United States of America v. Strock et al

Filing 39

DECISION & ORDER granting 35 Motion for Leave to File; granting 13 Motion to Dismiss; granting 17 Motion to Dismiss for Failure to State a Claim; granting 18 Motion to Dismiss; granting 19 Motion to Dismiss for Failure to State a Claim. Plaintiff has 30 days from the date of this Decision & Order to file an amended complaint. If Plaintiff does not file an amended complaint within 30 days, the Clerk of Court is directed to close this case without further Order. SO ORDERED. Signed by Hon. Frank P. Geraci, Jr. on 1/31/2018. (SFR)-CLERK TO FOLLOW UP-

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
______________________________________________
UNITED STATES OF AMERICA,
Plaintiff,
v.

Case #15-CV-0887-FPG
DECISION AND ORDER

LEE STROCK, et al.
Defendants.
______________________________________________
INTRODUCTION
Plaintiff United States of America (“Plaintiff”) acting on behalf of the Department of
Defense, Department of the Air Force (“Air Force”), Department of the Army (“Army”),
Department of Veterans’ Affairs (“VA”), and the Small Business Administration (“SBA”)
commenced this action alleging violations of the False Claims Act (“FCA” or “Act”), 31 U.S.C.
§3729 et seq., a common law fraud claim, and an unjust enrichment claim. ECF No.1.
Currently pending before the Court are Plaintiff’s Motion for Leave to File Response to
Defendants’ Notices of Supplemental Authority (“Plaintiff’s Motion”) (ECF No. 35) and
Defendants’ Motions to Dismiss (ECF Nos. 13, 17, 18, 19) pursuant to Rules 9(b) and 12(b)(6) of
the Federal Rules of Civil Procedure (“FRCP”). For the following reasons, Plaintiff’s Motion is
GRANTED and Defendants’ Motions to Dismiss are GRANTED.
BACKGROUND
The following facts are derived from Plaintiff’s Complaint and are assumed true for
purposes of Defendants’ Motions. See DPWN Holdings (USA), Inc. v. United Air Lines, Inc., 747
F.3d 145, 147 (2d Cir. 2014).

1

I.

Statutory and Regulatory Background
The Veterans Benefits Act (“VBA”) and Small Business Act each present a framework

designed to encourage contract awards to service-disabled veteran owned small businesses
(“SDVOSBs”). ECF No. 1 at ¶¶ 16-25. To be eligible for special contracting programs reserved
for SDVOSBs, the VBA, Small Business Act, and Federal Acquisition Regulation (“FAR”) have
each established similar qualifications: that a business must be at least 51% owned by one or more
service-disabled veteran(s), and such service-disabled veteran(s) must control the business’s dayto-day operations. Id. at ¶¶ 18-19, 22, 27. More broadly, regulations also require that the servicedisabled veteran(s) control the “strategic policy setting” (as termed by the VBA and VA) or “longterm decision making” (as termed by the SBA regulations) of the business. Id. at ¶¶ 19, 23. Further,
VA regulations place limits on the role that a non-veteran may play in the management of an
SDVOSB firm. Id. at ¶ 20. These limits include barring a non-veteran’s exercise of actual control,
or the power to control, the service-disabled veteran participating in the program, and prohibiting
a non-veteran’s receipt of compensation which exceeds that of the business’s highest officer
(which must be the service-disabled veteran). Id.
The VBA and SBA authorize contracts to be set aside for SDVOSBs, with awards
occurring on a “sole-source” basis (not through a competition) or through competitions in which
participation is limited to veteran-owned firms. ECF No. 1 at ¶¶ 17, 21. SBA and FAR regulations
require firms to represent that they qualify as an SDVOSB in their offer on a specific contract, and
the SBA provides that any misrepresentation regarding SDVOSB status shall be subject to civil
prosecution under the FCA. Id. at ¶¶ 24-25, 28. FAR regulations further require all contractors to
complete representations and certifications (which include certifying that the business qualifies as
an SDVOSB) in the Online Representation and Certification Application (“ORCA”). Id. at ¶ 29.

2

II.

Parties
At the times relevant to this action, Defendants Lee Strock (“Strock”) and Kenneth Carter

(“Carter”) were the owners and officers of an Erie County, New York based construction business,
Defendant Strock Contracting, Inc. (“SCI”). Id. at ¶¶ 2, 10-12. Defendant Cynthia Ann Golde
(“Golde”) was an SCI employee and assisted Strock and Carter with SCI’s operations. Id. at ¶ 13.
Neither Strock nor Carter are service-disabled veterans and thus SCI did not qualify as an
SDVOSB. Id. at ¶¶ 35-36, 50.
In order to gain access to, and profit from, contracts set aside for performance by qualified
SDVOSBs, Defendants recruited Terry Anderson (“Anderson”), a New York State Parole Officer
and service-disabled veteran, and developed a scheme to nominally appoint Anderson as the
President and majority owner of a newly-formed company. ECF No. 1 at ¶¶ 31, 33. In or around
2006, Strock met with Anderson at least once to discuss the formation of an SDVOSB. Id. at ¶ 32.
Veteran Enterprises Company, Inc. (“VECO”) was subsequently formed, with Anderson as a
“figurehead” President and 51% owner, Strock as Vice President and 30% owner, and Carter as
Secretary, or in a similar officer position, and 19% owner. Id. at ¶¶ 31, 37. Golde was employed
as VECO’s office manager. Id. at ¶ 59. VECO’s operations were setup in the same building as
SCI—a building owned by either Strock or SCI. Id. at ¶¶ 2, 56-57.
III.

