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

Filing 86

OPINION & ORDER re: 72 MOTION for Leave to File Proposed Third Amended Complaint filed by The State of New York Ex Rel Vinod Khurana, The City of New York Ex Rel Vinod Khurana, Vinod Khurana. For the reasons stated above, Pla intiff's motion to amend is DENIED and Plaintiff's qui tam claims are dismissed with prejudice. Spherion shall file its answer to Plaintiff's remaining retaliation claims no later than 14 days from the date of this Opinion. SO ORDERED. (Signed by Judge John F. Keenan on 4/21/2017) (anc)

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

Filed 09/30/10 Page 1 of 45

USDC SDNY
DOCUMENT
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ELECTRONICALLY FILED
DOC #: _________________
-----------------------------------X
THE STATE OF NEW YORK EX REL
:
DATE FILED: 04/21/2017
UNITED STATES DISTRICT COURT
VINOD KHURANA and THE CITY OF
:
SOUTHERN DISTRICT OF NEW YORK :
NEW YORK EX REL VINOD KHURANA,
-----------------------------------------------------------x
:
In re FANNIE MAE 2008 SECURITIES : : No. 15 Civ.7831 (PAC)
08 Civ. 6605 (JFK)
Plaintiffs,
LITIGATION
:
09 MD 2013 (PAC)
-against:
: :
OPINION & ORDER
OPINION & ORDER
SPHERION CORP. (N/K/A SFN GROUP,
: :
-----------------------------------------------------------x
INC.)
:
:
Defendant.
:
-----------------------------------X
HONORABLE PAUL A. CROTTY, United States District Judge:
APPEARANCES
BACKGROUND1
FOR PLAINTIFF/RELATOR VINOD KHURANA:
David Kovel, Esq.
David The early years of this decade saw a boom in home financing which was fueled, among
Bishop, Esq.
KIRBY McINERNEY LLP
other things, by low interest rates and lax credit conditions. New lending instruments, such as
John R. Newcomer, Jr., Esq.
subprime Estes, Esq.
Jillianmortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
JAMES, HOYER, NEWCOMER AND SMILJANICH, P.A.
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
FOR DEFENDANT SPHERION CORP.:
assumption that the market would continue to rise and that refinancing options would always be
Mark J. Hyland, Esq.
Rita M. Glavin, Esq.
available Ross Hooper, Esq.
Thomas in the future. Lending discipline was lacking in the system. Mortgage originators did
SEWARD & KISSEL LLP
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
FOR THE CITY OF NEW YORK:
originators W. their loans Esq.
Zachary sold Carter, into the secondary mortgage market, often as securitized packages
Gail Rubin, Esq.
Sabita Krishnan, Esq.
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
Lilia Toson, Esq.
CORPORATION the housing bubble burst. In 2006, NEW YORK for housing dropped abruptly
But then COUNSEL OF THE CITY OF the demand
JOHN F. KEENAN, United fall. In light of the changing housing market, banks modified their
and home prices began to States District Judge:
On March 31,and became unwilling to refinanceKhurana (“Plaintiff”)
lending practices 2011, Plaintiff Vinod home mortgages without refinancing.
brought this action in New York State Supreme Court.

Defendant

1
Unless otherwise indicated, all references cited as “(¶ _)” or case to this Court in
Spherion Corp. (“Spherion”) removed the to the “Complaint” are to the Amended Complaint,

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

1
1

August 2015.

On October 9, 2015, Spherion moved to dismiss the

Second Amended Complaint (“SAC”) pursuant to Rules 12(b)(6) and
9(b) of the Federal Rules of Civil Procedure for failure to
state a claim and failure to plead fraud with particularity.

On

November 10, 2016, the Court granted in part Spherion’s motion
to dismiss as to Plaintiff’s qui tam claims and denied
Spherion’s motion to dismiss as to Plaintiff’s retaliation
claims.

The Court dismissed Plaintiff’s qui tam claims without

prejudice but noted that it would only allow amendment if
Plaintiff could demonstrate that he is “capable of curing the
deficiencies in his qui tam claims and that justice requires
granting leave to amend.”

