Harris v. Ellison Systems, Inc.
Filing
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MEMORANDUM OPINION. Signed by Judge Stephanie A. Gallagher on 2/26/2021. (bas, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
UNITED STATES ex rel. DAVID HARRIS, *
DAVID HARRIS,
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Plaintiffs,
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v.
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ELLISON SYSTEMS, INC.,
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Defendant.
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Civil Case No. SAG-17-0570
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MEMORANDUM OPINION
After his initial complaint was dismissed, Plaintiff David Harris (“Harris”) filed an
Amended Complaint alleging violations of the False Claims Act (“FCA”). ECF 46. Harris’s
former employer, Defendant Ellison Systems, Inc. d/b/a “Shoplet” or “Shoplet.com” (“Shoplet”),
again filed a Motion to Dismiss (“the Motion”), ECF 47. Harris opposed the Motion, ECF 50, and
Shoplet filed a reply, ECF 51. No hearing is necessary. See Loc. R. 105.6 (D. Md. 2018). For the
reasons that follow, the Motion will be granted in part and denied in part.
I.
FACTUAL BACKGROUND
The facts below are derived from the Amended Complaint and are taken as true for
purposes of this Motion. Shoplet is a New York corporation engaged in the business of selling
office supplies over the internet, using the website “shoplet.com.” ECF 46 ¶ 5. Shoplet’s
customers include the United States Government and, specifically, federal agencies located in
Maryland. Id. ¶¶ 6, 7. In April, 2016, Harris began working for Shoplet, in Maryland, as its Senior
Vice President of Sales. Id. ¶¶ 11, 17, 20. During Harris’s employment, Shoplet was one of
approximately twenty-four companies authorized as vendors under the Federal Strategic Sourcing
Initiative (“FSSI”). Id. ¶¶ 21, 23. The FSSI program intended to “streamline federal government
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purchases, lower costs and standardize purchase procedures,” id. ¶ 22, by allowing federal
contracting officers make FSSI purchases from authorized vendors. Id. ¶ 38. Office supplies sold
under the FSSI program include those made by the AbilityOne program, which provides
employment to individuals with “significant disabilities.” Id. ¶ 25. The FSSI program requires
federal contracting officers to purchase AbilityOne products if available. 1 Id. ¶ 28.
Authorized FSSI vendors must pay the program a “contract access fee” (CAF), consisting
of a percentage of the goods sold under the program. Id. ¶ 30. The effective CAF for FSSI goods
is 2%. Id. ¶¶ 31, 33, 35. For other GSA schedule goods, Shoplet pays just .75%. Id. ¶ 35.
Generally, the FSSI price for an item is lower than the GSA schedule price for the same item. Id.
¶ 37. Shoplet sells products to federal government agencies under the GSA and FSSI programs.
Id. at ¶ 43.
Shoplet maintains two websites: shoplet.com and gsa.shoplet.com. Id. ¶ 45. Shoplet.com
sells products to retail customers and private businesses, while gsa.shoplet.com provides additional
services to its federal government customers. Id. ¶¶ 5, 47. When Harris began working for
Shoplet, its CEO, Tony Ellison, told him to focus on directing federal contracting officers to
gsa.shoplet.com. Id. ¶ 44. However, after several months, an outside sales representative told
Harris that the prices for goods on gsa.shoplet.com “weren’t matching.” Id. ¶ 48. While
investigating that claim, Harris discovered that “gsa.shoplet.com was employing misleading and
deceptive practices to induce Contracting Officers to pay higher, non-FSSI prices.” Id. ¶ 50.
According to Harris, a contracting officer might shop with Shoplet because it is an approved FSSI
vendor, assuming that his agency would get the benefit of FSSI prices. Id. ¶ 51.
1
Despite this Court pointing out several confusing or inconsistent allegations in the original
Complaint, ECF 35 at 2 n.1, the Amended Complaint made no effort to clarify or correct them.