VECO’s Operations
Though Anderson was VECO’s President and the majority owner of the company,

Defendants permitted him to play only a limited role in managing VECO’s operations. ECF No. 1
at ¶ 55. While serving as VECO’s President, Anderson continued to work full-time as a New York
State Parole Officer through 2013. Id. at ¶ 33. He did not have a key to enter the office building
and Golde or other employees in the building had to grant him access when he wished to enter. Id.
at ¶¶ 85-86. As VECO’s President, Anderson’s duties included the following: signing paperwork
3

(including payroll documents, tax returns, subcontractor agreements, blank checks, insurance
renewals, and contract bid proposals) (Id. at ¶¶ 61, 66); attending “pre-award” and “post-award”
meetings held by various government entities (Id. at ¶ 70); and occasionally traveling to VECO’s
work sites to perform inspections (ECF No. 1 at ¶ 71).
Anderson’s role as President was limited in that: he did not have access to payroll records
for VECO employees (Id. at ¶ 64); he was not given VECO’s bank account statements (Id. at ¶
65); he was not involved in VECO’s bid submissions or responses to government Requests for
Proposals, except for his role in signing bid proposals and other contract documents (Id. at ¶ 66);
other than the tasks described above, he performed little or no supervision of VECO’s work on
government contracts and “performed little or no management of VECO’s day-to-day operations”
(Id. at ¶¶ 72-73, 78); he did not act as project manager for any of VECO’s contracts (ECF No. 1 at
¶ 74); he did not prepare labor and material cost estimates for any of VECO’s contracts (Id. at ¶¶
75-76); he did not make personnel decisions (such as whether to hire or terminate employees), and
he did not regularly participate in the employee interview process (Id. at ¶¶ 79-81); and he played
no role in identifying, approving, or seeking bids from, VECO’s subcontractors (Id. at ¶ 83). In
fact, it was Strock, not Anderson, who controlled VECO’s day-to-day and long-term business
operations and Strock and Carter performed other key business functions that Anderson did not
perform. Id. at ¶¶ 76-82, 87.
In addition to Anderson’s limited role in managing VECO’s operations, he received limited
financial benefits from the company. Anderson was paid less than five percent of the profits that
VECO earned and, despite his title and majority ownership, he was not the highest paid VECO
employee. ECF No. 1 at ¶¶ 90-92. He also had the lowest spending limit of all authorized users of

4

the VECO company credit card and did not have the authority to draw cash from the account,
despite being President of the company. Id. at ¶¶ 98-100.
IV.

Plaintiff’s Allegations
The gravamen of Plaintiff’s Complaint is that (1) Defendants, while knowing that VECO

did not qualify as an SDVOSB, falsely certified and represented that it did qualify in order to gain
access to, and ultimately obtain, government contracts that were set-aside for award to qualified
SDVOSBs; and (2) Defendants subsequently submitted claims for payment for the services
performed under the awarded contracts.
A. Defendants’ Misrepresentations of VECO’s SDVOSB Status
One category of Plaintiff’s allegations involves Defendants submissions of false statements
certifying VECO’s status as an SDVOSB. Broadly, Plaintiff alleges that, at various times between
2008 and 2013, Defendants falsely certified or verified that VECO qualified as an SDVOSB under
the relevant statutory and regulatory frameworks, knowing that VECO did not meet such
qualifications. Id. at ¶ 3. Plaintiff further alleges that, during this time period, VECO bid on, and
was awarded, approximately $24 million in “contracts from the VA, [Army, and Air Force] that
were set aside on a sole source basis for [SDVOSBs] or through competitions limited to
[SDVOSBs].” ECF No. 1 at ¶¶ 2, 54, 108. More specifically, Plaintiff alleges as follows:
First, Plaintiff alleges that Defendants submitted an application to the VA to have VECO
recognized as an SDVOSVB in which they falsely represented that VECO qualified as an
SDVOSB, while knowing that it did not. Id. at ¶¶ 40-42, 49.
Second, Plaintiff alleges that “Strock directed or caused Golde or other employees of
[SCI]” to enter information in various online databases, “including the Central Contractor
Registration System and the Online Certifications and Representations Application (ORCA),

5

representing that VECO was an [SDVOSB]” while knowing that VECO did not meet the statutory
and regulatory qualifications. Id. at ¶¶ 43, 45-46, 49. Plaintiff further alleges that “[t]he information
in ORCA was periodically updated to state that VECO was an [SDVOSB].” Id. at ¶ 44.
Third, Plaintiff alleges that Strock and Carter caused Golde to submit false representations
that VECO qualified as an SDVOSB under VA or SBA requirements when submitting bids on
various contracts between 2008 and 2013. Id. at ¶¶ 108, 110-111. Plaintiff has listed these contracts
on an Exhibit (“Exhibit A”) attached to Plaintiff’s Complaint. ECF No. 1-1. For ten of the contracts
listed on Exhibit A, Plaintiff provides more specific allegations as representative examples. See
ECF No.1 at ¶ 108; see also id. at ¶¶ 114-189. Included among the ten representative examples
from Exhibit A are two Army contracts, one Air Force contract, and seven VA contracts. For each
of these ten contracts, Plaintiff alleges that only companies that met the pertinent statutory and
regulatory requirements were eligible to obtain the contract, and that, in each case, Defendants’
bid falsely represented that VECO met these requirements. See, e.g., id. at ¶¶ 115-16.
Fourth, Plaintiff alleges that Defendants submitted false, misleading, or incomplete
information regarding Anderson’s role in the company and work experience before joining VECO,
Strock’s role in the company, and SCI’s affiliation with VECO. Id. at ¶¶ 101-105. This information
was submitted in response to a 2011 VA inquiry into whether VECO qualified as an SDVOSB. Id.
at ¶ 101. Plaintiff further alleges that Strock was ultimately responsible for determining the
information submitted in response to the VA’s inquiry, and that the VA determined that VECO
qualified as an SDVOSB as a result of the information submitted. ECF No. 1 at ¶¶ 106-07.
B. Defendants’ Submission of Claims for Payment
Another category of allegations involves Defendants’ submission of claims for payment
on behalf of VECO to the VA, Army, and Air Force. Plaintiff alleges that Strock and Carter caused

6

Golde “to submit claims, invoices or requests for payment” related to the 98 contracts identified
on Exhibit A. Id. at ¶ 111; ECF No. 1-1 at 1-6. Plaintiff further alleges that “VECO submitted
multiple invoices or requests for payment” “[o]n many of the contracts listed in Exhibit A.” ECF
No.1 at ¶ 113. With respect to each of the ten representative examples from Exhibit A for which
Plaintiff provides more specific allegations, Plaintiff alleges that “[m]ultiple invoice or claims for
payment” were in fact submitted for each of those contracts. See, e.g., id. at ¶ 119.
V.

Procedural History
Plaintiff commenced this action with the filing of its Complaint (ECF No. 1) on October

7, 2015. Defendants each filed a Motion to Dismiss Plaintiff’s Complaint on January 28, 2016
(ECF Nos. 13, 17-19) and Plaintiff responded in opposition to those motions on March 3, 2016
(ECF No. 23). On March 18, Defendants submitted replies to Plaintiff’s response (ECF Nos. 2730). Thereafter, Plaintiff and Defendants Strock, SCI, and Carter each filed a Notice of
Supplemental Authority (ECF Nos. 31-34, respectively). On July 28, 2016, Plaintiff filed a Motion
for Leave to File Response to Notices of Supplemental Authority (ECF No. 35) along with a
“Response to Defendants’ Notices of Supplemental Authority Submitted Pending Requested
Approval from the Court” (ECF No. 35-3). Defendants Strock and Carter filed Memoranda in
Opposition to Plaintiff’s Motion for Leave (ECF Nos. 36-37) asserting that Plaintiff’s Motion
should be denied and that the attached Response submitted pending Court approval should be
stricken from the record. ECF No. 36 at 6; ECF No. 37 at 1.
LEGAL STANDARDS
I.

