Sloan v. Waukegan Steel, LLC

Filing 32

MEMORANDUM Opinion and Order. The Court denies defendant's motion to dismiss 23 . Signed by the Honorable Jorge L. Alonso on 2/28/2018. Notices mailed by judge's staff (ntf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES EX REL. JESSE
SLOAN,
Plaintiff and Relator,
v.

WAUKEGAN STEEL, LLC,

Defendant.

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No. 15 C 458
Judge Jorge L. Alonso

MEMORANDUM OPINION AND ORDER
Relator, Jesse Sloan, brings this case on behalf of the United States under the False
Claims Act, 31 U.S.C. §§3729, et seq., against his former employer, defendant Waukegan Steel,
LLC (“Waukegan”). Defendant moves to dismiss. For the following reasons, the motion is
denied.
BACKGROUND
In February 2013, defendant Waukegan, a structural steel fabricator and contractor,
accepted a “Purchase Order” from Charpie Korte Industries LLC (“Charpie Korte”), a general
contractor hired by the United States Army Corps of Engineers (“USACE”) to build an Army
Reserve Center in Rockford, Illinois. (Compl. ¶ 5., ECF No. 1; Id. Ex. A, Purchase Order, ECF
No. 1 at 10.) The order called for defendant to fabricate and install structural steel at the
Rockford project. (Id. ¶ 5.) Relator, who was employed by defendant at the time, brings this suit
claiming that defendant made false statements in order to receive payment for the job with
government funds.

The Purchase Order specified that defendant’s work was to “comply with the Contract
Document, design criteria and function properly” and that defendant will produce “all reports on
testing of systems, as required, to the Owner and Contractor.” (Compl. ¶ 10 (citing Exhibit A,
Purchase Order Attachment “A” ¶ 1.4, 1.11).) The “Design Specifications” of the contract
between Charpie Korte and USACE (attached as Exhibit B) required contractors to adhere to a
number of professional codes, including those of the American Institute of Steel Construction
(AISC), the American Society for Testing and Materials (ASTM), and the American Welding
Society (AWS). (Compl. ¶ 11; id. Ex. A ¶ 1.23.5; id. Ex. B, Design Specifications, at 47-49, ECF
No. 1 at 50-52.) The “material certification” provision of the Design Specifications required as
follows:
The Fabricator shall provide an affidavit stating that the structural steel furnished
meets the requirements of this specification. . . . [C]ertified reports of tests made
by the Fabricator or a testing laboratory in accordance with ASTM A6 or A568,
as applicable, shall constitute sufficient evidence of conformity with the above
standards.
(Id. Ex. B at 49.)
Relator alleges that after delivering the steel Charpie Korte had ordered, defendant sought
payment. (Id. ¶ 15.) Charpie Korte required defendant to submit “fabrication quality control and
weld inspection certifications” to the Army Corps of Engineers before it would pay defendant for
its work. (Id. ¶ 15.) According to relator, defendant did not have any such certificates. (Id. ¶¶ 1517.)

Wayne Greisbaum, president of Waukegan, allegedly asked relator to fabricate the

inspection certifications so that defendant could send them to Charpie Korte for payment out of
government funds. (Id. ¶ 17.)
When relator refused, Mr. Greisbaum allegedly approached another employee, Artemis
Gonzales, who was not a qualified welding inspector, and requested that he fabricate the

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certifications. (Id. ¶¶ 19-20.) According to relator, Mr. Gonzales fabricated the requested
certifications, and Mr. Greisbaum signed them. (Id. ¶¶ 19-20.) Defendant then submitted the
certifications in order to obtain payment, knowing they were false. (Id. ¶ 20, see id. Ex. C, Shop
[Quality Control] Reports, In Process And Final Inspection of Fabricated Structural Steel.)
Relator claims that, based on these facts, defendant “(a) knowingly presented and/or (b) caused
to be presented, false or fraudulent claims to the United States government,” which the
government paid. (Id. ¶¶ 21-22.)
LEGAL STANDARDS
A motion under Federal Rule of Civil Procedure 12(b)(6) tests whether the complaint
states a claim on which relief may be granted. Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir.
2012). Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The short and plain
statement under Rule 8(a)(2) must “‘give the defendant fair notice of what . . . the claim is and
the grounds upon which it rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting
Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Under federal notice-pleading standards, a complaint’s “[f]actual allegations must be
enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Stated
differently, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “In reviewing the sufficiency of a
complaint under the plausibility standard, [courts must] accept the well-pleaded facts in the

