United States of America, ex rel. Joseph M Hedley and Fred A. Rauch, III v. ABHE & Svoboda, Inc.
Filing
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MEMORANDUM OPINION. Signed by Judge Richard D Bennett on 7/31/2015. (dass, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
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JOSEPH HEDLEY, et al.,
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Plaintiffs,
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v.
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ABHE & SVOBODA, INC.,
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Defendant.
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Civil Action No. RDB-14-2935
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MEMORANDUM OPINION
Plaintiffs Joseph M. Hedley and Fred A. Rauch, III (“Plaintiffs”), 1 bring this
False Claims Act2 action against Defendant ABHE & Svoboda, Inc. (“Defendant” or
“ASI”) alleging that ASI orchestrated a fraudulent scheme whereby it falsely
represented the use of a Disadvantaged Business Enterprise (“DBE”) subcontractor in
order to receive payments under a government contract. As relators, Plaintiffs initially
filed this action in the United States District Court for the Southern District of
Illinois. See Compl., ECF No. 2. After the United States elected to intervene (ECF No.
18), it filed the First Amended Complaint (ECF No. 19), alleging violations of the
False Claims Act, 31 U.S.C. §§ 3729, et seq., and various state law claims. ASI
1
The United States of America, on behalf of the Department of Transportation, was the original
plaintiff in this action, but withdrew its intervention on January 21, 2014. See Order, ECF No. 52.
When the United States was a party, Plaintiffs Hedley and Rauch were captioned as “Relators.” See
First Amend. Compl., ECF No. 19.
2
31 U.S.C. §§ 3729, et seq.
1
subsequently moved to dismiss the First Amended Complaint, or in the alternative,
transfer the case to the United States District Court for the District of Maryland,
pursuant to 28 U.S.C. § 1404(a). See Mot. to Dismiss, ECF No. 33; Mem. in Supp. of
Mot. to Dismiss, ECF No. 34. While ASI’s motion was pending, the United States
moved to withdraw its intervention, and the district court granted the withdrawal. See
Mot. to Withdraw Intervention, ECF No. 50; Order, ECF No. 52. Plaintiffs chose to
continue to pursue the subject action after the Government’s withdrawal. The district
court held a hearing on ASI’s Motion to Dismiss on July 7, 2014 (ECF No. 62). That
court dismissed with prejudice the unjust enrichment claim (Count VI), and
transferred the action to this Court pursuant to 28 U.S.C. § 1404(a). See Minute Entry,
ECF No. 62; Order, ECF No. 63.
Currently pending is Defendant ASI’s Renewed Motion to Dismiss (ECF No.
76). The parties’ submissions have been reviewed and no hearing is necessary. See Local
Rule 105.6 (D. Md. 2014). For the reasons that follow, Defendant ASI’s Motion to
Dismiss (ECF No. 76) is GRANTED and this case shall be DISMISSED WITHOUT
PREJUDICE as to Counts I-III and WITH PREJUDICE as to Counts IV, V, and VII.
BACKGROUND
This Court accepts as true the facts alleged in the plaintiffs’ complaint. See Aziz
v. Alcolac, Inc., 658 F.3d 388, 390 (4th Cir. 2011). The present action arises from a
contract between Defendant ASI and the Maryland State Highway Administration
2
(“MSHA”) for the cleaning and repainting of the Severn River Bridge3 (the
“Contract”). First Amend. Compl. ¶¶ 17-18. Plaintiffs Joseph Hedley and Fred Rauch
were, at all times relevant to this action, officers of Brighton Painting Company
(“Brighton”), a participant in the alleged scheme. On April 25, 2006, MSHA invited
the submission of bids to clean and repaint the Severn River Bridge. Id. ¶ 18. ASI then
submitted a bid proposal to MSHA stating that it intended to achieve MSHA’s
required fifteen percent DBE4 participation goal by employing Northeast Work and
Safety Boats, LLC (“NWSB”), a certified Women-Owned Business Enterprise
(“WBE”), as a subcontractor. Id. ¶¶ 19, 22. On the basis of ASI’s representation in its
proposal, MSHA awarded the Contract to ASI on July 21, 2006. Id. ¶ 20.