12(b)(6) Standard
Under Rule 12(b)(6) of the FRCP, when a party moves to dismiss a complaint for failure

to state a claim upon which relief can be granted, “the Court must accept all factual allegations in

7

the complaint as true and draw all reasonable inferences in the plaintiff’s favor.” Kane ex rel.
United States v. Healthfirst, Inc., 120 F. Supp. 3d 370, 382 (S.D.N.Y. 2015) (citing Koch v.
Christie’s Intern., PLC, 699 F.3d 141, 145 (2d Cir. 2012)). However, “this principle is inapplicable
to legal conclusions or threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements.” United States v. N. Adult Daily Health Care Ctr., 205 F. Supp. 3d 276,
285 (E.D.N.Y. 2016) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)) (internal quotation marks
omitted) (alterations omitted).
Ultimately, “[a] complaint must plead enough facts to state a claim to relief that is plausible
on its face.” Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)) (internal quotation
marks omitted). This facial plausibility requirement is met when a complaint includes “factual
content sufficient to allow a court to reasonably infer the defendant’s liability.” United States ex
rel. Coyne v. Amgen, Inc., 229 F. Supp. 3d 159, 168 (E.D.N.Y. 2017) (citing Twombly, 550 U.S.
at 556).
Because a Rule 12(b)(6) motion challenges the complaint as presented by
the plaintiff, taking no account of its basis in evidence, a court adjudicating
such a motion may review only a narrow universe of materials. Generally,
we do not look beyond facts stated on the face of the complaint, . . .
documents appended to the complaint or incorporated in the complaint by
reference, and . . . matters of which judicial notice may be taken.
Goel v. Bunge, Ltd., 820 F.3d 554, 558-59 (2d Cir. 2016) (internal quotation marks
omitted) (citation omitted).
II.

Rule 9(b) Standard & the FCA
“It is self-evident that the FCA is an anti-fraud statute” and “claims brought under the

FCA fall within the express scope of Rule 9(b).” Gold v. Morrison-Knudsen Co., 68 F.3d 1475,
1476-77 (2d Cir. 1995) (citing Fed. R. Civ. P. 9(b)). Rule 9(b) states that “[i]n alleging fraud . . .
a party must state with particularity the circumstances constituting fraud.” United States ex rel.
8

Ladas v. Exelis, Inc., 824 F.3d 16, 25 (2d Cir. 2016) (quoting Fed. R. Civ. P. 9(b)). “That
ordinarily requires a complaint alleging fraud to (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.” United States ex rel. Chorches for
Bankr. Estate of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 81 (2d Cir. 2017) (citations
and internal quotation marks omitted). For the various subsections of the FCA, the
“circumstances” constituting fraud depend upon the elements of the applicable subsection.
United States ex rel. Kester v. Novartis Pharms. Corp., 23 F. Supp. 3d 242, 252 (S.D.N.Y.
2014).
Ultimately, the sufficiency of a complaint under the Rule 9(b) standard “depends upon
the nature of the case, the complexity or simplicity of the transaction or occurrence, the
relationship of the parties and the determination of how much circumstantial detail is necessary
to give notice to the adverse party and enable him to prepare a responsive pleading.” N. Adult
Daily Health Care Ctr., 205 F. Supp. 3d at 285 (citing United States v. Wells Fargo Bank, N.A.,
972 F. Supp. 2d 593, 616 (S.D.N.Y. 2013)) (citations omitted).
DISCUSSION
I.

Plaintiff’s Motion
Pending before the Court is Plaintiff’s Motion (ECF No. 35) seeking leave to file a response

to Defendants Strock, Carter, and SCI’s Notices of Supplemental Authority (ECF Nos. 32-34).
Along with its motion, Plaintiff filed a “Response to Defendants’ Notices of Supplemental
Authority Submitted Pending Requested Approval from the Court” (“Plaintiff’s Response”; ECF
No. 35-3), requesting the Court consider the document “[t]o the extent that the Court grants this
motion.” ECF No. 35-3 at 1. Plaintiff asserts there is “good cause” for leave because (1)

9

Defendants have raised factual arguments that go outside of the Complaint, which is improper in
a Rule 12(b)(6) motion to dismiss and (2) Plaintiff seeks to respond to new arguments Defendants
have raised under the Supreme Court’s decision in Universal Health Services, Inc. v. United States
ex rel. Escobar (“Escobar”). ECF No. 35 at 1.
Defendants Strock and Carter each filed a Memorandum in Opposition to Plaintiff’s
Motion (ECF Nos. 36-37) asserting that the motion should be denied because Plaintiff already had
an opportunity to address the new authority at issue in Plaintiff’s own Notice of Supplemental
Authority (ECF No. 31). ECF No. 36 at 2; ECF No. 37 at 1. Furthermore, Defendants Strock and
Carter request that the Court strike Plaintiff’s Response because it is an “improper sur-reply.” Id.
In this Circuit, arguments raised for the first time in papers submitted after the parties’
initial briefing “need not be considered.” Mayer v. Neurological Surgery, P.C., 15-CV0864(DRH)(ARL), 2016 WL 347329, at *4 (E.D.N.Y. Jan. 28, 2016) (citing EDP Med. Comput.
Sys., Inc. v. United States, 480 F.3d 621, 625 n.1 (2d Cir. 2007)) (citation omitted). However, “the
Court may consider new arguments as long as the opposing party has a fair opportunity to
respond.” Wilmington Savs. Fund Soc’y, FSB v. Universitas Educ., LLC, 164 F. Supp. 3d 273, 292
(D. Conn. 2016) (citation omitted). The core argument raised in Defendants’ Notices of
Supplemental Authority is that Plaintiff has failed to adequately allege materiality as required for
FCA claims under Escobar. See ECF No. 35-3 at 1; see also ECF Nos. 32-34. Though Defendants
are correct that Plaintiff had an opportunity to address Escobar in its Notice of Supplemental
Authority (ECF No. 31), in order to ensure that Plaintiff has been afforded a fair opportunity to
respond to all legal arguments presented in Defendants’ Notices of Supplemental Authority (which
were filed after Plaintiff’s Notice), the Court grants Plaintiff’s Motion and Plaintiff’s Response
has been considered in the Court’s analysis below. See BSC, LLC v. Leidos, Inc., 91 F. Supp. 3d

10

319, 325 n. 6 (N.D.N.Y. 2015) (finding plaintiff suffered no unfairness in the Court considering
an argument raised for the first time in defendant’s reply where “the Court permitted [p]laintiff to
file supplemental briefing addressing the . . . issue”). Plaintiff’s Motion is GRANTED.1
II.

