The State of New York Ex Rel Vinod Khurana et al v. Spherion Corp

Filing 70

OPINION & ORDER re: 21 MOTION to Dismiss the Second Amended Complaint. filed by Spherion Corporation. For the reasons stated above, Spherion's motion to dismiss is GRANTED as to Plaintiff's qui tam claims and DENIED as to Plaintiff's retaliation claims. Plaintiff's first and second causes of action (his qui tam claims) are dismissed without prejudice. If Plaintiff wishes to amend the complaint, he shall move this Court to do so no later than 30 days from the date of this Opinion. Otherwise, the Court will enter an order dismissing Plaintiff's qui tam claims with prejudice, and Spherion shall file its answer to Plaintiff's remaining claims no later than 14 days from the date of that order. If Plaintiff moves to amend the complaint, Spherion's time to answer will be adjourned pending the Court's decision on Plaintiff's motion to amend the complaint. (As further set forth in this order) (Signed by Judge John F. Keenan on 11/10/2016) (lmb)

Case 1:09-md-02013-PAC Document 57

Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 11/10/2016

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES DISTRICT COURT
-----------------------------------X
SOUTHERN YORK EX REL
THE STATE OF NEW DISTRICT OF NEW YORK
:
-----------------------------------------------------------x
VINOD KHURANA and THE CITY OF
:
In EX REL VINOD KHURANA,
:
08 Civ. 7831 (PAC)
NEW YORK re FANNIE MAE 2008 SECURITIES :
LITIGATION
:
09 MD 2013 (PAC)
:
:
Plaintiffs,
:
: No. 15 Civ. 6605 (JFK)
OPINION & ORDER
:
-----------------------------------------------------------x
-against:
:
OPINION & ORDER
SPHERION CORP. (N/K/A SFN GROUP,
:
INC.)
:
HONORABLE PAUL A. CROTTY, United States District Judge:
:
Defendant.
:
-----------------------------------X
BACKGROUND1
APPEARANCES
The early years of this decade saw a boom in home financing which was fueled, among
FOR PLAINTIFF/RELATOR VINOD KHURANA:
David things, by low interest rates and lax credit conditions. New lending instruments, such as
other Kovel, Esq.
David Bishop, Esq.
KIRBY McINERNEY LLP credit risk loans) and Alt-A mortgages (low-documentation loans)
subprime mortgages (high
John R. boom going. Borrowers played a role too; they took on unmanageable risks on the
kept the Newcomer, Jr., Esq.
Jillian Estes, Esq.
JAMES, HOYER,the market would continue to rise and that refinancing options would always be
assumption that NEWCOMER AND SMILJANICH, P.A.
FOR DEFENDANT in the future. Lending discipline was lacking in the system. Mortgage originators did
available SPHERION CORP.:
Mark J. Hyland, Esq.
Rita hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
not M. Glavin, Esq.
Thomas Ross Hooper, Esq.
SEWARD & KISSEL LLP into the secondary mortgage market, often as securitized packages
originators sold their loans
JOHN F. known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
KEENAN, United States District Judge:
On March 31, 2011, Plaintiff Vinod Khurana brought this
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
action in home York began to fall. In light Court. Plaintiffmarket, bankshis
and New prices State Supreme of the changing housing amended modified their
complaint twice, and Defendant Spherion Corp. (“Spherion”) refinancing.
lending practices and became unwilling to refinance home mortgages without
removed the case to this Court in August 2015.

Spherion now

1
moves toUnless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dismiss the Second Amended Complaint (the “complaint”)

dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of
1

1

Civil Procedure for failure to state a claim and failure to
plead fraud with particularity.
The complaint asserts two types of claims.

First,

Plaintiff brings qui tam claims on behalf of the City of New
York (the “City”) and State of New York (the “State”), alleging
that Spherion is liable under the New York False Claims Act
(“NYS FCA”) and the New York City False Claims Act (“NYC FCA”)
for the submission of false claims to the City.

Plaintiff also

brings retaliation claims under the NYS FCA and NYC FCA,
alleging that Spherion terminated and otherwise retaliated
against him after he raised concerns about Spherion’s alleged
misconduct.
For the reasons set forth below, Spherion’s motion to
dismiss is granted as to Plaintiff’s qui tam claims and denied
as to Plaintiff’s retaliation claims.
I. False Claims
A. Background
1. The Parties
Plaintiff is a resident of California and a former employee
of Spherion. (Compl. ¶ 9.)

He has over 20 years of experience

as a computer systems analyst, including over 10 years of
experience as a load performance engineer. (Id.)

In July 2004,

Spherion hired Plaintiff as a consultant on the CityTime
project, where he worked until his termination from Spherion in
2

May 2007. (Id.)

Spherion is a Delaware corporation

headquartered in Ft. Lauderdale, Florida. (Id. ¶ 12.)1
2. CityTime
In 1998, the City, through the Office of Payroll
Administration (the “OPA”), launched the CityTime project to
automate time-keeping and payroll functions for approximately
180,000 City employees by 2010. (Id. ¶ 13.)

Official oversight

of the project rested with a three-person panel consisting of
the Mayoral Board Budget Director, a representative of the
Comptroller’s office, and the executive director of the OPA.
(Id.)
Several contractors were hired to work on CityTime.

By

2002, Science Applications International Corporation (“SAIC”)
officially took over as the prime contractor. (Id. ¶ 14.)

At

that time, the project had a budget of approximately $78
million. (Id.)

SAIC hired a company called Technodyne as the

prime subcontractor. (Id.)

In 2001, the OPA brought Spherion on

for a contract worth $3.4 million to provide quality assurance
over the CityTime project. (Id. ¶ 15.)

Spherion was engaged “to

validate [SAIC’s] recommended infrastructure, methods, and

1

On February 23, 2011, Spherion changed its name to SFN Group,
Inc. and now operates under the name Spherion Staffing, LLC
(Compl. ¶ 12.) Because the company was known as Spherion Corp.
during the time period relevant to this case, the Court refers
to the company as “Spherion” throughout this Opinion.
3

procedures, to certify [SAIC’s] deliverables and project phases,
to assess risks and recommend mitigation strategies, to track
the project, and to review past and future work products and
Change Orders.” (Id. ¶ 22; Aff. of Mark J. Hyland Ex. 5.)
Spherion’s contract with the OPA contained a detailed
“Scope of Work” section setting forth Spherion’s quality
assurance obligations under the contract. (Compl. ¶ 23.)

A sub-

section titled “Objective” provided, in part:
One of the OPA’s express purposes in entering into
this Agreement with Spherion is to benefit from
Spherion’s Quality Assurance expertise. It is the
responsibility of Spherion, therefore, in its
provision of QA Services, to perform all work and
services necessary and required to be performed,
prepared, and/or furnished to help ensure the
timely and successful completion of the CityTime
project. Spherion shall advise OPA of significant
requirements that the Developer knows or reasonably
should have known should be addressed or included
in Deliverables. It is understood that Spherion
shall use its expertise in the performance of the
QA Services specified in this Agreement. It also is
understood that it is Spherion’s responsibility to
provide OPA with advice and recommendations based
upon its expert analysis and that final decisions
regarding CityTime shall be made by the City.
(Compl. ¶ 23 (emphasis added in complaint); see also Hyland Aff.
Ex. 5.)
The contract also included eight appendices, one of which
(Appendix A) set forth general provisions for contractors.
(Compl. ¶ 24.)

The 20-page Appendix A contained the following

provision related to conflicts of interest:

4

Article 2, Representations and Warranties
Section 2.2, Conflict of Interest: The Contractor
represents and warrants that neither it nor any of
its directors, officers, partners or employees, has
any interest nor shall they acquire any interest,
directly or indirectly, which would or may conflict
in any manner or degree with the performance or
rendering of the services provided herein. The
Contractor further represents and warrants that in
the performance of this Agreement no person having
such interest or possible interest shall be
employed by it. No elected official or other
officer or employee of the City or Department, nor
any person whose salary is payable, in whole or in
part, from the City Treasury, shall participate in
any decision relating to this Agreement which
affects his or her personal interest or the
interest of any corporation, partnership or
association in which he is, directly or indirectly,
interest [sic]; nor shall any such person have any
interest, direct or indirect, in this Agreement or
in the proceeds thereof.
(Id. (emphasis added in complaint); see also Hyland Aff. Ex. 5.)
3. Alleged Fraud of Spherion Consultants
a. Plaintiff’s Allegations
According to the complaint, Spherion hired Mark Mazer and
Scott Berger as consultants on CityTime, and they began work on
the project by 2005. (Compl. ¶¶ 3, 31.)

