United States of America et al v. County Of Cook
Filing
66
MEMORANDUM Opinion and Order: For the reasons stated in the attached order, Defendant's motion to dismiss Relator's second amended complaint is granted with prejudice. (Dkt. No. 61.). Civil case closed. Signed by the Honorable Harry D. Leinenweber on 4/29/2021: Mailed notice(maf)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA,
ex rel. NOREEN LANAHAN,
Plaintiff,
Case No. 17 C 5829
v.
Judge Harry D. Leinenweber
COUNTY OF COOK,
Defendant.
MEMORANDUM OPINION AND ORDER
Defendant
Cook
County
moves
to
dismiss
Relator’s
second
amended complaint pursuant to FED. R. CIV. P. 12(b)(6) and FED. R.
CIV. P. 9(b). (Dkt. No. 61.) For the reasons stated herein, the
Court grants the Motion and dismisses Relator’s second amended
complaint with prejudice.
I.
BACKGROUND
This case arises from an alleged scheme by Cook County (the
“County”) to defraud the United States of federal grant funds.
Following
dismissal
of
her
first
amended
complaint
(“FAC”),
Relator filed the second amended complaint (“SAC”), which narrowed
her case to four alleged violations of the False Claims Act
(“FCA”). Specifically, Relator alleges that the County violated
the FCA by: (1) presenting and submitting false statements to the
Government in violation of 31 U.S.C. §§ 3729(a)(1)(A) & (B) (Counts
One and
Two)
and
(2)
retaining
and
converting
federal
funds
premised on false claims in violation of 31 U.S.C. §§ 3729(a)(1)(D)
& (G) (Counts Three and Four).
The Court summarizes Relator’s claims as limited to the
allegations in the SAC. While the Relator clearly made an effort
to streamline her allegations, like the FAC, the SAC was often
difficult to follow and remained littered with inconsistencies and
formatting errors. Nevertheless, the Court accepts as true all the
extracted facts that follow from the SAC, in the light most
favorable to the Relator, and draws all possible inferences in
Relator’s favor. See Tamayo v. Blagojevich, 526 F.3d 1074, 1081
(7th Cir. 2008).
A.
Relator’s Examples
Relator, Noreen Lanahan, worked for the County’s Department
of Public Health (“CCDPH”) from 1994 until her retirement in 2017.
(SAC at 6, Dkt. No. 58.) Relator alleges that during her tenure
the County received approximately $20 million per year in federal
grants supporting public health initiatives. (Id. at 7.) Most of
the grants came in the form of reimbursements for expenses incurred
by the County in service of federal public health priorities,
including the salaries of CCDPH employees whose time was spent on
federal
projects.
(Id.).
According
- 2 -
to
Relator,
the
County
administration
of
these
federal
grants
was
divided
into
two
workflows, the Program Component, and the Finance Component.
Relator led the Finance Component as CCDPH’s Director of
Financial
Control.
(Id.
at
6.)
Relator
explains
that
she
collaborated with the Program Component to “develop budgets that
were certified to the United States in order to qualify for
funding.”
(Id.
at
10.)
Relator
also
“oversaw
the
claim
and
reimbursement policies applied by the County to hundreds of federal
grants.”
(Id.)
Relator
alleges
that
from
2008
to
2017
she
“repeatedly warned local officials that the United States was
reimbursing the County for labor expenses it had not incurred.”
(Id. at 6–7.)
The SAC alleges various examples of purported fraudulent
reimbursements, which the Relator claims violated the FCA. (See
id. at 8–27.) For each example, the Court details the allegations
below.
1.
$2.5 Million H1N1 Personal Service
Costs Reimbursement and Transfer
Relator’s first example alleges that certifications submitted
to the Centers for Disease Control (“CDC”) in connection with two
federal H1N1 flu grants were false. (Id. at 8.) According to
Relator, the certifications were false because the County: (1)
failed
to
maintain
contemporaneous
records
of
employee
time
dedicated to federal grants; (2) manually adjusted certified cost
- 3 -
reimbursement claims to align with pre-performance grant budgets;
and (3) moved restricted federal grant funds to a discretionary
account held for the benefit of the Cook County Health and Hospital
System (“CCHHS”). (Id. at 15.)