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However, Harris alleges that Shoplet took certain steps to ensure that contracting officers
would in fact pay the GSA pricing, which was more advantageous to Shoplet because of the higher
prices and lower CAF. For example, Harris alleges that gsa.shoplet.com listed Hammermill
recycled copy paper at a price of $41.29 per carton, when the FSSI price for the paper should be
just $33.48, and the contracting officer should be able to obtain the item at the FSSI price. Id. ¶¶
52, 55, 57. The Amended Complaint contains several charts illustrating the differences between
the FSSI prices and GSA prices for various items and noting that the use of the commonly utilized
part number to search for the item would lead a prospective purchaser to the GSA price, not the
FSSI price. Id. ¶¶ 61, 62, 66. Harris alleges that Shoplet intentionally failed to place FSSI logos
or GSA logos on its sales items, to conceal whether the item had been priced at the more favorable
FSSI rate. Id. ¶ 65. According to the Amended Complaint, “Upon information and belief, Shoplet
made thousands of sales to the federal government under GSA pricing when it was required to
provide FSSI pricing” and netted millions of dollars in illicit gains from that practice. Id. ¶¶ 66,
71. Harris learned of the situation via calls from Shoplet sales representatives, who informed
Harris that their government customers had been misquoted prices as a result of their use of the
common part numbers. Id. ¶ 68. Harris knew that such communications between the sales
representatives and government customers occurred “frequently between June 2016 and August
2016.” Id. ¶ 70.
Between June, 2016 and August, 2016, Harris complained to Shoplet’s CEO, Tony Ellison,
and other officers about the dual pricing scheme. Id. ¶ 73. Harris believed, and expressed to the
officers, that Shoplet’s pricing scheme violated the False Claims Act. Id. ¶¶ 73-74.
On or about August 8, 2016, Shoplet was removed as an authorized FSSI vendor, but
continued to identify itself as an authorized vendor on the gsa.shoplet.com website. Id. ¶¶ 75, 77,
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78. Harris alleges that as of the time of his termination and continuing into November, 2016,
Defendant continued to make sales to officers of “various products, including the Hammermill
paper described above.” Id. ¶¶ 77-78. A Shoplet employee, Ed Miller, advised Harris after Harris’s
termination that Shoplet was continuing to identify itself as an FSSI vendor to government
contracting officers. Id. ¶ 80.
In late August, 2016, Harris made another presentation to Shoplet’s CEO, Tony Ellison,
regarding the above-described findings and again told Ellison that Shoplet’s actions violated
federal contracting laws. Id. ¶¶ 82-85. Harris specifically told Ellison that the company needed
to stop identifying itself as an FSSI vendor, and that its dual numbering system continued to cause
overbilling to the government. Id. ¶ 85. Ellison responded by accusing Harris of being “a spy in
the organization” and asked whether he had “been telling company secrets to the General Services
Administration.” Id. ¶ 93. Ellison told Harris that he had not hired him “to be a compliance
officer.” Id. ¶ 97. Days later, Ellison terminated Harris’s employment. Id. ¶ 106. This lawsuit
ensued.
II.
LEGAL STANDARD
Shoplet seeks dismissal under Federal Rule of Civil Procedure 12(b)(6), which permits a
defendant to test the legal sufficiency of a complaint. In re Birmingham, 846 F.3d 88, 92 (4th Cir.
2017); Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016); McBurney v.
Cuccinelli, 616 F.3d 393, 408 (4th Cir. 2010), aff'd sub nom., McBurney v. Young, 569 U.S. 221,
(2013); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). A Rule 12(b)(6) motion
constitutes an assertion by a defendant that, even if the facts alleged by a plaintiff are true, the
complaint fails as a matter of law “to state a claim upon which relief can be granted.”
Whether a complaint states a claim for relief is assessed by reference to the pleading
requirements of Fed. R. Civ. P. 8(a)(2). That rule provides that a complaint must contain a “short
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and plain statement of the claim showing that the pleader is entitled to relief.” The purpose of the
rule is to provide the defendants with “fair notice” of the claims and the “grounds” for entitlement
to relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929
(2007).