On December 12, 2016, Plaintiff moved

for leave to file a Third Amended Complaint (“TAC”).
For the reasons set forth below, Plaintiff’s motion for
leave to file a TAC (“motion to amend”) is denied.
I. Background
The Court presumes familiarity with the allegations made in
Plaintiff’s SAC and the procedural history of this litigation
prior to the entry of its Opinion partially dismissing
Plaintiff’s claims. See New York ex rel. Khurana v. Spherion
Corp., No. 15 CIV. 6605 (JFK), 2016 WL 6652735 (S.D.N.Y. Nov.
10, 2016) [hereinafter “Op.”].

Briefly stated, Plaintiff is a

former employee of Spherion, a company that provided quality
assurance services over CityTime—a project started by the Office
2

of Payroll Administration (the “OPA”) in 1998 to automate timekeeping and payroll functions for New York City employees. (SAC
¶¶ 9, 13.)

Science Applications International Corporation

(“SAIC”) took over as the prime contractor on CityTime in 2002
and Spherion was engaged to perform certain quality assurance
functions over SAIC. (Id. ¶¶ 14-15, 22.)
Spherion hired Mark Mazer and Scott Berger as consultants
on CityTime and they began work on the project in 2005. (Id.
¶¶ 3, 31.)

In 2006, SAIC’s prime contract was amended from a

fixed-price contract to a fixed-price level-of-effort contract,
which significantly increased the amount of compensable
consulting staffing on the project. (Id. ¶ 18.)

With access to

additional consultant funding, Mazer used his position to award
lucrative contracts to companies controlled by friends or family
members in exchange for kickbacks. (Id. ¶ 19.)
Plaintiff claims that, in his position as a load
performance tester, he began noticing performance problems with
the CityTime software in late 2004. (Id. ¶ 29.)

From 2004 to

2005, Plaintiff alleges that he told individuals at the
Financial Information Services Agency (“FISA”) on multiple
occasions that the program would not support the number of users
required and that Mazer and Berger had told him they knew the
project was going to fail. (Id. ¶ 32.)

Plaintiff claims that

“on numerous occasions” he also told Spherion representatives
3

about “serious problems” with CityTime, but Spherion “continued
with the project as if those problems did not exist” and
continued billing the City of New York (the “City”) without
taking any action to remove Mazer and Berger. (Id. ¶¶ 34, 36.)
Further, Plaintiff alleges that he “personally witnessed or
developed knowledge of various other examples of suspicious or
outright fraudulent conduct,” including billing the CityTime
contract for services that were either prohibited, unnecessary,
or not provided. (Id. ¶ 45.)

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.)
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 (“DOI”), and
posted it online as a CNN “iReport.” (Id. ¶ 62.)

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,” including 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” and provided “a

4

full accounting of his knowledge and experiences on the CityTime
project.” (Id. ¶ 64.)
The New York news media began publishing articles
discussing problems with CityTime in 2004, with increased
frequency in 2009 and 2010. (See Aff. of Mark J. Hyland Ex. 9.)
The project also received scrutiny from public officials,
including the New York City Council and the Office of the
Comptroller. (See Hyland Aff. Exs. 20, 22.)

On December 15,

2010, the U.S. Attorney’s Office for the Southern District of
New York and the DOI jointly unsealed a 35-page criminal
complaint (the “Criminal Complaint”) and announced charges
against six individuals connected to CityTime including Mark
Mazer and Scott Berger. (See Hyland Aff. Exs. 7, 8.)
Plaintiff brought this action on behalf of the City and the
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. (SAC ¶ 1.)

Plaintiff alleges that

“[b]ut for Spherion’s failure to execute the responsibilities
inherent in its contract with the 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
5

with the City,” which totals an estimated $48 million, “was a
false or fraudulent claim.” (Id.)
Plaintiff advances four theories on which he claims
Spherion is liable under the NYS FCA and NYC FCA:

First,

Plaintiff contends that Spherion is vicariously liable under its
contract with the OPA for Mazer and Berger’s acts in “steering
billable work to their own entities then inflating and
falsifying timesheets” (the “vicarious liability claims”).
(Pl.’s Mem. of L. in Opp. to Def.’s Mot. to Dismiss at 10.)
Second, Plaintiff argues that Spherion submitted false claims to
the City because it “failed to provide quality assurance
services” as required by its contract with the OPA (the “quality
assurance claims”). (Id. at 11.)