In September 2009 the CDC awarded the County two grants
totaling $2.5 million to address the ongoing H1N1 flu pandemic.
(Id. at 8–9.) Under the terms of the H1N1 grants, the United States
supplied vaccines and reimbursed CCDPH for the personnel costs
associated with administering the grant, including the salaries of
health care providers delivering the vaccines to County residents.
(Id. at 9.) Prior to performance under the grants, the County
prepared budgets based on the anticipated personnel needs to meet
the federal objectives. (Id. at 10.) According to Relator, the
Program Component provided lists of job titles that would be
dispatched the federal grant service, such as “Public Health Nurse
IV.” (Id.) The Finance Component, under Relator’s direction, would
then create a budget based on the base salary for each title,
prorated based on the anticipated length of federal service. (Id.)
Post-performance, the County submitted to the Government the
costs allocated to administration of the H1N1 grant. Pursuant to
2 C.F.R. § 200.405:
A cost is allocable to a particular Federal award or
other cost objective if the goods or services involved
are chargeable or assignable to that Federal award or
- 4 -
cost objective in accordance with relative
received. This standard is met if the cost:
benefits
(1)
Is incurred specifically for the Federal
award;
(2)
Benefits both the Federal award and other work
of
the
non–Federal
entity
and
can
be
distributed in proportions that may be
approximated using reasonable methods; and
(3)
Is necessary to the overall operation of the
non–Federal entity and is assignable in part
to the Federal award in accordance with the
principles in this subpart.
2 C.F.R. § 200.405(a). Federal regulations further provide that
compensation costs “must be based on records that accurately
reflect the work performed” and, among other things, be “supported
by a system of internal control which provides reasonable assurance
that the charges are accurate, allowable, and properly allocated.”
Id. § 200.430(i). According to Relator, the County failed to track
its employees’ dedication to federal service. (SAC at 9.) Instead,
Relator
alleges,
the
County
employees’
time
allocations
for
federal grants were “generated by program managers 18 months after
the grant period of performance in anticipation of billing the
United States for the federal services.” (Id. at 12.)
Confusingly, Relator also explains that tracking employees’
federal service was “just not part of the Finance Component’s
workflow” and that she “never discussed with other [CCDPH] managers
how individual employees apportioned their time among various
- 5 -
federal and local services.” (Id. at 11.) She alleges, however,
that the allocations are false because she “never tracked her own
dedication to federal services.” (Id. at 12.)
According
to
Relator
on
September
1,
2011
the
County
electronically certified two Grant Allocation Cost Reports to the
CDC, in connection with the H1N1 grants. (Id. at 10.) Relator
alleges that the reports reflected the “pre-performance budget
estimates” instead of the “actual time a particular employee devote
to a specific grant.” (Id. at 12.) Ultimately, Relator alleges
that the CDC reimbursed the County in connection with the H1N1
grants on September 26, 2011. (Id. at 14.)
According to Relator, federal regulations required the County
to keep federal reimbursement funds separated from unaffiliated
County revenue. (Id. at 15.) Upon receipt of grant funds, the
Finance Component was responsible for preparing credit vouchers.
(Id. at 14–15.) The credit vouchers were submitted to the County’s
comptroller who would apply the federal reimbursements to the
appropriate accounts in CCDPH’s general ledger with any notations.
(Id.) According to Relator, the credit vouchers for the H1N1
reimbursement were processed on October 6, 2011 and applied to the
appropriate CCDPH account with the notation “(r)eimb to PH for
vaccine program.” (Id. at 15.) The notation, Relator explains, was
to ensure that these restricted grant funds were not commingled
- 6 -
with unrestricted funds in violation of federal regulations. (Id.)