In 2006, SAIC’s prime

contract was amended from a fixed-price contract, which placed
the burden for cost-effectiveness on the contractor, to a fixedprice level-of-effort contract, which allowed the contractor to
recover for the number of hours worked. (Id. ¶ 18.)

The

amendment significantly increased the amount of compensable
consulting staffing on the project. (Id.)
5

From the end of 2005

to the end of 2007, the number of consultants on the project
increased from 100 to more than 300. (Id.)
Plaintiff alleges that, with access to additional
consultant funding, Mazer used his position on CityTime to award
lucrative contracts to companies controlled by friends or family
members in exchange for kickbacks. (Id. ¶ 19.)

According to the

complaint, in his role as a Spherion consultant, Mazer hired two
companies—DA Solutions and PrimeView—as subcontractors of
Technodyne for contracts worth more than $76 million. (Id.)

DA

Solutions was owned by Mazer’s uncle, Dimitry Aronshtein, and
PrimeView was owned by Victor Natanzon, whose relationship to
Mazer is not alleged. (Id.)

Together, the companies collected

more than $75 million from CityTime, with nearly $25 million
kicked back to Mazer through shell companies in his wife’s and
mother’s names. (Id.)
b. Public Scrutiny & Criminal Charges
The New York news media began publishing articles
discussing problems with CityTime in 2004, with increased
frequency in 2009 and 2010. (See Hyland Aff. Ex. 9.)
project also received scrutiny from public officials.

The
On May 8,

2008, a committee of the New York City Council held a public
meeting at which they questioned the OPA’s Executive Director,
Joel Bondy, about the “constant change” on CityTime and the fact
that “upwards of a quarter of a billion dollars [had been]
6

spent” with “no end” in sight. (Hyland Aff. Ex. 20 at 91, 93.)
One councilmember noted that the constant change raised a “red
flag” and suggested that an audit of the program was needed.
(Id. at 91-92.)
On September 28, 2010, the Office of the Comptroller of the
City of New York released a 16-page public audit report
addressing OPA’s monitoring of Spherion’s oversight role on the
project (the “Audit Report”). (Hyland Aff. Ex. 22.)

The Audit

Report discussed, among other things, Spherion’s contractual
obligations to the City, its performance under the agreement,
and the City’s management of the contract. (Id.)
Less than two months later, on December 15, 2010, the U.S.
Attorney’s Office for the Southern District of New York and the
New York City Department of Investigation (“NYC-DOI”) jointly
unsealed a 35-page criminal complaint (the “Criminal Complaint”)
and announced charges against six individuals connected to
CityTime:

Mark Mazer, Scott Berger, Dimitry Aronshtein, Victor

Natanzon, Svetlana Mazer (Mazer’s wife), and Larisa Medzon
(Mazer’s mother). (See Hyland Aff. Exs. 7, 8.)
The Criminal Complaint alleged, among other things, the
following:
In or about 2005 and 2006, the OPA began approving work
orders for additional work purportedly required to be performed
by SAIC in order to enable the successful completion of the
7

CityTime project. (Criminal Compl. ¶ 22(b).)

Amendments to the

contract between SAIC and the City authorized the expenditure of
more than $100 million in additional City funds. (Id.)

Mazer

was involved in shaping the scope and requirements of the
additional work orders and contract amendments in 2005 and 2006.
(Id. ¶ 22(f).)
Mazer abused his position of authority at the OPA and his
contractual obligations to covertly steer over $76 million in
City funds to two subcontractors—DA Solutions, Inc. and
PrimeView, Inc.—that were connected to Mazer through family
members or through corrupt financial arrangements. (Id.
¶ 26(a).)

Mazer and his family members received kickbacks of at

least $25 million out of the $76 million steered to the
subcontractors. (Id. ¶ 26(b).)

Berger accepted over $400,000 in

payments from DA Solutions. (Id. ¶ 26(d).)

Mazer, Berger, and

two co-defendants also engaged in “blatant fraud” in connection
with timesheets submitted for work purportedly done on CityTime.
(Id. ¶ 33.)
The Criminal Complaint also alleges that, in 2001, the OPA
contracted with a national consulting firm, identified in the
Criminal Complaint as the “QA Vendor,” to provide quality
assurance services for the CityTime project. (Id. ¶ 13.)

The

intended purpose of the contract was for the QA Vendor to
supervise the Lead Software Developer’s performance and to
8

ensure that the ultimate product created by the Lead Software
Developer would meet the City’s needs. (Id.)

The contract was

initially worth approximately $3.4 million. (Id.)

Since 2001,

there were eleven amendments to the contract and the payments to
the QA Vendor had exceeded $49 million. (Id. ¶ 14.)

Soon after

the QA Vendor entered into the contract, the contract was
amended to permit the OPA to retain the services of subject
matter experts (“SMEs”) though the QA Vendor. (Id.)
The QA Vendor billed for work performed by Mazer and Berger
as SMEs. (Id. ¶ 19.)

Mazer and Berger were paid by the QA

Vendor, not as employees of the QA Vendor, but through a company
called MS Creative Technologies, Inc. (“MS Creative”). (Id.
¶ 20.)

Mazer listed himself as the president of MS Creative on

documents filed with the City. (Id.)

Mazer and Berger, although

not employed by the OPA, exercised significant actual authority
over the CityTime project. (Id. ¶ 21.)

This authority included

identifying additional work that needed to be performed,
approving contract amendments and work orders, and certifying
the accuracy of timesheets submitted by consultants for payment
by the City. (Id.)
According to Plaintiff’s complaint in this case, Berger
died of a heart attack on January 19, 2011. (Compl. at 2 n.1.)
On February 10, 2011, an indictment was filed against five of
the six other defendants named in the Criminal Complaint:
9

Mark

Mazer, Dimitry Aronshtein, Svetlana Mazer, Larisa Medzon, and
Anna Makovetskaya.

The sixth defendant, Victor Natanzon, waived

indictment and pleaded guilty to an information on February 8,
2011.

The criminal cases were assigned to the Honorable George

B. Daniels of this Court.
On June 15, 2011, a federal grand jury issued a superseding
indictment against Mark Mazer, Gerard Denault, Padma Allen,
Reddy Allen, Technodyne LLC, Dimitry Aronshtein, Svetlana Mazer,
Larisa Medzon, and Anna Makovetskaya. (Hyland Aff. Ex. 13.)

On

March 8, 2012, SAIC signed a deferred prosecution agreement with
the U.S. Department of Justice in which SAIC admitted to having
defrauded the City and agreed to pay more than $500 million in
settlement. (Id. ¶ 20; Hyland Aff. Exs. 18, 19.)
During October and November of 2013, Mark Mazer and codefendants Dimitry Aronshtein and Gerard Denault were tried in
the Southern District of New York with Judge Daniels presiding.
On November 22, 2013, the jury returned a verdict finding each
defendant guilty on multiple counts.

Mazer was convicted on

charges related to wire fraud conspiracy, wire fraud, bribery
conspiracy, bribery, Travel Act conspiracy, and money laundering
conspiracy.

On April 24, 2014, Judge Daniels sentenced Mazer to

concurrent terms of imprisonment totaling 20 years.
and Denault also each received 20-year sentences.

10

Aronshtein

The three

defendants were ordered to forfeit over $40 million as illegal
proceeds.
4. Plaintiff’s Conduct
Plaintiff claims that in his position as a load performance
tester, he began noticing performance problems with the CityTime
software in late 2004. (Compl. ¶ 29.)

During a pilot stage of

the program, load performance tests involving one City agency—
the Financial Information Services Agency (“FISA”)—demonstrated
that CityTime was capable of handling only a small percentage of
the number of users contemplated at that stage, which itself was
a small percentage of the anticipated number of total users.
(Id.)
According to the complaint, in December 2004, Plaintiff
began voicing his concerns about the software’s problems to
individuals at FISA, OPA, SAIC, and Spherion. (Id. ¶ 30.)

After

one meeting at which Plaintiff raised concerns about the
software’s performance issues, Mazer, Berger, and Bondy stayed
behind to speak with Plaintiff and told him that they knew that
“this project is going to fail.” (Id. ¶ 31.)

Berger directed

Plaintiff not to mention his concerns to anyone at FISA again
and to discuss any future load performance issues directly with
Berger. (Id.)
During this time period, Plaintiff alleges that he
developed a relationship of trust with FISA’s Sue Amodeo and
11

Rajeev Mantry. (Id. ¶ 32.)

On multiple occasions, Plaintiff

told Amodeo and Mantry that the program would not support the
number of users required and that it would crash after about 20
users. (Id.)

He also told Amodeo and Mantry that Mazer and

Berger had told him that they knew the project was going to
fail. (Id.)
On August 26, 2005, Berger sent an e-mail to multiple
recipients at the City, SAIC, and FISA, indicating that
Spherion’s performance test process was being implemented
pursuant to an approved plan. (Id. ¶ 33.)