Third, Plaintiff asserts that

Spherion is liable 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 13-14.)
Fourth, Plaintiff argues that Spherion is liable for engaging in
certain false billing practices (the “false billing claims”).
(Id. at 14-15.)

Plaintiff also alleges claims for retaliation

under the NYS FCA and NYC FCA. (SAC ¶¶ 74-77.)
A.

Dismissal of Plaintiff’s Qui Tam Claims in the SAC

In its November 10, 2016 Order (the “Order”), the Court
granted in part Defendant’s motion to dismiss as to Plaintiff’s
qui tam claims.

First, the Court dismissed Plaintiff’s
6

vicarious liability claims as barred by the public disclosure
bars of the NYS FCA and NYC FCA because Plaintiff does not
qualify as an original source. (Op. at 34.)

Second, the Court

dismissed Plaintiff’s quality assurance claims and conflict of
interest claims for failure to state claims under the NYS FCA
and NYC FCA. (Id. at 38-39.)

Third, the Court dismissed

Plaintiff’s false billing claims for failing to comply with the
heightened pleading standard of Rule 9(b). (Id. at 42.)

The

Court denied Spherion’s motion to dismiss Plaintiff’s
retaliation claims. (Id. at 49.)
B.

Proposed Third Amended Complaint

On December 12, 2016, Plaintiff filed his proposed TAC.
The TAC contains “newly alleged information” from documentary
discovery produced by the City that Plaintiff claims was
unavailable when he filed the SAC. (Pl.’s Mem. of Law in Support
of Mot. for Leave to File Proposed TAC at 1) [hereinafter Mot.
to Amend.]

These new allegations include, among other things,

that (1) concealing the lack of progress on CityTime was an
integral part of the kickback fraud, (2) two newly discovered emails show that “Plaintiff’s disclosures to [FISA] were
contemporaneous with” the kickback fraud, (3) Plaintiff’s 2009
iReport “ascribed scienter to Mazer and Berger,” (4) Plaintiff’s
2010 comments on the Daily News website explicitly disclosed the
fact that Mazer had illicit ties to DA Solutions, (5) government
7

investigators closely reviewed Plaintiff’s comments on the Daily
News website and found them to be “very helpful” and
“interesting”, (6) Spherion did not provide any QA services as
required by its contract, and (7) Spherion’s QA contract was not
a “one-time contractual promise” but rather a “representation
that a current state of fact existed.” (Id. at 2-8.)

According

to Plaintiff, these new allegations successfully address the
deficiencies in the SAC and will survive a motion to dismiss.
(Id. at 2.)
II.

Discussion

A.

Legal Standard

Leave to amend a pleading should be freely granted when
justice so requires. FED. R. CIV. P. 15(a); Dluhos v. Floating &
Abandoned Vessel, 162 F.3d 63, 69 (2d Cir. 1998).

“Nonetheless,

the Court may deny leave if the amendment (1) has been delayed
unduly, (2) is sought for dilatory purposes or is made in bad
faith, (3) the opposing party would be prejudiced, or (4) would
be futile.” Lee v. Regal Cruises, Ltd., 916 F. Supp. 300, 303
(S.D.N.Y. 1996).

A proposed amended complaint is futile when it

“fails to state a claim.” Kuriakose v. Fed. Home Loan Mortg.
Corp., 897 F. Supp. 2d 168, 176 (S.D.N.Y. 2012).

“The Proposed

Amended Complaint may therefore be scrutinized as if defendants’
objections to the amendments constituted a motion to dismiss
under Fed. R. Civ. P. 12(b)(6).” Journal Publ’g Co. v. Am. Home
8

Assurance Co., 771 F. Supp. 632, 635 (S.D.N.Y. 1991).

District

courts have broad discretion in ruling on a motion to amend.
Kuriakose, 897 F. Supp. 2d at 176.
Accordingly, in evaluating Plaintiff’s motion to amend, the
Court will consider whether the proposed TAC cures the
deficiencies that the Court identified in the SAC.

