also Def.’s Br. in Opp’n to Mot. to Dismiss, at 13 (“In sum, Cooley does
nothing more than point to an overlap in the underlying facts. But that overlap
is what makes ERMI’s counterclaims compulsory. It is not a coup de grâce that
renders them impermissible for failure to state a claim based on independent
damages.”) (citations omitted)). ERMI has now provided enough facts to show
8
that there is that “clear distinction” between the facts supporting liability for
each claim. Miller, 505 F. Supp 2d at 27.
In United States ex rel. Morgan v. Champion Fitness, Inc., 368 F. Supp.
3d 1198, 1208-09 (C.D. Ill. Feb. 19, 2019), the plaintiff sought “to disgorge
payments to Relator, alleging she either failed to perform her contractual
duties by not ensuring compliance with Medicare billing regulations (Count
VI) or, in the alternative, it would be unjust enrichment for her to keep the
payments despite the lack of a contract because she failed to earn any
compensation by not ensuring compliance (Count VII).” The Court concluded
that such claims were not barred by public policy, even though they were not
factually independent of the underlying FCA claims. Id. at 1209. More
specifically, it determined that “[a] jury could find Relator submitted false
claims, thus breaching her contract (or being unjustly enriched), but could
nonetheless find Defendants did not know of the false submissions, making
them not liable under the FCA” and therefore concluded that her breach of
contract and unjust enrichment claims “d[id] not require Defendants be found
either liable or not liable to succeed.” Id. Similarly, a jury here could find that
Cooley’s lack of care led ERMI to being sued by a competitor but that ERMI
did not knowingly submit any false claims. Thus, Cooley’s alleged mishandling
of the AHCA application is “truly independent of the FCA claims because” it
does not “require as an essential element that the FCA defendant was liable—
or not liable—in the FCA case.” Miller, 505 F. Supp at 27.
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Cooley disagrees, asserting that “this claim for damages is yet another
clever attempt by ERMI to seek what federal law denies it under the guise of
affirmative state law rights of actions.” (Reply Br. in Supp. of Mot. to Dismiss,
at 6) (alteration, quotation marks, and citation omitted). First, she claims that
ERMI received its first AHCA license before Cooley worked for ERMI and
Cooley therefore could not have made any representations on that application.
(Id.). However, this statement relies on an allegation made in Cooley’s Third
Amended Complaint, not ERMI’s First Amended Counterclaims, and “[a]t this
stage, the Court must confine its inquiry to the four corners of the
countercomplaint.” Ferrier v. Q Link Wireless, 2019 WL 3408911, at *1 (S.D.
Fla. May 3, 2019) (citation omitted). Moreover, even if the Court did look to the
Third Amended Complaint, ERMI has denied the cited allegation in its
Answer. (Answer ¶ 13). The Court cannot make credibility determinations
against the non-moving party at this stage. Cooley also asserts that it was
ERMI’s actions rather than Cooley’s that caused ERMI to incur the legal fees
from the competitor’s lawsuit. (Pl.’s Br. in Supp. of Mot. to Dismiss, at 6). This
is similarly a merits question that is not ripe for determination at this time.
All in all, since the breach of fiduciary duty claim does not “only have the effect
of offsetting liability,” public policy does not bar the claim on this theory.
Madden, 4 F.3d at 831.
Finally, ERMI alleges that Cooley breached her fiduciary duty by
retaining ERMI’s property after her employment ended. (First Am. Countercls.
10
¶ 34). As explained in more detail in the next subsection, the only alleged
breach of fiduciary duty involving the retention of documents is the use of those
documents for this qui tam action. Accordingly, this counterclaim is not
independent of Cooley’s FCA claims and is barred by public policy.
ii.
Failure to Allege Breach of Fiduciary Duty
Cooley’s second argument is that the breach of fiduciary duty claim is
based on nothing more than a failure to perform contractual obligations and
therefore cannot constitute a tort. (Pl.’s Br. in Supp. of Mot. to Dismiss, at 68). ERMI asserts that it has properly alleged violations of the duties of care,
good faith, and loyalty. (Def.’s Br. in Opp’n to Mot. to Dismiss, at 14-16). The
Court concludes that ERMI has properly alleged a breach of fiduciary duty as
it pertains to its allegation that Cooley misled ERMI about the AHCA license
renewal process.