To survive a motion under Fed. R. Civ. P. 12(b)(6), a complaint must contain facts
sufficient to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; see
Ashcroft v. Iqbal, 556 U.S. 662, 684, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted)
(“Our decision in Twombly expounded the pleading standard for ‘all civil actions’ ....”); see also
Willner v. Dimon, 849 F.3d 93, 112 (4th Cir. 2017). That said, a plaintiff need not include “detailed
factual allegations” in order to satisfy Rule 8(a)(2). Twombly, 550 U.S. at 555. Moreover, federal
pleading rules “do not countenance dismissal of a complaint for imperfect statement of the legal
theory supporting the claim asserted.” Johnson v. City of Shelby, Miss., 574 U.S. 10, 11 (2014)
(per curiam).
Nevertheless, the rule demands more than bald accusations or mere speculation. Twombly,
550 U.S. at 555; see Painter’s Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013). If a
complaint provides no more than “labels and conclusions” or “a formulaic recitation of the
elements of a cause of action,” it is insufficient. Twombly, 550 U.S. at 555, 127 S.Ct. at 1964.
Rather, to satisfy the minimal requirements of Rule 8(a)(2), the complaint must set forth “enough
factual matter (taken as true) to suggest” a cognizable cause of action, “even if ... [the] actual proof
of those facts is improbable and ... recovery is very remote and unlikely.” Twombly, 550 U.S. at
556 (internal quotation marks omitted).
In reviewing a Rule 12(b)(6) motion, a court “must accept as true all of the factual
allegations contained in the complaint” and must “draw all reasonable inferences [from those facts]
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in favor of the plaintiff.” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440
(4th Cir. 2011) (citations omitted); see Semenova v. Maryland Transit Admin., 845 F.3d 564, 567
(4th Cir. 2017); Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 484 (4th Cir. 2015). A court is
not required to accept legal conclusions drawn from the facts. See Papasan v. Allain, 478 U.S.
265, 286 (1986). Ultimately, “[a] court decides whether [the pleading] standard is met by
separating the legal conclusions from the factual allegations, assuming the truth of only the factual
allegations, and then determining whether those allegations allow the court to reasonably infer”
that the plaintiff is entitled to the legal remedy sought. A Society Without a Name v. Virginia, 655
F.3d 342, 346 (4th. Cir. 2011), cert. denied, 566 U.S. 937 (2012).
III.
ANALYSIS
A. FCA Claims
In Counts I and II of the Amended Complaint, Harris allege as a relator that Shoplet engaged
in violations of § 3729(a)(1) of the FCA. That provision proscribes knowingly presenting or
causing to be presented a false or fraudulent claim for payment or approval, or knowingly making,
using, or causing to be made or used, a false record or statement material to a false or fraudulent
claim. 31 U.S.C. § 3729(a)(1). Fraud claims under the FCA must meet the heightened pleading
standard of Federal Rule of Civil Procedure 9(b). See Harrison v. Westinghouse Savannah River
Co., 176 F.3d 776, 784 (4th Cir. 1999); see also United States ex rel. Grant v. United Airlines Inc.,
912 F.3d 190, 196 (4th Cir. 2018) (“Claims arising under 3729(a)(1)(A) and (B) of the FCA are
fraud-based claims that must satisfy Rule 9(b)’s pleading standard.”).
Like the original Complaint, Harris’s Amended Complaint expressly alleges that Shoplet
maintained two sets of prices and wrongfully took steps to steer contracting officers to website
listings that would ask them to pay the higher pricing, when they were lawfully entitled to the more
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favorable pricing. However, those allegations, absent more, still do not suffice to state, with
particularity, a claim for violation of § 3729(a)(1). As the Fourth Circuit explained in Grant, “In
order for a false statement to be actionable under either subsection of the FCA, it must be made as
part of a false or fraudulent claim.” 912 F.3d at 196. “Claim” is defined as “any request or demand,
whether under a contract or otherwise, for money or property that . . . is presented to an officer,
employee, or agent of the United States.” 31 U.S.C. §§ 3729(b)(2)(A) & (A)(1). The Fourth
Circuit has described the “central question” as “whether the defendant ever presented a false or
fraudulent claim to the government, resulting in a ‘call upon the government fisc.’” Grant, 912
F.3d at 196 (quoting Harrison, 176 F.3d at 785-86).