False Claims Act Violations
“The FCA was enacted in 1863 to combat fraud by defense contractors during the Civil

War.” Bishop v. Wells Fargo & Co., 823 F.3d 35, 43 (2d Cir. 2016) (“Bishop I”) (citation omitted),
vacated on other grounds, 137 S. Ct. 1067 (2017). Though it has been amended numerous times,
the Act’s “focus remains on those who present or directly induce the submission of false or
fraudulent claims[,]” and the Act “imposes significant penalties on those who defraud the
Government.” Escobar, 136 S. Ct. at 1995-96.
Plaintiff’s Complaint alleges that Defendants violated the FCA by (i) presenting, or causing
to be presented, false claims (in violation of 31 U.S.C. § 3729(a)(1), and, as amended, 31 U.S.C.
§ 3729(a)(1)(A)); (ii) making or using a false record or statement (in violation of 31 U.S.C. §
3729(a)(2), and, as amended, 31 U.S.C. § 3729(a)(1)(B)); and (iii) conspiring to submit or cause
to be submitted a false claim or to make or use a false record or statement (in violation of 31 U.S.C.
§ 3729(a)(3), and, as amended, 31 U.S.C. § 3729(a)(1)(C)). ECF. No 1 at ¶¶ 190-203. Plaintiff
alleges these violations occurred from 2008 to 2013.2

1

With respect to Plaintiff’s assertion that Defendants’ Notices of Supplemental Authority inject new facts
outside the scope of the facts in the Complaint, the Court will not consider such facts. See Festa v. Local 3 Intern.
Broth. Of Elec. Workers, 905 F.2d 35, 37-38 (2d Cir. 1990) (stating that “Rule 12(b)(6) provides that to the extent that
the court decides to consider matters outside of the complaint in ruling on a motion pursuant to Rule (12(b)(6), the
motion shall be treated as one for summary judgment”); see also Ferrante v. Capitol Reg’l Educ. Council, 3:14-cv00392-VLB, 2015 WL 1445206, at *6 (D. Conn. 2015) (finding defendant’s introduction of new arguments in its
reply brief to be “an impermissible attempt to introduce facts into defendant’s motion to dismiss” where plaintiff’s
complaint did not “allege or infer” those facts). In adjudicating a Rule 12(b)(6) motion to dismiss, the Court generally
reviews only a “narrow universe of materials” comprised of “facts stated on the face of the complaint, . . . documents
appended to the complaint or incorporated in the complaint by reference, and . . . matters of which judicial notice may
be taken.” Goel, 820 F.3d at 559.
2

During that time period, the provisions of the FCA underlying Plaintiff’s claims were amended in the Fraud
Enforcement and Recovery Act of 2009 (“FERA”), and Plaintiff’s Complaint cites both versions of the statute.

11

A. Elements of Counts I and II (§ 3729(a)(1)(A), (B))
Subsections (A) and (B) of the FCA impose liability for the presentation of false claims for
payment and for making or using a false record material to a false claim for payment. “Courts
generally treat these two provisions together, as their elements overlap significantly.” United
States ex rel. Hussain v. CDM Smith, Inc., 14-CV-9107 (JPO), 2017 WL 4326523, at *8 (S.D.N.Y.
Sept. 27, 2017) (citations omitted).
Under subsection (A), “the FCA imposes liability on any person who knowingly presents,
or causes to be presented, a false or fraudulent claim for payment or approval[.]” Chorches, 865
F.3d at 81 (quoting 31 U.S.C. § 3729(a)(1)(A)) (internal quotation marks omitted). To state a claim
under subsection (A), a plaintiff must show that the defendant “(1) made a claim, (2) to the United
States Government, (3) that is false or fraudulent, (4) knowing of its falsity, and (5) seeking
payment from the federal treasury.” United States ex rel. Kirk v. Schindler Elevator Corp., 601
F.3d 94, 113 (2d Cir. 2010), rev’d on other grounds, 563 U.S. 401 (2011). Additionally, an alleged
“misrepresentation about compliance with a statutory, regulatory, or contractual requirement must
be material to the Government’s payment decision in order to be actionable under the [FCA].”

Plaintiff’s claims arise under FCA subsections (a)(1)(A) (pre-FERA (a)(1)), (a)(1)(B) (pre-FERA (a)(2)), (a)(1)(C)
(pre-FERA (a)(3)). FERA’s amendments to (a)(1)(A) and (a)(1)(C) were prospective only. See Kester, 23 F. Supp.
3d at 251 (citing United States ex rel. Pervez v. Beth Israel Med. Ctr., 736 F. Supp. 2d 804, 811 n. 36 (S.D.N.Y.
2010)). Therefore, the pre-amendment subsections apply to any acts committed prior to FERA’s effective date of May
20, 2009, and the post-amendment subsections apply to acts committed after that date. Of the 147 contracts listed on
Exhibit A of Plaintiff’s Complaint, 31 were awarded prior to May 20, 2009. Though drawing this distinction for the
sake of clarity, the Court’s analysis below is not affected by these amendments. See United States v. Catholic Health
Sys. of Long Island, Inc., 12-CV-4425 (MKB), 2017 WL 1239589, at *9 (E.D.N.Y. March 31, 2017) (“Although the
wording of the sections changed slightly, there was no substantive difference between the 1994 version and the 2009
version of the statute for these sections.”) (citing Bishop I, 823 F.3d at 43 n. 1).
As for subsection (a)(1)(B), the FERA amendments are applied “to all legal claims pending before a court
on or after June 7, 2008. Kester, 23 F. Supp. 3d at 251. Since this action was commenced on October 7, 2015, the
FERA amendments apply to the Plaintiff’s claims under (a)(1)(B). All references to the FCA below refer to the postFERA amended FCA subsections, unless otherwise noted.