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complaint as true, but [they] ‘need[ ] not accept as true legal conclusions, or threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements.’” Alam v. Miller
Brewing Co., 709 F.3d 662, 665-66 (7th Cir. 2013) (quoting Brooks v. Ross, 578 F.3d 574, 581
(7th Cir. 2009)).
Additionally, any claims asserted under the False Claims Act must comply with Federal
Rule of Civil Procedure 9(b), which requires the pleading party to “state with particularity the
circumstances constituting fraud.” United States ex rel. Presser v. Acacia Mental Health Clinic,
LLC, 836 F.3d 770, 775 (7th Cir. 2016). Although fraudulent or deceptive intent “may be
alleged generally,” Rule 9(b) requires a plaintiff (or in this case, relator) to describe the
“circumstances” of the alleged fraud with “particularity” by including such information as the
“the identity of the person who made the misrepresentation, the time, place and content of the
misrepresentation, and the method by which the misrepresentation was communicated,” Windy
City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 668 (7th Cir.
2008). This “ordinarily requires describing the ‘who, what, when, where, and how’ of the fraud,
although the exact level of particularity that is required will necessarily differ based on the facts
of the case.” AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011) (citation omitted).
A person is liable to the United States government under the False Claims Act (“FCA”),
31 U.S.C. § 3729(a)(1) if he:
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for
payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false record or statement
material to a false or fraudulent claim . . .
§ 3729(a)(1)(A)-(B). 1

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The Attorney General has primary authority for enforcing the FCA, but the FCA also includes a “so-called qui tam
provision, which permits a private party, known as a ‘relator,’ to bring a civil action alleging fraud against the
Government on its own behalf as well as on behalf of the United States,” if the Attorney General declines to bring

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To prove an FCA claim, a plaintiff must prove that (1) the defendant made a statement in
order to receive money from the government, (2) the statement was false, (3) the defendant knew
it was false, and (4) the statement was material to the decision to pay or approve the false claim.
Bellevue v. Universal Health Servs. of Hartgrove, Inc., 867 F.3d 712, 716 (7th Cir. 2017); United
States ex rel. Sheet Metal Workers Int’l Ass’n, Local Union 20 v. Horning Invs., LLC, 828 F.3d
587, 592 (7th Cir. 2016).
A plaintiff must plead all of the elements of the False Claims Act, including materiality, to
survive a motion to dismiss. United States ex rel. Escobar v. United Health Services, Inc., 136 S.
Ct. 1989, 2003 (2016). To properly plead materiality, a plaintiff must show that the effect or
likely behavior of the government, if it knew that the defendant had made false statements in
seeking payment, would be to refuse payment. Id. at 2002. Evidence that “the defendant knows
that the Government consistently refuses to pay claims in the mine run of cases based on
noncompliance with the particular statutory, regulatory, or contractual requirement” may suffice,
but is not necessary. Id.
ANALYSIS
Defendant argues that relator’s complaint is deficient because it fails to state a plausible
claim by pleading all the elements of the claim with the requisite particularity. The Court
disagrees. As the following discussion will show, relator has alleged sufficient facts to state an
FCA claim.
First, relator alleges that defendant submitted the inspection and welding certifications in
order to receive payment from Charpie Korte out of government funds. (See Compl. Ex. C at 1
(Cover Sheet) (indicating that defendant was submitting the certifications “at [Charpie Korte’s]
an enforcement action himself. Cause of Action, 815 F.3d at 272; 31 U.S.C. § 3730(b). If the relator prevails, she
receives a percentage of the recovery. 31 U.S.C. § 3730(d). In the instant case, the U.S. Government declined to
intervene.