Should the

proposed TAC fail to cure these deficiencies, leave to amend
will be denied as futile. See Health-Chem Corp. v. Baker, 915
F.2d 805, 810 (2d Cir. 1990) (“Although Fed. R. Civ. P. 15(a)
provides that leave to amend should be given freely when justice
so requires, where, as here, there is no merit in the proposed
amendments, leave to amend should be denied.”).

The Court will

evaluate the proposed amendments to Plaintiff’s four types of
qui tam claims in turn.
B.
1.

Vicarious Liability Claims

Dismissal Under the Public Disclosure Bar

To proceed, 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 public

disclosure bars provide a basis for dismissal under Rule
12(b)(6) for failure to state a claim. 1

1

Accordingly, the Court

In the Order, the Court joined the weight of authority
interpreting the federal FCA and held that the public disclosure
provisions of the NYS FCA and NYC FCA provide a basis for
dismissal under Rule 12(b)(6). (See Op. at 27.)
9

generally may not consider affidavits and other matters outside
the pleadings, but may 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. See Ping Chen ex rel. U.S. v. EMSL Analytical,
Inc., 966 F. Supp. 2d 282, 294 (S.D.N.Y. 2013) (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)).
The NYS FCA and NYC FCA establish a two-part test for the
public disclosure bar. N.Y. STATE FIN. LAW § 190(9)(b); N.Y.C.
ADMIN. CODE § 7-804(d); see also Chen, 966 F. Supp. 2d at 296-97.
A court must first determine if “substantially the same”
allegations or transactions in the action were publicly
disclosed.

If that is the case, the action must be dismissed

unless the plaintiff qualifies 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
“voluntarily disclosed to the state or a local government the
10

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).
In dismissing the SAC, the Court found that Plaintiff’s
vicarious liability claims are barred by the public disclosure
bar because substantially the same allegations were publicly
disclosed and Plaintiff does not qualify as an original source
under either method described above. (Op. at 28-34.)

As to the

first method, the Court held that Plaintiff did not plausibly
allege that the information he provided is the information on
which his vicarious liability claims are based because
Plaintiff’s disclosures “relat[ed] to his load test discovery of
the CityTime software’s inability to support more than 20
parallel users at a time,” and not to Mazer and Berger’s
fraudulent kickback and overbilling scheme. (Id. at 33.)

As to

the second method, the Court held that nothing in the complaint
11

or documents incorporated by reference demonstrated that
Plaintiff had knowledge that adds in a material way to the
“ample information publicly disclosed.” (Id. at 34.)
2. Analysis
Plaintiff does not argue that the amended allegations in
the TAC in any way change the Court’s decision that Plaintiff’s
claims are “substantially the same” as the public disclosures
discussed in the Order.

Thus, the only question is whether the

amended allegations cure the deficiencies in Plaintiff’s
vicarious liability claims and show that Plaintiff qualifies as
an original source.
In his motion to amend, Plaintiff makes three principal
arguments regarding the first method for qualifying as an
original source, each pertaining to alleged disclosures in 2004,
2009, and 2010.

Plaintiff also argues that his disclosures to

the DOI in 2010 qualify him as an original source under the
second method because they provided information that materially
adds to the publicly disclosed allegations.

The Court will

address each argument in turn.
i.

Plaintiff’s 2004 Disclosures to FISA Do Not Qualify Him as
an Original Source
In his motion to amend, Plaintiff focuses on the Court’s

statement that Plaintiff’s disclosures to FISA in 2004 did not
qualify him as an original source because they could not have

12

related to Mazer’s kickback fraud, which began in 2005 or 2006.
(Mot. to Amend at 2.)

Plaintiff argues that the TAC “mak[es]

clear” that Mazer’s kickback fraud was part of the larger fraud
initiated in 2003 and that Mazer “conceal[ed] from the City the
lack of progress being made on CityTime as a necessary
antecedent to the kickback fraud.” (Id.; see also TAC ¶¶ 15–25.)
Plaintiff argues that these amended allegations show that the
information Plaintiff disclosed to FISA is “the sort of
information” on which his vicarious liability claims are based
because the kickback fraud involved delaying the deployment and
implementation of the Project. (Mot. to Amend at 3.)
Plaintiff also alleges that two newly discovered e-mails
show that Plaintiff was an original source of the information
underlying his fraud claims. (Id.)