According to Relator, however, on November 30, 2011, just before
the close of the County’s fiscal year, the County comptroller moved
the H1N1 funds into a discretionary account for the benefit of
CCHHS. (Id.) Relator alleges that moving the H1N1 funds “frustrated
the allocations” in the September 1, 2011 report and “undermined
any truth to budget and compliance certifications” submitted in
connection with the H1N1 grants. (Id. at 16.)
2.
$6.8 Million Excess WIC Grant Funds
The United States Department of Agriculture awards grants for
Women,
Infants,
and
Children
(“WIC”),
including
Supplemental
Nutrition Program (“SNAP”) grants and Case Management grants. (Id.
at 16–17.) SNAP and Case Management grants are awarded annually on
July 1. (Id. at 17.) According to Relator, “due to deferred
personnel-related costs (time due, fringe benefits and so forth),
the individual WIC grant business units occasionally retained a
positive balance as the fiscal year drew to a close.” (Id.) These
positive balances carried forward into the next fiscal year and
according to Relator by July 2014 “the County accumulated close to
$6.8 million in deferred” WIC grant credits. (Id.)
In July 2014, the County’s Director of Grant Management
emailed Relator and others regarding the accumulated $6.8 million
in credits on CCDPH’s balance sheet. (Id. at 17; WIC Funds Emails
- 7 -
at 4, SAC, Ex. 5, Dkt. No. 58-5.) Relator explained that the
credits were federal grant funds and meant to “provide [] funding
for Salaries and Fringe Benefits of grant employees should current
grants not be renewed.” (WIC Funds Emails at 4.) Relator advised
that “these funds need to be segregated by the use of a unique
Cost Center.” (Id.) The email conversation on this topic resumed
in November 2014 when County auditors were unable to reconcile the
$6.8 million credit with any CCDPH expenses. (SAC at 18; WIC Funds
Emails at 2.) On November 10, 2014, the CCHHS Vice Chairman
approved an internal recommendation to liquidate the $6.8 million
and absorb the WIC grant money as revenue to CCHHS. (SAC at 19;
WIC
Funds
Emails
presumption
that
at
1.)
CCHHS
The
recommendation
absorbed
certain
was
WIC
based
on
a
grant-related
expenses. (WIC Funds Emails at 1.)
Relator alleges that CCHHS incurred no expenses in connection
with WIC grants. (SAC at 19.) Accordingly, Relator alleges that
CCHHS’s absorption of these funds violated federal regulations
that mandate the “the segregation of restricted Government funds
from revenue unaffiliated with the federal service.” (Id.) Relator
further alleges that she expressed her frustrations about the
liquidation in an email to the CCHHS Vice Chairman and others.
(Id.)
In
that
email,
Relator
alleges
that
she
stated
that
commingling federal grant funds and local revenue to “prop-up” the
- 8 -
CCHHS Enterprise Fund amounted to a “stunning” indifference to
accounting principles. (Id.) According to Relator, she likened the
action to “Enron accounting.” (Id.)
3.
Next,
Institute
Relator
of
Hektoen Kickback Scheme
alleges
Medicine
that
the
(“Hektoen”)
County
and
participated
the
Hektoen
a
kickback
in
scheme involving federal grant funds. Hektoen “provided a turnkey
solution for the fiscal management of federal research grants
awarded to physicians assigned to County hospitals.” (Id. at 21.)
Relator alleges that Hektoen is paid 10–15% of the grant award to
“submit []
claims
and
collect
[]
revenue
on
the
physicians’
behalf.” (Id.).
Relator
first
alleges
that
Hektoen
maintained
no
formal
agreement with the County or any County hospital. (Id.) Instead,
according to Relator, Hektoen unofficially contracted directly
with
individual
County
physicians,
using
agreements
known
as
“Exhibit A.” (Id.) Relator alleges that by its terms, Exhibit A
was “not binding without the express written consent of the CCHHS
CFO and the chief financial officer of the physician’s assigned
County hospital.” (Id. at 22.) Relator further alleges that the
CCHHS grants manager obtained the necessary signatures from County
officials in person and then sent the only copy of the executed
Exhibit A agreements to Hektoen. (Id.) According to Relator,
- 9 -
permitting Hektoen to maintain the only copy of the Exhibit A
agreements violated federal recordkeeping requirements. (Id.)