After Amodeo and

Mantry approached Plaintiff about the e-mail, Plaintiff
confirmed that no such plan had been implemented. (Id.)
Plaintiff claims that “on numerous occasions during late
2004 and early 2005,” he also told other Spherion
representatives, including Spherion’s account manager, Howard
Cohen, about “serious problems” with CityTime. (Id. ¶ 34.)

In

response to inquiries from Cohen about the project’s performance
issues, Plaintiff alleges that he told Cohen “the project was
not performing to standards, that the software would fail with
over 20 users, and that given the time and money already
invested in the project, it should be scrapped.” (Id.)

As a

result, Plaintiff claims that it was “no later than late 2004 or
early 2005 that Spherion was aware that the project was going to
fail and knew or should have known that it was being run by
12

Spherion employees who were intentionally sabotaging the
implementation.” (Id. ¶ 35.)

According to the complaint,

Spherion “continued with the project as if those problems did
not exist” and continued billing the City without taking any
action to remove Mazer and Berger from their positions. (Id.
¶ 36.)
Plaintiff alleges several other instances in which he told
CityTime consultants about problems with the project.

He claims

that he told Edward Rambali, a Spherion consultant brought in to
manage the load performance group, that “Berger and Mazer were
not concerned about the project [sic] success and had hired
unskilled workers to perform the job of load performance
testing.” (Id. ¶ 41.)

Also, in a March 2006 meeting, Plaintiff

allegedly told Cohen and another Spherion employee, Arthur
Donnelly, that “Mazer was not the right person to head the
project,” that Mazer, Berger, and SAIC management “were doing
this only to pocket the money for themselves by extending the
contract for as long as possible knowing it was a failure,” and
that “management should scrap the project.” (Id. ¶ 42.)
Plaintiff claims that he again told Cohen and Donnelly in July
2006 that “he thought the CityTime project was continuing just
to put money in the pockets of Mazer, Berger, and SAIC.” (Id.
¶ 43.)

According to the complaint, Donnelly “appeared

disgusted” and told Plaintiff and Cohen that he was going to
13

talk to OPA’s Executive Director, Joel Bondy. (Id.)

Plaintiff

learned a few days later that Donnelly had been fired. (Id.)
Further, Plaintiff alleges that he “personally witnessed or
developed knowledge of various other examples of suspicious or
outright fraudulent conduct.” (Id. ¶ 45.)

This included

“[b]illing the CityTime contract for two-week severance packages
paid to terminated Spherion consultants”; “[b]illing the
CityTime contract for over-time hours incurred by Spherion
consultants despite an express prohibition of overtime
expenditures in the contract between CityTime and OPA”;
“[b]illing the CityTime contract for travel and expenses related
to Berger’s frequent trips to Florida to check on a vacation
home he was building there”; and “[e]nabling SAIC to bill the
CityTime contract for work spent developing similar time-keeping
software for other clients.” (Id.)
As discussed in greater detail below, Plaintiff claims that
he was retaliated against and ultimately terminated in May 2007
for communicating to Spherion and FISA that performance was poor
and the project was failing. (Id. ¶ 58.)

Following his

termination, Plaintiff alleges that he maintained relationships
with several Spherion contractors who kept him updated on the
continued failure of the project to produce functioning
software. (Id. ¶ 62.)

14

In early 2009, Plaintiff drafted a “detailed complaint
memorializing his direct knowledge of the fraud,” mailed it to
the New York City Department of Investigations, and posted it
online as a CNN “iReport.” (Id. ¶ 62.)

On March 11, 2009, the

DOI acknowledged receipt of Plaintiff’s letter. (Id.)

The DOI

complaint is incorporated by reference in Plaintiff’s complaint,
attached as an exhibit to an affidavit submitted by Spherion’s
counsel, and cited by both parties.

It is reproduced below

without correction:
Several year ago, I was hired as a consultant for the
City of New York Payroll department under the
administration of Joel Bondy, Executive Director.
The project: a 10 year, $200 million budget to develop
the City’s Payroll system (“CityTime”) spearheaded by
SAIC Corp.- a leading supppller of contractors for
the government.
In Year 7, it was very clear to most of us that the
project was a waste of taxpayers money and was not
accomplishing the goal of automating all 80+ City of
New York agencies. In year 9 - 10, between 8 – 15
agencies have been automated at a cost of $200 million
with well over 70 to go.
The THREE culprits behind this sceme are:
1. Senior consultant manager, Spherion Corp. Mark
Mazer- the most crooked person on the team. 50 years
old. Bill rate: $175/hr
2. Senior Manager, Spherion Corp.: Scott berger A
sheep who listens ONLY to Mark Mazer and does not rock
the boat. Is building his house in Florida at
taxpayers expense. 60 years old. Bill rate: $175/hr
3. Senior software developer manager, SAIC: nickname:
“jellybean”. 55 years old. Bill rate: $175/hr.
15

In all, these three men have EVERY objective to
continue the project into 2010 and beyond with a
budget of $15- $25 mlllion/yr + and in the process
rake in hundreds of 000’s $ for themselves and produce
little in return except a faltering system.
The project is a total waste and will NOT accomplish
the goal to automate all 80+ agencies.
I would suggest that the media contact the NYC Payroll
department and obtain more information on CityTime.
You will be surprised to discover what lies beneath
the covers.
Briefly:
1. Over 100 external consultants from SAIC, Spherion
and other agencies billing minimum of $50/hr. The
highest is $175/hr.
2. The project in its 5th year was a failure and
should have been canned but Joel Bondy for some reason
or another (blindsighted) decided it must go on for
another 5 yrs. I observed how nervous he loooked in
some meetings.
3. No doubt this was the BIGGEST lottery landing a
job here but as time went on, I along with others
started realizing there was nothing really coming of
this. Mark Mazer and Scott had ONLY one main intent...
to pocket the $/hr for themselves for as long as
possible @ taxpayers expense.
4. We were told specifically when other City officials
visited us NOT to “bad” mouth the project... we all
along with management KNEW very well this was going
to be a complete failure.
5. The project is housed between 6th and 7th on 31st
street on the 8th - 10th floor. It has the “City of
New York Payroll department” sign outside the front
door.
I have always wanted to tell this story but stopped
from doing so. I suppose when I was there, it was
greed that prevented me. Now happily employed by a
Wall Street firm...

16

Someone from your organization
“CityTime” and its purpose.

should

investigate

(Hyland Aff. Ex. 12 at 1 (ellipses in original).)
Plaintiff claims that after sending the DOI complaint he
“went on an extensive campaign to call as much public attention
as possible to the fraud,” which included posting an “extensive
series of comments on articles on the New York Daily News
website that exposed the inner-workings of the CityTime contract
in great detail.” (Id. ¶ 63.)
Plaintiff alleges that he met with DOI investigators in
“December 2010 and thereafter” but does not specify whether his
first meeting with investigators occurred before or after the
Criminal Complaint was unsealed on December 15, 2010. (Id.
¶ 64.)

During the meetings, he claims he provided DOI with “a

full accounting of his knowledge and experiences on the CityTime
project.” (Id.)

He also gave the investigators a “flash drive

containing relevant emails and load test results from Dec. 2004
through Feb. 2005, which illustrated the project’s performance
failures.” (Id.)

Plaintiff alleges that this information was

not available in any public source at the time this case was
filed. (Id.)
5. Plaintiff’s FCA Claims
Plaintiff alleges that “[b]ut for Spherion’s failure to
execute the responsibilities inherent in its contract with the

17

OPA, Mazer and Berger would not have been able to perpetuate
their fraudulent kickback schemes.” (Id. ¶ 67.)

“As a result of

this failure to satisfy its contractual obligation,” Plaintiff
asserts that “every claim for reimbursement pursuant to the
quality assurance contract with the City of New York,” which
totals an estimated $48 million, “was a false or fraudulent
claim.” (Id.)

Plaintiff alleges that the City is therefore

entitled to recover treble damages and civil penalties under the
NYS FCA and NYC FCA. (Id. ¶¶ 69, 73.)
In opposition to Spherion’s motion to dismiss, Plaintiff
advances four theories on which he claims Spherion is liable
under the NYS FCA and NYC FCA for the submission of false or
fraudulent requests for payment.
First, Plaintiff contends that Spherion is vicariously
liable for Mazer and Berger’s acts in “steering billable work to
their own entities then inflating and falsifying timesheets”
(the “vicarious liability claims”), because they acted with
actual or apparent authority from Spherion and because
Spherion’s contract with the OPA made Spherion liable for the
acts of its agents, employees, and subcontractors. (Pl.’s Mem.
at 10.)
Second, Plaintiff argues that Spherion submitted false
claims to the City because it “failed to provide quality
assurance services” (the “quality assurance claims”). (Id. at
18

11.)