The requirement that presentment of a “false or fraudulent claim” to the government be pled
with particularity is a stringent one. Rule 9(b) “does not permit a False Claims Act plaintiff merely
to describe a private scheme in detail but then to allege simply and without any stated reason for
his belief that claims requesting illegal payment must have been submitted, were likely submitted
or should have been submitted to the government.” United States ex rel. Nathan v. Takeda Pharm.
N. Am., Inc., 707 F.3d 451, 457 (4th Cir. 2013) (quoting United States ex rel. Clausen v. Lab.
Corp. of Am., 290 F.3d 1301, 1311 (11th Cir. 2002)). Instead, a viable complaint must provide
“some indicia of reliability” to support the notion that an actual false claim was presented to the
government. Id. That indicia can be provided in one of two ways. First, a plaintiff can employ
the usual method of pleading presentment with particularity, by “at a minimum, describ[ing] ‘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.’” Grant, 912 F.3d at 197 (quoting United
States ex rel. Wilson v. Kellogg Brown & Root, 525 F.3d 370, 379 (4th Cir. 2008)). Alternatively,
a plaintiff can “allege a pattern of conduct that would ‘necessarily have led[] to submission of false
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claims’ to the government for payment.” Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at
457).
The new factual allegations contained in the Amended Complaint do not help it to meet those
standards, because it still fails to allege any specific false claim that was presented to the
government for payment. The Amended Complaint adds to its original example of Hammermill
recycled copy paper by listing a series of other products marketed with different GSA and FSSI
product numbers. See ECF 46 at ¶¶ 61, 66. However, the Amended Complaint remains devoid of
the time, place, or amount of any particular transaction in which a federal contracting officer
actually purchased any product at a non-FSSI price. Once again, even taken in the light most
favorable to Harris, the Complaint does not allege a pattern of conduct that would necessarily have
led to the presentment of false claims to the government for payment.
The Amended Complaint alleges that Shoplet’s websites advertised the same goods at two
different prices, the GSA schedule pricing and the FSSI pricing, and that Shoplet attempted to steer
contracting officers to the higher-priced GSA schedule items by using a dual numbering system.
As described, that scheme would not necessarily result in any contracting officer paying the higher
prices—the contracting officer might recognize the discrepancy between Shoplet’s own websites
and refuse to pay the higher price, or the contracting officer might comparison shop with another
FSSI vendor and purchase the product at the more reasonable price offered by that site. In fact,
Harris’s own allegations suggest that contracting officers had a number of calls with Shoplet’s
sales representatives “regarding the mismatched pricing,” id. at ¶¶ 68-69, suggesting that at least
some government representatives were not deceived. The Amended Complaint, like the original
version, conclusorily alleges “upon information and belief” that “Shoplet made thousands of sales
to the federal government under GSA pricing when it was required to provide FSSI pricing,” and
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alleges that it continued to make sales misrepresenting itself as an FSSI authorized entity after it
had been terminated. Id. at ¶ 67. However, no actual sales, or “calls upon the government fisc”
have been identified with particularity.
Because Harris’s factual allegations do not specify that the government made any actual
payments at less favorable or fraudulent prices, his Amended Complaint fails to meet the
heightened pleading standard for FCA claims. See Grant, 912 F.3d at 198 (“Accordingly, though
Grant’s allegations could have led to presentment, because the [complaint] fails to explain how
United billed for its work or when the government paid for repairs, we cannot determine even from
circumstantial allegations that United’s conduct would have necessarily led to a false claim being
submitted to the government for payment.”). Counts I and II, even as amended, do not satisfy the
Rule 9(b) “stringent requirement” of “pleading with particularity that there was a false claim and
that the false claim was presented to the government for payment.” Id. at 200. It seems apparent,
after two attempts, that Harris lacks sufficient detail about Shoplet’s actual transactions to state an
FCA claim with particularity, and instead intended to rely on discovery to gather information to
make his case. The requirement that a § 3729(a)(1) claim be pled with particularity, though, is not
relaxed in such circumstances. See Nathan, 707 F.3d at 458 (acknowledging “the practical
challenges that a relator may face in cases such as the present one, in which a relator may not have
independent access to records such as prescription invoices, and where privacy laws may pose a
barrier to obtaining such information without court involvement. Nevertheless, our pleading
requirements do not permit a relator to bring an action without pleading facts that support all the
elements of the claim.”). Like in Nathan, where the relator asked the Court to infer that
prescriptions had been filled and claims had been presented to the government for reimbursement,
Harris here as relator asks this Court to infer that government contractors purchased products
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without obtaining the benefit of FSSI pricing. In the absence of such transactions being pled with
particularity, however, his § 3729(a)(1) claims are insufficient and must be dismissed.
