United States of America v. Document Reprocessors of New York, Inc.
Filing
49
DECISION AND ORDER granting in part and denying in part 41 Motion to Dismiss. Signed by Hon. Elizabeth A. Wolford on 09/19/2023. (CDH)
Case 6:20-cv-06167-EAW Document 49 Filed 09/19/23 Page 1 of 14
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
__________________________________________
UNITED STATES OF AMERICA, ex rel.
QUINTIN J. SCHWARTZ, SR.,
Plaintiff,
DECISION AND ORDER
v.
20-cv-6167 EAW
DOCUMENT REPROCESSORS OF
NEW YORK, INC., ERIC LUNDQUIST, and
MURIEL LUNDQUIST,
Defendants.
____________________________________________
INTRODUCTION
Plaintiff-Relator Quintin J. Schwartz, Sr. (“Relator”) alleges a claim under the qui
tam provisions of the False Claims Act, 31 U.S.C. §§ 3729-3732 (the “FCA”). (Dkt. 34).
In the amended complaint, which is the operative pleading, Relator asserts that defendants
Document Reprocessors of New York, Inc. (“DRNY”), Eric Lundquist, and Muriel
Lundquist (collectively “Defendants”) made false representations and certifications under
the Davis-Bacon Act, 40 U.S.C. § 3141, and other prevailing wage and benefit
requirements applicable to “Defendants’ General Service Administration (‘GSA’) Federal
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Supply Schedule contract (GS-10F00126X)[.]” (Id. at ¶ 2). Relator further claims that he
was fired in retaliation for his efforts to stop this wrongdoing. (Id. at ¶¶ 56-58).1
Defendants have moved to dismiss the amended complaint for failure to comply
with Federal Rule of Civil Procedure 9(b). (Dkt. 41). For the reasons that follow, the Court
grants in part and denies in part Defendants’ motion.
BACKGROUND
I.
Factual Background
The following facts are taken from the amended complaint. As is required at this
stage of the proceedings, the Court treats Relator’s factual allegations as true.
DRNY is a New York corporation with its principal place of business in Penn Yan,
New York. (Dkt. 34 at ¶ 12). It is hired by “corporations, businesses and governmental
entities to recover and restore books, documents and other media that had been damaged
by fire or flooding, often in connection with some unanticipated disaster such as hurricanes
or other extreme weather.” (Id. at ¶ 18). Mr. Lundquist is DRNY’s Chief Executive
Officer, while Ms. Lundquist is Vice-President and Secretary. (Id. at ¶¶ 13-14). Mr. and
Ms. Lundquist are each a 50% owner of DRNY. (Id.).
Relator was employed by DRNY for more than 28 years. (Id. at ¶ 11). He
eventually became General Manager. (Id. at ¶ 17). In that role, Relator “made all the
arrangements and preparations for locating, removing and restoring the relevant materials,
Although Relator does not make this distinction in his amended complaint, the Court
notes that claims of retaliation under the FCA are individual claims and are distinct from
qui tam claims brought on behalf of the United States. See United States ex rel. Chorches
for Bankr. Est. of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 75 (2d Cir. 2017).
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organized and supervised the required personnel and personally participated in the project
from beginning to end, on site and otherwise.” (Id. at ¶ 22). Relator’s responsibilities were
“primarily focused on operations.” (Id. at ¶ 25). “Administrative tasks, such as payroll,
were delegated primarily to the ‘office manager.’” (Id.).
In roughly 2008, Defendants became interested in obtaining a contract with GSA.
(Id. at ¶ 26). A now-deceased DRNY employee named Duncan Rioche took the lead in
pursuing a GSA contract. (Id.). His efforts succeeded in February of 2011. (Id.).
“[P]otential customers . . . will generally assign greater credibility” to GSA-approved
contractors, and GSA-approved contractors “will generally prominently display this
qualification in their advertising and promotional materials.” (Id. at ¶ 27). GSA-approved
contractors are required to pay employees “prevailing rates” of wages and benefits. (Id. at
¶ 29); see also 40 U.S.C. § 3145(a).
DRNY had a successful year in 2012, “largely owing to the Hurricane Sandy
disaster that struck Jersey City, NJ particularly hard, causing major flooding of government
offices.” (Dkt. 34 at ¶ 32). DRNY entered into a contract with Jersey City worth roughly
$8-10 million (the “Jersey City contract”). (Id. at ¶ 33).