According to the complaint, Spherion had an obligation

under its contract with the OPA to perform “all work and
services necessary . . . to help ensure the timely and
successful completion of the CityTime project,” as well as a
duty to provide advice “based upon its expert analysis.” (Id. at
12 (quoting Compl. ¶ 23.).)

Plaintiff argues that Spherion

breached these duties by “failing to disclose the abysmal lack
of progress in development of CityTime as a general matter.”
(Id.)
Third, Plaintiff asserts that Spherion is liable for false
claims because it violated the conflict of interest provision of
its contract with the OPA by employing Mazer and Berger (the
“conflict of interest claims”). (Id. at 13.)
Fourth, Plaintiff argues that Spherion is liable for
engaging in certain false billing practices, such as billing the
CityTime contract for two-week severance packages paid to
terminated Spherion consultants (the “false billing claims”).
(Id. at 14-15.)
6. Spherion’s Motion to Dismiss
Spherion seeks to dismiss Plaintiff’s FCA claims on three
grounds:

(1) that the “public disclosure bars” of the NYS FCA

and NYC FCA require dismissal; (2) that Plaintiff fails to
plausibly allege an FCA violation; and (3) that the complaint
does not plead fraud with particularity.
19

B. Motion to Dismiss Standard
To survive a motion to dismiss under Rule 12(b)(6), the
complaint must “contain sufficient factual matter . . . 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, 570 (2007)).

In considering the

motion, the court must accept all factual allegations in the
complaint as true and draw all reasonable inferences in the
plaintiff’s favor. Id.

However, a complaint that offers only

“‘labels and conclusions’ or ‘a formulaic recitation of the
elements of a cause of action will not do.’” Id. (quoting
Twombly, 550 U.S. at 555).

Nor will a complaint that contains

“‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Id. (quoting Twombly, 550 U.S. at 557).
Further, as discussed in greater detail below, because FCA
claims “fall within the express scope of Rule 9(b),” Gold v.
Morrison–Knudsen Co., 68 F.3d 1475, 1476–77 (2d Cir. 1995), a
plaintiff asserting a claim under the NYS FCA or NYC FCA must
“state with particularity the circumstances constituting fraud.”
Fed. R. Civ. P. 9(b).
C. The FCAs and Public Disclosure Bars
The federal False Claims Act, 31 U.S.C. § 3729, et seq.,
was enacted during the Civil War in response to widespread fraud
in wartime defense contracts. See Bishop v. Wells Fargo & Co.,
20

823 F.3d 35, 43 (2d Cir. 2016).

Plaintiff’s claims here are

brought under the federal FCA’s state and local counterparts,
the NYS FCA and NYC FCA.
The New York State legislature enacted the NYS FCA on
April 1, 2007. N.Y. STATE FIN. LAW § 187, et seq.

The Act was

amended in 2010, and the New York Court of Appeals has held that
the Act and its amendments apply retroactively. People ex rel.
Schneiderman v. Sprint Nextel Corp., 42 N.E.3d 655, 662 (N.Y.
2015), cert. denied sub nom. Sprint Nextel Corp. v. New York,
136 S. Ct. 2387 (2016).
In 2005, New York City adopted the NYC FCA, codified at
N.Y.C. ADMIN CODE. § 7-801, et seq.

The Act was amended in 2012,

and the current version applies retroactively. See N.Y.C. Local
Law 34 (2012) (“This local law shall take effect immediately
upon enactment and shall apply to claims filed or presented
prior to, on or after such enactment date.”).
Both the NYS FCA and NYC FCA are modeled on the federal
FCA; accordingly, courts regularly look to federal law when
interpreting the NYS FCA and NYC FCA. See, e.g., United States
v. N. Adult Daily Health Care Ctr., No. 13-CV-4933 (MKB), 2016
WL 4703653, at *3 (E.D.N.Y. Sept. 7, 2016); Ping Chen ex rel.
U.S. v. EMSL Analytical, Inc., 966 F. Supp. 2d 282, 305
(S.D.N.Y. 2013).

21

The NYS FCA imposes liability on “any person who . . .
knowingly presents, or causes to be presented a false or
fraudulent claim for payment or approval” to the state or a
local government, or “who knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false or
fraudulent claim.” N.Y. STATE FIN. LAW § 189(1).

The NYC FCA

contains nearly identical provisions covering claims submitted
to the City of New York. See N.Y.C. ADMIN. CODE § 7-803(a)(1)-(2)
(“Any person who . . . knowingly presents, or causes to be
presented, to any city officer or employee, a false claim for
payment or approval by the city . . . [or] knowingly makes, uses,
or causes to be made or used, a false record or statement to get a
false claim paid or approved by the city . . . shall be liable to

the city . . . .”); see also id. § 7-802(4) (defining “false
claim” to mean “any claim, or information relating to a claim,
which is false or fraudulent”).
A claim under either Act requires proof that the defendant:
(1) made a claim, (2) to the government, (3) that is false or
fraudulent, (4) knowing of its falsity, and (5) seeking payment
or approval. See N. Adult Daily, 2016 WL 4703653, at *4 (citing
Bishop, 823 F.3d at 43).

The knowledge requirement is satisfied

by actual knowledge, deliberate ignorance, or reckless disregard
of the falsity of information provided. See N.Y. STATE FIN. LAW
§ 188(3)(a); N.Y.C. ADMIN. CODE § 7-801(5).
22

Violators are subject

to treble damages and a civil penalty. See N.Y. STATE FIN. LAW
§ 189(1)(h); N.Y.C. ADMIN. CODE § 7-803(a)(7).
The NYS FCA and NYC FCA both offer incentives for
whistleblowers to provide information to the government.
Pursuant to the qui tam provisions of the NYS FCA, a private
person may bring suit on behalf of the government for violations
of the Act and collect a portion of the recovery if the action
is successful. N.Y. STATE FIN. LAW § 190(2), (6).

The state may

supersede or intervene in the qui tam action or grant permission
to a local government that may have sustained damages authority
to do the same. Id. § 190(2)(b).

Where, as here, the state and

local governments decline to supersede or intervene in the
action, the NYS FCA allows the qui tam plaintiff to continue its
claims on behalf of the government and entitles the plaintiff to
receive between 25 percent and 30 percent of the amount
recovered if the action is successful. Id. § 190(6)(b).
Likewise, under the NYC FCA, a person may submit a proposed
complaint to the City alleging violations of the Act and may
obtain a portion of the recovery if the action is pursued.
N.Y.C. ADMIN. CODE. § 7-804(b)(1), (i).2

2

In contrast to the NYS FCA, the NYC FCA provides that only the
City’s Corporation Counsel or a person designated by the
Corporation Counsel as its representative may bring suit under
the Act. See N.Y.C. Admin. Code. § 7-804(b), (e). The Court
notes that Plaintiff does not allege that he has been authorized
by the City to sue under the NYC FCA. One court in this
23

To proceed, however, a qui tam action must overcome the
public disclosure bars of the NYS FCA and NYC FCA, which mirror
the public disclosure provisions of the federal FCA.

The

purpose of public disclosure bars is “to bar ‘parasitic
lawsuits’ based upon publicly disclosed information in which
would-be relators ‘seek remuneration although they contributed
nothing to the exposure of the fraud.’” U.S. ex rel. Kreindler &
Kreindler v. United Techs. Corp., 985 F.2d 1148, 1157 (2d Cir.
1993); see also In re Natural Gas Royalties, 562 F.3d 1032,
1038-39 (10th Cir. 2009) (recognizing that through the federal
FCA’s qui tam provisions, Congress has sought to achieve the
“golden mean between adequate incentives for whistle-blowing
insiders with genuinely valuable information and discouragement
of opportunistic plaintiffs who have no significant information
to contribute of their own” (quoting United States ex rel. Fine
v. Sandia Corp., 70 F.3d 568, 571 (10th Cir. 1995)).
Consistent with this purpose, the NYS FCA’s public
disclosure bar provides:
The court shall dismiss a qui tam action under this
article, unless opposed by the state or an
applicable local government, or unless the qui tam
district has found that a failure to plead authorization from
the Corporation Counsel is sufficient to warrant dismissal of
qui tam claims brought under the NYC FCA. Chen, 966 F. Supp. 2d
at 305. Because Spherion does not raise the issue and dismissal
is warranted on independent grounds, the Court declines to
address whether Plaintiff’s failure to allege authorization from
the Corporation Counsel also requires dismissal.
24

plaintiff is an original source of the information,
if
substantially
the
same
allegations
or
transactions as alleged in the action were publicly
disclosed:
(i) in a state or local government criminal, civil,
or administrative hearing in which the state or a
local government or its agent is a party;
(ii) in a federal, New York state or New York local
government report, hearing, audit, or investigation
that is made on the public record or disseminated
broadly to the general public . . . ; [or]
(iii) in the news media, provided that such
allegations or transactions are not “publicly
disclosed” in the “news media” merely because
information of allegations or transactions have
been posted on the internet or on a computer
network.
N.Y. STATE FIN. LAW § 190(9)(b).