Relator also alleges that the arrangement with Hektoen posed
bookkeeping problems for the County. Because there was no contract
with the County, the Finance Component did not create accounts for
the grant funds held by Hektoen. (Id.) To illustrate this issue,
Relator explains that in 2015 a County employee was asked to
prepare entries in the CCHHS general ledger for $5 million in
restricted grant funds held by Hektoen. (Id. at 21.) The employee
refused because there was “no place to convert the restricted
funds.”
(Id.
at
21,
23.)
Later,
the
same
employee
allegedly
expressed frustration regarding the Hektoen arrangement to the
County CFO. (Id. at 23.)
Second,
Relator
alleges
that
Hektoen
misappropriated
the
federal grant funds. According to Relator, the Exhibit A agreements
reallocated 10% of each federal grant into a “Dean’s Fund.” (Id.
at 21.) Relator further alleges the arrangement with Hektoen gave
County physicians “near autonomy” over the remaining percentage of
funds, including “a virtual rubber stamp for purchase orders of
goods to further exhaust the restricted federal funds.” (Id. at
22.) Relator thus concludes that Hektoen collected reimbursement
from the federal government based on false claims submitted by
physicians. (Id.)
- 10 -
4.
Dr. Bala Hota
Relator alleges that at least one former County hospital
physician, Dr. Bala Hota, embezzled federal funds as a result of
Hektoen’s fiscal management of a federal grant. (Id. at 23–25.)
Relator relays many details about Dr. Hota’s alleged theft of funds
from an April 2018 Chicago Tribune investigation and article. (Id.)
The article indicates that, over a period of several years, Dr.
Hota stole nearly $280,000 in grant revenue for personal expenses
like electronics and luxury travel. (Id.) Relator alleges that she
is unaware of any attempts to disclose this theft to the United
States. (Id. at 25.)
5.
$15.9 Million Delegated to the Public Health
Institute of Metropolitan Chicago
In 2010, Relator learned that CCDPH had received a $15.9
million grant award from the CDC. (Id.) Only certified public
health departments were eligible for this funding. (Id.) CCDPH is
a certified public health department. (Id.) Unlike the grants in
Relator’s prior examples, the CDC advanced the grant funds prior
to performance. (Id.) This meant that the County did not have to
absorb liabilities until it submitted and obtained reimbursement
from the United States. (Id.)
In June 2010, Relator learned that the CCHHS Board approved
an agreement with the Public Health Institute of Metropolitan
Chicago (“PHIMC”) to serve as fiscal agent for these funds. (Id.
- 11 -
at 26.) PHIMC is not a certified public health department nor did
it have any agreement with the County—the guarantor for the funds.
(Id.) Relator alleges that PHIMC lacked the resources and financial
controls to qualify for the award independently. (Id.) For this
reason, the transfer of funds concerned Relator. (Id.) Relator was
also concerned because CCDPH would have to account for the funds
in its annual audit. (Id.) Consequently, Relator alleges that she
“refused to endorse the Health’s System Board’s PHIMC transfer
without explicit authorization for the fund transfer from the Cook
County Board of Commissioners.” (Id.)
In June 2011, the CCHHS Board passed a resolution authorizing
the transfer of the grant funds to PHIMC. (Id. at 27.) Sometime
thereafter, Relator learned that by the time the resolution passed
the funds has already been transferred to PHIMC. (Id.) Despite the
funding have already been received by PHIMC, the CCDPH counsel
asked whether Relator intended to include approval of the transfer
on the CCCHHS Board agenda. (Id.)
Relator alleges that during the County’s annual audit she
conveyed her concerns about this transfer to auditors. (Id.) The
auditors advised her to put her concerns in writing and send them
to the County CFO and chief budget officer. (Id.) According to
Relator, she did what the auditors advised her to do. (Id.) Relator
further alleges that the only response she received was from a
- 12 -
County budget office employee informing her that “her written
concerns were not welcome.” (Id.)
