KNISELY et al. v. SHRED - IT USA, INC. et al.
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE STEWART DALZELL ON 3/14/2014. 3/14/2014 ENTERED AND COPIES E-MAILED.(kp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
UNITED STATES OF AMERICA
ex rel. DOUGLAS KNISELY, et al.
CINTAS CORPORATION, INC.
March 14, 2014
Relator Douglas Knisely (“Knisely”) brings this action under the False Claims Act
(hereinafter "FCA"), 31 U.S.C. § 3729 et seq., alleging that Cintas Corporation, Inc. (“Cintas”)
submitted false claims to the United States for payment for shredding services that failed to
comply with size specifications in Cintas's Government contracts. Knisely also alleges that
Cintas violated the Lanham Act, 15 U.S.C. § 1125(a), by misrepresenting its compliance with
government shredding contracts in order to win other shredding business. Before us are Cintas’s
motion to dismiss, Knisely’s opposition thereto, Cintas’s reply and Knisely’s surreply. For the
reasons detailed below, we will grant Cintas’s motion in part and deny it in part.
Knisely owns and operates Knisely Security LLC which through a subsidiary provides
shredding services in central Pennsylvania. First Amended Complaint ("FAC") at ¶¶ 17-19.
Cintas is a publicly-traded $4 billion (revenue) company that offers nationwide shredding
services through one of its four subsidiaries. Id. ¶¶ 42, 44, 45, 48. Knisely Security and Cintas
are direct competitors in central Pennsylvania. Id. ¶ 250. In 2010, relator Knisely brought this
qui tam action under seal, pursuant to the False Claims Act, against Shred-It USA, Inc., Iron
Mountain, Inc., and Cintas, alleging that each defendant knowingly submitted false claims for
payment for shredding services that failed to comply with the size specifications mandated in
their contracts with the Government. Id. ¶¶ 1-5. The False Claims Act encourages those with
knowledge of fraud against the Government to bring an action as individuals and on behalf of the
Government in exchange for a share of any recovery -- including civil penalties for each false
claim and up to three times the Government’s damages. FAC ¶¶ 13-15.
On March 12, 2012, the Government notified the Court of its decision not to intervene.
We subsequently unsealed the First Amended Complaint on November 27, 2012. On December
21, 2012, Iron Mountain reached a settlement with Knisely and the United States and we
therefore dismissed it from the case. On April 11, 2013, Shred-It also settled with Knisely and
the United States and we subsequently dismissed it as well.1 On August 14, 2013 we ordered
Knisely to serve the unsealed amended complaint on Cintas.
We have federal question jurisdiction pursuant to 28 U.S.C. § 1331 and 31 U.S.C. §
3732(a) as Knisely brings his claims pursuant to the False Claims Act.
False Claims Act Violations
In his complaint Knisely alleges that Cintas has been providing document shredding
services under a General Services Administration (“GSA”) schedule to government agencies
since at least 2004. FAC ¶¶ 71, 82, 160.2 Federal agencies may use a vendor once the GSA
Iron Mountain paid $800,000.00 and Shred-It paid $300,000.00 to the Government to settle
these claims, see July 9, 2013 Department of Justice Press Release at
http://www.justice.gov/usao/pae/News/2013/July/shred-it_release.htm (last accessed on March 7,
Because we here consider a motion to dismiss, we accept all well-pled allegations as true.
Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009).
accepts that vendor’s offer in response to a GSA solicitation. Id. ¶¶ 77, 81. A vendor who
chooses to submit an offer in response to a GSA solicitation agrees to the terms and conditions of
the contract identified in the solicitation. Id. ¶ 78.
The GSA requirements for shredding and other so-called Destruction Services cover less
than three pages of the 165-page document known as a Multiple Award Schedule (“MAS” or
“schedule”) that solicits vendors for all manner of goods and services. Id. ¶ 84, see also FAC,
Ex. A at 22. Destruction services include:
[O]n-site and off-site services of classified and unclassified paper
documents, materials and magnetic media. The methods for
destruction services may be obtained through these destruction
options: shredding (e.g., paper documents, folders, newspapers,
catalog, magazines) disintegration (e.g., microfilm, microfiche, ID
cards, VHS tapes, audio cassettes, CD ROM, floppy disks,
computer tapes and computer hard drives) and incineration (e.g.,
paper documents, maps, files, envelopes, manuals, newspapers,
catalogs, magazines, blue prints).
FAC Ex. A at 22-23.