The Jersey City contract was suspended in 2015 before all of the contracted work
was completed. (Id. at ¶ 34). In October of 2017, Jersey City issued a request for proposal
to complete the remainder of the work. (Id.). DRNY was the successful bidder and was
awarded a renewed contract (the “renewed Jersey City contract”). (Id. at ¶ 35). The
renewed Jersey City contract “involved [Federal Emergency Management Agency
(‘FEMA’)] funds and was thus subject to the GSA prevailing wage requirements.” (Id.).
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In August of 2018, Mr. Lundquist began taking the position that the renewed Jersey
City contract was “not subject to GSA prevailing wage requirements[.]” (Id. at ¶ 36). Mr.
Rioche, who at the time was suffering from a terminal illness, believed that the prevailing
wage requirements did apply to the renewed Jersey City contract. (Id. at ¶ 37).
As Mr. Rioche became increasingly unable to work, Relator took on additional
responsibility for “the tasks associated with ensuring GSA compliance[.]” (Id. at ¶ 38).
Mr. Rioche had applied to GSA for a “mass modification” in early 2019, but the request
was denied “primarily because the application could not establish compliance with
prevailing wage and benefit requirements.” (Id.). Relator was “working to fix this
problem” in July of 2019, and contacted Belinda Wilcox, DRNY’s office manager,
“seeking assurance that DRNY was in compliance with prevailing wage and benefit rates
as required by the GSA[.]” (Id. at ¶¶ 38-39). Ms. Wilcox did not provide the requested
assurance. (Id. at ¶ 40).
In November of 2019, Ms. Wilcox sent an email to Mr. Lundquist in which she
“provided . . . specific details establishing that GSA prevailing wage requirements were
not being met.” (Id. at ¶¶ 40-41). Mr. Lundquist continued to take the position that “GSA
requirements applied only to contracts directly with the federal government[.]” (Id. at
¶¶ 43-44). Relator “continued to protest and encourage Defendants to bring DRNY into
compliance.” (Id. at ¶ 46). Relator also refused to sign submissions to the GSA certifying
that DRNY was complying with its obligations.
terminated on February 19, 2020. (Id. at ¶ 50).
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(Id.).
Relator’s employment was
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II.
Factual Background
Relator commenced this action on March 20, 2020. (Dkt. 1). Only DRNY was
named as a defendant in the original complaint. (Id.). Pursuant to 31 U.S.C. § 3730(b)(2),
the matter was automatically sealed.
On August 10, 2021, the United States advised the Court pursuant to 31 U.S.C.
§ 3730(b)(4)(B) that it declined to intervene in the matter. (Dkt. 12). On August 17, 2021,
the Court entered an Order unsealing the complaint and directing that it be served by
Relator. (Dkt. 13).
DRNY moved to dismiss the original complaint on May 23, 2022. (Dkt. 26). Upon
consent of all parties, the Court entered an Order on July 26, 2022, granting DRNY’s
motion to dismiss without prejudice and authorizing Relator to file an amended complaint.
(Dkt. 33). Relator filed the amended complaint on August 24, 2022, adding the Lundquists
as defendants. (Dkt. 34). The amended complaint contains two causes of action: (1)
“FRAUDULENT CLAIMS AND RECORDS IN VIOLATION OF 31 U.S.C.
§3729(A)(1)(A) AND (B)” and (2) “RETALIATION [31 U.S.C. §3730(H)].” (Dkt. 34 at
10-11 (brackets in original)).
Defendants moved to dismiss the amended complaint on November 28, 2022. (Dkt.
41). Relator filed a response on January 6, 2023 (Dkt. 45), and Defendants filed a reply on
January 27, 2023 (Dkt. 48).
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DISCUSSION
I.
Standard of Review
“The FCA is an anti-fraud statute that may be enforced not just through litigation
brought by the Government itself, but also through civil qui tam actions that are filed by
private parties, called relators, in the name of the Government.” United States ex rel.
Chorches for Bankr. Est. of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 81 (2d Cir.