B.
Procedural Posture
Relator filed her original complaint on August 10, 2017. (Dkt.
No. 1.) After the United States declined to intervene in the
action, the case was reassigned to this Court. (Dkt. Nos. 11, 14.)
On May 26, 2020, Relator filed the FAC. (Dkt. No. 42.) On November
24, 2020, the Court dismissed the FAC without prejudice. (Dkt. No.
57.) Relator filed the SAC on December 8, 2020. (Dkt. No. 58.) On
January 5, 2021, the County filed this Motion to Dismiss the SAC.
(Dkt. No. 61.)
II.
LEGAL STANDARD
A Rule 12(b)(6) motion challenges the legal sufficiency of
the complaint. To survive a Rule 12(b)(6) motion, the complaint’s
allegations must meet a standard of “plausibility.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 564 (2007). A claim is facially plausible
“when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). “[T]he plausibility determination is a context-specific
task that requires the reviewing court to draw on its judicial
experience and common sense.” W. Bend Mut. Ins. Co. v. Schumacher,
844 F.3d 670, 676 (7th Cir. 2016) (quotation and citation omitted).
- 13 -
“Threadbare
recitals
of
the
elements
of
a
cause
of
action,
supported by mere conclusory statements, do not suffice.” Iqbal,
556 U.S. at 678.
The FCA is an anti-fraud statute and therefore subject to the
heightened pleading requirements of Rule 9(b). United States ex
rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 839 (7th
Cir. 2018). Rule 9(b) requires a party to “state with particularity
the circumstances constituting fraud or mistake.” FED. R. CIV. P.
9(b). To meet Rule 9’s heightened pleading standard, Relator must
allege “the who, what, when, where, and how” of the fraud like
“the first paragraph of any newspaper story.” United States ex
rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009)
(internal quotation marks omitted). Relator is required to plead
each of her claims “at the individualized transaction level”
including
“the
misrepresentation,
identity
the
of
time,
the
person
place,
and
making
content
the
of
the
misrepresentation, and the method by which the misrepresentation
was communicated to the plaintiff.” United States 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); United States ex rel. Hanna v.
City
of
Chicago,
834
F.3d
775,
779
quotation marks omitted).
- 14 -
(7
Cir.
2016)
(internal
III.
DISCUSSION
The FCA imposes liability on any person who:
(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;
. . .
(D) has possession, custody, or control of property or
money used, or to be used, by the Government and
knowingly delivers, or causes to be delivered, less than
all of that money or property;
. . .
(G) knowingly makes, uses, or causes to be made or used,
a false record or statement material to an obligation to
pay or transmit money or property to the Government, or
knowingly conceals or knowingly and improperly avoids or
decreases an obligation to pay or transmit money or
property to the Government.
31 U.S.C. § 3729(a)(1). Relator alleges violations of all the
listed Section 3729(a)(1) subsections.
To survive a motion to dismiss, Relator must at minimum plead
transaction-level details evidencing violations of each of the
foregoing subsections. See Caremark, 496 F.3d at 742. In its order
and opinion dismissing the FAC, the Court set forth a detailed
explanation
of
the
Rule
9
pleading
standard,
the
necessary
components of an FCA claim, and the deficiencies in the FAC. (Op.,
Dkt. No. 57.) Despite this guidance, Relator has not cured the
deficiencies which warranted dismissal of the FAC. Specifically,
- 15 -
Relator has once again failed to set forth allegations evidencing
violations of the FCA with the specificity required by Rule 9. For
the reasons set out below, the SAC is dismissed with prejudice.
A.
False Submissions to the Government
Counts I and II both allege that the County made false
statements to the government. Count I alleges the County submitted
false
claims
to
the
Section 3279(a)(1)(A).