The purpose of this segment of the MAS is “to provide Federal agencies with a
customized plan for destroying government documents that is unique and cost effective to their
needs.” Id. at 23. The contract provides that “[t]hese services may be used on a nonmandatory
basis” by government agencies and “may be performed at the contractor’s facilities or the
ordering agency’s facilities.” Id. Federal law obliges each federal agency “to establish and
maintain” its own program to manage and dispose of agency records. FAC ¶ 54 (citing 44
U.S.C. § 3102). The National Archives and Records Administration (“NARA”) oversees each
agency's document and record disposition programs while the GSA is responsible for overseeing
economy and efficiency in records management. Id. ¶ 57.
The GSA schedule states in relevant part,
The following methods for [Destruction Services] may be obtained
through these material destruction options[:]
A) SHREDDING: Include both on-site and off-site for shredding
services, which is designed to handle a variety of classified and
unclassified materials. Shredders shall be designed to produce
residue particle size not exceeding 1/32 inch in width with a 1/64inch tolerance by ½ inch in length. There is no need to separate
paper grades or remove staples, clips or other bindings.
FAC Ex. A at 23 (emphasis supplied).3
Vendors must also certify destruction with a signed certificate showing the date of
destruction and the material destroyed that must be signed by “the individuals designated to
destroy and witness the destruction.” Id. at 24. “Destruction officials shall be required to know,
through their personal knowledge, that such material was destroyed” and, “[i]f required, the
contractor must destroy Government material in accordance with record disposition schedules
established by the agency.” Id.
Knisely’s qui tam claim hinges on his assertion that the Government “clearly and
unambiguously requires that document shredding services provided to United States government
agencies through [the] GSA Schedule  must use shredders designed to produce residue
particles” no larger than the size described above. FAC ¶ 87. He alleges that the import of this
size constraint arises from the difference between on-site mobile shredders and off-site
equipment. Id. ¶ 100. Federal agency customers typically deposit documents for shredding into
locked consoles throughout their offices, which the shredding vendor empties into an on-site
mobile truck or carries off-site to do the shredding. Id. ¶¶ 98, 99. About 95% of mobile
shredder trucks use a method called “pierce and tear” that shreds more quickly and cheaply than
off-site shredders but they cannot achieve the small size shreds described above. Id. ¶¶ 101, 102.
These specifications have been amended effective January 1, 2011 to permit a range of methods
including so-called "pierce and tear" and "strip cut with indefinite length" shred. See MTD Ex.
A at 5.
Knisely contends that the pierce-and-tear method “frequently leaves large sections of documents,
and in some cases entire documents, intact and easily readable.” Id. ¶ 103.
Based on his more than thirty years’ experience in the business, Knisely alleges that the
smallest shred size a mobile shredding truck can produce is 3/8 inch, and very few such trucks
are in operation. Id. ¶ 104. Shredded paper is generally sold for recycling but he asserts that the
residue particle size described in the GSA schedule is too small for that use. Id. ¶ 105-107.
Cintas sells its customers’ shredded documents to Georgia-Pacific Corporation to be recycled as
toilet tissue. Id. ¶ 174.
Knisely alleges that Cintas claims its document-destruction business handles confidential
information and helps businesses mitigate risk, but that Cintas has repeatedly failed to shred
government documents in conformity with the GSA schedule. Id. ¶¶ 165-167. On October 13,
2009, a Cintas representative, Jim Duchess, allegedly stated that Cintas’s standard shred size is
approximately 5/8 inches wide by 2 ¼ inches long and, two days later, he is said to have stated
that Cintas does not have the equipment needed to meet the shredding sizes specified in the GSA
schedule. Id. ¶¶ 170, 171. Knisely contends that Cintas has therefore acknowledged that “it
does not operate shredding equipment that can satisfy the shred size specifications mandated by”
the GSA schedule. Id. ¶ 175.
Knisely alleges that Cintas has been awarded many federal agency shredding contracts,
Department of Veteran Affairs
Social Security Administration
Department of Homeland Security
--Bureau of Citizenship & Immigration
Department of Justice
Department of Veteran Affairs
District of Columbia
Department of Justice
Department of Health and Human Services
Department of Transportation
General Services Administration
Social Security Administration
Department of Health and Human Services -- NIH
District of Columbia
District of Columbia
District of Columbia
Id. ¶ 176.