2017) (quotations omitted). Under the FCA, any person who “knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or approval” or who
“knowingly makes, uses, or causes to be made or used, a false record or statement material
to a false or fraudulent claim” may be held liable. 31 U.S.C. § 3729(a)(1)(A), (B). “The
FCA defines a ‘claim’ as ‘any request or demand . . . for money or property’ that is
presented, directly or indirectly, to the United States.” Chorches, 865 F.3d. at 81 (quoting
31 U.S.C. § 3729(b)(2)(A)).
Federal Rule of Civil Procedure 9(b) provides: “[i]n alleging fraud or mistake, a
party must state with particularity the circumstances constituting fraud or mistake.” “The
Rule 9(b) principles apply to complaints filed under the False Claims Act[.]” United States
ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 26 (2d Cir. 2016); see also Chorches, 865 F.3d
at 81 (“Qui tam complaints filed under the FCA, because they are claims of fraud, are
subject to Rule 9(b).”). To satisfy Rule 9(b), a complaint alleging fraud generally 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.” Ladas, 824 F.3d at 25 (internal quotation marks omitted).
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As a threshold matter, Relator argues that he was not required to state his claims
with particularity, relying on Bishop v. Wells Fargo & Co., 870 F.3d 104 (2d Cir. 2017).
(See Dkt. 45 at 6-7). Relator misunderstands the holding in Bishop. In Bishop, the Second
Circuit concluded that an earlier decision, Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001),
had been abrogated by the Supreme Court’s decision in Universal Health Servs., Inc. v.
United States and Massachusetts, ex rel. Julio Escobar and Carmen Correa, 579 U.S. 176
(2016). In Mikes, the Second Circuit held that a claim is expressly false for purposes of
the FCA only if it “falsely certifies compliance with a particular statute, regulation or
contractual term, where compliance is a prerequisite to payment.” 274 F.3d at 698
(emphasis added).
The Bishop court termed this holding the “Mikes particularity
requirement,” and concluded that it “did not survive Escobar.” 870 F.3d at 106. In other
words, Bishop addresses the substantive standards for succeeding on an express false
certification claim under the FCA; it does not discuss or impact the applicability of Rule
9(b)’s particularity requirement to FCA claims. Moreover, Escobar itself states: “False
Claims Act plaintiffs must . . . plead their claims with plausibility and particularity under
Federal Rules of Civil Procedure 8 and 9(b)[.]” 597 U.S. at 195 n.6 (emphasis added).
Post-Bishop, the Second Circuit has continued to apply Rule 9(b) to qui tam claims
under the FCA, and has continued citing Chorches and Ladas. See, e.g., United States v.
Strock, 982 F.3d 51, 59 (2d Cir. 2020); Judd Burstein, P.C. v. Long, 797 F. App’x 585, 588
(2d Cir. 2019); United States ex rel. Gelbman v. City of New York, 790 F. App’x 244, 247
(2d Cir. 2019); United States ex rel. Pelullo v. Am. Int’l Grp., Inc., 757 F. App’x 15, 17
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(2d Cir. 2018). The Court accordingly applies the Rule 9(b) pleading standard to Relator’s
first cause of action, alleging fraud under the FCA.
Relator’s second cause of action asserts a retaliation claim under the FCA. “A
plaintiff need not plead an FCA retaliation claim with particularity because no showing of
fraud is required.” United States v. N. Adult Daily Health Care Ctr., 205 F. Supp. 3d 276,
297 (E.D.N.Y. 2016); see also Chorches, 865 F.3d at 95 (“The particularity requirement
of Rule 9(b) does not apply to retaliation claims under the FCA.”). Instead, such claims
are reviewed under the plausibility standard of Rule 12(b)(6). Pursuant to that standard, a
court must consider the motion by “accepting all factual allegations as true and drawing all
reasonable inferences in favor of the plaintiff.” Trs. of Upstate N.Y. Eng’rs Pension Fund
v. Ivy Asset Mgmt., 843 F.3d 561, 566 (2d Cir. 2016). To withstand dismissal, a claimant
must set forth “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Turkmen v. Ashcroft, 589 F.3d 542,
546 (2d Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
II.
Relator’s Claims
The amended complaint contains two causes of action: (1) “FRAUDULENT
CLAIMS AND RECORDS IN VIOLATION OF 31 U.S.C. §3729(A)(1)(A) AND (B)”
and (2) “RETALIATION [31 U.S.C. §3730(H)].” (Dkt. 34 at 10-11 (brackets in original)).
Defendants seek dismissal of Relator’s claims, arguing that he has not identified any
alleged false claims presented or caused to be presented to the government for payment by
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DRNY and that his allegations are insufficient to pierce the corporate veil and state claims
against the Lundquists as individuals. Defendants make no substantive argument regarding
the retaliation claim.