12

Bishop v. Wells Fargo & Co., 870 F.3d 104, 107 (2d Cir. 2017) (“Bishop II”) (quoting Escobar,
136 S. Ct. at 2002).
Subsection (B) imposes liability on anyone who “knowingly makes, uses, or causes to be
made or used, a false record or statement material to a false or fraudulent claim.” Chorches, 865
F.3d at 81. To state a claim under subsection (B), “a plaintiff must show that: (1) the defendant
made (or caused to be made) a false statement, (2) the defendant knew it to be false, and (3) the
statement was material to a false claim.” Hussain, 14-CV-9107(JPO), 2017 WL 4326523, at *8
(quoting Kester, 23 F. Supp. 3d at 252).
1. Falsity or Fraudulence
The elements of both subsections (A) and (B) include a claim for payment that is “false or
fraudulent.” “False or fraudulent” is not defined in the FCA. Mikes v. Straus, 274 F.3d 687, 696
(2d Cir. 2001), abrogated on other grounds, 136 S. Ct. 1989. “However, the juxtaposition of the
word ‘false’ with the word ‘fraudulent,’ plus the meanings of the words comprising the phrase
‘false claim,’ suggest an improper claim is aimed at extracting money the government otherwise
would not have paid.” United States ex rel. Feldman v. Van Gorp, 674 F. Supp. 2d 475, 479
(S.D.N.Y. 2009) (citing Mikes, 274 F.3d at 696) (some internal quotations omitted). Claims for
payment may be deemed false or fraudulent based on several theories relevant to this case.
First, a claim for payment is factually false when it is “based upon an incorrect description
of goods or services provided or a request for reimbursement for goods or services never
provided.” United States v. Huron Consulting Group, Inc., 929 F. Supp. 2d 245, 252 (S.D.N.Y.
2013) (citing Mikes, 274 F.3d at 697) (internal quotation marks omitted). The quintessential
factually false claim for payment is when a contractor bills the military for a shipment of guns but

13

delivers a box of sawdust. Bishop I, 823 F.3d at 43. In such a case, the contractor billed for goods—
the guns—but did not provide them, and the bills, or claims for payment, are thus factually false.
Claims for payment may also be found false or fraudulent based on legal falsity. A claim
for payment is legally false where “a party certifies compliance with a statute or regulation as a
condition to governmental payment, but is not actually compliant.” Id. at 43 (citing Mikes, 274
F.3d at 697) (internal quotation marks omitted). The Second Circuit has recognized two subsets of
legally false certifications: (1) a claim for payment that is legally false based on an implied false
certification and (2) a claim for payment that is legally false based on an express false certification.
See Kirk, 601 F.3d at 114 (citing Mikes, 274 F.3d at 698, 700).
“An implied false certification claim is based on the notion that the act of submitting a
claim for reimbursement itself implies compliance with governing federal rules . . . .” Mikes, 274
F.3d at 699. In Escobar, the Supreme Court set forth a new standard for alleged FCA violations
brought on an implied false certification theory:
[T]he implied certification theory can be a basis for liability, at least where two
conditions are satisfied: 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.
Escobar, 136 S. Ct. at 2001.
To establish that a claim for payment is false or fraudulent based on an express false
certification, the Second Circuit held in Mikes v. Straus (“Mikes”) that the plaintiff must
allege that the defendant submitted a claim that falsely certifies compliance with a
particular statute, regulation or contractual term, where compliance is a prerequisite to
payment.” Bishop I, 823 F.3d at 45 (emphasis in original) (internal quotation marks
omitted) (alterations omitted) (citing Mikes, 274 F.3d at 698). However, the Second Circuit
14

recently held that Escobar “abrogated Mikes’s particularity requirement for express false
certification claims.” Bishop II, 870 F.3d at 106 (citations omitted). Thus, post-Escobar
and –Bishop II, “particularity” is no longer required for express false certifications.
Finally, claims for payment may also be false or fraudulent based on a fraudulent
inducement theory. See Wells Fargo Bank, N.A., 972 F. Supp. 2d at 623 (collecting cases).
This theory applies where “the defendant made fraudulent representations to the
government to induce it to enter a contract, and although no false statements were made at
the time of the actual claims for payment, because the claims derived from the original
fraudulent misrepresentation, they too are actionable false claims.” United States ex rel.
Lacey v. Visiting Nurse Serv. of New York, 14-cv-5739 (AJN), 2017 WL 5515860, at *6
(S.D.N.Y. Sept. 26, 2017) (citing Feldman, 697 F.3d at 91) (internal quotation marks
omitted). To plausibly plead an FCA cause of action based on a fraudulent inducement
theory, a plaintiff “must demonstrate that the defendant made fraudulent statements to the
government and that this fraudulent conduct induced the government to enter into some
form of contract with the defendant.” Lacey, 14-cv-5739 (AJN), 2017 WL 5515860, at *6
(citation omitted).
2. Materiality Standard
Escobar “set out a materiality standard for FCA claims” under which a
“misrepresentation about compliance with a statutory, regulatory, or contractual
requirement must be material to the Government’s payment decision in order to be
actionable under the FCA.” Bishop II, 870 F.3d at 106-07 (alterations omitted).
“Specifically, to be material the government must have made the payment as a result of the
defendant’s alleged misconduct.” Coyne v. Amgen, Inc., 17-1522-cv, 2017 WL 6459267,

15

at *2 (2d Cir. 2017) (summary order) (citing United States ex rel. Ge v. Takeda Pharm. Co.
Ltd., 737 F.3d 116, 124 (1st Cir. 2013). This standard is “familiar and rigorous.” Bishop II,
870 F.3d at 107.
[W]hen evaluating materiality under the False Claims Act, the Government’s
decision to expressly identify a provision as a condition of payment is relevant, but
not automatically dispositive. Likewise, proof of materiality can include, but is not
necessarily limited to, evidence that the defendant knows that the Government
consistently refuses to pay claims in the mine run of cases based on noncompliance
with the particular statutory, regulatory, or contractual requirement. Conversely, if
the Government pays a particular claim in full despite its actual knowledge that
certain requirements were violated, that is very strong evidence that those
requirements are not material. Or if the Government regularly pays a particular type
of claim in full despite actual knowledge that certain requirements were violated,
and has signaled no change in position, that is strong evidence that the requirements
are not material.
Escobar, 136 S. Ct. at 2003-04.
B. Whether Plaintiff has Adequately Alleged FCA Materiality
The thrust of Plaintiff’s FCA claims under subsections (A) and (B) (Counts I and II) is that
the Defendants violated the FCA when they falsely certified or verified on several occasions that
VECO met the relevant statutory and regulatory requirements to qualify as an SDVOSB when it
in fact did not, fraudulently induced Plaintiff to enter into contracts with VECO through those false
representations, and submitted payment claims for work performed. Defendants argue, inter alia,
that Plaintiff’s FCA claims brought under Counts I and II fail pursuant to Rules 12(b)(6) and 9(b)
of the FRCP because Plaintiff has not adequately pleaded that Defendants’ alleged false
misrepresentations were material to Plaintiff’s payment decision. See ECF Nos. 27 at 6; 32-34.
For all of the reasons set forth below, the Court finds that Plaintiff has failed to adequately allege
FCA materiality.
Plaintiff’s Complaint cites numerous VA, Small Business Act, and FAR statutory and
regulatory provisions that outline the goals of SDVOSB special contracting programs and provide
16