“[A]n action in tort may not be maintained for what is a mere breach
through non-action or through ineffective performance (which is the same
thing) of a contract duty—the duty must arise independent of contract to
constitute a tort.” Travelers Ins. Co. v. King, 160 Ga. App. 473, 475 (1981)
(citation omitted); see also Wimpy v. Martin, 356 Ga. App. 55, 56 (2020) (“It is
axiomatic that a single act or course of conduct may constitute not only a
breach of contract but an independent tort as well, if in addition to violating a
contract obligation it also violates a duty owed to plaintiff independent of
contract to avoid harming him.” (alteration and citations omitted)). As ERMI
11
asserts, the Georgia Court of Appeals has found “claims for breach of fiduciary
duty to be well pled even when they are derived from language in a contract.”
Wimpy, 356 Ga. App. at 56 (citations omitted). However, all the cases cited by
the court raise issues about whether the parties had a relationship that gave
rise to a fiduciary duty, and the courts used contract language to help
determine that. Id. Here, there is no doubt that Cooley, as a corporate officer,
owed fiduciary duties to ERMI. See, e.g., O.C.G.A. § 14-2-842(a) (“An officer
shall perform his or her duties in good faith and with the degree of care which
an ordinarily prudent person in a like position would use under similar
circumstances.”); FDIC v. Loudermilk, 295 Ga. 579, 581 (2014) (“At common
law, corporate officers and directors in Georgia owed a duty to exercise
ordinary care.” (citation omitted)). The issue is whether ERMI has sufficiently
alleged that Cooley breached those duties.
One way in which Cooley allegedly breached her duties was by retaining
confidential documents. ERMI cites to Tante v. Herring, 264 Ga. 694 (1994) to
support that proposition that “Cooley had a fiduciary duty to not walk off with
confidential information separate and apart from her contractually imposed
duty requiring the same.” (Def.’s Br. in Opp’n to Mot. to Dismiss, at 15).
However, Tante does not impose such a broad duty. Tante involved a breach of
fiduciary duty claim based on an attorney’s “alleged misuse, to his own
advantage, of confidential information in medical and psychological reports
concerning Mrs. Herring obtained in and solely because of Tante’s
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representation of her.” Id. at 695. Moreover, “Tante did not controvert the
allegations that he took advantage of information contained in Mrs. Herring's
confidential medical and psychological reports about her impaired emotional
and mental condition, that Tante took advantage of that condition, convincing
her to have an affair with him, resulting in physical and mental harm to the
Herrings.” Id. (citation omitted). The Supreme Court of Georgia found that the
client sufficiently pled that her attorney breached his fiduciary duty “[b]y using
information available to him solely because of the attorney client relationship
to his advantage and to the Herrings’ disadvantage.” Id.
By contrast, the only way in which Cooley has allegedly used ERMI’s
confidential information to her advantage and ERMI’s disadvantage is by filing
this qui tam action. Public policy forbids a counterclaim on that basis. ERMI
has not made any allegations that Cooley used information gleaned from the
confidential documents to take advantage of ERMI nor that Cooley solicited
customers for a rival business, directly competed with ERMI’s business, or
misrepresented ERMI’s financial status to persuade customers to change to a
rival business. Any of these would have sufficed to assert a breach of fiduciary
duty claim. Id. (permitting plaintiff to pursue damages for breach of fiduciary
duty when attorney used confidential information to convince his client to have
an affair); Tom’s Amusement Co., Inc. v. Total Vending Servs., 243 Ga. App.
294, 295-296 (2000) (“[A]n employee owes a duty of loyalty, faithful service and
regard for an employer’s interest. Thus, before the end of his employment, no
13
employee may solicit customers for a rival business nor otherwise directly
compete with his employer’s business. Nor may he misrepresent his employer’s
financial status to persuade customers to change to the rival business.”
