Suppressed v. Suppressed

Filing 154

For the reasons stated in the attached memorandum opinion and order, Defendants' Motions to Dismiss (Dkt. Nos. 113, 115, 116, 117, 119, 121, 123, 124, 126, 132) are granted, and Hubert's Complaint (Dkt. No. 99) is dismissed with prejudice. Civil case terminated. Signed by the Honorable Harry D. Leinenweber on 11/29/2018: Mailed notice(maf)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE UNITED STATES OF AMERICA
ex rel. JEFFREY HUBERT; THE
STATE OF ILLINOIS ex rel.
JEFFREY HUBERT,
Plaintiffs,
v.

Case No. 16 C 4336

THE BOARD OF EDUCATION OF
THE CITY OF CHICAGO, a
Municipal Corporation, et
al.,

Judge Harry D. Leinenweber

Defendants.
MEMORANDUM OPINION AND ORDER
Defendants Chicago School Transit, Inc., Illinois Student
Transportation, Inc., Caravan School Bus Company, Illinois Central
School Bus, Inc., First Student, Inc., Falcon Transportation,
Inc., Alltown Bus Service, Inc., Latino Express, Inc., United Quick
Transportation, Inc., A.M. Bus Company, and the Board of Education
of the City of Chicago (collectively “Defendants”) each file a
Motion to Dismiss Plaintiff-Relator Jeffrey Hubert’s Third Amended
Complaint (“Complaint”). (Dkt. No. 99.)

For the reasons stated

herein, Defendants’ Motions (Dkt. Nos. 113, 115, 116, 117, 119,
121, 123, 124, 126, 132) are granted, and Plaintiff’s Complaint is
dismissed with prejudice.

I.
This

case

arises

BACKGROUND

from

an

alleged

Medicaid

reimbursement

scheme to defraud the State of Illinois and the United States
(collectively the “Government”).
scheme

will

be

discussed

at

The specific details of the

relevant

points

throughout

this

opinion, but for now the Court provides a brief overview.
From January 2013 to February 2015, Plaintiff-Relator Jeffrey
Hubert served as the Director for Student Transportation Services
(“STS”), an arm of the Chicago Public Schools system (“CPS”).
(Third Amend. Compl. (“Compl.”) ¶ 6, Dkt. No. 99.)

During that

time, Hubert allegedly uncovered evidence of widespread fraudulent
practices by numerous yellow bus companies (the “Vendors”) with
which the Board of Education of the City of Chicago (the “Board”)
contracts to provide services to special needs students within
CPS. (Compl. ¶ 1.)

Apparently, the Vendors colluded on contract

prices for their services during the competitive bidding process.
Based on those prices, the Vendors then submitted false invoices
to the Board which included charges for so-called “ghost buses”—
bus

services

never

actually

rendered—and

for

“ghost

riders”—

students who never actually rode the bus. (Compl. ¶¶ 1, 36-38, 77,
79, 92.)

The Vendors employed several tactics to ensure their

scheme went undetected; most notably, concealing newly developed
bus routes that deviated from the Board’s predetermined ones and
- 2 -

tampering with the Board’s GPS tracking system used to corroborate
invoices with services provided. (Compl. ¶¶ 57, 60, 63, 66-69.)
And yet, the Board nevertheless knew the invoices were false and
relied on them anyway to support their reimbursement claims to the
Government. (Compl. ¶ 77.)

In other words, and in sum, the Board

enabled a handful of vendors to overcharge for their school bus
services

by

submitting

reimbursement.

false

claims

to

Medicaid

for

partial

These findings led Hubert to bring this qui tam

action.
On the Government’s behalf, Hubert seeks to recover damages
and civil penalties under the False Claims Act (“FCA”), 31 U.S.C.
§ 3729 et seq., and the Illinois False Claims Act (“IFCA”), 740
ILCS 175/1

et

reimbursement

seq.,
scheme.

for

Defendants’

(Compl.

¶ 2.)

alleged

Hubert

theories in asserting Defendants violated the FCA:

fraudulent

presents

three

(1) Defendants

participated in a bid-rigging scheme; (2) the Vendors submitted
false or misleading invoices to the Board, which the Board then
used to submit false claims to the Government; and (3) Defendants
illegally induced the Government to reimburse false claims. (See
generally Compl.)

All three will be discussed when necessary

throughout this opinion.
The Board and ten of the Vendors—Chicago School Transit, Inc.,
Illinois Student Transportation, Inc., Caravan School Bus Company,
- 3 -

Illinois Central School Bus, Inc., First Student, Inc., Falcon
Transportation, Inc., Alltown Bus Service, Inc., Latino Express,
Inc., United Quick Transportation, Inc., and A.M. Bus Company—move
individually to dismiss Hubert’s Complaint for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6).