Knisely cites only one specific shred residue size for one agency among these Cintas
clients -- that is, the Social Security Administration -- which adopted a maximum shred size of
5/8 inch square. Id. ¶ 94.4
Knisely’s False Claims Act allegations rest on several contentions. First, he alleges that
Cintas has “submitted numerous false claims for payment to the United States. . . for shredding
services that fail to comply with the shred size mandated” in the GSA schedule. Id. ¶ 178. He
also contends that Cintas has submitted false records to federal agencies including the required
Certificates of Destruction, despite not having delivered the mandated services. Id. ¶¶ 179, 181,
182. Finally, Knisely alleges that in places where Cintas does not operate it farms out some
shredding to subcontractors who are managed by an Ohio-based company, CB Tech. Id. ¶ 185.
CB Tech manages government agency work for Cintas even though the subcontractors lack the
equipment necessary to conform to the GSA schedule, id. ¶¶ 194, 195, and these subcontractors’
work is another source of false claims and false Certificate of Destruction reports that Knisely
attributes to Cintas. Id. ¶¶ 197, 198, 201. The subcontracts also expose the United States to
substantial financial damage and security risks, Knisely alleges. Id. ¶ 202.
Knisely also alleges that the “Veterans Administration” maintains a shred residue standard no
larger than 1 mm by 5 mm, FAC ¶ 93, but it is unclear whether he refers to the predecessor to
the Department of Veteran Affairs or any one of the three subdivisions of the present department.
We therefore disregard this allegation.
Lanham Act Violations
Knisely also makes a claim under the Lanham Act alleging that Cintas touts its GSA
schedule and agency contracts to promote its shredding business in the private sector through
trade-show appearances and press releases that do not reveal its noncompliance. Id. ¶¶ 203-210.
Knisely alleges that Cintas marketed and advertised so-called SmartShred events to which it
dispatched mobile shredding trucks that Cintas claims “give the public a chance to safely dispose
of confidential information” in compliance with “regulatory requirements.” Id. ¶¶ 212, 214, 215.
According to Knisely, Cintas's advertising video further claims that “Cintas on-site shred units
are equipped with SmartShred, our custom shredding process that cuts paper into unidentifiable
confetti, not strips.” Id. ¶ 216. Elsewhere, Knisely alleges, Cintas has claimed it shredded
documents “by pierce [and] tear method to meet the highest (DIN Level 6) security standards,”
where DIN Level 6 is the National Security Agency’s standard for shredding top-secret
documents (1 mm x 5 mm or smaller), id. ¶ 217. In fact, he alleges, the SmartShred process is
nothing more than the pierce-and-tear method used in most mobile shredding trucks which
neither destroys documents nor renders them unidentifiable. Id. ¶¶ 218, 219.
Knisely alleges that Cintas’s dependence on paper-sale profits is the reason it does not
shred to the DIN Level 6 standard it advertises. Id. ¶¶ 222-227. Knisely claims that recycled
paper sales nearly doubled fiscal 2010 revenue growth in Cintas’s Document Management
Services Division -- which includes its Government and non-government shredding business -and that paper sale-price declines in 2012 dampened the segment’s revenue growth that year. Id.
¶¶ 224, 225.
Knisely also alleges that Cintas misrepresents its degree of quality control by citing its
AAA certification by the National Association for Information Destruction ("NAID") which
Cintas states “verifies that Cintas adheres to the stringent information destruction security
practices and standards defined by the organization.” Id. ¶ 229. A Cintas promotional video on
YouTube describes how “shredded material is securely transported back to the Cintas Document
Management facility, where it is baled and prepared for safe transfer to the recycler.” Id. In fact,
Knisely alleges, Cintas depends on CB Tech and its subcontractors -- who are not certified (but
agree to indemnify Cintas and CB Tech for any claim arising out of the subcontractors'
shredding). Id. ¶¶ 230-233. In November of 2012, CB Tech faxed a Cintas work order for its
client Shopko Hometown to Security Shredding Service, even though Security Shredding
Service was not certified by, or a member of, NAID. Id. ¶¶ 235-237. Knisely contends that
Cintas’s customers “rely on the company’s assurances that they will receive services from an
entity that ‘adheres to the stringent information destruction security practices’ required by NAID,
but they instead often receive the services of independent shredding companies that have not
been certified as adhering to those standards.” Id. ¶ 239.
Knisely also alleges that CB Tech distributes Cintas labels to its subcontractors to place
on the containers in which customers dispose of papers, creating an appearance that Cintas
employees are performing the work, id. ¶ 240, but that the subcontractors dispose of materials
according to their own practices, which CB Tech oversees. Id. ¶¶ 243, 244.