(quotation marks and citations omitted)). Moreover, ERMI cites to no authority
which allows a breach of fiduciary duty claim to proceed merely based on the
retention of documents. 4 Without an allegation that Cooley did anything with
the confidential information that was against ERMI’s interest (other than the
pursuit of Cooley’s FCA claims), the First Amended Counterclaims does not
state a claim for breach of fiduciary duty based on the retention of documents.
As it pertains to the allegation that Cooley was leading ERMI to believe
that it was receiving legal advice from Cooley, the Court also finds that ERMI
fails to plead any breach. ERMI’s allegation about this basis for breach reads
in its entirety: “Cooley breached her fiduciary duty to ERMI by continually
providing interpretation and analysis of laws and regulations, leading ERMI
This fact also leads to divergent results with respect to the public
policy challenges to the breach of fiduciary duty and breach of contract claims
in this case. With the breach of contract claim, the mere retention of
confidential documents violates the Confidentiality Agreement that Cooley
signed. Consequently, any confidential document retention is sufficient to state
a breach of contract claim, unless public policy otherwise prohibits it. On the
other hand, ERMI provides no authority for the proposition that the mere
retention of documents is sufficient to allege a breach of fiduciary duty. Thus,
ERMI must rely on some action that Cooley took that was contrary to ERMI’s
interest. To the extent that ERMI relies on the bringing of a qui tam suit
against it to assert this claim, public policy bars that reliance as to the whole
claim. Yet, without such reliance, there is no allegation left to state a claim for
breach.
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4
and its employees to believe that they were receiving legal advice from Cooley.”
(First Am. Countercls. ¶ 32). As Cooley points out, “ERMI does not allege that
this advice was incorrect or otherwise caused it any harm. ERMI also fails to
allege a deviation from the standard of care, much less a gross deviation
therefrom.” (Reply Br. in Supp. of Mot. to Dismiss, at 2). Nor is there any
allegation in the First Amended Complaint showing that Cooley acted in bad
faith by interpreting laws and regulations or leading ERMI to believe it was
receiving legal advice.
ERMI argues against dismissal in two ways. First, it contends that
Cooley never raised this issue. (Def.’s Br. in Opp’n of Mot. to Dismiss, at 6-7).
To the contrary, she did. (Pl.’s Br. in Supp. of Mot. to Dismiss, at 6-8). In fact,
she specifically stated:
ERMI’s allegation that Ms. Cooley breached her duties regarding
“the interpretation and legal analysis of various laws and
regulations” (¶10) “by continually providing interpretation and
analysis of laws and regulations” (¶32) fails to show a deviation
from the standard of care, much less a gross deviation therefrom.
In fact, these allegations, when read together, indicate that Ms.
Cooley satisfied the standard of care by fulfilling her contractual
obligations.
(Id. at 7 n.2). Second, ERMI quotes Abdel-Samed v. Dailey, 294 Ga. 758, 765
(2014), for the proposition that whether Cooley breached her duty of care is
“within the exclusive province of the jury.” (Def.’s Br. in Opp’n to Mot. to
Dismiss, at 15-16). However, ERMI selectively omits the introductory phrase
of that quote which states that the issue of gross negligence is a jury question
15
“when facts alleged as constituting gross negligence are such that there is room
for difference of opinion between reasonable people as to whether or not
negligence can be inferred, and if so whether in degree the negligence amounts
to gross negligence.” Abdel-Samed, 294 Ga. at 765 (alterations and citations
omitted). Here, ERMI has not made any factual allegation from which
reasonable people could disagree as to whether there was negligence.
Therefore, ERMI cannot pursue its breach of fiduciary duty counterclaim on
this basis.
Notwithstanding that, the Court finds that ERMI adequately alleged a
breach of fiduciary duty regarding her handling of the AHCA renewal
application. A reasonable jury could find that misleading the ERMI about how
the AHCA renewal process was going is sufficiently negligent to be considered
a breach of the duty of care. Since ERMI has adequately stated breach on one
of the allegations, the breach of fiduciary duty claim will not be dismissed on
this basis. See Surgical Inst. Serv. Co., Inc. v. Intuitive Surgical, Inc., 571 F.
Supp. 3d 1133, 1140 (N.D. Cal. 2021) (“[A] court dismisses claims, not
allegations.”).
iii.