Defendants

argue that Hubert’s Complaint fails to satisfy the particularity
requirement of Federal Rule of Civil Procedure 9(b) both generally
and individually as against the Board and each of the Vendors.
Because the separate Motions overlap and pertain to the same
issues, the Court will consider them all together.
II.

ANALYSIS

“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, if 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 Bell Atl. Corp. v. Twombly, 550 U.S.
544 (2007)).

We “must accept as true all of the allegations

contained in the complaint” that are not legal conclusions. Id.
“Threadbare

recitals

of

the

elements

of

a

cause

of

action,

supported by mere conclusory statements, do not suffice.” Id.
Claims of fraud, however, must be pled under a heightened
pleading standard, which requires stating with particularity the
circumstances constituting fraud.
Cont’l

Cas.

Co.,

877

F.3d

725,
- 4 -

FED. R. CIV. P. 9(b); Toulon v.
734

(7th

Cir.

2017).

This

“ordinarily requires describing the who, what, when, where, and
how of the fraud.”

Camasta v. Jos. A. Bank Clothiers, Inc., 761

F.3d 732, 736-37 (7th Cir. 2014). In other words, the complaint
must

state

“the

misrepresentation,

identity
the

of

time,

the

place,

person
and

making

content

of

the
the

misrepresentation, and the method by which the misrepresentation
was communicated to the plaintiff.”

U.S. ex rel. Grenadyor v.

Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014)
(internal quotation marks and citation omitted).
Rule 9(b) has three main purposes: (1) to protect defendants’
reputation from harm; (2) to minimize “strike suits” and “fishing
expeditions”; and (3) to provide adequate notice of the claim to
defendants. Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20
F.3d 771, 776 (7th Cir. 1994) (citation omitted); see also Pirelli
Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co.,
631 F.3d 436, 441 (7th Cir. 2011) (“As one district court has
noted, the particularity requirement of Rule 9(b) is designed to
discourage

a

‘sue

first,

ask

questions

later’

philosophy.”).

Moreover, complying with Rule 9(b) is especially important in FCA
cases involving multiple defendants. “Where there are allegations
of a fraudulent scheme with more than one defendant, the complaint
should inform each defendant of the specific fraudulent acts that
constitute

the

basis

of

the

action

- 5 -

against

the

particular

defendant.” Balabanos v. N. Am. Inv. Group, Ltd., 708 F. Supp.
1488, 1493 (N.D. Ill. 1988) (citations omitted).
A.

The False Claims Act

The FCA imposes civil liability for a series of actions under
31 U.S.C. § 3729(a)(1).
the

FCA:

Hubert brings three separate claims under

§ 3729(a)(1)(A),

(B),

and

(C).

Section 3729(a)(1)(A)

prohibits “knowingly present[ing], or caus[ing] to be presented,
a false or fraudulent claim for payment or approval” by the
Government.

31

U.S.C.

§ 3729(a)(1)(A).

Section 3729(a)(1)(B)

prohibits “knowingly mak[ing], us[ing], or caus[ing] to be made or
used, a false record or statement material to a false or fraudulent
claim” to the Government. 31 U.S.C. § 3729(a)(1)(B). To plead
adequately a violation of either, Hubert must allege that (1)
Defendants made a statement in order to receive money from the
Government; (2) the statement was false; and (3) Defendants knew
the

statement

was

false.

U.S.

ex

rel.

Yannacopoulos

v.

Gen.

Dynamics, 652 F.3d 818, 822 (7th Cir. 2011); see also Grenadyor,
772 F.3d at 1105 (Defendants “must know the claim is false.”
(citing U.S. ex rel. Gross v. AIDS Res. Alliance-Chicago, 415 F.3d
601,

604

(7th

Cir.

2005))).

Finally,

- 6 -

section 3729(a)(1)(C)

prohibits conspiring with others to commit either of the above
violations. 31 U.S.C. § 3729(a)(1)(C).
Stated broadly, Defendants—the Board and the Vendors—argue
that the allegations in Hubert’s Complaint are not sufficiently
particular under Rule 9(b) and fail to state claims for which
relief may be granted under Rule 12(b)(6).
1.

Rule 9(b): the Who, What, Where, When, and How

As a preliminary matter, the Court notes that Hubert brings
this action based on personal knowledge—“as to himself and his own
acts.” (Compl. ¶ 6.) Absent from his current (third) Complaint but
provided for in his Second Amended Complaint was language that
anything else asserted outside of his personal knowledge was
asserted “upon information and belief.” (Pl.’s Second. Am. Compl.
¶ 5, Dkt. No. 53.) Whether this remains true is unclear since
Hubert reasserts the same allegations—this time, in more detail—
but omits any indication of how he derived such allegations other
than from his personal knowledge. Generally, allegations based on
information

and

belief

are

insufficient

to

meet

Rule

9(b)’s

particularity requirement. Pirelli, 631 F.3d at 443 (citation
omitted). But an exception applies if Hubert can show that (1) the
facts constituting fraud are not accessible to him, and (2) he
provides grounds for his suspicion. Grenadyor, 772 F.3d at 1108.