Knisely alleges that Cintas’s misrepresentations about its GSA schedule compliance,
from which it profits through paper sales, and its advertised document-destruction abilities,
deceive customers. Id. ¶¶ 248-249. As a direct competitor, Knisely Security has allegedly been,
and continues to be, injured by Cintas’s misrepresentations. Id. ¶ 251. Knisely Security claims
to have lost the following business to Cintas at least in part because of customers’ reliance on
Cintas’s misleading representations:
Edward Jones (7 branches)
State College, PA (2)
New Cumberland, PA
Camp Hill, PA
Coal Township, PA
State College, PA
State College, PA
Community Services Group
William Penn Nursing Home
Mount Nittany Medical Center
First National Bank
Sycamore Manor Health Center
Id. ¶¶ 252, 253.
On October 21, 2013, Cintas filed a motion to dismiss both of Knisely’s claims pursuant
to Fed. R. Civ. P. 9(b) and 12(b)(6). Knisely contends, in opposition, that he has satisfied the
strictures of Rule 9(b) in meeting the pleading standards for Cintas’s alleged False Claims Act
violations, and successfully alleged Lanham Act violations under Rule 8 -- the pleading standard
he contends governs such claims. Cintas replies that (1) the government’s shredding standard is
permissive; (2) Knisely fails to allege fraud with requisite specificity with regard to Cintas’s
agreements with individual federal agencies; and (3) Knisely's Lanham Act claim fails because it
relies on the flawed allegations of GSA schedule violations and does not allege with requisite
specificity how Cintas’s advertisement misled customers, under either Rule 9(b) or Rule 8 -conclusions that Knisely disputes in response.
Motion to Dismiss for Failure to State a Claim
A defendant moving to dismiss under Fed. R. Civ. P. 12(b)(6) bears the burden of
proving that the plaintiff has failed to state a claim for relief, see Fed. R. Civ. P. 12(b)(6); see
also, e.g., Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). As the Supreme Court
held in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662
(2009), in order to survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face’,” Iqbal, 556 U.S. at
678 (quoting Twombly, 550 U.S. at 570). A claim is plausible “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged,” Iqbal, 556 U.S. at 678.
Our Court of Appeals requires district courts considering a motion to dismiss under Fed.
R. Civ. P. 12(b)(6) to engage in a two-part analysis:
First, the factual and legal elements of a claim should be separated.
The district court must accept all of the complaint’s well-pleaded
facts as true, but may disregard any legal conclusions. Second, a
district court must then determine whether the facts alleged in the
complaint are sufficient to show that the plaintiff has a ‘plausible
claim for relief.’
Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009).
In deciding a motion to dismiss, all well-pleaded allegations of the complaint must be
taken as true and interpreted in the light most favorable to the plaintiffs, and all inferences must
be drawn in their favor, see McTernan v. City of York, PA, 577 F.3d 521, 526 (3d Cir. 2009)
(internal quotation marks omitted). To survive a motion to dismiss, a plaintiff must allege facts
that “raise a right to relief above the speculative level on the assumption that the allegations in
the complaint are true (even if doubtful in fact).” Victaulic Co. v. Tieman. 499 F.3d 227, 234
(3d Cir. 2007) (quoting Twombly, 550 U.S. at 555).
Pleading Standard Under The False Claims Act
It is well-established that claims under the False Claims Act must be pled with
particularity under the special pleading standard of Fed. R. Civ. P. 9(b), which states in relevant
part that “[i]n alleging fraud. . ., a party must state with particularity the circumstances
constituting fraud[.]” See United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 n.9
(3d Cir. 2004); see also United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs.,
Inc., 149 F.3d 227, 234 (3d Cir. 1998); accord Gold v. Morrison-Knudsen Co., 68 F.3d 1475,
1477 (2d Cir. 1995) (citing cases).
This heightened pleading standard serves a dual purpose. Requiring plaintiffs to plead
with particularity “place[s] the defendants on notice of the precise misconduct with which they
are charged” and also “safeguard[s] [them] against spurious charges of immoral and fraudulent
behavior.” Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir.
1984). In Judge Easterbrook’s oft-cited phrasing, plaintiffs must support their fraud allegations
under Rule 9(b) with all the essential detailed factual circumstances that constitute “the first
paragraph of any newspaper story” that is, “who, what, when, where and how.” DiLeo v. Ernst
& Young, 901 F.2d 624, 627 (7th Cir. 1990) (cited in In re Rockefeller Ctr. Props., Inc. Sec.