B. FCA Retaliation
Like in the original complaint, Count III of the Amended Complaint asserts a claim under
the retaliation provision of the FCA, which provides:
Any employee, contractor, or agent shall be entitled to all relief necessary to make
that employee, contractor, or agent whole, if that employee, contractor or agent is
discharged, demoted, suspended, threatened, harassed, or in any other manner
discriminated against in the terms and conditions of employment because of lawful
acts done by the employee, contractor, agent or associated others in furtherance of
an action under this section or other efforts to stop 1 or more violations of this
subchapter.
31 U.S.C. § 3730(h). FCA retaliation claims are not subject to Rule 9(b)’s heightened particularity
requirement, and “need only satisfy Rule 8(a)’s notice-pleading standard.” Grant, 912 F.3d at 200.
To “survive a motion to dismiss, a plaintiff must allege facts sufficient to support a ‘reasonable
inference’ of three elements: (1) he engaged in protected activity; (2) his employer knew about the
protected activity; and (3) his employer took adverse action against him as a result.” Id. The
allegations in the Amended Complaint, taken as true for purposes of a motion to dismiss, are
sufficient to meet those standards.
The Amended Complaint alleges that Harris engaged in activity, specifically his late
August 2016 presentation to Ellison, with the intent to stop one or more FCA violations by advising
Ellison of the various FCA violations he believed to be ongoing. 2 The Amended Complaint
clarifies the timeline of events, making clear that as of the time of the late August meeting, Shoplet
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The fact that this Court has determined, in Counts One and Two, that Harris did not adequately
meet the Rule 9(b) pleading standards for an FCA violation does not mean that Harris lacked a
reasonable belief that Shoplet was engaged in such violations. The allegations he has made in
Count Three suffice under the less demanding notice pleading standards.
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had been removed from the FSSI program, but was continuing to represent itself as an FSSI vendor
on the website. ECF 46 at ¶¶ 75-78. Finally, the Amended Complaint alleges that Ellison
responded to Harris’s presentation by accusing him of serving as a spy, before terminating him
days later. Id. at ¶¶ 93-106. Thus, it relies not only on temporal proximity to suggest causation,
but on Ellison’s own verbal response to Harris’s presentation.
Shoplet contends that the presentation to Ellison was made at Ellison’s request as part of
Plaintiff’s regular duties. Because Harris had to make the presentation to fulfill his job duties,
Shoplet posits, Harris’s motivation was not to try to stop one or more violations of the FCA. ECF
47-1 at 12-13. That type of factual dispute about motivation is inappropriate for resolution at the
motion to dismiss stage. Similarly, Shoplet’s assertion that Harris was otherwise failing to meet
performance goals and standards, id., is not appropriately considered at this stage of the
proceeding. Taking the facts as alleged by Harris as true, he has plausibly stated an FCA retaliation
claim, and the Motion will be denied as to Count Three. Of course, Shoplet will be free to advance
its version of the facts through discovery and in any eventual motion it may file seeking summary
judgment.
IV.
CONCLUSION
For the reasons set forth above, Shoplet’s Motion to Dismiss the Amended Complaint, ECF
47, will be GRANTED as to Counts One and Two and DENIED as to Count Three. A separate
Order follows.
Dated: February 26, 2021
/s/
Stephanie A. Gallagher
United States District Judge
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