- 7 -

As to the first prong, Hubert argues that Defendants are in
control of the documents needed to support his claims. These
documents include:
monthly vendor-specific GPS reports; monthly driver
payroll records of each vendor, Illinois Department of
Transportation Safety Lane inspection reports for every
vendor Defendant bus; monthly Edulog run and route
details allegedly run by each vendor Defendant; dozens
of reversed and manipulated run map illustrations in
Edulog; and the Board’s bus routing and planning
software
(Pl.’s Resp. to Defs.’ Mot. to Dismiss 8-9, Dkt. No. 141.)

Hubert

relies on Corley v. Rosewood Care Center, Inc., 142 F.3d 1041,
1051

(7th

Cir.

1998),

which

found

“that

the

particularity

requirement of Rule 9(b) must be relaxed where the plaintiff lacks
access to all facts necessary to detail [his] claim.” In sum,
Hubert argues that he cannot sufficiently allege the particulars
of the alleged fraud without conducting discovery first.
The Court disagrees. First, Hubert was not some low-level
employee or outside competitor. For over two years, he served as
Director of Transportation Operations for STS, a high enough
position for Hubert to access some, if not all, of the relevant
information needed to show with sufficient particularity that
there indeed existed a scheme to defraud the Government. (Compl.
¶ 6.)

Second, there is nothing to suggest that during that time,

Hubert was unable to obtain any of the documents recited above.
- 8 -

Therefore,

he

is

required

to

plead

his

FCA

claims

“at

an

individualized transaction level.” U.S. ex rel. Fowler v. Caremark
RX, L.L.C., 496 F.3d 730, 742 (7th Cir. 2007), overruled on other
grounds by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907
(7th Cir. 2009); see also Singer v. Progressive Care, SC, 202 F.
Supp. 3d 815, 826-27 (N.D. Ill. 2016) (finding that the plaintiff
must plead his claims with particularity at an individualized
transaction level because the plaintiff served as the defendant’s
COO during the relevant time period and was in a position to obtain
the relevant records for his FCA claims). Accordingly, Hubert’s
argument fails. If he cannot allege sufficient and particular facts
giving rise to his FCA claims, even after having maintained his
Director position with STS, then he pleads himself out of Court.
To meet the particularity requirement, Hubert must plead “who
agreed with whom, how they agreed, how they decided to file a false
claim, who made the alleged misrepresentation, who filed the
allegedly false claim, the method by which it was filed, and how
much the payment was for.” U.S. ex rel. Walner v. NorthShore Univ.
Healthsystem, 660 F. Supp. 2d 891, 898 (N.D. Ill. 2009). As earlier
described, Hubert must plead the Who, What, When, Where, and How.
Camasta, 761 F.3d at 736-37.
The Court turns first to the Who. Hubert fails to mention
either an individual within one of the Vendors that submitted the
- 9 -

alleged fraudulent invoices or an individual within the Board that
ultimately submitted the alleged fraudulent claims to Medicaid.
The Complaint refers generally to the Vendors and vaguely to
“agents and/or employees of the Board” but fails to specify whom.
(Compl. ¶ 37.) In doing so, the Complaint broadly implicates the
entirety of the Board and the Vendors in the scheme, which is
insufficient under Rule 9(b). See, e.g., Cincinnati Life Ins. Co.
v. Beyrer, 722 F.3d 939, 950 (7th Cir. 2013) (affirming dismissal
because the plaintiff failed to identify who specifically made the
fraudulent

representation

and

that

the

plaintiff’s

“and/or

formulations obscure identifications of the relevant parties”);
see also U.S. ex rel. Grenadyor v. Ukrainian Vill. Pharm., Inc.,
895 F. Supp. 2d 872, 879 (N.D. Ill. 2012) (holding that the “ultravague ‘PharmaLife’”—a series of pharmacies owned and controlled by
the defendants—did not satisfy the Who requirement), aff’d in part
and rev’d in part on other grounds, 772 F.3d 1102 (7th Cir. 2014).
As

for

the

What,

Hubert

fails

to

discuss

the

actual

reimbursement requests from the Board to Medicaid. Grenadyor, 772
F.3d

at

1107.