Litig., 311 F.3d 198, 217 (3d Cir. 2002). Our Court of Appeals has adopted a “flexible”
alternative when plaintiffs cannot plead particularized evidence of a false claim, holding the
plaintiff need not allege “date, place or time” if he can “injectprecision and some measure of
substantiation” by some other means into his allegations of fraud. Seville, 742 F.2d at 791.
As Wright and Miller teach, the degree of pleading particularity required under Rule 9(b)
rests on the nature of the underlying fraud claim. 5A Charles Alan Wright and Arthur R. Miller,
Federal Practice & Procedure, § 1298. While a simple allegation of fraud may suffice under the
Bankruptcy Code, “considerable pleading particularity may be necessary to satisfy Rule 9(b) and
to state a claim under the federal civil false claim statutes.” LaCorte, 149 F.3d at 234.
Our Court of Appeals has not specifically addressed how the Rule 9(b) pleading
requirements deal with the false-claim elements. Knisely cites cases from our district court
colleagues to urge that we apply a “generous” standard for Rule 9(b) under which he need not
identify specific claims for payment. Mem. in Opp. at 12. But Knisely misconstrues the Rule's
requirements as it pertains to his claim. He relies on United States ex rel. Wilkins v. United
Health Group, Inc., 659 F.3d 295 (3d Cir. 2011), in which our Court of Appeals noted that “to
our knowledge we have never held that a plaintiff must identify a specific claim for payment at
the pleading stage of the case to state a claim for relief.” Id. at 308 (emphasis in original). But
that passage referred specifically to the district court’s erroneous dismissal of a False Claims act
case for a failure to plead under the Rule 12(b)(6) standard for a motion to dismiss, where the
district court explicitly declined to apply the Rule 9(b) pleading requirements. Tellingly, our
Court of Appeals then continued in Wilkins, “In any event. . . the question of whether a plaintiff,
at the pleading stage, must identify representative examples of specific false claims that a
defendant made to the Government in order to plead an FCA claim properly is a requirement
under the more particular pleading standards of Rule 9(b).” Id. The Court thereafter cited with
approval Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993 (9th Cir. 2010), where that
We do not embrace the . . . categorical approach that would, as a
matter of course, require a relator to identify representative
examples of false claims to support every allegation[.] . . . We …
conclud[e], in accord with general pleading requirements under
Rule 9(b), that it is sufficient to allege “particular details of a
scheme to submit false claims paired with reliable indicia that lead
to a strong inference that claims were actually submitted.”
Id. at 998-99 (quoting United States ex rel. Grubbs v. Ravikumar Kanneganti, 565 F. 3d 180, 190
(5th Cir. 2009)).
Our colleagues have adopted that seemingly “flexible” standard for particularity where
the specific details of claims have been elusive. See, e.g., United States ex rel. Schumann v.
AstraZeneca PLC, 2010 WL 4025904 at *10 (E.D.Pa. Oct. 13, 2010) (Ditter, J.); see also United
States ex rel. Budike v. PECO Energy, 897 F.Supp.2d 300 (E.D.Pa. 2012) (Surrick, J.). In short,
even under our Court of Appeals’s so-called flexible approach to Rule 9(b), a relator must offer
particulars to satisfy both the elements of an FCA claim and the Rule 9(b) pleading standards.
We will apply that standard to Knisely’s claims.
Pleading Standard Under The Lanham Act
The Lanham Act protects the owners of federally registered trademarks from unfair
competition by requiring, inter alia, that a plaintiff demonstrates a defendant has made a false or
misleading statement as to his own product. 15 U.S.C. § 1125(a)(1)(A). Defendant Cintas urges
us to adopt the intermediate pleading standard in Max Daetwyler Corp. v. Input Graphics, Inc.,
608 F. Supp. 1549 (E.D.Pa. 1985), in which Judge Pollak held that:
The Lanham Act claim. . . is not a pure “fraud” claim and, thus,
need not satisfy all of the pleading requirements which have been
imposed under Rule 9. But the policies which underlie Rule 9’s
requirement that the nature of an alleged misrepresentation be
pleaded with specificity are equally applicable [here]. In litigation
in which one party is charged with making false statements, it is
important that the party charged be provided with sufficiently
detailed allegations regarding the nature of the alleged falsehoods
to allow him to make a proper defense.