To
Government
succeed
in
on
violation
a
claim
of
under
Section 3279(a)(1)(A), the Relator must allege with particularity
that the County “(1) submitted a false or fraudulent claim; (2) to
the government for payment or approval; and (3) knowing that it
was false or fraudulent.” United States, ex rel. Besancon v.
UChicago Argonne, LLC, 2014 WL 4783056, at *3 (N.D. Ill. Sept. 24,
2014). Count II raises a claim under Section 3729(a)(1)(B). To
state a claim under this subsection, Relator must allege that the
County “(1) made a statement to receive money from the government;
(2) the statement was false; and (3) defendant knew it was false.”
Id. Relator has failed to allege facts to support claims under
Section 3279(a)(1) subsections (A) or (B).
Relator must, at a minimum, allege the submission of a false
statement to the Government for payment. See Mason v. Medline
Indus.,
Inc.,
(“The sine
qua
2009
WL
non of
1438096,
a
False
at
*4
Claims
- 16 -
(N.D.
Act
Ill.
May
violation
2009)
is
the
submission of a fraudulent claim.”) Conclusory allegations are not
enough. Rule 9 requires the allegations include “the who, what,
when, where, and how” of the alleged falsity. Rolls-Royce, 570
F.3d at 853. Relator, however, fails to adequately plead any false
statements, let alone statements made in connection with any
government payments.
The Court first dismisses out of hand Relator’s conclusory
statements that the County was reimbursed for false claims. Relator
alleges that County profited from the “reimbursement of WIC false
claims.”
(SAC
at
20.)
Relator
also
alleges
that
Hektoen
was
reimbursed “[d]espite the falsity of the underlying claims.” (Id.
at
22.)
These
conclusory
statements
fall
far
short
of
the
transaction-level detail required by Rule 9. Caremark, 496 F.3d at
742. Absent the who, what, when, where, and how for these alleged
false claims, these examples cannot form the basis of an FCA claim.
Relator’s allegations surrounding the administration of the
H1N1 grant reimbursement provide greater detail on a potential
false
statement
September
1,
to
2011,
the
the
Government.
County
According
electronically
to
Relator,
certified
on
and
submitted to the CDC two Grant Allocation Expense Reports. (SAC at
10; Expense Rpt. 1, SAC, Ex. 1, Dkt. 58-1; Expense Rpt. 2, SAC,
Ex. 2, Dkt. 58-2.) Rule 9 requires that Relator identify the
- 17 -
specific falsities found in these reports. Berkowitz, 896 F.3d at
841, Relator failed to meet this burden.
Relator cannot allege that the Allocation Expense Reports are
entirely
false.
Relator
alleges
that
the
Allocation
Expense
Reports were prepared based on pre-performance estimates of the
time County employees would spend on the H1N1 grant. (SAC at 12.)
Relator alleges that because she never tracked her time dedicated
to federal service, the preparation of these reports must have
been generated by the Program Managers after the fact. (Id.) This
logical leap is belied by Relator’s admission that she does not
have
firsthand
knowledge
of
how
the
reports
were
prepared.
Relator’s role in preparing the reports was ensuring that the
salaries assigned to the employees reflected the County’s records.
(Id.) The SAC is devoid of allegations that Relator has firsthand
knowledge of how the allocations were determined. Indeed, Relator
alleges that “she never discussed with other DPH managers how
individual employees apportioned their time” because it “was not
part of the Finance Component’s workflow.” (Id. at 11.)
Relator’s
failure
to
adequately
allege
that
the
entire
Allocation Expense Report is false would not be fatal if she
identified particular line items in the report which she knows to
be false. These allegations are also missing from the SAC. First,
Relator has firsthand knowledge of her own time allocation. Relator
- 18 -
alleges that she did not track her time dedicate to federal
service. (Id. 12.) Tellingly, Relator does not allege that her
time allocation in the Allocation Expense Reports is false. The
Court will not and cannot presume this necessary fact. Second,
Relator alleges that the County “expensed the same federal services
at different rates to the Government.” (Id. at 13.) This conclusory
statement says nothing about the veracity of any item in the
Allocation Expense Report. Relator thus fails to even vaguely plead
a false statement as to the rates charged for services, let alone
the raise the sort of detailed allegations necessary under Rule 9.