Instead,

he

focuses

on

the

Vendors’

alleged

misrepresentations in the invoices they submitted to the Board and
on an alleged bid-rigging scheme. The Complaint thus fails to show
with particularity the falsity of the requests for reimbursement
themselves, which serves as the sine qua non of an FCA claim. Mason
- 10 -

v. Medline Indus., Inc., No. 07 C 5615, 2009 WL 1438096, at *4
(N.D. Ill. May 22, 2009). The Complaint is silent as to: what
services were provided by which Vendors; what certifications the
Board made in response to the Vendors’ requests; what amount the
Board received from Medicaid; what amount the Board paid to the
Vendors upon receipt of the Medicaid funds; and so forth. Hubert
cannot “merely . . . describe a private scheme in detail but then
. . . allege simply and without any stated reason for his belief
that claims requesting illegal payments must have been submitted,
were

likely

submitted

or

should

have

been

submitted

to

the

Government.” U.S. ex rel. Quinn. v. Omnicare Inc., 382 F.3d 432,
440

(3rd

Cir.

2004)

(internal

quotation

marks

and

citation

omitted); see also Fowler, 496 F.3d at 741-42 (finding that the
plaintiffs did “not present any evidence at an individualized
transaction level to demonstrate” fraudulent retention of federal
refunds); U.S. ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d
374, 378 (7th Cir. 2003) (“Some [allegations] come close[ ] to
specific allegations of deceit but [the plaintiffs] fail to link
them to any claim for payment.”).
The Where, When, and How are also unclear. Is Hubert referring
to the claims submitted to Medicaid during his two-year stint as
Director? If not, what is the period of time for which the alleged
false claims were submitted to the Government? How often, when,
- 11 -

and where were they submitted? See Walner, 660 F. Supp. 2d at 89798 (affirming dismissal of FCA claims for defects in the complaint,
including plaintiff’s failure to identify “where and when the
allegedly false claim was made”). At the outset, Hubert’s Complaint
raises more questions than it answers. He fails to plead with
particularity as required by Rule 9(b). The Court will discuss
that failing in greater detail below.
2.

Counts I and II: FCA Fraud Claims

Generally, Defendants contend that dismissal is warranted
under 12(b)(6) because Hubert fails to plead adequately (1) that
Defendants acted “knowingly”; (2) that the reimbursement claims
were false; and (3) that the false claims were material to the
Government’s reimbursement. While Defendants also raise several
other objections, the Court finds each of these three dispositive
and

need

not

venture

further

in

reaching

its

decision.

See

Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct.
1989, 2002 (2016) (suggesting that “concerns about fair notice and
open-ended liability [in FCA cases] can be effectively addressed
through strict enforcement of the Act’s materiality and scienter
requirements” (internal quotation marks and citation omitted)).
Finally, the Court notes that Defendants’ objections often
rest upon purported inconsistencies between the Complaint and the
exhibits attached to it. Not all of the inconsistencies that
- 12 -

Defendants point out are material. But where they are, the Court
recognizes the appropriate standard: “Where an exhibit and the
complaint conflict, the exhibit typically controls.” Forrest v.
Universal Sav. Bank, F.A., 507 F.3d 540, 542 (7th Cir. 2005)
(citation omitted). Moreover, “[a] court is not bound by the
party’s

characterization

examine

and

form

its

of

own

an

exhibit

opinions

and

about

may

the

independently

document.”

Id.

(citation omitted).
a.

Knowledge

To prevail on his FCA claim, Hubert must show that the Board
and the Vendors each acted “knowingly” as to the falsity of the
statement in dispute. Yannacopoulos, 652 F.3d at 822. A person
acts “knowingly” if he or she “(1) has actual knowledge of the
information; (2) acts in deliberate ignorance of the truth or
falsity of the information; or (3) acts in reckless disregard of
the truth or falsity of the information, and no proof of specific
intent to defraud is required.” 31 U.S.C. § 3729(b).
In his Complaint, Hubert alleges that the Board “knowingly
acquiesced to artificially inflated prices by awarding contracts
based on prices it knew to be anti-competitively high and based on
collusion, then submitted reimbursement claims to the Government
using pricing it knew to be false and anti-competitively high.”
(Compl. ¶ 77.) As for the Vendors, Hubert generally alleges that
- 13 -

they “have been knowingly submitting false claims for payment for
services not rendered[.]” (Compl. ¶ 37.) The Board and the Vendors
will be discussed separately.
i.

The Board

Hubert supports his claim that the Board acted “knowingly” by
detailing a conversation he had with two representatives of the
Vendor

Sunrise

Transportation

Inc.

In

that

conversation,

the

representatives allegedly informed Hubert that the Board “tried to
pit” the Vendors against each other “and the Vendors were not going
to let that happen.” (Compl. ¶ 50.) Instead, the Vendors decided
to

meet

with

each

other

to

agree

upon

pricing

for

service

contracts. (Compl. ¶ 50.) Upon discovering that the Vendors were
colluding

on

price

for

their

services,

Hubert

reported

the

conversation to Transportation Department Executive Director Paul
Osland (“Osland”). (Compl. ¶ 50.) In response, however, Osland
opted not to investigate the matter. (Compl. ¶ 80.) Rather, Osland
told Hubert that “if we disqualified every vendor that stole from
CPS over the last five years, we wouldn’t have any vendors left.”
(Id.)