Id. at 1556. Knisely contends his Lanham Act allegations need only meet the standard of Rule
8, which supplies general rules for pleading, requiring “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Rule 8(a)(2), and that “[e]ach allegation must be
simple, concise, and direct. No technical form is required[,]” Rule 8(d)(1).
Our Court of Appeals has not ruled whether district courts should apply a heightened
pleading standard for Lanham Act claims. Courts in the Circuit remain divided since the
Supreme Court’s decisions in Iqbal and Twombly, which required that “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face’,”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).5 But we conclude from a review of
those cases that, for the most part, those courts applying Judge Pollak’s intermediate pleading
standard to Lanham Act claims adopted it before Iqbal and Twombly. As our Court of Appeals
noted in Fowler, after these two Supreme Court decisions “pleading standards have seemingly
shifted from simple notice pleading to a more heightened form of pleading, requiring a plaintiff
to plead more than the possibility of relief to survive a motion to dismiss.” Fowler, 578 F.3d at
Because Twombly and Iqbal stepped up the Rule 8 pleading requirements, we hold that a
Lanham Act allegation requires only that a plaintiff plead sufficient facts to support his
allegation, id. at 211, and nothing more.6
See Evco Technology & Development Co., LLC v. Buck Knives, Inc., 2006 WL 2773421 at *4
(E.D.Pa. Sept. 22, 2006) (citing with approval Max Daetwyler Corp. v. Input Graphics, Inc., 608
F. Supp. 1549 (E.D.Pa. 1985); but see Mycone Dental Supply Co., Inc. v. Creative Nail Design,
Inc., 2012 WL 3599368 (D.N.J. Aug. 17, 2012) (declining to decide whether to apply a
heightened pleading standard) and UHS of Delaware, Inc. v. United Health Services, Inc., 2013
WL 1308303 (M.D.Pa. Mar. 28, 2013) (declining to adopt the Max Daetwyler intermediate
pleading standard in a Lanham Act case, inter alia, because it antedates the shift in pleading
standards as a result of Twombly and Iqbal.).
Both the Fourth Circuit, in Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250
(4th Cir. 2009), and the Sixth Circuit, in Hensley Mfg. v. ProPride, Inc., 579 F.3d 603 (6th Cir.
2009), applied the Twombly/Iqbal standard to Lanham Act claims.
The False Claims Act Allegations
One who “knowingly presents, or causes to be presented, a false or fraudulent claim for
payment or approval,” or “knowingly makes, uses, or causes to be made or used, a false record
or statement material to a false or fraudulent claim” faces liability under Section 3729(a)(1)(A)
To establish a prima facie False Claims Act violation, a plaintiff must prove that “(1) the
defendant presented or caused to be presented to an agent of the United States a claim for
payment; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or
fraudulent.” Wilkins, 659 F.3d at 305 (citing Schmidt, 386 F.3d at 242). There are two
categories of false claims under the FCA, a factually false claim where the claimant
misrepresents the goods or services it provided to the Government and a legally false claim
where the claimant knowingly falsely certifies compliance with a statute or regulation that is a
condition for Government payment. Id.
Knisely alleges Cintas violated the FCA by making factually false and legally false
claims because he contends that Cintas did not fulfill its contractual obligation to shred to the
requisite residue size and that it falsely certified it had done so, for the contractual work it did
directly and for the work it farmed out to CB Tech’s supervision. Mem. in Opp. at 1, 7-8, 10.
He urges that his forty-nine-page, 266-paragraph complaint amply states a claim for violation of
Section 3729(a)(1)(A) by: (1) alleging the false submission for payments, id. at 14; (2) naming
federal agencies contracts, with date and place of performance, awarded to Cintas, id. at 15; (3)
As amended by the Fraud Enforcement and Recovery Act of 2009 (“FERA”), Pub. L. No. 11121, 123 Stat. 1617, 1625 (applies FERA amendments to all claims under the False Claims Act
pending on or after June 7, 2008). See also United States ex rel. Wilkins v. United Health
Group, Inc., 659 F.3d 295, 303-304 (3d Cir. 2011).
reiterating the GSA schedule’s shred-size requirement, id.; and (4) demonstrating Cintas’s
knowing acts through its representative’s statements, id. at 16. He also contends he states a
claim under Section 3729(a)(1)(B) because (1) he alleges on information and belief that Cintas
submitted false records of document destruction as it never possessed the equipment necessary to
comply with the GSA schedule, id. at 17; (2) the false submissions were knowing acts because
the company representative acknowledged Cintas lacked the requisite equipment -- and we “thus
can infer that [Cintas] knew the records it submitted. . . were false,” id. at 18; and (3) these falserecord submissions were “material” to Cintas’s false claims for payment because the
certifications were necessary for payment, id.