The Contract, pursuant to the DBE participation goal, required ASI to utilize at
least fifteen percent of the federal government dollars on goods and services performed
by a DBE. Id. ¶ 21. Instead of complying with this DBE participation requirement,
ASI allegedly represented that NWSB performed certain work that was actually
performed by Brighton. Id. ¶¶ 22-23. Id. ¶ 7. They claim that, under the alleged
3
The Severn River Bridge is officially named the “Pearl Harbor Memorial Bridge.” Id. ¶ 17.
As explained in the First Amended Complaint, the Disadvantage Business Enterprise regulations
require states to “determine appropriate levels of [DBE] participation to help correct lingering
discrimination and its effects” through race- and/or gender-neutral means and, if necessary, raceand/or gender-conscious means. First Amend. Compl. ¶ 12 (citing 49 C.F.R. 26). Under these
regulations, a state, such as Maryland in this action, must institute DBE participation goals for
contracts funded by the Department of Transportation, or other federal agencies. First Amend.
Compl. ¶ 13. To count towards the DBE participation goal in a contract, the DBE must perform a
“commercially useful function on the contract.” Id. ¶ 15 (citing 49 C.F.R. 26.55). If the DBE’s
participation is illusory, in that it is a party to the contract purely to obtain the appearance of
satisfying the participation goal, then the DBE is not performing a “commercially useful function.”
First. Amend. Compl. ¶ 16 (citing 49 C.F.R. 26.55).
4
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scheme, ASI paid NWSB eight percent of the government funds ASI received under
the Contract, even though NWSB did not perform any “commercially useful
function” as mandated by the DBE participation goal. Id. ¶ 25.
In furtherance of the scheme, ASI allegedly submitted false employee payrolls of
fictitious NWSB employees, detailing the compensation and benefits provided to
NWSB employees under the Contract. Id. ¶ 26. These fictitious NWSB employees
were, in reality, employees of Brighton. Id. ASI represented that NWSB certified the
false employee records each week. Id. ¶ 27. ASI also allegedly negotiated for the
purchase of materials and supplies that named NWSB as the party to be invoiced,
when ASI actually paid for the goods. Id. ¶ 28. Finally, Plaintiffs claim that ASI
knowingly submitted false quarterly DBE participation reports to MSHA, describing
the DBE-related funds going to NWSB for multiple periods, as well as Contractor’s
Progress Estimates to MSHA, enabling ASI to receive progress payments under the
Contract while perpetuating the fraudulent scheme. Id. ¶¶ 30-31. ASI completed its
cleaning and repainting of the Severn River Bridge on July 17, 2008.5 Def.’s Mot. to
Dismiss Ex. B, ECF No. 77-2.
In the subject action, Plaintiffs assert six claims against ASI. Counts I-III arise
5
Under Rule 12(d) of the Federal Rules of Civil Procedure, if “matters outside of the pleading are
presented to and no excluded by the court,” then “the motion must be treated as one for summary
judgment under Rule 56.” Sec’y of State for Defense v. Trimble Navigation Ltd., 484 F.3d 700, 705 (4th
Cir. 2007). In the Fourth Circuit, however, a court may take judicial notice of matters of public record
without transforming the motion to dismiss into a motion for summary judgment. Id. Defendant’s
exhibits accompanying its Motion to Dismiss are excerpts from the Contract, MSHA bid results,
scheduling, and costs, all of which are matters of public record.
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under the False Claims Act, 31 U.S.C. §§ 3729(a)(1)-(3).6 Counts IV-VII assert common
law claims of fraud, breach of contract, unjust enrichment,7 and payment by mistake,
respectively. ASI moves to dismiss all counts pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure.
STANDARDS OF REVIEW
A. Rule 12(b)(6) of the Federal Rules of Civil Procedure
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must
contain a “short and plain statement of the claim showing that the pleader is entitled to
6
This Court notes that the statutory citations of Counts I-III refer to the 1986 version of the False
Claims Act. The Fraud Enforcement Recovery Act of 2009 (“FERA”), Pub. L. No. 111-21, § 386, 123
Stat. 1617 (2009), amended certain sections of the False Claims Act, including the sections at issue in
this case. Under the amendments of FERA, Count I, § 3729(a)(1), is found at § 3729(a)(1)(A), Count II,
§ 3729(a)(2), at § 3729(a)(1)(B), and Count III, § 3729(a)(3), at § 3729(a)(1)(C). FERA became law on
May 20, 2009, and contains a retroactivity provision that states:
The amendments made by this section shall take effect on the date of
enactment of this Act and shall apply to conduct on or after the date of
enactment, except that (1) subparagraph (B) of section 3729(a)(1) of
title 31, United States Code, as added by subsection (a)(1), shall take
effect as if enacted on June 7, 2008, and apply to all claims under the
False Claims Act (31 U.S.C. 3729 et seq.) that are pending on or after
that date.