Based

on

the

conversations

with

Osland

and

Sunrise’s

representatives, Hubert claims the Board knew that the invoices
were false and relied on them anyway to submit reimbursement
requests to the Government.

- 14 -

The Board does not deny the foregoing facts, but nevertheless
contends that the requisite scienter requirement has not been met.
It argues that Hubert asserts inconsistent factual allegations
about the Board’s knowledge which warrant dismissal. First, Hubert
alleges that the Vendors concealed certain information from the
Board; for example, the Vendors’ internal bus routes from the
Board’s GPS tracking systems. (Compl. ¶ 57, 60, 63, 66, 69.)
Second, Hubert alleges that the Vendors developed and maintained
internal bus routes different from the Board’s pre-determined
routes, and they did so “without notifying the Board.” (Compl.
¶¶ 66-68.) Finally, the Complaint provides that the Vendors could
use editing software “to manipulate the Board’s own internal route
information.”

(Compl.

¶ 69.)

The

Board

argues

that

these

allegations demonstrate that it could not have acted knowingly
since it would have been unaware if and when the Vendors were
submitting fraudulent invoices based on inflated ridership and
route information.
Moreover, the Board contends that the exhibits attached to
the Complaint bolster their argument. The Board asserts that
whenever

it

discovered

ridership

or

route

discrepancies,

it

immediately rectified them, and Hubert has failed to identify one
instance where rectification did not occur upon discovering such
discrepancies.

In

his

response,

Hubert

- 15 -

makes

no

attempt

to

reconcile any of the alleged inconsistencies, let alone provide
support other than reasserting what has already been stated in his
Complaint.
The Court notes that the aforementioned inconsistencies do,
in fact, exist in the Complaint. With that said, perhaps it is
still plausible that the Board knew that the Vendors colluded on
price; however, that is beside the point. Hubert must show that
the Board knew that the specific invoices, submitted by the Vendors
and relied on by the Board for reimbursement, were false. Because
Hubert presents inconsistent facts as to this specific point, he
has failed to adequately plead that the Board acted “knowingly.”
See Tamayo v. Blagojevich, 526 F.3d 1074, 1086 (7th Cir. 2008)
(reiterating that “our pleading rules do not tolerate factual
inconsistencies in a complaint”).
Hubert’s allegations are equally insufficient to show that
the Board acted with deliberate ignorance or reckless disregard
for the truth. To establish either, Hubert must show that the Board
acted with aggravated gross negligence. U.S. v. King-Vassel, 728
F.3d 707, 712-13 (7th Cir. 2013). Despite Hubert’s conversation
with Osland, the Board’s ongoing efforts to detect fraud and
rectify inaccuracies belie any deliberate ignorance or reckless
disregard.

For

example,

as

mentioned

earlier,

the

Board

implemented GPS tracking of the Vendors’ buses. According to the
- 16 -

Complaint:

“Functioning

GPS

trackers

would

make

all

of

[the

Vendors’] vehicles trackable and the mileage ultimately billed to
the Board verifiable. This would impede the Vendors’ efforts to
overbill the Board.” (Compl. ¶ 62.) The fact that Hubert informed
Osland that the Vendors were acting in a way that would take
advantage of the Board does not undercut such efforts. Throughout
the Complaint, Hubert repeatedly refers to such efforts, which
include

the

efficiencies,

Board
such

managing,
as

controlling,

imposing

liquidated

and

damages,

minimizing
upgrading

tracking systems, improving internal processes, and conducting onsite audits. (See Compl. ¶¶ 62-63, 67-68, 74, 86; Exs. C, D, E, G,
I to Compl.) As such, Hubert fails to show that the Board acted
with deliberate ignorance or reckless disregard for the truth.
ii.

The Vendors

In addition to the conversation Hubert had with Osland and
Sunrise’s

representatives,

Hubert

alleges

that

the

individual

Vendor bids in the 2013 Request for Proposal (“RFP”)—the process
for

awarding

“remarkable.”

contracts
(Compl.

to

the

¶ 45.)