Consequently, the alleged line item falsities identified by the
Relator fail to meet the exacting standards of Rule 9.
Even if the Court could court conclude that any part of the
Allocation Expense Reports were false, a plaintiff must connect
the alleged false statements to payments from the Government. Peck
v. CIT Bank, N.A., 2020 WL 6781799, at *6 (N.D. Ill. Nov. 18,
2020). Relator, however, does not allege the purpose for which the
Allocation
Expense
Reports
were
submitted
to
the
Government.
Relator only alleges that the reports were submitted on September
1, 2011, “in support of” the H1N1 grants. (SAC at 10.) She later
alleges that the Government reimbursed the County for its expenses
in connection with the H1N1 grants on September 26, 2011. (Id. at
14.)
Absent
is
a
connection
between
- 19 -
the
submission
of
the
Allocation
Expense
Reports
and
the
reimbursement
payment.
Relator’s “failure to connect the alleged fraud with specific money
spent
by
the
federal
government
renders
[her]
allegations
inadequate under Rule 12(b)(6) and especially Rule 9(b).” Peck,
2020 WL 6781799, at *6.
The
remainder
of
Relator’s
examples
set
forth
alleged
regulatory violations. (See, e.g., id. at 12–13, 21–22, 25.) But
“it is not enough to allege, or even prove, that the [defendant]
engaged in a practice that violated a federal regulation.” United
States ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772
F.3d 1102, 1107 (7th Cir. 2014). Indeed, “[v]iolating a regulation
is not synonymous with filing a false claim.” Id. at 1107. Instead
Relator must plead a connection between these alleged regulatory
breaches and the County making a false statement or claim to the
Government in exchange for payment. Id. The SAC alleges no such
facts.
The closest the SAC comes to alleging the necessary facts is
the claim that, by reallocating restricted H1N1 grant funds to an
unrestricted account, the County “undermined any truth to the
budget and compliance certification” submitted to the CDC on
September 1, 2011. (SAC at 16.) The SAC, however, provides no
specific details regarding the terms of the September 1, 2011
certification or any certification signed by the County. United
- 20 -
States ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 827–
29 (7th Cir. 2011) (analyzing an FCA certification claim against
the specific certifications made to the Government). Absent the
terms, the Court has no basis on which to evaluate whether the
County’s conduct conflicted with the terms of any certification.
Also fatal to this theory is that to sustain an FCA claim
based
on
certifications,
[certified]
statement
the
was
Relator
false
at
must
the
allege
time”
“that
it
was
the
made.
Grenadyor, 772 F.3d at 1105. Relator, however, only pleads postcertification conduct that she alleges undermined the veracity the
certifications. This after-the-fact conduct says nothing about the
truth of the certifications on September 1, 2011 or any other date
that a certification was submitted by the County. Accordingly,
this example cannot support an FCA claim under subsections (A) or
(B).
For these reasons, Relator has failed to allege the facts
necessary
subsections
to
support
(A)
and
FCA
(B).
claims
under
Consequently,
Sections
Counts
I
3279(a)(1)
and
II
are
dismissed for failure to state a claim.
B.
Improper Retention of Government Funds
(Counts III and IV)
Counts III and IV allege that the County improperly retained
Government
funds.
Count
III
alleges
conversion
of
Government
property in violation of Section 3729(a)(1)(D). Few Courts have
- 21 -
analyzed claims under this particular provision, but all prior
precedents agree that in order to show a violation the Relator
must allege that the County’s “(1) possession, custody, or control
of property used or to be used by the government; (2) delivery, or
causing delivery, of less than all that property; and (3) knowledge
of that inadequate delivery.” United States ex rel. Harper v.