On April 15, 2005, FISA’s

Sue Amodeo e-mailed Plaintiff requesting a “confidential chat
about the perf[ormance] test plan.” (TAC ¶ 39.)

On May 3, 2005,

Berger e-mailed Mazer regarding a meeting with Amodeo stating
that “everyone [felt] comfortable with the performance testing
plan as it is” but the “real problem is that the application is
not ready for performance testing as it is.” (Id. ¶ 40.)
Plaintiff’s focus on the timing of Mazer’s kickback scheme
is misplaced.

Even if Mazer’s fraud scheme began in 2004 and

“concealing the lack of progress on CityTime[] was an integral
part of the kickback fraud,” (Mot. to Amend at 3), this does not
13

change the fact that Plaintiff’s alleged disclosures to FISA
related only to load test results and CityTime’s performance.
(See Op. at 33.)

Further, the two e-mails Plaintiff cites in

the TAC allege only that Amodeo and Plaintiff discussed
CityTime’s performance issues and that Mazer and Berger knew
that there were deficiencies in CityTime’s performance,
information that was already before this Court when it decided
Spherion’s motion to dismiss.

Thus, Plaintiff fails to

adequately allege that his 2004 disclosures to FISA contained
any information regarding the kickback and false billing scheme
and these disclosures do not qualify him as an original source.
ii.

Plaintiff’s 2009 iReport Does Not Qualify Him as an
Original Source
The Court also held that Plaintiff’s complaint to the DOI

in 2009 did not qualify him as an original source. (Id.)
Plaintiff claims that the TAC adds allegations showing that the
2009 iReport “ascribed scienter” to Mazer and Berger because it
identified (1) the directive “NOT to ‘bad’ mouth the project”
and that “management KNEW very well this [CityTime] was going to
be a complete failure” and (2) “the obscene featherbedding of
consultant positions with overly generous hourly rates.” (TAC ¶¶
77–78.)

But Plaintiff simply re-characterizes the same

allegations that were before this Court in deciding Spherion’s
motion to dismiss.

Plaintiff admits in his motion to amend that

14

the iReport is “identically worded” to the DOI complaint. (Mot.
to Amend at 3.)

The Court has already considered the DOI

complaint in its entirety and held that it lacked “any
information regarding the alleged kickback and false billing
scheme on which Plaintiff’s vicarious liability claims are
based.” (Op. at 33.)

Accordingly, Plaintiff has failed to

allege that the iReport qualifies him as an original source.
iii.

Plaintiff’s 2010 Daily News Commentary Does Not Qualify Him
as an Original Source
Plaintiff claims that his “extensive series of comments” on

the New York Daily News website in 2010 qualifies him as an
original source. (Mot. to Amend at 4.)

Although the Court did

not specifically address the Daily News comments in its public
disclosure bar analysis, this document was before the Court on
Spherion’s motion to dismiss. (See Hyland Aff. Ex. 11.)
Plaintiff argues that the TAC adds “new allegations” regarding
these 2010 comments, including a direct quote:

“A company by

the name of DS Solutions should also be investigated to
determine if there were any ties between it’s owner (supplier of
contracts) and Mark Mazer.” (Mot. to Amend at 4; TAC ¶ 81.)
Plaintiff claims that this comment “explicitly disclose[d] the
fact that Mazer had illicit ties to DA Solutions.” (Mot. to
Amend at 4.)

Plaintiff also adds allegations that individuals

at FISA, the DOI, and “U.S. prosecutors” read the comments and

15

that the DOI did not “separately uncover the connection between
Mazer and DA Solutions until June 2010, two months after
[Plaintiff]’s commentary reached the Comptroller investigator
and FISA senior management.” (Id. at 4-5.)
The 2010 Daily News comments also fail to qualify Plaintiff
as an original source.

Plaintiff’s comments contain the same

vague and conclusory language that appears in his 2009 iReport,
(see Op. at 33), and primarily repeat his claims that Mazer and
Berger knew that CityTime was going to fail. (See Hyland Aff.
Ex. 11.)