Vendors

Apparently,

for

bus

eleven

services—were
Vendors,

all

members of the Contractors’ Association (“CA”)—Alltown, A.M. Bus,
Ammons, Caravan, Falcon, First Student, Illinois Central, Illinois
Student, Latino Express, R.D. Bus, Sunrise, and United Quick—
“included an identical 22-mile minimum mileage component in each
- 17 -

of their opening bids,” which was “not called for.” (Compl. ¶ 51.)
Ten of these members, plus Ransom—another CA member—also submitted
bids for first route rates within $17 of one another, all of which
were above the alleged fair market price of $212:
•
•
•
•
•
•
•
•
•
•
•

Alltown:
A.M. Bus:
Ammons:
Caravan:
Falcon:
Illinois Student:
Latino Express:
Ransom:
R.D. Bus:
Sunrise:
First Student:

$294
$289
$277
$289
$289
$288
$288
$285
$291
$291
$285

(Compl. ¶ 52.) Hubert argues that this information is sufficient
to demonstrate that the Vendors colluded on price and knowingly
submitted false claims to the Board based on that pricing. He
further supports his allegations with several examples of alleged
bus services that never took place and alleged inaccurate ridership
data contained in certain invoices. (See generally Compl.)
What the Complaint fails to state, however, are any specific
facts

demonstrating

what

occurred

transactional level for each Vendor.

at

the

individualized

See U.S. ex rel. Berkowitz

v. Automation Aids, Inc., 896 F.3d 834, 841 (7th Cir. 2018). Hubert
mentions no employee, agent, or representative of a Vendor that
knew or should have known of such inaccuracies contained in any of
- 18 -

the invoices. And as was the case with the Board, the information
he does present proves to be inconsistent. For example, Hubert
provides five paragraphs about Chicago School Transit (“CST”) that
rely

on

Exhibit

D

and

Exhibit

fraudulently. (Compl. ¶ 238-42.)
instances,

CST

intentionally

L

to

assert

that

CST

acted

Hubert alleges that in thirteen

misidentified

route

information,

which rendered the GPS tracking invisible and it impossible for
the Board to verify if the bus run had occurred. Yet, as the email
thread in Exhibit D demonstrates, these same routes are, in fact,
not hidden. Instead, the Board intended to penalize CST under the
contract for “invalid route inputs.” (Ex. D to Compl.) Hubert
additionally alleges that CST billed the Board for work that it
did not perform. But this allegation is contradicted by Exhibit L,
which shows that the work was indeed performed (e.g., Hubert
alleges that CST’s bus #CH464 never completed its run (Compl.
¶ 241), but Exhibit L provides that #CH464 performed route ID 1221,
specifying that it arrived at Bowen High School at 7:36.55 a.m.
and departed at 7:40.45 (Ex. L to Compl.)). In this instance,
Hubert diminishes his allegations by referring to documents that
directly contradict those allegations. Forrest, 507 F.3d at 542.
Other Vendors similarly pointed to factual inconsistencies between
the Complaint and the attached exhibits as applied against them
individually. (See e.g., Ill. Student Trans. Mot. to Dismiss, Dkt.
- 19 -

No. 115; First Student Mot. to Dismiss, Dkt. No. 119; Falcon Trans.
Mot. to Dismiss, Dkt. No. 121; Alltown Bus Serv. Mot. to Dismiss,
Dkt. No. 123; Latino Express & United Quick’s Mot. to Dismiss,
Dkt. No. 124; A.M. Bus Comp. Mot. to Dismiss, Dkt. No. 132.)
Also absent from the Complaint is whether Hubert ever informed
any of the Vendors that they were submitting inaccuracies and, if
so, whether the Vendors nevertheless continued to do so. At most,
Hubert’s

allegations

claim

that

the

individual

Vendors

made

mistakes or were negligent with the information they provided in
the invoices. And even that claim has been contradicted by the
exhibits provided. As such, Hubert’s allegations are insufficient
to infer fraud under the FCA. Berkowitz, 896 F.3d at 842 (citing
Fowler, 496 F.3d at 742 (noting that “‘innocent’ mistakes or
negligence

are

not

actionable”

under

the

FCA

(citations

omitted))); see also Yannacopoulos, 652 F.3d at 832 (emphasizing
that

the

FCA

“does

not

penalize

all

factually

inaccurate

statements, but only those statements made with knowledge of their
falsity”). The FCA is not “‘an all-purpose antifraud statute’ . . .
or a vehicle for punishing garden-variety breaches of contract or
regulatory violations.” Universal Health, 136 S. Ct. at 2003.
Moreover, “[a]ny allegation that lumps all defendants together and
is bereft of any detail about who did what fraudulent activity
necessarily fails to satisfy Rule 9(b).” U.S. ex rel. Ailabouni v.
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Adv. Health & Hosps. Corp., No. 13-CV-1826, 2017 WL 4310640, at *7
(N.D. Ill. Sept. 28, 2017) (internal quotation marks and citation
omitted). Without more regarding the particularities of the fraud
scheme, Hubert fails to plead that any individual Vendor acted
“knowingly.”
b.