Knisely also contends in his reply that Cintas’s motion to dismiss should be denied
because the plain language of the GSA schedule is mandatory (“Shredders shall be designed to
produce residue particle size not exceeding 1/32 inch in width with a 1/64-inch tolerance by ½
inch in length”), and any conclusion otherwise is premature on a motion to dismiss. Id. at 19-22.
Cintas cites three defects in Knisely's FCA claim: (1) the GSA schedule does not require
micro shredding but rather plainly states destruction “may be obtained” through various means,
id. at 15 (citing to FAC Ex. A at 22); (2) each federal agency must “establish and maintain” its
own destruction program, id. (id. at 22), which Cintas negotiates individually with each agency,
id. (citing to FAC ¶ 176); and (3) the GSA schedule is ambiguous because its micro shredding
standard is at odds both with the federal requirement for individual agency standards, id., and the
size limits of mobile on-site shredders that the GSA schedule permits, id. at 16.
More to the point, Cintas contends that Knisely has failed to allege an FCA violation with
the requisite Rule 9(b) precision in that Knisely failed to identify a single false claim, or the time,
place, or individuals allegedly involved in submitting any claims, id. 17-19. That failure, Cintas
contends, is fatal to Knisely's claims.
We agree. Knisely’s complaint, replete with strongly worded allegations of
unlawfulness, nevertheless fails to meet the exacting pleading standards under Rule 9(b) for an
FCA violation. For that reason we will grant Cintas’s motion to dismiss the FCA claim.
We first address Knisely’s Section 3729(a)(1)(A) claim that Cintas presented a false
claim for payment. As we noted earlier, our Court of Appeals noted that a relator “must identify
representative examples of specific false claims” at the pleading stage of an FCA claim.
Wilkins, 659 F.3d at 308 (emphasis supplied). In the absence of a specific false claim to support
every allegation, particular details of the scheme paired with reliable indicia suffice. Ebeid, 616
F.3d at 998-99. But as our Court of Appeals held in United States ex rel. Quinn v. Omnicare
Inc,. 382 F.3d 432 (3d Cir. 2004), a relator may not “merely . . . describe a private scheme in
detail [and] then . . . allege simply and without any stated reason for his belief that claims
requesting illegal payments must have been submitted, were likely submitted or should have
been submitted to the Government.” Id. at 440 (citing with approval United States ex rel.
Clausen v. Laboratory Corp. of America, 290 F.3d 1301, 1311 (11th Cir. 2002) (affirming a
motion to dismiss for failure to state “an essential element” of an FCA claim by failing to
identify an actual claim or allege such information as the amount of false charges; when false
bills were submitted, billing policies or practices).
Here, Knisely offers a picture that is both internally inconsistent and lacks the requisite
specificity to maintain an FCA claim. Knisely alleges that each federal agency must by law
devise its own customized record-disposition plan, FAC Ex. A at 23, and indeed offers an
agency-specific shredding standard for the Social Security Administration, FAC ¶ 94 -- yet he
contends that the GSA shred size limitation is mandatory, controlling, and supersedes agencies'
particularized needs, FAC ¶ 87. He alleges that Cintas’s contracts with eleven federal agencies
are subject to fraudulent claims for nonconformity to the GSA shred size, id. ¶ 176, but offers
only a single agency shred specification -- the Social Security Administration -- that exceeds the
GSA stricture, id. ¶ 94. He offers no information that any of the other federal agency
contracting with Cintas actually adopted the GSA shred standards he alleges were mandatory and
Knisely’s claims fall far short of Judge Easterbrook’s newspaper-reporting standard: He
does not allege who at Cintas perpetrated any fraud, or what billing scheme or practices those
individuals may have employed, or where or when or how the fraudulent billing occurred among
Cintas’s many federal agency clients over the multi-year fraud period he alleges. See also
Budike, 897 F.Supp.2d at 318 (relator adequately alleged who, what, where and how without
identifying a specific claim). And Knisely’s claims also fall short of our Court of Appeals’s
flexible alternative standard because he failed to inject precision or any measure of substantiation
into his claims of “a company-wide effort to defraud the government.” Mem. in Opp. at 29.