FERA § 4(f), 123 Stat. 1625. Plaintiffs filed their Complaint on April 25, 2011 as relators, but the
conduct complained of spans the time period April 25, 2006 through December 5, 2008. See Def.’s
Mot. to Dismiss Ex. B (correspondence between ASI and MSHA in which ASI certified the dates of
the project, hours worked, and other details). For purposes of the pending Motion to Dismiss, this
Court need not determine whether the pre- or post-FERA versions of § 3729 apply. First, this Court
can discern no material difference between the earlier or post-FERA versions of §§ 3729(a)(1)-(3) as the
statute applies to this case. See United States ex rel. Bennett v. Medtronic, Inc., 747 F. Supp. 2d 745, 764
n.17 (describing the differences between pre- and post-FERA versions of § 3729). Second, Plaintiffs do
not allege any specific dates on which false claims were allegedly submitted by ASI, but the
correspondence between ASI and MSHA on December 5, 2008 raises the possibility that false claims
remained pending after June 7, 2008. See supra Def.’s Mot. to Dismiss Ex. B. Accordingly, this Court
will not differentiate between the pre- and post-FERA versions of the False Claims Act.
7
As previously noted, the United States District Court for the Southern District of Illinois dismissed
the unjust enrichment claim (Count VI) with prejudice.
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relief.” Fed. R. Civ. P 8(a)(2). Rule 12(b)(6) of the Federal Rules of Civil Procedure
authorizes the dismissal of a complaint if it fails to state a claim upon which relief can
be granted. The purpose of Rule 12(b)(6) is “to test the sufficiency of a complaint and
not to resolve contests surrounding the facts, the merits of a claim, or the applicability
of defenses.” Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006).
The Supreme Court’s recent opinions in Bell Atlantic Corp. v. Twombly, 550
U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), “require that complaints in
civil actions be alleged with greater specificity than previously was required.” Walters
v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citation omitted). In Twombly, the
Supreme Court articulated “[t]wo working principles” that courts must employ when
ruling on Rule 12(b)(6) motions to dismiss. Iqbal, 556 U.S. at 678. First, while a court
must accept as true all the factual allegations contained in the complaint, legal
conclusions drawn from those facts are not afforded such deference. Id. (stating that
“[t]hreadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice” to plead a claim); see also Wag More Dogs, LLC v.
Cozart, 680 F.3d 359, 365 (4th Cir. 2012) (“Although we are constrained to take the
facts in the light most favorable to the plaintiff, we need not accept legal conclusions
couched as facts or unwarranted inferences, unreasonable conclusions, or arguments.”
(internal quotation marks omitted)).
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Second, a complaint must be dismissed if it does not allege “a plausible claim for
relief.” Iqbal, 556 U.S. at 679. Although a “plaintiff need not plead the evidentiary
standard for proving” her claim, she may no longer rely on the mere possibility that
she could later establish her claim. McCleary-Evans v. Maryland Department of
Transportation, State Highway Administration, 780 F.3d 582, 586 (4th Cir. 2015)
(emphasis omitted) (discussing Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002) in
light of Twombly and Iqbal). Under the plausibility standard, a complaint must contain
“more than labels and conclusions” or a “formulaic recitation of the elements of a
cause of action.” Twombly, 550 U.S. at 555.
B. Rule 9(b) of the Federal Rules of Civil Procedure
A false claim allegation is an averment of fraud. Harrison v. Westinghouse
Savannah River Co., 176 F.3d 776, 783-84 (4th Cir. 1999) (“Harrison I”). A complaint
alleging false claims thus must comply with the heightened standard of Federal Rule of
Civil Procedure 9(b), which requires a pleader to “state with particularity
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).8 The United States
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Four justifications for Rule 9(b)’s heightened pleading standards are often invoked:
First, the rule ensures that the defendant has sufficient information to formulate a
defense by putting it on notice of the conduct complained of. . . . Second, Rule 9(b)
exists to protect defendants from frivolous suits. A third reason for the rule is to
eliminate fraud actions in which all the facts are learned after discovery. Finally, Rule
9(b) protects defendants from harm to their goodwill and reputation.