The NYC FCA’s public disclosure

bar is the same in all respects material to this case. See
N.Y.C. ADMIN. CODE § 7-804(a).3

3

The NYC FCA provides:
This section shall not apply to claims, records, or
statements made pursuant to federal, state or local
tax law nor to any proposed civil complaints
. . . if substantially the same allegations or
transactions as alleged in the proposed complaint
were publicly disclosed
(i) in a criminal, civil or administrative hearing;
(ii) in a legislative or administrative
hearing, audit or investigation; or

report,

(iii) by the news media and likely to be seen by the
city officials responsible for addressing false
claims; unless the person who submitted the proposed

25

These standards establish a two-part test. See Chen, 966 F.
Supp. 2d at 296-97.

A court must first determine if

“substantially the same” allegations or transactions as alleged
in the action were publicly disclosed through one of the
prescribed categories of sources.

If that is the case, the

action must be dismissed unless the plaintiff qualifies as an
“original source.”
D. Dismissal Under the Public Disclosure Bars
1. Standard of Review
The parties dispute whether the public disclosure bars
provide a basis for dismissal under Rule 12(b)(1) for lack of
subject matter jurisdiction or instead Rule 12(b)(6) for failure
to state a claim.

Before 2010, the federal FCA’s public

disclosure bar was explicitly jurisdictional; it provided that
“no court shall have jurisdiction over an action” where the bar
applied. 31 U.S.C. § 3730(e)(4) (2006); see also Rockwell Int’l
Corp. v. United States, 549 U.S. 457, 467-68 (2007) (finding the
pre-2010 federal bar to withdraw subject matter jurisdiction).
The enactment of the Patient Protection and Affordable Care Act
in 2010 amended the federal FCA and eliminated the

complaint is an original source of the information.
The corporation counsel may, in his or her absolute
discretion, waive the application of this paragraph.

N.Y.C. ADMIN CODE § 7-804(d).
26

jurisdictional language. See Pub. L. 111–148, § 10104(j)(2), 124
Stat. 119 (Mar. 23, 2010).

The federal FCA now provides that

“the court shall dismiss an action or claim” where the
requirements of the bar are met. 31 U.S.C. § 3730(e)(4).
Although the Second Circuit has not yet addressed the
issue, courts have predominantly found that, under the amended
federal FCA, the public disclosure bar goes to whether a
plaintiff has stated a claim, not whether the Court has
jurisdiction. See Chen, 966 F. Supp. 2d at 294; see also U.S. ex
rel. Moore & Co. v. Majestic Blue Fisheries, LLC, 812 F.3d 294,
299-300 (3d Cir. 2016); U.S. ex rel. Osheroff v. Humana Inc.,
776 F.3d 805, 810 (11th Cir. 2015); U.S. ex rel. May v. Purdue
Pharma L.P., 737 F.3d 908, 916 (4th Cir. 2013). But see U.S. ex
rel. Kester v. Novartis Pharm. Corp., 43 F. Supp. 3d 332, 345-47
(S.D.N.Y. 2014) (holding that under the amended federal FCA the
public disclosure bar remains jurisdictional).

As with the

amended federal FCA, the public disclosure provisions of the NYS
FCA and NYC FCA do not mention jurisdiction.

As a result, this

Court joins the weight of authority interpreting the federal FCA
and holds that the public disclosure provisions of the NYS FCA
and NYC FCA provide a basis for dismissal for under Rule
12(b)(6), not Rule 12(b)(1).
Accordingly, the burden does not rest with the plaintiff as
it would on a motion challenging the Court’s jurisdiction, and
27

the Court generally may not consider affidavits and other
matters outside the pleadings. See Makarova v. United States,
201 F.3d 110, 113 (2d Cir. 2000).

The Court may, however, take

judicial notice of the fact that press coverage and judicially
noticeable public records contained certain information, without
regard to the truth of their contents. Chen, 966 F. Supp. 2d at
294 (citing Staehr v. Hartford Fin. Servs. Group, Inc., 547 F.3d
406, 425 (2d Cir. 2008)).

The Court may also consider documents

incorporated by reference in the complaint and documents that
are “integral” to the complaint because the plaintiff “relies
heavily upon [their] terms and effect.” DiFolco v. MSNBC Cable
L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (quoting Mangiafico v.
Blumenthal, 471 F.3d 391, 398 (2d Cir. 2006)).
2. Analysis
The Court holds that Plaintiff’s vicarious liability claims
are barred by the public disclosure bars of the NYS FCA and NYC
FCA.

The Court assumes, without deciding, that Plaintiff’s

remaining claims are not precluded because, as explained later
in this Opinion, those claims are not adequately alleged in any
event.
a. Substantially the Same Allegations Were Publicly Disclosed
In arguing for dismissal under the public disclosure bars,
Spherion relies on, among other things, the Criminal Complaint,
the Audit Report, and news articles published before Plaintiff’s
28

complaint was filed.

As an initial matter, there is no dispute

as to these documents’ authenticity, or that they qualify as
public disclosures under the NYS FCA or NYC FCA.

The Criminal

Complaint and Audit Report qualify under the NYS FCA because
they were publicly disclosed “in a federal, New York state or
New York local government report, hearing, audit, or
investigation.” N.Y. STATE FIN. LAW § 190(9)(b)(ii).

The Criminal

Complaint qualifies under the NYC FCA because it was publicly
disclosed “in a criminal, civil or administrative hearing,” N.Y.C.
ADMIN. CODE § 7-804(d)(3)(i), and the contents of the Audit Report

were made public “in a legislative or administrative report,
hearing, audit or investigation.” Id. § 7-804(d)(3)(ii).

The news

articles were disclosed “by the news media,” id. § 7804(d)(3)(iii), and “in the news media.” N.Y. STATE FIN. LAW

§ 190(9)(b)(iii).
Further, the relevant public disclosures were made before
this suit was filed on March 31, 2011.

The Audit Report was

issued on September 28, 2010. (Hyland Aff. Ex. 22.)

The

Criminal Complaint was unsealed on December 15, 2010. (Hyland
Aff. Exs. 7, 8.)

And the relevant news articles were published

between June 2004 and December 2010. (Hyland Aff. Ex. 9.)
Thus, the Court turns to whether the allegations or
transactions in support of Plaintiff’s vicarious liability
claims are “substantially the same” as these public disclosures.
29

The standard for determining whether a qui tam plaintiff’s
allegations are “substantially the same” as prior public
disclosures is whether the disclosures exposed “all the
essential elements of the alleged fraud.” U.S. ex rel. Kirk v.
Schindler Elevator Corp., 437 F. App’x 13, 17 (2d Cir. 2011).
The bar applies to claims against a particular defendant if the
information disclosed was sufficient to “set the government
squarely upon the trail” of the defendant’s participation in the
alleged fraud. Chen, 966 F. Supp. 2d at 298 (quoting Natural Gas
Royalties, 562 F.3d at 1041).
Here, the Criminal Complaint set forth in detail all the
essential elements of Plaintiff’s vicarious liability claims.
Among other things, the Criminal Complaint disclosed:

(1) the

amendments to SAIC’s contract that allowed additional consultant
staffing; (2) Mazer’s execution of the kickback scheme involving
DA Solutions and PrimeView; (3) Berger’s receipt of over
$400,000 in connection with the scheme; and (4) an additional
“blatant fraud” in connection with timesheets approved by Mazer
and Berger for work purportedly done on CityTime. (Criminal
Compl. ¶¶ 22, 26, 33.)

Indeed, Plaintiff’s complaint

essentially summarizes in two paragraphs the substantially more
detailed allegations in the 35-page Criminal Complaint. (Compare
Compl. ¶¶ 18-19, with Hyland Aff. Ex. 7.)

30

Further, while Spherion was not charged, the Criminal
Complaint, pre-complaint news reports, and the Audit Report
revealed sufficient information to set the government squarely
on the trail of Spherion’s potential vicarious liability for
Mazer and Berger’s fraudulent activity.