Relator argues in opposition that he has alleged that: “a) DRNY obtained and
advertised itself as having obtained GSA certification whereupon prevailing wage
requirements applied; b) DRNY was awarded an approximately $8- $10 million contract
disaster relief contract with Jersey City funded by FEMA that required prevailing wages
be paid to employees; and c) DRNY was not in compliance with prevailing wage
requirements with respect to many employees.”
(Dkt. 45 at 8-9 (internal citations
omitted)). Relator further argues:
If Defendants’ position is that these allegations do not set forth that any false
claims were actually submitted – that is, that the Defendants never certified
their payrolls for the Jersey City contract, never submitted requests for
payment and never actually received payment on that contract – then in the
face of what is already alleged (and even documented) they should be made
to say so in a responsive pleading. Moreover, the FCA applies not only to
false claims actually submitted, but to a conspiracy to submit them.
(Id. at 9). Finally, Relator argues that the amended complaint does not attempt to pierce
the corporate veil with respect to the Lundquists, but instead “alleges a conspiracy to
violate the FCA which seems to include the two principals of DRNY.” (Id.).
A.
FCA Fraud Claim
“Fraud under the FCA has two components: the defendant must submit or cause the
submission of a claim for payment to the government, and the claim for payment must
itself be false or fraudulent.” Chorches, 865 F.3d at 83 (alteration and citation omitted).
“A successful FCA claim generally occurs in one of three forms: (1) a factually false claim;
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(2) a legally false claim under an express false certification theory; and (3) a legally false
claim under an implied certification theory.” United States ex rel. Foreman v. AECOM,
19 F.4th 85, 104 n.7 (2d Cir. 2021) (quotation omitted), cert. denied, 142 S. Ct. 2679
(2022). In this case, Relator purports to state an “express false certification claim.” (Dkt.
45 at 7).2 “An express false certification occurs when a claimant explicitly represents that
he or she has complied with a contractual condition, but in fact has not complied.”
Foreman, 19 F.4th at 104 n.7 (citation omitted).
“[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 False Claims Act.”
Id. at 192.
“The materiality standard is
demanding. The False Claims Act is not an all-purpose antifraud statute, or a vehicle for
punishing garden-variety breaches of contract or regulatory violations.” Id. at 194 (citation
and quotation omitted).
“[A] complaint can satisfy Rule 9(b)’s particularity requirement by making
plausible allegations creating a strong inference that specific false claims were submitted
to the government and that the information that would permit further identification of those
claims is peculiarly within the opposing party’s knowledge.” Chorches, 865 F.3d at 83.
The issue before the Court is thus whether the factual allegations in the amended complaint
By contrast, an implied false certification claim “arises where the defendant submits
a claim for payment, impliedly certifying compliance with conditions of payment while
omitting its violations of statutory, regulatory, or contractual requirements, and these
omissions render the representations misleading.” Foreman, 19 F.4th at 104 n.7. Relator
does not purport to assert an implied false certification claim. (See Dkt. 45 at 7 (“The case
at bar is an express false certification claim[.]” (internal quotation marks omitted)).
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create a strong inference that Defendants submitted claims to the government containing
material misrepresentations. They do not.
The Court will assume for purposes of its analysis that the submission of a request
for payment to Jersey City in connection with either the Jersey City contract or the renewed
Jersey City contract constituted a “claim” for FCA purposes because Jersey City had
received funds from FEMA. See Escobar, 579 U.S. at 182 (explaining that a claim under
the FCA “includes direct requests to the Government for payment as well as reimbursement
requests made to the recipients of federal funds under federal benefits programs”). The
Court will further assume that DRNY made such requests; this is a reasonable inference
based on the fact that DRNY is alleged to have performed work under the relevant contracts
for several years.
Even making these assumptions in Relator’s favor, the amended complaint is devoid
of any facts plausibly—much less strongly—supporting the inference that DRNY’s
requests for payment contained material misrepresentations. Relator has alleged nothing
regarding the form of such requests, and in particular about what information they would
have contained. The amended complaint does not address what Jersey City—the entity
allegedly receiving the requests for payment—knew or understood about the wages being
paid to DRNY’s employees, nor does it allege any facts supporting the inference that
payment requests submitted to Jersey City would have contained any kind of express
certification regarding the payment of prevailing rates of wages and benefits.
Relator’s theory appears to be that DRNY having held itself out as a GSA-approved
contractor is the requisite false representation. However, Relator does not allege that this
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statement was false. To the contrary, Relator acknowledges in the amended complaint that
DRNY obtained a GSA contract in February of 2011. (Dkt. 34 at ¶ 26).