Plaintiff’s comment that “[a] company by the name of

DS Solutions should also be investigated to determine if there
were any ties between it’s owner . . . and Mark Mazer” did not,
as Plaintiff argues, “explicitly disclose[] the fact that Mazer
had illicit ties to DA Solutions,” but merely put forth
Plaintiff’s opinion that DA Solutions should be investigated.
Even if government officials read Plaintiff’s Daily News
comments prior to uncovering the connection between Mazer and DA
Solutions, Plaintiff’s vague comments about investigating DA
Solutions did not disclose any widespread fraudulent kickback or
overbilling scheme and thus did not provide the government with
the information supporting his vicarious liability claims.
Plaintiff has failed to show that any of his disclosures
provided the information on which his vicarious liability claims

16

are based and thus has failed to show that he qualifies as an
original source under the first method described above.
iv. Plaintiff’s 2010 Disclosures to the DOI Do Not Materially Add
to the Publicly Disclosed Allegations or Transactions
The second method by which Plaintiff may qualify as an
original source is if he has knowledge that is “independent of”
and “materially adds to” the publicly disclosed allegations and
transactions and has provided such information to the
government.

Plaintiff argues that the TAC newly demonstrates

that his disclosures to the DOI in late 2010 materially added to
the publicly disclosed allegations because the DOI and federal
prosecutors found Plaintiff’s disclosures to be “very helpful”
and “interesting” and regarded his disclosure about the
connection between DA Solutions and Mazer to be an “important
recollection.” (TAC ¶¶ 88–89.)

Plaintiff alleges that one DOI

investigator “sought a second interview with [Plaintiff] in
order to question him about emails concerning consultants
billing CityTime for work done on the unrelated CHARMS program.”
(Id. ¶ 89.)

Plaintiff argues that due to his disclosures, “the

scope of the fraud alleged by the government in its superseding
indictment was enlarged to include a more general fraud to
‘artificially delay the deployment and implementation of the
Project’ that was not alleged” in the Criminal Complaint. (Mot.
to Amend at 6 (citing TAC ¶¶ 17, 25).)

17

Plaintiff’s new allegations do not adequately plead that
Plaintiff’s late 2010 disclosures to the DOI materially added to
the publicly disclosed allegations.

Where a complaint’s

allegations are “not much different” from the allegations or
transactions of the public disclosures, they cannot be said to
materially add to the publicly-disclosed fraud. Chen, 966 F.
Supp. 2d at 300; see also U.S. ex rel. Reagan v. E. Texas Med.
Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 179 (5th Cir. 2004)
(considering whether “the investigation or experience of the
relator either . . . translate[d] into some additional
compelling fact, or . . . demonstrate[d] a new and undisclosed
relationship between disclosed facts, that puts a government
agency ‘on the trail’ of fraud”).
First, the allegations that investigators found Plaintiff’s
disclosures to be “very helpful” and “interesting” do not
identify any of the actual information that Plaintiff provided
to investigators or establish that the information he provided
was in any way different from the information that was already
available to the investigators.

Second, even if an investigator

sought a second interview with Plaintiff regarding e-mails about
consultant billing on an unrelated project and found Plaintiff’s
information regarding Mazer and DA Solutions to be an “important
recollection,” this information would not materially add to the
publicly disclosed allegations.

As the Court noted in the
18

Order, “the Criminal Complaint disclosed detailed allegations
regarding Mazer and Berger’s fraud before Plaintiff brought this
suit” including Mazer’s execution of the kickback scheme
involving DA Solutions and the “blatant fraud” in connection
with timesheets that Mazer and Berger approved. (Op. at 8, 34.)
Plaintiff has not shown that his disclosures in any way
materially added to the “ample information publicly disclosed”
regarding Spherion’s alleged vicarious liability. (Id. at 34.)
Finally, Plaintiff’s argument that, due to his disclosures,
the scope of the alleged fraud was enlarged in the superseding
indictment “to include a more general fraud” to prolong the
implementation of the project that was not included in the
Criminal Complaint is unavailing.

The Criminal Complaint

disclosed a fraud scheme executed through contract amendments
and extensions that allowed additional consultant staffing and
caused a dramatic increase in billing. (See Criminal Compl. ¶¶
19-22.)