The Criminal Complaint

disclosed that Spherion billed the City for work performed by
Mazer and Berger as consultants. (See Criminal Compl. ¶ 19.)
The Criminal Complaint further alleged that Mazer and Berger
were paid for their work on CityTime by Spherion and exercised
significant actual authority over the project. (Id. ¶¶ 20-21.)
Although the Criminal Complaint referred to Spherion as the “QA
Vendor,” Spherion’s identity was readily apparent from news
media reports discussing Spherion’s role as the quality
assurance contractor on CityTime, as well as the Audit Report,
which examined Spherion’s obligations and performance under the
quality assurance contract. (See Hyland Decl. Exs. 9, 22.)
Accordingly, the Court finds that the allegations in support of
Plaintiff’s vicarious liability claims are “substantially the
same” as those publicly disclosed before Plaintiff brought this
suit.
b. Plaintiff Does Not Qualify As An Original Source
Under the NYS FCA and NYC FCA, a Plaintiff can qualify as
an original source in two ways.

First, the plaintiff is an

original source if, prior to a qualifying public disclosure, he
31

“voluntarily disclosed to the state or a local government the
information on which allegations or transactions in a cause of
action are based.” N.Y. STATE FIN. LAW § 188(7); see also N.Y.C.
ADMIN. CODE § 7-802(6).

Second, the plaintiff is an original

source if he has knowledge that is “independent of” and
“materially adds to” the publicly disclosed allegations or
transactions, and has provided such information to the state or
local government. N.Y. STATE FIN. LAW § 188(7); see also N.Y.C.
ADMIN. CODE § 7-802(6).

The NYS FCA includes an additional

requirement that the information must have been provided before
or at the time that the plaintiff filed suit. N.Y. STATE FIN. LAW
§ 188(7).
Plaintiff does not qualify as an original source of his
vicarious liability claims under the first method.

“[T]he

‘information on which the allegations are based’ means the
information underlying or supporting the fraud allegations
contained in the plaintiff’s qui tam complaint.” United States
ex rel. King v. Hillcrest Health Ctr., Inc., 264 F.3d 1271, 1280
(10th Cir. 2001).

While Plaintiff alleges that he provided

information to the government, he does not plausibly allege that
the information he provided is the information on which his
vicarious liability claims are based.
Plaintiff claims that he made disclosures of “potential
fraud” to FISA, OPA, SAIC and Spherion in or about November
32

2004. (Compl. ¶ 61.)

However, according to the complaint, those

disclosures “relat[ed] to his load test discovery of the
CityTime software’s inability to support more than 20 parallel
users at a time,” not to Mazer and Berger’s fraudulent kickback
and overbilling scheme. (Id.)

Indeed, that scheme did not begin

until 2005 or 2006 according to the complaint, (id. ¶¶ 18-19),
so Plaintiff’s alleged disclosures in 2004 could not have
provided the information supporting his allegations.
Plaintiff’s complaint to DOI in early 2009, which is quoted
in full above, also does not qualify him as an original source.
To the extent that it provided any allegations relating to Mazer
and Berger, the information was primarily vague or conclusory.
(See Hyland Aff. Ex. 12 (“The THREE culprits behind this sceme
are:

1. Senior consultant manager, Spherion Corp. Mark Mazer–

the most crooked person on the team. 50 years old. Bill rate:
$175/hr 2. Senior Manager, Spherion Corp:

Scott berger A sheep

who listens ONLY to Mark Mazer and does not rock the boat. Is
building his house in Florida at taxpayers expense. 60 years
old.

Bill rate: $175/hr.”)

Absent from the DOI complaint was

any information regarding the alleged kickback and false billing
scheme on which Plaintiff’s vicarious liability claims are
based.
Finally, Plaintiff’s allegations regarding his meetings
with DOI in “December 2010 and thereafter” fail to establish him
33

as an original source.

Even drawing an inference in Plaintiff’s

favor that the first meeting occurred before the Criminal
Complaint was unsealed on December 15, 2010, Plaintiff alleges
that he disclosed to DOI “relevant emails and load test results
from Dec. 2004 through Feb. 2005, which illustrated the
project’s performance failures.” (Compl. ¶ 64.)

He does not

allege that he provided the information supporting his vicarious
liability claims.
The second method by which a plaintiff qualifies as an
original source is if he has knowledge that is “independent of”
and “materially adds to” the publicly disclosed allegations and
transactions.

Plaintiff also fails to qualify as an original

source of his vicarious liability claims under this method.

As

already discussed, the Criminal Complaint disclosed detailed
allegations regarding Mazer and Berger’s fraud before Plaintiff
brought this suit.

There was ample information publicly

disclosed to allow the government to investigate Spherion’s
potential vicarious liability.

Nothing in the complaint or the

documents incorporated by reference demonstrates that Plaintiff
has knowledge that adds in a material way to the publicly
disclosed allegations and transactions.

As a result, the Court

finds that Plaintiff does not qualify as an original source.
Accordingly, Plaintiff’s vicarious liability claims must be
dismissed.
34

E. Plausibility of Plaintiff’s Remaining
FCA Theories of Liability
To state a claim under the NYS FCA or NYC FCA, a Plaintiff
must plausibly allege that the defendant submitted a claim to
the government was “false or fraudulent.” N.Y. STATE FIN. LAW
§ 189(1); N.Y.C. ADMIN. CODE §§ 7-802(4), 7-803(a)(1)-(2);
N. Adult Daily, 2016 WL 4703653, at *4 (citing Bishop, 823 F.3d
at 43).

The Second Circuit has recognized three cognizable

theories under which a claim may be false or fraudulent. See
Bishop, 823 F.3d at 43-44.

The archetypal FCA claim involves a

request for payment that is “factually false.” Id. at 43.

A

factually false claim “involves an incorrect description of
goods or services provided or a request for reimbursement for
goods or services never provided.” Mikes v. Straus, 274 F.3d
687, 697 (2d Cir. 2001), abrogated on other grounds by Universal
Health Servs., Inc. v. United States, 136 S. Ct. 1989 (2016).
This occurs, for example, “when a contractor delivers a box of
sawdust to the military but bills for a shipment of guns.”
Bishop, 823 F.3d at 43-44.
There are also two cognizable theories of “legally false”
FCA liability:

express false certification and implied false

certification.

These theories apply where, in connection with a

request for payment, a defendant falsely certifies its
compliance with a federal statute, regulation, or contractual

35

provision containing a material condition for government
payment. Universal Health, 136 S. Ct. at 1999; Mikes, 274 F.3d
at 698.

As the name suggests, an express false certification

involves a defendant’s express representation of compliance when
it is actually not compliant. Mikes, 274 F.3d at 698.

The

implied false certification theory is based on the idea that a
contractor may impliedly certify compliance with material
statutory, regulatory, or contractual conditions for government
payment when requesting reimbursement. Universal Health, 136 S.
Ct. at 1995; Mikes, 274 F.3d at 699.

Recently, the U.S. Supreme

Court held that the implied false certification theory is viable
where two conditions are met:

(1) “the claim does not merely

request payment, but also makes specific representations about
the goods or services provided;” and (2) “the defendant’s
failure to disclose noncompliance with material statutory,
regulatory, or contractual requirements makes those
representations misleading half-truths.” Universal Health, 136
S. Ct. at 2001.
1. Quality Assurance Claims
Plaintiff first contends that Spherion submitted false
claims to the City because it “failed to provide quality
assurance services.” (Pl.’s Mem. at 11.)

Plaintiff alleges that

Spherion had an obligation under its contract with the OPA to
perform “all work and services necessary . . . to help ensure
36

the timely and successful completion of the CityTime project,”
as well as a duty to provide advice “based upon its expert
analysis.” (Compl. ¶ 23.)

Plaintiff argues that Spherion

breached these duties by “failing to disclose the abysmal lack
of progress in development of CityTime as a general matter.”
(Pl.’s Mem. at 12.)

This violation was knowing, according to

Plaintiff, because Plaintiff told Spherion consultants that the
project was not meeting standards and should be “scrapped.”
(Id.; Compl. ¶¶ 34-35.)
In opposition, Plaintiff characterizes this theory of
liability as one of factual falsity. (See Pl.’s Mem. at 11 n.8
(“Spherion’s requests for payment are the most common type of
false claim under the FCA, as it [sic] involves ‘an incorrect
description of goods or services provided or a request for
reimbursement for goods or services never provided.’” (quoting
Mikes, 274 F.3d at 697.))

This argument is misplaced.

Plaintiff does not allege that Spherion actually failed to
provide the quality assurance services for which it claimed
reimbursement, or that it provided an incorrect description of
those services.

The factually false theory of liability

therefore does not apply.
Plaintiff’s theory might be more accurately characterized
as one of implied false certification, but even construed as
such, it is not adequately alleged.
37

As noted above, the

Universal Health Court set forth two conditions for establishing
a viable implied certification theory: “first, the claim does
not merely request payment, but also makes specific
representations about the goods or services provided; and
second, the defendant’s failure to disclose noncompliance with
material statutory, regulatory, or contractual requirements
makes those representations misleading half-truths.” Universal
Health, 136 S. Ct. at 2001.