Economic Loss Rule
Cooley’s last argument against ERMI’s breach of fiduciary duty
counterclaim is that it is barred by the economic loss rule. (Pl.’s Br. in Supp. of
Mot. to Dismiss, at 8-9). “The economic loss rule generally provides that a
contracting party who suffers purely economic losses must seek his remedy in
16
contract and not in tort.” Gen. Elec. Co. v. Lowe’s Home Ctrs., Inc., 279 Ga. 77,
78 (2005) (quotation marks and citation omitted). “However, where an
independent duty exists under the law, the economic loss rule does not bar a
tort claim because the claim is based on a recognized independent duty of care
and thus does not fall within the scope of the rule.” Hanover Ins. Co. v.
Hermosa Constr. Grp., LLC, 57 F. Supp. 3d 1389, 1396 (N.D. Ga. 2014)
(quotation marks and citation omitted). As explained above, Cooley owed
ERMI an independent duty by virtue of her position as a corporate officer,
rather than from any contract she signed. Accordingly, the breach of fiduciary
duty claim should not be dismissed. 5
B. Breach of Contract
Cooley raises two arguments to support the dismissal of ERMI’s breach
of contract claim. First, she contends that this claim is barred by public policy
because all confidential information retained by Cooley is sufficiently related
to her FCA claims. (Pl.’s Br. in Supp. of Mot. to Dismiss, at 10). The Court has
already ruled that ERMI’s “allegations are not explicitly limited to Cooley’s
preparation for and pursuit of her FCA claims” and that “ERMI does not have
Cooley also argues that ERMI cannot pursue salary disgorgement for
its breach of fiduciary duty claim. (Reply Br. in Supp. of Mot. to Dismiss, at 25). However, this issue was raised for the first time in her reply brief, so it is
not properly before the Court. Tallahassee Mem’l Reg’l Med. Ctr. v. Bowen, 815
F.2d 1435, 1446 n. 16 (11th Cir. 1987) (“It is well settled that a party cannot
argue an issue in its reply brief that was not preserved in its initial brief.”
(citation omitted)). The Court will therefore not address this question.
5
17
the burden to specifically name which non-FCA-related documents the relator
wrongfully retained or disclosed.” ERMI, LLC, 2023 WL 7224174, at *7
(citations omitted). ERMI’s First Amended Counterclaims did not materially
change (at least with respect to this issue) the breach of contract allegations.
(Compare Countercls. ¶¶ 42-46, with First Am. Countercls. ¶¶ 38-42).
The only addition that this Motion to Dismiss contributes to the previous
discussion is a citation to a case not raised in the last motion to dismiss. In
Arconic Inc. v. Novelis Inc., 2018 WL 4944378, at *4 (W.D. Pa. March 22, 2018),
the special master recommended dismissing a count alleging misappropriation
of trade secrets and, in the alternative, breach of contract. The special master
stated, “[i]f Arconic wishes to plead in the alternative in this manner, because
of the exceptional degree of overlap of the allegations of trade secret
misappropriation and confidential information misuse, Arconic should be
required to identify any such alleged confidential proprietary information.” Id.
Moreover, “[t]he Special Master recommend[ed] to the Court that this form of
alternate pleading be ordered to be pled by Arconic in a separate count of the
Amended Complaint, to avoid confusion with Count I when the case is tried.”
Id. at *5. The same reasoning does not apply here. There is no alternative
pleading, exceptional degree of overlap, or potential for confusion based on how
ERMI has pleaded its counts. Furthermore, even if such factors were present,
the special master only recommended requiring information that “Arconic
should be expected to be able to identify…with reasonable particularity.” Id. at
18
*7. For other information, the special master recommended permitting
“reasonably tailored and proportionate discovery.” Id.
The Court cannot conclude that ERMI should be able to identify which
documents, if any, Cooley retained after her employment that bore no relation
to her FCA claims. Courts in similar circumstances have routinely permitted
FCA counterclaims to proceed to discovery. See, e.g., United States ex rel.