Plaintiff’s purported disclosures to the DOI regarding

the delay in implementation of the project did not reveal some
additional compelling fact or demonstrate “an undisclosed
relationship between disclosed facts” that was not already
alleged in the Criminal Complaint. See Reagan, 384 F.3d at 179.
Thus, Plaintiff’s 2010 disclosures to the DOI did not
materially add to the publicly disclosed allegations and

19

Plaintiff does not qualify as an original source under the
second method.
Plaintiff has failed to show that he qualifies as an
original source and thus his motion to amend his vicarious
liability claims is denied.
C. Conflict of Interest Claims
1.

Plausibility of FCA Claims

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 that was “false or fraudulent.” N.Y. STATE FIN. LAW
§ 189(1); N.Y.C. ADMIN. CODE §§ 7-802(4), 7-803(a)(1)-(2).

Courts

in this Circuit have recognized three cognizable theories under
which a claim may be false or fraudulent. U.S. ex rel.
Kolchinsky v. Moody’s Corp., No. 12CV1399, 2017 WL 825478, at
*4-5 (S.D.N.Y. Mar. 2, 2017).

The archetypal FCA claim involves

a request for payment that is “factually false.” Id. at *4.

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).
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
20

request for payment, a defendant falsely certifies its
compliance with a federal statute, regulation, or contractual
provision containing a material condition for government
payment. Universal Health, 136 S. Ct. at 1999; Mikes, 274 F.3d
at 698.

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.
In the SAC, Plaintiff alleged that Spherion is liable under
an express false certification theory because it breached the
conflict of interest provisions in its contract with the City by
employing Mazer and Berger. (SAC ¶ 24; Pl.’s Mem. of L. in Opp.
to Def.’s Mot. to Dismiss at 11 n.9.).
21

The Court held that

Plaintiff failed to allege a viable express or implied false
certification theory because 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.” (Op. at 39).

Plaintiff did not allege that

Spherion expressly certified compliance with any provision of
its contract with the OPA in connection with a claim or set
forth any specific representation made in connection with a
claim that was rendered materially misleading by Spherion’s
alleged contractual breach. (Id.)
2.

Analysis

The TAC fails to cure this pleading deficiency.

Plaintiff

merely adds the contention that the conflict-of-interest
provision was not a “one-time contractual promise” but rather a
“representation that a current state of fact existed.” (Mot. to
Amend at 8; TAC ¶ 64.)

Plaintiff further states that “[w]ith

each amendment, Spherion was recertifying its compliance with
the Conflict of Interest provision . . . at a time when Spherion
knew

. . . that Mazer, DA Solutions and Primeview had a

conflict of interest.” (TAC ¶ 65.)

These “new allegations”

merely attempt to re-paint Plaintiff’s original conflict of
interest claims by stating that the conflict-of-interest
provision was actually a “representation.”
22

But despite this re-

characterization, Plaintiff has still failed to allege that
Spherion falsely certified compliance or made any materiallymisleading representations in connection with an actual claim
for payment.

Thus, Plaintiff has failed to allege a viable

express or implied false certification theory and Plaintiff’s
motion to amend his conflict of interest claims is denied.
D.

Quality Assurance Claims

Plaintiff alleged in the SAC that Spherion submitted false
claims to the City because it “failed to provide quality
assurance services” as required by its contract with the OPA
when it failed to “disclose the abysmal lack of progress in
development of CityTime as a general matter.” (Pl.’s Mem. of L.
in Opp. to Mot. to Dismiss at 11–12.)

The Court held that

Plaintiff failed to allege a theory of factual falsity with
regards to the quality assurance claims because “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.” (Op. at
37.)

The Court also held that Plaintiff failed to allege a

theory of implied false certification because Plaintiff neither
alleged that Spherion made any specific representations about
the services provided, nor explained how any such representation
was rendered a misleading half-truth by Spherion’s alleged
noncompliance. (Id. at 38.)
23

Plaintiff amends his quality assurance claims in the TAC
and claims that “[d]espite having provided no bona fide quality
assurance services, Spherion presented the City with claims for
payment for those services throughout the period of the fraud.”
(TAC ¶ 61.)