Here, Plaintiff neither alleges

that Spherion made any “specific representations about the goods
or services provided,” nor explains how any such representation
was rendered a misleading half-truth by Spherion’s alleged
noncompliance.

Further, Plaintiff offers no explanation for

how, even if Plaintiff had breached the quality assurance
agreement by failing to disclose the lack of progress on the
CityTime project, such a breach would constitute the knowing
submission of a false claim where the lack of progress was a
widely publicized fact. (See Hyland Aff. Ex. 9.)

As a result,

Plaintiff does not state a claim under an implied false
certification theory.
2. Conflict of Interest Claims
Plaintiff separately argues that Spherion is liable for
false claims because it breached the conflict of interest
provisions in its contract with the City by employing Mazer and
Berger. (Pl.’s Mem. at 13; Compl. ¶ 24.)
38

Plaintiff claims that

this violation of the contract was knowing because Mazer’s
knowledge, as Spherion’s agent, is imputable to Spherion.
Further, Plaintiff contends that, even if Spherion did not have
actual knowledge of Mazer and Berger’s conflicts, it was the
result of deliberate ignorance.
In a footnote in his opposition papers, Plaintiff suggests
that these allegations support an express false certification
theory. (See Pl.’s Mem. at 11 n.9. (“Spherion’s requests for
payment, despite Berger and Mazer’s conflicts of interest,
rendered their contractual representations that no such
conflicts existed an expressly false legal certification, a
well-recognized type of FCA violation (citing Mikes, 274 F.3d at
698).)

This argument is also unavailing.

The express false

certification theory applies not to a breach of a contractual
provision itself, but instead to a false certification of
contractual, statutory, or regulatory compliance made in
connection with a claim submission. See Bishop, 823 F.3d at 43.
Plaintiff does not allege that Spherion expressly certified
compliance with any provision of its contract with the OPA in
connection with a claim.

Further, the complaint does not set

forth any specific representation made in connection with a
claim that was rendered materially misleading by Spherion’s
alleged contractual breach.

Accordingly, Plaintiff has not

alleged a viable express or implied false certification theory.
39

3. False Billing Claims
Plaintiff next seeks to hold Spherion liable for certain
alleged “false billing practices.”

According to the complaint,

Plaintiff “personally witnessed or developed knowledge of
various other examples of suspicious or outright fraudulent
conduct,” such as: “[b]illing the CityTime contract for two-week
severance packages paid to terminated Spherion consultants”;
“[b]illing the CityTime contract for over-time hours incurred by
Spherion consultants despite an express prohibition of overtime
expenditures in the contract between CityTime and OPA”;
“[b]illing the CityTime contract for travel and expenses related
to Berger’s frequent trips to Florida to check on a vacation
home he was building there”; and “[e]nabling SAIC to bill the
CityTime contract for work spent developing similar time-keeping
software for other clients.” (Compl. ¶ 45.)
Liberally construed, these allegations raise a plausible
theory of factual falsity.

The crux of Plaintiff’s false

billing claims is that Spherion billed for certain services it
did not actually provide.

However, for Plaintiff’s false

billing claims to survive, his allegations must also satisfy the
heightened pleading requirement of Rule 9(b).
F. Rule 9(b)’s Heightened Pleading Standard
A plaintiff alleging false claims under the NYS FCA or the
NYC FCA must plead with particularity the circumstances
40

constituting fraud in accordance with Rule 9(b) of the Federal
Rules of Civil Procedure. See Gold, 68 F.3d at 1476–77.

The

purpose of this requirement is “to provide a defendant with fair
notice of a plaintiff’s claim, to safeguard a defendant’s
reputation from improvident charges of wrongdoing, . . . to
protect a defendant against the institution of a strike suit,
[and] . . . . to discourage the filing of complaints as a
pretext for discovery of unknown wrongs.” Wood ex rel. U.S. v.
Applied Research Assocs., Inc., 328 F. App’x 744, 747 (2d Cir.
2009).
To satisfy Rule 9(b), “a complaint must ‘(1) specify the
statements that the plaintiff contends were fraudulent, (2)
identify the speaker, (3) state where and when the statements
were made, and (4) explain why the statements were fraudulent.’”
Id. (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124,
1128 (2d Cir. 1994)).

“In other words, Rule 9(b) requires that

a plaintiff set forth the who, what, when, where and how of the
alleged fraud.” U.S. ex rel. Polansky v. Pfizer, Inc., No. 04–
cv–0704 (ERK), 2009 WL 1456582, at *4 (E.D.N.Y. May 22, 2009)
(internal quotation marks omitted).
In addition to adequately explaining why the claims were
fraudulent, to comply with Rule 9(b), a plaintiff must also
plead the submission of false claims with a high enough degree
of particularity that the defendant can reasonably identify the
41

claims at issue. See U.S. ex rel. Kester v. Novartis Pharm.
Corp., 23 F. Supp. 3d 242, 257 (S.D.N.Y. 2014) (collecting
cases).

“In cases with extensive schemes, plaintiffs can

satisfy this requirement in two ways:

(1) providing

sufficient identifying information about all the false
claims, or (2) providing example false claims.” Id. at 258.
Examples of the kind of identifying information a plaintiff
can provide to satisfy Rule 9(b) include:

dates of claims,

contents of claims, identification numbers, reimbursement
amounts, goods or services provided, and individuals
involved in the billing. Id.
Here, Plaintiff fails to meet Rule 9(b)’s heightened
pleading standard with respect to his false billing claims.
First, Plaintiff’s allegations fail to set forth the “who, what,
when, where and how of the alleged fraud” because they leave
unclear who was involved in submitting the claims, what the
claims requested payment for, or when they were submitted. (See
Compl. ¶ 45.).

Further, Plaintiff fails to either provide

identifying information about the claims that were submitted or
provide example false claims.

Accordingly, Plaintiff’s false

billing claims are dismissed for failure to comply with Rule
9(b).

42

II. Retaliation Claims
Spherion also moves to dismiss Plaintiff’s NYS FCA and NYC
FCA retaliation clams under Rule 12(b)(6).

For the reasons

stated below, the motion is denied as to Plaintiff’s retaliation
claims.
A. Background
Plaintiff alleges that he made various attempts in late
2004 and early 2005 “to warn OPA, Spherion, FISA and others
about the load failures with the CityTime software.” (Compl.
¶ 54.)

Within five months of these efforts, Plaintiff claims

that Bondy, Mazer, and Berger retaliated against him by
“stripping him of approximately 2/3 of his load-performance
engineering responsibilities.” (Id.)
After he was removed from these responsibilities, Plaintiff
alleges that “SAIC produced load test results that either
revealed the continued failure of the CityTime software to [sic]
acceptable standards or showed SAIC’s attempt to cover up
unacceptable results.” (Id. ¶ 55.)

For example, according to

the complaint, on January 6, 2006, “SAIC produced only handwritten test results, which deliberately excluded critical
information that would have exposed the system’s failures.”
(Id.)

Plaintiff avers that he “attempted to document and/or

warn his superiors about the problem.” (Id.)

43

In March of 2006, according to the complaint, Plaintiff met
with Cohen and Donnelly and told them that “management should
scrap the project,” that “Mazer was not the right person to head
the project[,] and that he, along with Berger and SAIC
management, were doing this only to pocket the money for
themselves by extending the contract for as long as possible
knowing it was a failure.” (Id. ¶ 42.)

In July of 2006,

Plaintiff alleges that he again told Cohen and Donnelly that he
“thought the CityTime project was continuing just to put money
in the pockets of Mazer, Berger and SAIC.” (Id. ¶ 43.)
In May of 2007, Plaintiff allegedly “confided in” two DA
Solutions consultants, Rekha Basu and Audry (whose last name is
not alleged), that “he believed Berger and Mazer were involved
in fraud, were ‘up to no good’ and ‘pocketing City funds for
themselves.’” (Id. ¶ 56.)

According to the complaint, Plaintiff

later learned that Rekha had a close relationship with Berger.
(Id.)
Plaintiff alleges that on a Saturday in May 2007, he
discovered he could not log on to his work system. (Id. ¶ 57.)
He spoke with Cohen the following Monday, and Cohen asked
Plaintiff what happened. (Id. ¶ 58.)

Plaintiff “told Cohen that

he was being fired because he had communicated to Spherion and
FISA that performance was poor and that the project was
failing.” (Id.)