Harrison I, 176 F.3d at 784 (4th Cir. 1999); see also Banca Cremi, S.A. v. Alex Brown & Sons, Inc., 132
F.3d 1017, 1036 n.25 (4th Cir. 1997).
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Court of Appeals for the Fourth Circuit has held that “time, place, and contents of the
false representations, as well as the identity of the person making the
misrepresentation and what he obtained thereby” are the circumstances that must be
pled with particularity. U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370,
379 (4th Cir. 2008) (quoting Harrison I, 176 F.3d at 784). This set of information is
often referred to as the “who, what, when, where, and how” of the alleged fraud. Id. at
379 (internal quotation marks omitted). Moreover, as to the “what” requirement, “a
plaintiff must show a link between allegedly wrongful conduct and a claim for
payment actually submitted to the government.” U.S. ex rel. Dugan v. ADT Security
Services, Inc., No. DKC-03-3485, 2009 WL 3232080, at *14 (D. Md. Sept. 29, 2009)
(citing Clausen, 290 F.3d at 1311). By requiring a plaintiff to plead circumstances of
fraud with particularity and not by way of general allegations, Rule 9(b) screens “fraud
actions in which all the facts are learned through discovery after the complaint is
filed.” Harrison I, 176 F.3d at 789 (citation omitted).
ANALYSIS
A. The False Claims Act—Counts I and II
In pertinent part, the False Claims Act subjects to civil liability “[a]ny person
who knowingly presents or causes to be presented, to . . . the United States
Government . . . a false or fraudulent claim for payment or approval,” 31 U.S.C. §
3729(a)(1), as well as “[a]ny person who knowingly makes, uses, or causes to be made
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or used, a false record or statement to get a false or fraudulent claim paid or approved
by the Government.”9 31 U.S.C. § 3729(a)(2). To state a claim under the False Claims
Act, a plaintiff must plead “(1) that the defendant made a false statement or engaged in
a fraudulent course of conduct; (2) such statement or conduct was made or carried out
with the requisite scienter; (3) the statement or conduct was material; and (4) the
statement or conduct caused the government to pay out money or to forfeit money
due.” U.S. ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908, 913 (4th
Cir. 2003) (“Harrison II”).10
Given the “essentially punitive” 11 nature of the damages available in False
Claims Act cases, “[t]he Supreme Court has cautioned that the False Claims Act was
not designed to punish every type of fraud committed upon the government.”
Harrison I, 176 F.3d at 785 (citing United States v. McNinch, 356 U.S. 595, 599 (1958)).
The Act “imposes liability not for defrauding the government generally; it instead only
prohibits a narrow species of fraudulent activity: ‘present[ing], or caus[ing] to be
9
The quoted language from the False Claims Act corresponds to the pre-FERA version of the Act. As
previously noted, this Court cannot discern any material difference between the two versions of the
Act that would affect this litigation. The First Amended Complaint references the earlier version of
the statute, thus this Court will cite that version for ease of reference.
10
Although this action was originally filed in the United States District Court for the Southern
District of Illinois, it was transferred to this Court pursuant to 28 U.S.C. § 1404(a). When questions of
federal law are presented, the “law of the circuit where the transferee court sits governs[.]” In re Mutual
Funds Inv. Litigation, 767 F. Supp. 2d 542, 545 (D. Md. 2011). The law of the United States Court of
Appeals for the Fourth Circuit thus controls in this case.
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Vermont Agency of Nat. Res. v. Stevens, 529 U.S. 765, 784 (2000) (“[T[he current version of the FCA
imposes damages that are essentially punitive in nature . . . .”); see also Texas Indus., Inc. v. Radcliffe
Materials, Inc., 451 U.S. 630, 639 (1981) (“The very idea of treble damages reveals an intent to punish
past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers.”); United
States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 734 (10th Cir. 2006) (Hartz,
J., concurring) (“[T]he False Claims Act is a punitive statute . . . .”).
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presented . . . a false or fraudulent claim for payment or approval.” United States ex rel.
Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 504 (6th Cir. 2007) (citation omitted);
see also Harrison I, 176 F.3d at 785 (“The statute attaches liability, not to the underlying
fraudulent activity or to the government’s wrongful payment, but to the ‘claim for
payment.’”) (citation omitted). “Therefore, a central question in False Claims Act cases
is whether the defendant ever presented a ‘false or fraudulent claim’ to the
government.” Harrison I, 176 F.3d at 785. The alleged false claim or record must
present an “objective falsehood” identified in the complaint. United States ex rel. Wilson
v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008).
Moreover, the heightened pleading standard of Rule 9(b) requires that plaintiffs
plead the elements of a False Claims Act claim with particularity. United States ex rel.
Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 370, 379 (4th Cir.
2010) (explaining that, as the False Claims Act is a “fraud prevention statute,” the
heightened pleading standard of Rule 9(b) applies). Specifically, a plaintiff must state
the “time, place, and contents of the false representations, as well as the identity of the
person making the misrepresentation and what he obtained thereby” to survive a
motion to dismiss. Kellogg Brown & Root, 525 F.3d at 379 (quoting Harrison I, 176 F.3d
at 784). In the Fourth Circuit, Rule 9(b)’s heightened pleading “appl[ies] with
particular force in the context of the [False Claims] Act, given the potential
consequences flowing from allegations of fraud by companies who transact business
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with the government.” United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707
F.3d 451, 454 (4th Cir. 2013). Failure to comply with the heightened standard of Rule
9(b) necessitates the dismissal of the deficient claim under Rule 12(b)(6). Harrison I, 176
F.3d at 783 n.5.
In this case, the First Amended Complaint is deficient on several grounds. First,
Plaintiffs fail to allege any false claims or records with the requisite specificity of Rule
9(b). Plaintiffs refer to several types of documents, such as employee payroll sheets,
invoices, and monthly DBE progress estimates, but never explain how or why these
documents are false. Plaintiffs assert that these documents “constitute[] . . . false
claim[s],” but provide no facts to support such a conclusory statement. First Amend.
Compl. ¶ 34. The False Claims Act requires an “objective falsehood,” thereby
preventing this Court from accepting Plaintiffs’ proffered inference.
Even assuming that the alleged documents are indeed false, Plaintiffs do not
connect the documents to any claims for payment made by ASI to the government.
The False Claims Act, after all, “attaches liability, not to the underlying fraudulent
activity or to the government’s wrongful payment, but to the ‘claim for payment.’”
Harrison I, 176 F.3d at 785 (emphasis added). Plaintiffs simply contend that Defendant
“knowingly submitted false claims to MSHA for payment,” but never identify the
supposed false claims. First Amend. Compl. ¶ 33. The documents included in the First
Amended Complaint are not “claims” within the ambit of the False Claims Act, as
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Plaintiffs never allege that the payroll records, monthly progress reports, and other
documents were “submitted to the federal government for reimbursement[.]”Takeda,
707 F.3d at 454; see also 31 U.S.C. § 3729(c) (defining a “claim” as a “request or demand
. . . for money or property . . . that is presented to an officer, employee, or agent of the
United States[.]”
The proffered documents may be records, but yet again Plaintiffs omit any
specific details linking these records to a claim for payment. Plaintiffs do not allege
that the Contract required ASI to certify, through the submission of payroll records,
invoices, and other documents, its compliance with the DBE participation goal. As the
plain language of the First Amended Complaint makes clear, the DBE participation
goal was merely that—a goal, not a contractual prerequisite for payment. Under
Plaintiffs’ reasoning, any fraudulent assertion, no matter how unrelated to a claim for
payment, would be cognizable under the False Claims Act. Yet, given the Act’s
punitive nature, it was “not designed to punish every type of fraud committed upon
the government.” Harrison I, 176 F.3d at 785 (citing McNinch, 356 U.S. at 599).
Fraudulent activity unrelated to a claim for payment, as is alleged in the First
Amended Complaint, does not fall within the prohibitions of the False Claims Act.