Plaintiff alleges that Spherion “transfer[red]” its

quality assurance obligations to parties “who could not be
expected to evaluate their own performance, had a conflict of
interest as defined by the QA contract, and were actively
working to delay the implementation of CityTime for their own
benefit.” (Id. ¶ 60.)

Plaintiff argues that claims for payment

for quality assurance services were also impliedly false because
Spherion failed to disclose its noncompliance with the conflict
of interest requirements of the contract. (Mot. to Amend at 7.)
Liberally construed, these amended allegations cure the
deficiency identified by the Court and raise a plausible theory
of factual falsity.

Essentially, Plaintiff alleges that

Spherion presented claims for payment for quality assurance
services that it did not actually provide, but outsourced to
conflicted parties.

However, Plaintiff’s quality assurance

claims must also satisfy Rule 9(b)’s heightened pleading
requirement.
1.

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
24

constituting fraud in accordance with Federal Rule of Civil
Procedure 9(b). See Gold v. Morrison-Knudsen Co., 68 F.3d 1475,
1476–77 (2d Cir. 1995).

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) (internal citation and quotation marks
omitted).
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
25

of particularity that the defendant can reasonably identify the
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.
2.

Analysis

Plaintiff’s amended quality assurance claims fail to meet
Rule 9(b)’s heightened pleading standards.

To comply with Rule

9(b), a plaintiff must plead the submission of false claims with
a high enough degree of particularity that the defendant can
reasonably identify the claims at issue. See Kester, 23 F. Supp.
at 257.

Plaintiff alleges in the TAC that “any claim[s] for

payment made to the City between 2004 and 2010” for quality
assurance services “were false claims.” (TAC ¶ 62.)

But this

general assertion fails to set forth the “who, what, when, where
and how of the alleged fraud.”

Nowhere does Plaintiff provide

identifying information about these claims for payment—including
who submitted the claims, what the claims requested payment for,
26

or when they were submitted—nor does Plaintiff provide any
example claims.

Thus, Plaintiff fails to comply with Rule 9(b)

and the motion to amend the quality assurance claims is denied.
E.

False Billing Claims

In the SAC, Plaintiff alleged that Spherion billed for
certain services it did not actually provide, including, among
other things, “[b]illing the CityTime contract for two-week
severance packages paid to terminated Spherion consultants.”
(SAC ¶ 45.)

In the Order, the Court held that Plaintiff

plausibly alleged claims of “false billing practices” but failed
to meet Rule 9(b)’s heightened pleading standard. (Op. at 4042.)

First, Plaintiff’s allegations failed to set forth the

“who, what, when, where and how of the alleged fraud” because
they left unclear who was involved in submitting the claims,
what the claims requested payment for, or when they were
submitted. (See id. at 42.)

Second, Plaintiff failed to either

provide identifying information about the claims that were
submitted or provide example false claims. (Id.)
1.

Analysis

Plaintiff’s TAC fails to cure this pleading deficiency.
The only allegations Plaintiff adds to the TAC regarding
fraudulent billing are that “[d]espite having provided no bona
fide quality assurance services, Spherion presented the City
with claims for payment for those services throughout the period
27

----------------------------------------------------------

of the fraud" and "any claim[s] for payment that Spherion made
to the City following the 2005 amendments" to the contract with
the OPA are "false claims" due to Spherion's conflicts of
interest.

(TAC

<Jl<Jl

61,

65.)

Neither of these additions make

clear when these claims were submitted, what they requested
payment for, or who was involved in submitting the claims.
Further, Plaintiff provides no example false claims or any
identifying information regarding said false claims.
Accordingly,

Plaintiff has failed to meet the heightened

pleading standard of Rule 9(b) and Plaintiff's motion to amend
his false billing claims is denied.
CONCLUSION

For the reasons stated above,

Plaintiff's motion to amend

is DENIED and Plaintiff's qui tam claims are dismissed with
prejudice.

Spherion shall file its answer to Plaintiff's

remaining retaliation claims no later than 14 days from the date
of this Opinion.
SO ORDERED.

Dated:

New York, New York
April
1 , 2017

Z

~?a~

United States District Judge

28