Muskingum Watershed Conservancy Dist., 842 F.3d 430, 438–39 (6th
Cir. 2016). Count IV alleges a reverse false claim, and “requires
Relator to allege that defendant had an existing, legal obligation
to pay or transmit money or property to the government and that
defendant submitted false statements or records to conceal, avoid,
or decrease that obligation.” Besancon, 2014 WL 4783056, at *4
(internal
citations
omitted).
Relator
has
failed
to
allege
sufficient facts supporting a claim that the County retained funds
rightfully belonging to the United States Government in violation
of the FCA.
Both conversion and a reverse false claim require the Relator
to first establish that the County was in possession of funds that
rightfully belong to the United States Government. 31 U.S.C.
§ 3729(a)(1)(D) (extending liability to a defendant that “has
possession, custody, or control of property or money used, or to
be used, by the Government”); id. § 3729(a)(1)(G) (extending
liability to a defendant that has an “obligation to pay or transmit
- 22 -
money or property to the Government”). The SAC includes no such
allegations.
Relator
alleges
that
restricted
H1N1
grant
funds
were
reallocated to an unrestricted account. (SAC at 16.) Relator
similarly alleges that the County reallocated $6.8 million from
WIC grants to CCHHS. (Id. at 19.) According to Relator, these
reallocations rise to the level of an FCA violation because the
County
was
obligated
to
refund
unused
grant
balances
to
the
Government in accordance with its grant closeout processes. (Oppn.
at 9, Dkt. No. 64.) But the Relator failed to plead any details
about these close-out procedures, thereby establishing that these
funds were actually due back to the Government. The SAC is silent
as to who conducts the process, what outcomes trigger an obligation
to repay grant funds, when the County knew it was in possession of
unused grant funds, or how unused funds are returned. Absent
allegations detailing the close-out processes in connection with
Relator’s examples, there is no basis for the Court to determine
whether any grants funds were indeed due back to the Government
and that the County knew it was required to return such funds.
Finally,
the
Relator
fails
to
plead
any
allegations
suggesting that the alleged reclassifications were done with the
intention of defrauding the government. Grenadyor, 772 F.3d at
1108 (dismissing an FCA claim where, among other things, the
- 23 -
relator
did
not
allege
that
the
defendants
acted
“with
the
intention of defrauding the government”). Relator pleads no facts
regarding the intent of the County with respect to the reclassified
H1N1 funds. Consequently, the Court has no basis to conclude that
this action was meant to avoid repayment or that it caused the
County to deliver less than what was owed to the Government. As to
the WIC funds, Relator provides some insight into the intent of
the County, alleging that the County believed the $6.8M was being
transferred to CCHHS for WIC costs the hospital system absorbed.
(SAC at 19.) Relator alleges that she disagreed. (Id.) But she
provides
no
allegations
or
evidence
beyond
that
facial
disagreement that evidences the County knew CCHHS had not absorbed
any WIC costs and reclassified the funds to obscure that fact.
For these reasons, Relator has failed to allege the facts
necessary
to
support
FCA
claims
under
Sections
3279(a)(1)
subsections (D) and (G). Consequently, Counts III and IV are
dismissed for failure to state a claim.
C.
Dismissal with Prejudice
“Despite receiving express directions about what they had to
do, counsel did not do it. At some point the train of opportunities
ends.” Guaranty Nat'l Title Co. v. J.E.G. Assocs., 101 F.3d 57, 59
(7th
Cir.1996)
(citation
omitted).
Relator
has
had
two
opportunities to amend her complaint, once with the benefit of the
- 24 -
Court’s detailed opinion explaining the FAC’s deficiencies. Even
with this roadmap, the SAC makes the same mistakes and fails to
state a claim that complies with the Federal Rules of Civil
Procedure. The deficiencies in the SAC are not small and provide
this
Court
with
no
indication
that
Relator
may
be
able
to
adequately plead an FCA claim in the future. Therefore, this
dismissal is with prejudice.
IV.
CONCLUSION
For the reasons stated herein, Defendant’s motion to dismiss
Relator’s second amended complaint is granted with prejudice.
(Dkt. No. 61.)
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Dated: 4/29/2021
- 25 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?