Plaintiffs’ allegations of the requisite scienter are similarly deficient. Counts I
and II require that the alleged perpetrator of the fraud “knowingly” submit the false
claim or false record to the government for payment. 31 U.S.C. §§ 3729(a)(1)-(2). The
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False Claims Act defines “knowingly” as actual knowledge, deliberate ignorance, or
reckless disregard for the truth. 31 U.S.C. § 3729(b)(1). Although Rule 9(b) may allow
knowledge to be plead “generally,” the False Claims Act increases the specificity of
that pleading by obliging Plaintiffs to plead the identity of those persons at ASI who
submitted the false claims or records. See Kellogg Brown & Root, 525 F.3d at 379
(quoting Harrison I, 176 F.3d at 784). Far from including such details, the First
Amended Complaint merely alleges that ASI “knowingly” submitted the fraudulent
documents. In fact, the First Amended Complaint never identifies any officer or
individual at ASI who possessed knowledge of the alleged scheme or false claims. This
generalized allegation of knowledge, without more, is insufficient to state the requisite
scienter of § 3729(a)(1) and § 3729(a)(2).
Third, Plaintiffs fail to allege with specificity that the allegedly false documents
were material to the government’s payment of a claim. Under the False Claims Act,
the materiality of a false statement or conduct “turns on whether the false statement
has a natural tendency to influence agency action or is capable of influencing agency
action.
United States ex rel. Berge v. Bd. of Tr. of Univ. of Ala., 104 F.3d 1453, 1460 (4th Cir.
1997). Materiality does not look to whether the false statements actually influenced
agency action, but rather whether the statements are “capable” of having such an
influence. Harrison II, 352 F.3d at 916-17. Plaintiffs’ allegations, however, do not
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satisfy even this inclusive test. As previously noted, Plaintiffs provide no facts
describing how allegedly false representations of DBE participation induced the
government to pay a claim. On the face of the First Amended Complaint, DBE
participation was merely a goal, not a prerequisite to payment. If the DBE
participation goal is not a necessary element for payment, then stating that it has the
“natural tendency” to influence government demands an analytical leap with no factual
support in the pleadings. Absent any connection between the allegedly false statements
and government action, Plaintiffs fail to plead the requisite materiality.
In sum, Plaintiffs’ claims in Counts I and II rest on conclusory inferences that
fall far short of the heightened pleading of the False Claims Act. The Act does not
address every instance of fraudulent activity, but only that fraud involving the
submission of specific false claims to the government. Accordingly, Counts I and II are
DISMISSED WITHOUT PREJUDICE.
B. The False Claims Act—Count III
The False Claims Act also imposes civil liability on those individuals who
“conspire[] to defraud the Government by getting a false or fraudulent claim allowed
or paid.” 31 U.S.C. § 3729(a)(3). While the Act does not define conspiracy, courts have
concluded that general civil conspiracy principles apply. See, e.g., United States ex rel.
Durcholz v. FKW Inc., 189 F.3d 542, 545 n.3 (7th Cir. 1999); United States v. Toyobo Co.
Ltd., 811 F. Supp. 2d 37, 50 (D.D.C. 2011). To state a claim under § 3729(a)(3), a
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plaintiff must allege that the defendant “conspired with one or more persons to have a
fraudulent claim paid by the United States, . . . that one or more of the conspirators
performed any act to have such a claim paid by the United States, and . . . that the
United States suffered damages as a result of the claim.” Id. (quoting United States v.
Bouchey, 860 F. Supp. 890, 893 (D.D.C. 1994) (internal citations omitted)). Further, the
plaintiff must plead that the alleged conspirators “had the purpose of ‘getting’ the false
record or statement to bring about the Government’s payment of a false or fraudulent
claim.” Allison Engine Co., Inc. v. United States ex rel. Sanders, 553 U.S. 662, 672 (2008).
A conspiracy claim is premised on the underlying False Claims Act claims, thus it
“rises and falls with the individual claims.” United States ex rel. Godfrey v. KBR, Inc.,
360 F. App’x 407, 413 (4th Cir. 2010).
Plaintiffs’ conspiracy claim falters at the first element. As explained supra in
Section A, Plaintiffs never identify any false claims with specificity. Plaintiffs claim
that ASI and NWSB concocted an elaborate scheme to fulfill the DBE participation
goal, but do not provide any facts indicating that the scheme included a conspiracy to
submit false claims to the government. The First Amended Complaint establishes only
a conspiracy to circumvent the DBE participation goal, and not a conspiracy within
the scope of the False Claims Act. The conspiracy claim of Count III rests entirely on
the allegations of Counts I and II. As a False Claims Act conspiracy claim “rises and
falls with the individual claims,” Count III must also fall with Counts I and II.