False Misrepresentations

Hubert’s falsehood allegations fare no better. “The sine qua
non of a[n FCA] violation is the submission of a fraudulent claim.”
Mason, 2009 WL 1438096, at *4 (citation omitted). A relator cannot
merely “describe a private scheme in detail but then . . . allege
simply and without any stated reason for his belief that claims
requesting illegal payments must have been submitted, were likely
submitted or should have been submitted to the Government.” U.S.
ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1311 (11th
Cir. 2002).
Hubert alleges that the Vendors submitted false invoices to
the Board for bus services that were based on fixed prices and
that requested reimbursement for “ghost riders” or “ghost buses.”
(Compl. ¶ 4.) Despite detailing why Hubert believes the prices
were fixed and providing some statistics for false or inflated
ridership

(which,

as

demonstrated

above,

have

proven

inconsistent), Hubert fails to identify or plausibly explain why
any single reimbursement request from the Board to Medicaid was
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false. The reimbursement request to the Government itself is the
crux of the FCA claim, and yet, the falsity of those specific
requests is wholly unclear here. Of the many invoices submitted to
the Board, which contained false information? Of the information
presented in those invoices, what did or did not constitute false
information? Of that false information, what was knowingly used by
the Board in its submission of claims for reimbursement? What is
the relationship between the alleged price fixing of the Vendors’
services, the Board’s claims submitted to Medicaid, and the Board’s
ultimate

payment

to

the

Vendors

through

reimbursement

from

Medicaid? The answers to these questions remain unclear.
As for his bid-rigging theory, Hubert relies on: (1) the
Sunrise representatives’ statements; and (2) the Vendors’ “opening
bids” that provided contract prices allegedly well above fair
market value, within $17 of each other, and which each presented
an exact 22-mile minimum for bus routes. (Compl. ¶¶ 51-53.) Hubert
contends that fifteen of the seventeen named Vendors were members
of the Contractors’ Association, which “met regularly leading up
to and during the 2013 RFP to discuss and agree upon pricing.”
(Compl.

¶ 48.)

Hubert

also

asserts

that

the

other

two

named

Vendors, not members of the Association—Chicago School Transit,
Inc. and First Student, Inc.—must have partaken in the bid-rigging
scheme because of the similarities presented in their bids. (Compl.
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¶¶ 48, 93-242.) The foregoing observations led Hubert to believe
that

Defendants,

all

together,

engaged

in

price

fixing.

His

inference is a leap greater than Rule 9(b) permits.
During the 2013 RFP, the Board allegedly provided pricing
“targets” to the Vendors. (Compl. ¶ 54.) Absent from the Complaint,
however, are what these “targets” were and how they compared with
the opening bids. That information would determine whether the
Vendors in fact exceeded the “target,” which, in turn, might
provide additional insight as to whether a scheme to defraud the
Government took place. Nevertheless, there is no showing whether
the bids were above, below, or at the target range, which undercuts
an inference that the bid process unfairly raised rates. See, e.g.,
Presser, 836 F.3d at 779-80 (affirming dismissal of FCA claims for
“fail[ing]
relevant

to

put

context,”

the

defendant’s

noting

that

alleged

“the

data

activity

into

presented

its

in

the

complaint, untethered as they are, cannot corroborate a fraud
because

their

free-floating

nature

stymies

any

meaningful

understanding of what the numbers mean” (international quotation
marks and citation omitted)). Such an omission undermines the
alleged falsity of the invoices given to the Board and the claims
submitted by the Board to Medicaid for reimbursement. As such, the
alleged falsity is too far a stretch to withstand dismissal.
c.

Materiality
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Even if this Court had concluded Hubert plausibly alleged
that the invoices at issue were false and that Defendants knew the
invoices were false, the question would remain whether the invoices
were material to the Government’s decision to pay.
Under the FCA, materiality means “having a natural tendency
to influence, or be capable of influencing the payment” by the
Government. 31 U.S.C. § 2719(b)(4). “Under any understanding of
the concept, materiality looks to the effect on the likely or
actual

behavior

of

the

recipient

of

the

alleged

misrepresentation.” Escobar, 136 S. Ct. at 2004 n.6. “Not every
breach

of

contract

or

regulation

is

material,

and

‘minor

or

insubstantial’ noncompliance never is.” U.S. ex rel. Kietzman v.
Bethany Cir. of King’s Daughters of Madison, 305 F. Supp. 3d 964,
977 (S.D. Ind. 2018) (quoting Escobar, 136 S. Ct. at 2003). To be
material,

the

Government

must

have

made

the

payment

for

reimbursement “as a result of the defendant’s alleged misconduct.”
U.S. ex rel. Ge v. Takeda Pharm. Co. Ltd., 737 F.3d 116, 124 (1st
Cir. 2013).
Absent from the Complaint is any mention of materiality.
Notwithstanding the lack of pleading, Hubert argues in his response
that the “Government[ ] would not have paid the claims to CPS had
they been aware of the reimbursement scheme.” (Pl.’s Resp. to
Defs.’ Mot. to Dismiss 13.) Moreover, he claims that “STS received
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$130 million per year in block grants and Medicaid from the
Government[ ] for transporting Special Need students” and he “has
identified over 1,000 non-riders which were used by the Board to
justify billing for more buses than were needed[.]” (Id.) Hubert’s
argument misses the mark.
First, as explained above, the Court notes that some of the
numbers Hubert provides are inaccurate. Even if such numbers were
accurate,