criteria for when a company qualifies as an SDVOSB, and thus qualifies for participation in these
contracting programs. ECF No. 1 at 5-8. Notably, companies must meet the following
requirements to participate in SDVOSB special contracting programs: a business must be at least
51% owned by one or more service-disabled veteran(s) to qualify as an SDVOSB; the servicedisabled veteran(s) owner must control the business’s day-to-day operations; the service-disabled
veteran(s) must control the “strategic policy setting” or “long-term decision making” of the
business; any non-veterans at the company may not exercise actual control, or the power to control,
the service-disabled veteran participating in the program; and non-veteran’s may not receive
compensation which exceeds that of the service-disabled veteran serving as the company’s highest
officer. Id.
Defendants’ allegedly false representations that VECO met these requirements were made
at several points from 2008 to 2013. First, the regulations governing SDVOSB contracting require
prospective bid-awardees to represent that they qualify as an SDVOSB in their offer on a contract.3
Id. at ¶¶ 24-25, 28. Second, the regulations require all contractors to complete certain
representations and certifications (which include certifying that the business qualifies as an
SDVOSB) in the ORCA system. Id. at ¶¶ 43, 45-46, 49. Defendants submitted this information
“[p]rior to 2008” and it was “periodically updated.” Id. at 44. The representations on these online
systems “state[d] that VECO was an SDVO small business.” Id. Finally, Defendants submitted
information that “was either false, misleading or did not fully convey all material facts” in response
to a 2011 VA inquiry into whether VECO was compliant with SDVOSB requirements. Id. at 101-

3

For example, FAR section 52.219-1(c)(7) required Defendants to make the following representation: “The
offeror represents as part of its offer that it __ is, __ is not a service-disabled veteran-owned small business
concern.” ECF No. 1 at ¶ 28.

17

07. After reviewing these submissions, “the VA determined that VECO was eligible as an SDVO
small business.” Id. at 107.
The cited statutory and regulatory provisions, required online certifications, and the VA’s
2011 inquiry all addressed VECO’s eligibility to participate in the contracting programs, making
no mention of, or connection to Plaintiff’s decision to pay VECO for work performed under the
contracts at issue. Without more, these provisions provide little support for the notion that VECO’s
SDVOSB status was material to Plaintiff’s decision to pay VECO.
Under Escobar, whether the government has deemed compliance with statutory,
regulatory, or contractual requirements as a condition of payment is relevant, but not dispositive,
when evaluating FCA materiality. See Escobar, 136 S. Ct. at 2001. In this case, Plaintiff has not
alleged that it expressly conditioned payment to VECO on VECO’s compliance with SDVOSB
contracting requirements. While this is not dispositive of the materiality inquiry, it is nonetheless
relevant and tends to suggest that VECO’s SDVOSB status was not material to Plaintiff’s payment
decisions.
Another factor to consider under Escobar is “evidence that the defendant knows that the
Government consistently refuses to pay claims in the mine run of cases based on noncompliance
with the particular statutory, regulatory, or contractual requirement.” Id. at 2003. Here, Plaintiff’s
Complaint lacks any such allegations. Plaintiff does allege several times that Defendants certified
or verified that VECO met SDVOSB contracting requirements, “with knowledge” that VECO did
not meet such requirements. But that is different than alleging that Defendants had knowledge that
Plaintiff, as a matter of course, refuses to pay SDVOSBs because of non-compliance with
SDVOSB contracting requirements. The latter would tend to establish that compliance is material
to Plaintiff’s payment decision, while the former goes to the Act’s scienter requirement.

18

Escobar also provides that “if the Government pays a particular claim in full despite its
actual knowledge that certain requirements were violated, that is very strong evidence that those
requirements are not material.” Id. It is unclear from the four corners of Plaintiff’s Complaint
whether Plaintiff continued to pay Defendants in full while knowing of VECO’s failure to qualify
as an SDVOSB. In 2011, the VA investigated VECO’s SDVOSB eligibility and determined that
VECO was eligible based on Defendants’ allegedly false submissions. Id. However, the Complaint
provides no information as to whether payment to VECO ceased during this inquiry. The inquiry
itself does show that VECO’s SDVOSB status was important enough to Plaintiff to warrant some
level of investigation, but the Complaint fails to make any allegations that connect the investigation
into VECO’s status to Plaintiff’s payment determination. Nor does it provide any information
regarding whether VECO could have been terminated from the contracts it had already been
awarded—thus barring receipt of claims for payment on active contracts.
Plaintiff argues that it has “clearly alleg[ed] materiality” because “[t]he Complaint
repeatedly allege[s] that had the government known that VECO did not, in fact, meet all of the
applicable requirements to be an SDVO small business, it would not have awarded these
contracts[.]” ECF No. 35-3 at 3 (citing ECF No.1 at ¶¶ 112, 118, 125, 132, 139, 146, 153, 160,
167, 174). Accepting these factual allegations as true, as the Court is required to do when
adjudicating a motion to dismiss, they merely assert that the alleged false certifications or
verifications of compliance with SDVOSB status requirements were material to Plaintiff’s
decision to award the contracts—and they, nor any of the other allegations in the Complaint,
connect the alleged falsities to Plaintiff’s decisions to pay VECO’s claims for work performed
under those contracts.