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request”).) As relator explains, the United States Supreme Court has held that “a subcontractor
violates [the False Claims Act] if the subcontractor submits a false statement to the prime
contractor intending for the statement to be used by the prime contractor to get the Government
to pay its claim.” Allison Engine Co. v. U.S. ex rel. Sanders, 553 U.S. 662, 671 (2008).
Importantly, Congress subsequently amended the False Claims Act to clarify that the defendant
need not intend for the government itself to pay the subcontractor’s claim; it would be “‘contrary
to Congress’s original intent in passing the law’” if “‘even when a subcontractor in a large
Government contract knowingly submits a false claim to general contractor and gets paid with
Government funds, there can be no liability unless the subcontractor intended to defraud the
Federal Government, not just their general contractor.’” See United States v. McMahon, No.
11cv4620, 2015 WL 115763, at *7-8 (N.D. Ill. Jan. 5, 2015) (quoting S. Rep. 111-10, at 10-11
(2009), reprinted in 2009 U.S.C.C.A.N. 430, 438). That is precisely what relator has alleged.
Taken as true, relator’s allegations show that defendant made a statement in order to receive
payment from the government, for purposes of the FCA.
Second, relator alleges that defendant personally asked him to fabricate the inspection
and welding certifications so that it might receive payment from Charpie Korte. (Compl. ¶ 17.)
After relator refused to fabricate the documents, defendant asked Mr. Artemis Gonzales to do so,
and he obliged, without inspecting the steel in question. (Id. ¶¶ 19-20.) Relator has alleged that
the statement was false (i.e., it described inspections that did not actually take place) and that
defendant made it with knowledge of its falsity. (Id. ¶¶ 19-20.)
As for materiality, it is plausible that the false statement was material to payment of the
claim, based on the allegations of the complaint, the terms of the Design Specifications, and the
terms of the Purchase Order. The Purchase Order between Charpie Korte and Waukegan states

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that defendant will comply with the Design Specifications, according to the contract between
Charpie Korte and the government. (Id. ¶ 10.) The contract requires fabricators to swear that the
work meets the specifications, and it permits them to support that affirmation with reports of
tests conducted by the fabricator. (Id. ¶ 12.) Relator alleges that Charpie Korte “required that
the fabrication quality control and weld inspection certifications be supplied to the Army Corps
of Engineers before any payment was to be made.” (Id. ¶ 15.) Gonzales allegedly fabricated the
inspection records and Wayne Griesbaum, Waukegan’s president, signed them and “submitted
them to obtain payment.” (Id. ¶ 20.) Additionally, on their face, the inspections records show
that they were requested by Charpie Korte. (Id. Ex. C at 1.) Based on the alleged sequence of
events and the parties’ course of conduct, a reasonable factfinder could conclude that the false
statement was material to payment. The FCA targets fraud that causes the government to pay a
claim when it otherwise would not. Escobar, 780 F.3d at 1999. Taken as true, the facts alleged in
relator’s complaint establish this type and degree of fraud.
Defendant argues that relator has not alleged the precise circumstances of the allegedly
false claim with particularity, but the allegations answer the “who, what, where, and when”
questions that relator must answer to state a claim with particularity under FRCP 9(b). See
Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992). This argument is
unpersuasive because relator has not only alleged who made the false statement, the approximate
time of the false statement, and the circumstances surrounding the creation of the document that
contains the false statement, but also actually attached a copy of the document itself to the
complaint. As for the circumstances of the payment, it is true that the complaint is light on
specific details in that regard, but relator would have no way of procuring an invoice or
otherwise learning specific facts related to the precise form of payment defendant allegedly

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received, and Rule 9(b) therefore does not require it of him. See United States ex rel. Lusby v.
Rolls-Royce Corp., 570 F.3d 849, 854-55 (7th Cir. 2009). Relator has not left the Court to
speculate about the presence of a claim or the occurrence of a government payment. See United
States ex rel. McGinnis v. OSF Healthcare Sys., No. 11-CV-1392, 2014 WL 2960344, at *8
(C.D. Ill. July 1, 2014). His claim is sufficient to meet the applicable pleading standard.
Defendant also argues that relator does not specify a precise legal theory of liability under
the False Claims Act or even provide correct citations to the Act. But his “complaint [is] not
required to include a legal theory, let alone a correct citation.” United States ex rel. Presser v.
Acacia Mental Health Clinic, LLC., 836 F.3d 770, 784 (7th Cir. 2016); see also Doe v. Smith,
429 F.3d 706, 708 (7th Cir. 2005). Relator alleged the facts surrounding the false or misleading
claim at issue, which is sufficient to provide defendant with the sort of notice that the Federal
Rules of Civil Procedure require. “A complaint under Rule 8 limns the claim; details of both fact
and law come later, in other documents.” Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073,
1078 (7th Cir. 1992). Relator was not required to specify in his complaint whether he sought to
proceed under 31 U.S.C. § 3729(a)(1)(A) or § 3729(a)(1)(B), for example, and it is immaterial if
he cites to one subsection and not the other; what matters is whether he alleges sufficient facts to
state a plausible claim for relief, and he has done so.
CONCLUSION
For the reasons set forth above, the Court denies defendant’s motion to dismiss [23].

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SO ORDERED.

ENTERED: February 28, 2018

__________________________________
HON. JORGE ALONSO
United States District Judge

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