According to the complaint, Plaintiff also told
44

Cohen that “something bad was occurring at the project.” (Id.)
Cohen told Plaintiff that “the City was Spherion’s largest
client and Spherion could lose the client, and asked [Plaintiff]
not to make waves.” (Id.)

Plaintiff claims that “Cohen

acquiesced to [his] termination . . . to remain on good terms
with Mazer and Berger and so that Spherion could continue to
bill the project.” (Id.)
B. Elements
To state a retaliation claim under the NYS FCA or NYC FCA,
a plaintiff must allege:

(1) that he engaged in conduct

protected under the statute; (2) that the defendant was aware of
the plaintiff’s conduct; and (3) that the plaintiff was
retaliated against for that conduct. See N.Y. STATE FIN. LAW
§ 191(1); N.Y.C. ADMIN. CODE § 7-805(a)(3); N. Adult Daily, 2016
WL 4703653, at *13.

“Rule 9(b)’s heightened pleading standard

does not apply to [a] plaintiff’s FCA retaliation claim since no
showing of fraud is required.” United States v. Empire Educ.
Corp., 959 F. Supp. 2d 248, 259 n.2 (N.D.N.Y. 2013) (quoting
U.S. ex rel. Mooney v. Americare, Inc., No. 06-CV-1806 FB VVP,
2013 WL 1346022, at *8 (E.D.N.Y. Apr. 3, 2013)).

Notably, a

plaintiff need not prevail on his underlying FCA claims to
sustain a claim for retaliation. See N. Adult Daily, 2016 WL
4703653, at *13; Empire Educ., 959 F. Supp. 2d at 256.

45

Protected conduct under the NYS FCA “is interpreted broadly
and encompasses ‘two kind[s] of conduct:

(1) lawful acts done

by the employee, contractor, agent, or associated others in
furtherance of an action under the FCA, and (2) other efforts to
stop one or more violations of the FCA.’” Swanson v. Battery
Park City Auth., No. 15-CV-6938 (JPO), 2016 WL 3198309, at *3
(S.D.N.Y. June 8, 2016) (internal citation and quotation marks
omitted) (quoting Malanga v. NYU Langone Med. Ctr., No. 14-CV9681, 2015 WL 7019819, at *2 (S.D.N.Y. Nov. 12, 2015)).4
“[C]ourts have generally concluded that conduct in furtherance
of an action under [the FCA] will be interpreted as conduct that
was calculated to, or reasonably could lead to a viable FCA
action.” Krause v. Eihab Human Servs., Inc., No. 10 CV 898 RJD
SMG, 2015 WL 4645210, at *6 (E.D.N.Y. Aug. 4, 2015) (emphasis in
original) (quoting U.S. ex rel. Smith v. Yale Univ., 415 F.
Supp. 2d 58, 103 (D. Conn. 2006)).

“[A] plaintiff must at least

demonstrate that . . . her investigation . . . w[as] conducted
with the purpose of exposing a ‘fraud upon the government.’”
Smith, 415 F. Supp. 2d at 103 (quoting Moor-Jankowski v. Bd. of

4

The NYS FCA’s retaliation provisions were expanded through
amendments that became effective on August 27, 2010, to include
the second category of protected conduct. See Swanson, 2016 WL
3198309, at *3 n.2. As with the other 2010 amendments to the
NYS FCA, the amendment applies retroactively to Plaintiff’s
claims. See People ex rel. Schneiderman, N.E.3d at 662; Kane ex
rel. U.S. v. Healthfirst, Inc., 120 F. Supp. 3d 370, 397
(S.D.N.Y. 2015).
46

Trustees of N.Y. Univ., No. 96 CIV. 5997 (JFK), 1998 WL 474084,
at *10 (S.D.N.Y. Aug. 10, 1998)).
Under the second category of conduct protected by the NYS
FCA, “a retaliation claim can be stated so long as the employee
was engaged in efforts to stop an FCA violation, even if the
employee’s actions were not necessarily in furtherance of an FCA
claim.” Swanson, 2016 WL 3198309, at *3 (quoting Malanga, 2015
WL 7019819, at *2).
Although the parties do not cite to, and the Court has not
found, any case interpreting or applying the NYC FCA’s
retaliation provision, the plain language of the provision
indicates that the scope of protected conduct is narrower than
under the NYS FCA.

The NYC FCA protects employees who are

retaliated against “because of lawful acts of [the] employee in
furtherance of a civil enforcement action brought under [the NYC
FCA], including the investigation, initiation, testimony, or
assistance in connection with, a civil enforcement action commenced
or to be commenced under [the NYC FCA].” N.Y.C. ADMIN CODE § 7805(a)(3).

Thus, at least by its terms, the provision does not

extend to “other efforts” to stop an FCA violation, as the NYS FCA
does.
C. Analysis
The Court finds that Plaintiff’s March 2006 and July 2006
statements to Cohen and Donnelly constitute conduct “in furtherance

47

of” an FCA claim, as that standard has been construed.

According

to the complaint, Plaintiff told Cohen and Donnelly in March 2006
that Mazer, Berger, and SAIC management “were doing this only to
pocket the money for themselves by extending the contract for as
long as possible knowing it was a failure.” (Compl. ¶ 42.)

He also

claims to have told Cohen and Donnelly in July 2006 that the
project “was continuing just to put money in the pockets of Mazer,
Berger and SAIC.” (Id. ¶ 43.)

Accepting these allegations as true,

and drawing all reasonable inferences in Plaintiff’s favor, it is
plausible that by raising his suspicions regarding Mazer, Berger,
and SAIC, Plaintiff was attempting to “expos[e] a fraud on the

government,” Smith, 415 F. Supp. 2d at 103 (internal quotations
omitted), or was otherwise investigating matters that were
calculated to, or reasonably could have led to, an FCA action. See

Empire Educ., 959 F. Supp. 2d at 256.
Plaintiff has also plausibly alleged that Spherion was aware
of his protected conduct.

Plaintiff allegedly made his protected

statements to Cohen, Spherion’s account manager for CityTime.
Thus, through Cohen, Spherion allegedly had knowledge of the
protected conduct.
Finally, drawing all reasonable inferences in Plaintiff’s
favor, the complaint also adequately alleges that Plaintiff was
terminated in retaliation for this conduct.

According to the

complaint, when Plaintiff met with Cohen around the time of his
termination in May 2007, Cohen told Plaintiff “that the City was

48

Spherion’s largest client,” that “Spherion could lose the client,”
and asked Plaintiff “not to make waves.” (Compl. ¶ 58.)

Plaintiff

claims that Cohen then “acquiesced” to Plaintiff’s termination.
(Id.)

While eight months had elapsed since Plaintiff’s most recent

protected conduct, Cohen’s alleged statements to Plaintiff near the
time of his termination give rise to a plausible inference that he
was being terminated for “mak[ing] waves” through his earlier
statements.
Accordingly, Spherion’s motion to dismiss is denied as to
Plaintiff’s retaliation claims.
III. Leave to Amend
Spherion seeks dismissal of Plaintiff’s claims with prejudice.
Plaintiff does not request leave to amend the complaint in its
opposition.

Rule 15 of the Federal Rules of Civil Procedure

instructs courts to “freely give leave” to amend “when justice so
requires.” FED. R. CIV. P. 15(a)(2).

However, amendment “is not

warranted absent some indication as to what [a plaintiff] might add
to [its] complaint in order to make it viable.” Shemian v. Research
In Motion Ltd., 570 Fed. App’x 32, 37 (2d Cir. 2014).

The Court is

mindful that this is Plaintiff’s third complaint and that this case
was filed over five years ago.

It therefore will not grant leave

to amend unless Plaintiff demonstrates that he is capable of curing
the deficiencies in his qui tam claims and that justice requires
granting leave to amend.

Should Plaintiff wish to amend the

complaint, such motion demonstrating how he will cure the

49

deficiencies in his qui tam claims shall be filed within 30 days of
the date of this Opinion.
CONCLUSION

For the reasons stated above, Spherion's motion to dismiss
is GRANTED as to Plaintiff's qui tam claims and DENIED as to
Plaintiff's first and second

Plaintiff's retaliation claims.

causes of action (his qui tam claims) are dismissed without
prejudice.
If Plaintiff wishes to amend the complaint, he shall move
this Court to do so no later than 30 days from the date of this
Opinion.

Otherwise, the Court will enter an order dismissing

Plaintiff's qui tam claims with prejudice, and Spherion shall
file its answer to Plaintiff's remaining claims no later than 14
days from the date of that order.
If Plaintiff moves to amend the complaint, Spherion's time
to answer will be adjourned pending the Court's decision on
Plaintiff's motion to amend the complaint.
SO ORDERED.

Dated:

~w?K~

New York, New York
NovemberfD, 2016

JOHN F. KEENAN
United States District Judge

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