19

In theory, the fact that a company violated qualifications necessary for participation in
special contracting programs could be material to the government’s decision to pay that company
for work performed under awarded contracts. See Escobar, 136 S. Ct. at 2002 (rejecting the
Government’s theory of liability because it failed to recognize that “misrepresenting compliance
with a condition of eligibility to even participate in a federal program” could expose a defendant
to FCA liability); see also Lacey, 14-cv-5739 (AJN), 2017 WL 5515860, at *9-*10 (finding
plaintiff adequately pleaded materiality under Escobar in part because plaintiff cited “numerous
cases” in which plaintiff terminated home health agencies for failure to comply with program
standards, and “by extension” those terminated agencies were no longer entitled to payment of
their claims). But here, Plaintiff’s Complaint fails to “present concrete allegations from which the
court may draw the reasonable inference” that Defendants’ alleged falsities “caused [Plaintiff] to
make the reimbursement decision.” See Coyne v. Amgen, Inc., 17-1522-cv, 2017 WL 6459267, at
*2 (2d Cir. 2017) (summary order) (citing Chorches, 865 F.3d at 78). Therefore, Plaintiff has failed
to adequately allege materiality.
C. Whether the Materiality Standard Applies to all Plaintiff’s Claims under Counts
I and II
Plaintiff asserts that it has adequately pleaded the falsity or fraudulence of Defendants’
certifications and verifications under Counts I and II based on theories of express false
certification, implied false certification, and fraudulent inducement.4 See generally ECF Nos. 23,

4

Defendants assert that Plaintiff fails to state a viable FCA cause of action under a theory of factual falsity.
ECF No. 13-2 at 14; 18-2 at 7; 19-1 at ¶ 10(b). Plaintiff seemingly concedes this point and does not counter this
argument in its Opposition Brief, or any of its subsequent submissions. See generally ECF No. 23. In this case, Plaintiff
has not alleged that Defendants failed to provide the contracted for construction services, which included road repair
and sprinkler and ceiling repair services, nor has Plaintiff alleged that Defendants provided an incorrect description
of these services. Therefore, Plaintiff’s Complaint fails to establish the element of a “false or fraudulent” claim for
payment on a theory of factual falsity and Plaintiff’s causes of action under 3729(a)(1)(A) and (B) fail under such a
theory. See New York ex rel. Khurana v. Spherion Corp., No. 15-cv-6605, 2016 WL 6652735, at *15 (S.D.N.Y. Nov.

20

35. Escobar, which was an implied false certification case, did not clarify whether the materiality
standard applies to all causes of action brought under § 3729(a)(1)(A) or only causes of action
brought specifically on an implied false certification theory. See John H. Krause, Reflections on
Certification, Interpretation, and the Quest for Fraud that “Counts” Under the False Claims Act,
2017 U. Ill. L. Rev. 1811, 1835-36 (2017).
Since Escobar, there is uncertainty as to whether the decision’s materiality standard applies
to all FCA claims brought under § 3729(a)(1)(A), only a subset of claims (i.e., it applies to theories
of legal falsity but not factual falsity), or only those claims relying on an implied certification
theory. See United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 902-07 (9th Cir. 2017)
(applying Escobar’s materiality standard to the theories of factual falsity, implied false
certification, and “promissory fraud” or fraudulent inducement); D’Agostino v. ev3, Inc., 845 F.3d
1, 7-8 (1st Cir. 2016) (applying Escobar’s materiality standard to a fraudulent inducement claim);
United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 500 (8th Cir. 2016) (applying
Escobar’s materiality standard to an FCA fraudulent inducement claim); Lacey, 14-cv-5739
(AJN), 2017 WL 5515860, at *6-*11 (S.D.N.Y. Sept. 26, 2017) (stating that Escobar’s materiality
standard applies to all legally false claims, but not applying the materiality standard to a factually
false claim that was “based on fraudulent inducement.”); United States ex rel. Forcier v. Comput.
Sciences Corp., 12 Civ. 1750 (DAB), 2017 WL 3616665, at *7 (S.D.N.Y. Aug. 10, 2017) (stating
that “[w]hether asserted on a theory of factual falsity or legal falsity, a false claim must have
influenced the government’s decision to pay” or “[p]ut differently, the misrepresentation must
have been material”); United States v. Catholic Health Sys., 12-CV-4425 MKB), 2017 WL

10, 2016) (finding factual falsity theory failed where plaintiff alleged neither that defendant actually failed to provide
the services for which payment was sought, nor that plaintiff provided an incorrect description of those services).

21

1239589, at *21 (E.D.N.Y. March 31, 2017) (stating that Escobar “adopted the materiality test for
implied-false-certification claims”); United States ex rel. Scharff v. Camelot Counseling, 13-cv3791 (PKC), 2016 WL 5416494, at *3 (S.D.N.Y. Sept. 28, 2016) (stating that Escobar’s
materiality standard applies to legally false claims “that falsely certify compliance with a
regulation or a statute”).
The Second Circuit has not explicitly addressed this issue, but its post-Escobar decision in
Bishop II suggests that the standard applies to all misrepresentations of compliance with statutory,
regulatory or contractual requirements brought under the Act—not only those brought under an
implied certification theory. In Bishop II, the Second Circuit stated that “Escobar set out a
materiality standard for FCA claims[,]” divorced from any mention that the requirement applies
only to specific theories of falsity. Bishop II, 870 F.3d at 106. In addition, the Bishop II Court
found that “although Escobar was an implied certification case, it also abrogated Mikes’s
particularity requirement for express false certification claims.” Id. at 106. The Bishop II Court
went on to explain, citing Escobar, that the prophylactic purpose of this express false certification
requirement could “be effectively addressed through strict enforcement of the [FCA]’s materiality
and scienter requirements.” Id. at 107. This clearly suggests that Escobar’s materiality requirement
applies not only to implied false certification claims, but to express false certification claims as
well. If the Bishop II Court had intended Escobar’s materiality requirement to be limited to implied
certification claims it would not have reasoned that Mikes’s particularity requirement was no
longer necessary because Escobar’s materiality requirement would serve the purpose for which
the particularity requirement had been established. Though Escobar’s holding with respect to
materiality altered the FCA landscape,5 the concept that an alleged falsity or fraudulence must bear

5

In Escobar, the Court noted that“[instead of adopting a circumscribed view of what it means for a claim to
be false or fraudulent,” concerns about fair notice and open-ended liability “can be effectively addressed through strict