Notorfransesco v. Surgical Monitoring Assoc., Inc., 2014 WL 7008561, at *5
(E.D. Pa. Dec. 12, 2014) (“It is possible, however, that Notorfransesco is in
possession of information that is not related to proving her claim, in which case
SMA's requested injunctive relief would be appropriate. Because it is too early
for the Court to make such determinations, it cannot conclude that the
counterclaim in its entirety should be dismissed on public policy grounds.”
(citations omitted)); Walsh v. Amerisource Bergen Corp., 2014 WL 2738215, at
*7 (E.D. Pa. June 17, 2014) (“Unlike in Miller, the parties in the instant case
are still in the early stages of litigation. We acknowledge the possibility that
discovery will reveal that all of the confidential documents, if there are any,
were adequately related to the relator’s FCA claims.… However, it is not only
unnecessary, it would be imprudent to make this determination at this
juncture, prior to the conclusion of discovery.” (alteration, quotation marks,
and citation omitted)); Siebert v. Gene Sec. Network, Inc., 2013 WL 5645309,
at *8 (N.D. Cal. Oct. 16, 2013) (“For now, however, neither Natera’s failure to
identify specific documents, nor the fact that its claims for misappropriation of
19
confidential documents arise in the context of an FCA suit, require dismissal
of its counterclaims.”)). But see United States ex rel. Cieszynski Lifewatch
Servs., Inc., 2016 WL 2771798, at *5 (granting motion to dismiss because
“although LifeWatch argues that relator took many more documents than were
necessary to support his claim, it has made the claim of overreaching with
respect to only one specific document – a spreadsheet that LifeWatch admits
does contain relevant information”). The Court agrees that it would be
inappropriate to dismiss ERMI’s breach of contract counterclaim on public
policy grounds at this early stage of the litigation.
Cooley’s second argument is that her disclosure of confidential
information was permitted under the Confidentiality Agreement. (Pl.’s Br. in
Supp. of Mot. to Dismiss, at 10-12). The Confidentiality Agreement states
under the heading “Permitted Disclosures” the following:
Notwithstanding any other provision of this Agreement,
Employee is not prohibited from providing truthful testimony or
accurate information in connection with any investigation being
conducted into the business or operations of the Company Group
by any government agency or other regulator that is responsible
for enforcing a law on behalf of the government or otherwise
providing information to the appropriate government regulatory
agency or body regarding conduct or action undertaken or omitted
to be taken by the Company Group that Employee reasonably
believes is illegal or in material non-compliance with any
financial disclosure or other regulatory requirement applicable to
the Company Group.
(First Am. Countercls., Ex. C, at 3).
20
This provision does not warrant dismissal of the counterclaim. The
Confidentiality Agreement only provides a safe harbor if Cooley “reasonably
believe[d]” that the information she disclosed regarded acts or omissions that
were illegal or not compliant with applicable regulations. Id. The question
therefore becomes how closely related the information she disclosed is to her
FCA claims. 6 As discussed above, it is too early in the litigation to decide the
answer to
that
question.
The
Court
therefore
concludes that
the
Confidentiality Agreement does not warrant dismissal of this counterclaim.
C. Litigation Expenses
Cooley asserts that ERMI’s request for litigation expenses should be
dismissed because a claim for attorney’s fees under O.C.G.A. § 13-6-11 requires
an underlying claim to proceed. (Pl.’s Br. in Supp. of Mot. to Dismiss, at 12
(citing Gilmour v. Am. Nat’l Red Cross, 385 F.3d 1318, 1324 (11th Cir. 2004)).
Since ERMI’s counterclaims survive the Motion to Dismiss, so too does its
claim for litigation expenses.
IV.
Conclusion
For the foregoing reasons, the Relator’s Motion to Dismiss [Doc. 85] is
DENIED.
Moreover, the Confidentiality Agreement only permits “providing”
information and testimony to the government. (First Am. Countercls., Ex. C,
at 3). Meanwhile, the counterclaim is broader than that and alleges that Cooley
has been improperly “retaining” information. (First Am. Countercls. ¶ 40). This
provision would not protect Cooley if she retained information that she did not
provide to the government.
21
6
SO ORDERED, this
27th
day of February, 2024.
_____________________________
THOMAS W. THRASH, JR.
United States District Judge
22
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