Moreover, the amended complaint does not contain any allegations supporting the
inference that compliance with prevailing wage requirements was material to Jersey City’s
payment decision.
Factors relevant to assessing materiality include “whether the
government expressly identified a provision as a condition of payment,” “the government’s
response to noncompliance with the relevant contractual, statutory, or regulatory
provision,” and “whether the defendants’ alleged noncompliance was substantial.” Strock,
982 F.3d at 62-65. The amended complaint lacks any information regarding whether Jersey
City required compliance with prevailing wage requirements as a condition of payment or
what its reaction was to failure to comply with such requirements. These factors thus do
not support a finding of materiality.
As to the final factor, Relator has attached to the amended complaint a spreadsheet
purporting to show the shortfall in wages and benefits that DRNY was paying certain of its
employees. (Dkt. 34-3). However, the amended complaint states that this spreadsheet is
only a “small sample of the wages and benefits DRNY was actually paying as compared
with the prevailing wages[.]” (Dkt. 34 at ¶ 37). The amended complaint again lacks
information from which any inferences can be drawn regarding the extent of DRNY’s
alleged failure to comply with prevailing wage requirements.
The Court’s analysis of the FCA fraud claim is not changed by Relator’s belated
attempt to cast it as one for conspiracy to violate the FCA. The amended complaint
explicitly states that Relator is asserting a violation of “31 U.S.C. § 3729(a)(1)(A) and (B).”
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(Dkt. 34 at 10). It is 31 U.S.C. § 3729(a)(1)(C) that establishes liability for conspiracy to
violate the FCA, and that statutory provision is cited nowhere in the amended complaint,
nor does the amended complaint ever discuss any alleged conspiracy. It is well-established
that new claims may not be raised in opposition to a motion to dismiss. See, e.g., Mathie
v. Goord, 267 F. App’x 13, 14 (2d Cir. 2008); Louis v. New York City Hous. Auth., 152 F.
Supp. 3d 143, 158 (S.D.N.Y. 2016).3
In sum, Relator has not made “plausible allegations creating a strong inference that
specific false claims were submitted to the government[.]” Chorches, 865 F.3d at 83. His
qui tam FCA fraud claim must be dismissed for failure to satisfy Rule 9(b).
B.
FCA Retaliation Claim
Relator also asserts an individual claim for retaliation under the FCA, based on the
termination of his employment. “To sustain an action for retaliatory discharge under the
FCA, a plaintiff must establish: (1) that [he] engaged in conduct protected under the statute;
(2) that the defendants were aware of [his] conduct; and (3) that [he] was terminated in
retaliation for that conduct.” N. Adult Daily, 205 F. Supp. 3d at 297 (original alteration
and quotation omitted)). Protected conduct consists of “lawful acts done by the employee,
contractor, agent or associated others in furtherance of an action under this section or other
efforts to stop 1 or more violations of” the FCA. 31 U.S.C. § 3730(h)(1). A party need
The Court also notes that Relator’s cursory attempt to assert a conspiracy between
a corporation and its owners/corporate officers runs afoul of the intra-corporate conspiracy
doctrine. See United States ex rel. Ross v. Indep. Health Corp., No. 12-CV-299S, 2023
WL 24055, at *12 (W.D.N.Y. Jan. 3, 2023) (dismissing conspiracy claim under the FCA
because there was an intra-corporate relationship between the defendants).
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not succeed on the underlying FCA claim to successfully show retaliation, but “he must
demonstrate that he had been investigating matters that were calculated, or reasonably
could have led, to a viable FCA action.” N. Adult Daily, 205 F. Supp. 3d at 298 (original
alteration and quotation omitted).
Defendants’ motion to dismiss notes in passing that Relator has asserted a retaliation
claim (Dkt. 41-1 at 6), but makes no substantive arguments regarding its viability.
Defendants also do not acknowledge that retaliation claims under the FCA need not be
pleaded with particularity in accordance with Rule 9(b). Defendants have accordingly not
satisfied their burden of demonstrating that Relator’s retaliation claim should be dismissed,
and their motion is denied to the extent it seeks such relief.
CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss the amended complaint
(Dkt. 41) is granted in part and dismissed in part. Specifically, the motion is granted with
respect to the first cause of action (fraud in violation of the FCA) and denied with respect
to the second cause of action (retaliation under the FCA).
SO ORDERED.
ELIZABETH A. WOLFORD
Chief Judge
United States District Court
Dated:
September 19, 2023
Rochester, New York
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