22

some relationship to the government’s disbursement decision is hardly novel in FCA law in this
Circuit. See Kirk, 601 F.3d at 114 (“Because the language of the FCA plainly links the wrongful
activity to the government's decision to pay, the statute does not encompass those instances of
regulatory noncompliance that are irrelevant to the government's disbursement decisions”) (citing
Mikes, 274 F.3d at 697) (alterations, internal citations, and internal quotations omitted).
Based on the foregoing analysis, the Court finds that Escobar’s materiality standard applies
to all of Plaintiff’s claims brought under § 3729(a)(1)(A) regardless of whether those claims were
brought under a theory of implied false certification, express false certification, or fraudulent
inducement. In this case, all of Defendants’ alleged falsities were “misrepresentations about
compliance with regulatory [and] statutory . . . requirements”—specifically Defendants falsely
certified or verified that VECO complied with SDVOSB contracting requirements. Therefore,
under Bishop II, the materiality standard must be applied. Additionally, because § 3729(a)(1)(B)
also requires materiality, Plaintiff’s claims under that subsection fail for the same lack of
materiality as Plaintiff’s claims under subsection (A). See Coyne, 17-1522-cv, 2017 WL 6459267,
at *2 n. 2 (summary order); see also Hussain, 14-CV-9107(JPO), 2017 WL 4326523, at *8
(“Courts generally treat these two provisions together”). Accordingly, Plaintiff’s Count I and
Count II FCA claims are dismissed as to all Defendants.
D. Count III (§ 3729(a)(1)(C))
A defendant is liable under Section 3729(a)(1)(C) if he “conspires to commit a violation of
subparagraph (A) [or] (B).” 31 U.S.C. § 3729(a)(1)(C). Defendants have argued for dismissal of

enforcement of the Act's materiality and scienter requirements” thus shifting the focus from whether alleged
misrepresentations render a claim for payment actually false under circumscribed definitions of the various theories
of liability to whether an alleged misrepresentation is materially false.

23

Count III on several grounds, including that Plaintiff has failed to allege an unlawful agreement
among the Defendants.6 ECF No. 13-2 at 20-21. The Court agrees.
Plaintiff’s Complaint is entirely devoid of any allegations that Defendants entered into an
unlawful agreement. This fails to satisfy Rule 9(b)’s particularity standard and is fatal to Plaintiff’s
FCA conspiracy claim. See Ladas, 824 F.3d at 27 (affirming dismissal of FCA conspiracy cause
of action where plaintiff’s complaint “fail[ed] to identify a specific statement where [defendants]
agreed to defraud the government.”) (citation omitted); see also Scharff, 13-cv-3791 (PKC) 2016
WL 5416494, at *9 (finding plaintiff’s FCA conspiracy claim “[fell] far short of the pleading
requirements of Rule 9(b)” where the “[c]omplaint [made] no allegations as to the existence of any
agreement to violate the FCA.”). Count III is hereby dismissed under Rule 9(b).7
Since Plaintiff’s FCA claims under Counts I, II, and III are dismissed in their entirety for
all the reasons stated above, the Court need not reach Defendants’ other arguments with respect to
Plaintiff’s FCA claims.
III.

Common Law Fraud and Unjust Enrichment Claims
Remaining after dismissal of Plaintiff’s FCA claims are its claims for common law fraud

and unjust enrichment. These claims fell within the court’s supplemental jurisdiction under 28
U.S.C. § 1367(a), and “the decision whether to decline to exercise supplemental jurisdiction is
purely discretionary” (Oneida Indian Nation v. Madison County, 665 F.3d 408, 437 (2d Cir. 2011)
(quoting Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S. 635, 129 S. Ct. 1862, 1866 (2009)).

6

Plaintiff concedes that it has not adequately alleged an FCA conspiracy under Rule 9(b), but requests leave
to amend its Complaint. ECF No. 23 at 25. Plaintiff’s request for Leave to Amend is addressed below.
7
The Court notes that Plaintiff’s FCA conspiracy claim fails for the separate reason that a plaintiff cannot
allege a conspiracy to commit an FCA violation when it has failed to adequately allege an underlying violation of the
statute. Thus, because Plaintiff’s FCA causes of action under (a)(1)(A) and (a)(1)(B) are dismissed, dismissal of
Plaintiff’s conspiracy claim is warranted. See Bishop I, 823 F.3d at 50 (“[R]elators cannot show a conspiracy to commit
fraud given that they have not sufficiently pleaded fraud under the FCA.”).

24

Because the Court has dismissed the FCA claims over which it had original jurisdiction, the
balance of several factors, including judicial economy, convenience, fairness, and comity weigh
against this Court’s continued exercise of jurisdiction over these claims. See Carnegie–Mellon
University v. Cohill, 484 U.S. 343 (1988). Therefore, we decline to exercise jurisdiction over
Plaintiff’s state law claims and Plaintiff’s common law fraud and unjust enrichment claims are
hereby dismissed.
IV.

Leave to Amend
Courts “should freely give leave to amend a complaint when justice so requires.” Williams

v. Citigroup Inc., 659 F.3d 208, 212 (2d Cir. 2011) (citing Fed. R. Civ. P. 15(a)(2)) (internal
quotation marks omitted). This is a “permissive standard” because of a “strong preference for
resolving disputes on the merits.” Id. at 212-13 (citing New York v. Green, 420 F.3d 99, 104 (2d
Cir. 2005).
Plaintiff has requested leave to file an amended complaint in order “address . . . claims that
the court deems warrant dismissal.” ECF No. 23 at 25-26. Defendants Carter, SCI, and Strock
move to preclude Plaintiff from filing an amended complaint, arguing that leave to amend should
be denied because Plaintiff conducted a lengthy four-year investigation before filing its Complaint
and any attempts at amendment would be futile. ECF Nos. 13-2 at 3; 18-1 at ¶ 2; 27 at 7.
In the time since Plaintiff filed its Complaint, Escobar has abrogated some of the
requirements for adequately pleading an FCA cause of action under Mikes (which was previously
the seminal FCA case in this Circuit) and its full ramifications are not yet known. See Hussain,
14-CV-9107(JPO), 2017 WL 4326523, at *3 n. 1 (“The FCA case law is a precedential
minefield”). Due to the shifts in FCA case law since the Plaintiff filed its Complaint and the parties

25

filed their briefs, fairness militates granting Plaintiff a chance to amend its Complaint. Plaintiff’s
request for leave to amend is GRANTED.
CONCLUSION
For all of the foregoing reasons, Plaintiff’s Motion (ECF No. 35) is GRANTED and
Defendants’ Motions to Dismiss (ECF Nos. 13, 17, 18, 19) are GRANTED. Plaintiff has 30 days
from the date of this Decision & Order to file an amended complaint. If Plaintiff does not file an
amended complaint within 30 days, the Clerk of Court is directed to close this case without further
Order.

IT IS SO ORDERED.
Dated: January 31, 2018
Rochester, New York
______________________________________
HON. FRANK P. GERACI, JR.
Chief Judge
United States District Court

26