it

is

not

so

clear

that

they

would

give

rise

to

materiality. Mistakes in ridership data are inevitable, especially
when the Board is accounting for dozens of bus vendors, hundreds
of school buses and bus routes, and thousands of students for which
bus services are provided. Second, the fact that STS received $130
million insinuates nothing other than that Defendants and the
Government

maintain

a

relationship

based

on

Medicaid

reimbursements. Without more, Hubert fails to allege materiality.
See Kietzman, 305 F. Supp. 3d at 977 (finding that the plaintiff
failed to plead materiality because “[n]o facts [were] alleged as
to what types of claims the government usually did or did not pay,
nor as to what the government’s compliance priorities were, nor as
to the degree of severity of the [defendant’s] alleged breaches of
regulation”).
In sum, Hubert has not pled with the requisite particularity
that any of the alleged violations were so material that the
- 25 -

Government would refuse payment were it aware of the violation.
Escobar, 136 S. Ct. at 2004. Hubert does not meet the strict
materiality showing required to state a claim under the FCA.
Accordingly, Counts I and II and dismissed.
3.

Count III: FCA Conspiracy Claim

Defendants further contend that Hubert fails to state a claim
for conspiracy under the FCA. “The Seventh Circuit has held that
general

civil

conspiracy

principles

apply

to

FCA

conspiracy

claims.” Singer, 202 F. Supp. 3d at 827. To plead conspiracy,
Hubert must allege two elements: (1) that Defendants “had an
agreement, combination, or conspiracy to defraud the [G]overnment
by getting a false or fraudulent claim allowed or paid;” and (2)
Defendants did so “for the purpose of obtaining or aiding to obtain
payment from the [G]overnment or approval of a claim against the
[G]overnment.”

Walner,

660

F.

Supp.

2d

at

895-96

(citations

omitted). “Put differently, an actionable FCA conspiracy exists
only where at least one of the alleged co-conspirators actually
committed an FCA violation.” U.S. ex rel. Rockey v. Ear Inst. of
Chi., LLC, 92 F. Supp. 3d 804, 826 (N.D. Ill. 2015) (citation
omitted).
Here, because Hubert has not sufficiently alleged an FCA
violation in Counts I and II, he fails to show any injury resulting
from a conspiracy to defraud the Government. Kietzman, 305 F. Supp.
- 26 -

3d at 980; Rockey, 92 F. Supp. 3d at 826. His conspiracy claim is
thus doomed. Accordingly, Count III is dismissed.
B.

Counts IV and V: IFCA Fraud Claims

Hubert’s Illinois FCA claims—Counts IV and V—fail for the
same

reasons

as

the

federal

FCA

claims,

provided

above.

The

Illinois FCA is an antifraud statute modeled after the FCA. State
ex rel. Beeler, Schad & Diamond, P.C. v. Burlington Coat Factory
Warehouse Corp., 860 N.E.2d 423, 425-26 (Ill. App. 2006). “[C]ourts
generally apply the same pleading standard for both federal and
state FCA claims.” U.S. ex rel. Baum v. Triad Isotopes, Inc., 104
F. Supp. 3d 901, 912-913 (N.D. Ill. 2015); see also Ritacca v.
Storz Med., A.G., 298 F.R.D. 566, 569 (N.D. Ill. 2014) (“Fraud
claims based on state law . . . re subject to the heightened
pleading standard of Rule 9(b) when brought in federal court.”).
Accordingly, for the reasons stated herein, Counts IV and V are
also dismissed.
C.

Leave to Amend

As a final note, the Court considers whether Hubert can file
leave to amend.

“Rule 15(a) says that a party may amend its

complaint once as a matter of course. After that, leave to amend
depends on persuading the judge that an amendment would solve
outstanding

problems

without

causing

undue

prejudice

to

the

adversaries.” Bank of Am., N.A. v. Knight, 725 F.3d 815, 819 (7th
- 27 -

Cir. 2013). Hubert has attempted four times to amend his complaint
to meet the particularity requirements of Rule 9(b). This Court
has made clear that he will be permitted no further amendments.
(See Dkt. No. 98.) Accordingly, Counts I-V, which comprise the
entirety of this case, are dismissed with prejudice.
III.

CONCLUSION

For the foregoing reasons, Defendants’ Motions to Dismiss
(Dkt. Nos. 113, 115, 116, 117, 119, 121, 123, 124, 126, 132) are
granted, and Hubert’s Complaint (Dkt. No. 99) is dismissed with
prejudice.
IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Dated: 11/29/2018

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