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Plaintiffs’ conspiracy claim thus fails to state a claim for which relief may be granted
and is hereby DISMISSED WITHOUT PREJUDICE.
C. Remaining Common Law Claims (Counts IV, V, VII)
Before considering the merits of Plaintiffs’ common law claims (Counts IV, V,
VII), 12 this Court must consider whether Plaintiffs have standing to pursue these
claims. As a plaintiff’s lack of standing divests the federal court of its jurisdiction to
hear the offending claims, it is “not subject to waiver.” Lewis v. Casey, 518 U.S. 343,
349 n.1 (1996); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). A
challenge to a party’s standing is a facial challenge in which the allegations in the
complaint are argued to be insufficient to establish subject matter jurisdiction. See
Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009) (explaining that a dispute over
subject matter jurisdiction may proceed as a facial or factual challenge) (citation
omitted). With respect to a facial challenge, a court will dismiss a claim for lack of
subject matter jurisdiction “where [that] claim fails to allege facts upon which the court
may base jurisdiction.” Davis v. Thompson, 367 F. Supp. 2d 792, 799 (D. Md. 2005).
As the United States Supreme Court explained in Lujan, standing consists of
three elements: (1) a plaintiff “must have suffered an injury in fact—an invasion of a
legally protected interest which is (a) concrete and particularized . . . and (B) actual or
12
Illinois law governs the merits of the common law claims. See Van Dusen v. Barrack, 376 U.S. 612,
639 (1964). When a case is transferred from one federal court to another pursuant to 28 U.S.C. §
1404(a), the “transferee court must be obligated to apply the state law that would have been applied if
there had been no change of venue.” Id. This action was originally filed in the United States District
Court for the Southern District of Illinois, thus Illinois law applies to the state common law claims.
16
imminent, not conjectural or hypothetical;” (2) a “causal connection between the
injury and the conduct complained of;” and (3) it must “be likely, as opposed to
merely speculative, that the injury” is redressable. 504 U.S. at 560-61 (internal
quotations and citations omitted). The plaintiff, as the “party invoking federal
jurisdiction[,] bears the burden of establishing these elements.” Id. at 561; see also
Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir. 1999).
Under the False Claims Act, a private citizen may bring a civil action for a
violation of the Act on behalf of the United States, even where the government
declines to intervene. 31 U.S.C. §§ 3730(b)(1), (4). This statutory framework essentially
enables a relator to overcome the first element of standing—“injury in fact”—that is
otherwise mandated by Article III. Vermont Agency of Nat. Res. v. United States ex rel.
Stevens, 529 U.S. 765, 765-66 (2000). Yet, when a relator mounts a qui tam False Claims
Act action, he overcomes the “injury in fact” requirement only for those claims arising
under the Act. See Kellogg Brown & Root, 525 F.3d at 376 (explaining that only the
government may bring a breach of contract claim in a False Claims Act action); see also
United States ex rel. Rockefeller v. Westinghouse Elec. Co., 274 F. Supp. 2d 10, 14-15
(D.D.C. 2003) (holding that a “relator in a qui tam [False Claims Act] action does not
have standing to assert common law claims based upon injury sustained by the United
States”).
17
In this case, Plaintiffs13 lack standing to bring the common law claims of Counts
V, V, and VII. The United States withdrew its intervention on January 21, 2014. The
First Amended Complaint, however, pleads injuries suffered only by the United
States, and not by Plaintiffs. They thus have failed to allege any facts demonstrating
that they suffered an “injury in fact” within the meaning of Article III standing. In this
qui tam False Claims Act action, Plaintiffs’ lack of standing precludes this Court from
exercising its jurisdiction over the remaining common law claims. Counts IV, V, and
VII are DISMISSED WITH PREJUDICE.
CONCLUSION
For the reasons stated above, Defendant ASI’s Motion to Dismiss (ECF No. 76)
is GRANTED and this case shall be DISMISSED WITHOUT PREJUDICE as to
Counts I-III and WITH PREJUDICE as to Counts IV, V, and VII.
A separate Order follows.
Dated:July 31, 2015
/s/______________________________
Richard D. Bennett
United States District Judge
13
As noted supra, Plaintiffs were formerly captioned as “Relators,” but were re-captioned as
“Plaintiffs” upon the withdrawal of the United States from this action.
18
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