Knisely argues that his allegation that Cintas won eleven federal agency contracts over a fouryear period suffices to “identif[y] specific orders under which Cintas submitted its false claims,”
id. at 14-15. But those spare facts fail to substantiate that any claims, or even a single claim,
during that time was false. He contends that it is enough to allege, as he does, that Cintas lacked
the shredders to satisfy the GSA standard. Id. at 15-16. But without alleging which shredding
standards the federal agencies mandate, his generalization does not substantiate his claim that
Cintas’s payment claims under those contracts were false.
For similar reasons, we find that Knisely’s allegations that Cintas violated Section
3729(a)(1)(B) by creating false records of document-destruction certification also fall short of
the requisite Rule 9(b) particularity.
A “false certification” theory of liability arises where the claimant knowingly and falsely
certifies it has complied with a statute or regulation, the compliance with which is a condition for
Government payment. United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d
1211, 1217 (10th Cir. 2008). Our Court of Appeals and other Courts of Appeals recognize a
distinction between express and implied false certification, which depends on whether
compliance is overtly certified or implied by the act of submitting a claim. See id.; see also
Wilkins, 659 F.3d at 305.
Here, Knisely alleges express false certification. He cites the GSA schedule’s
requirement for a certificate of destruction, FAC ¶ 88, and alleges that, “[d]efendant Cintas has,
upon information and belief, submitted to Federal agencies numerous false records in support of
its false claims,” id. ¶¶ 179, 198.
Rule 9(b) permits pleading “based upon information and belief”, particularly where key
factual information remains within the defendant’s control. In re Burlington Coat Factory
Securities Litigation, 114 F.3d 1410, 1418 (3d Cir. 1997). But such allegations are permissible
“only if the pleading sets forth specific facts upon which the belief is reasonably based.” State
Farm Mut. Auto. Ins. Co. v. Ficchi, 2012 WL 1578247 at *5 (E.D. Pa. May 4, 2012) (Pratter, J.).
District courts in this Circuit have sometimes obliged plaintiffs even in the pleading stage of
FCA actions to provide a statement of efforts undertaken to obtain information from the
opposing party. See United States ex rel. Bartlett v. Tyrone Hospital, Inc., 234 F.R.D. 113, 122
(W.D.Pa. 2006) (granting defendants’ motion to dismiss). As Judge Buckwalter held in another
FCA case, “cursory allegations, made on information and belief alone, are unquestionably
insufficient to open the door to broad and burdensome discovery.” United States ex rel. Spay v.
CVS Caremark Corp., 2013 WL 4525226 at *2 (E.D.Pa. Aug. 27, 2013).
We find Knisely’s allegations concerning Cintas’s certifications practices -- in eleven
federal contracts over a four-year-plus period -- similarly cursory and therefore insufficient to
maintain an action for a Section 3729(a)(1)(B) violation.
Finally, Knisely also asserts claims concerning Cintas’s agreement with CB Tech and the
subcontractors it oversees “on information and belief.” FAC ¶ 195. We will grant Cintas’s
motion to dismiss these allegations for the Rule 9(b) pleading deficiencies outlined above.
Because we find that Knisely failed to meet the Rule 9(b) pleading requirements for an FCA
claim, we need not address Cintas’s other contentions concerning the ambiguity in the GSA
The Lanham Act Allegations
Section 43 (a)(1)(B) of the Lanham Act, 15 U.S.C. § 1125(a), prohibits a “false or
misleading description of fact, or false or misleading representation of fact” which “in
commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or
geographic origin of his or her or another person’s goods, services, or commercial activities.”
To establish a Lanham Act claim based on a false or misleading representation a plaintiff
must show that (1) the defendant has made false or misleading statements as to his product; (2)
there is actual deception or at least a tendency to deceive a substantial portion of the intended
audience; (3) that the deception is material in that it is likely to influence purchasing decisions;
(4) that the advertised goods travel in interstate commerce; and (5) that there is a likelihood of
injury to the plaintiff, in terms of declining sales, loss of good will and such. Warner-Lambert
It bears noting that since those claims appeared on our docket on March 18, 2010 -- almost
exactly four years ago -- Knisely has had abundant time to satisfy Rule 9(b)'s strictures.
Co. v. BreathAssure, Inc., 204 F.3d 87, 91-92 (3d Cir. 2000).
Lanham Act liability arises when a representation is either (1) literally false or (2)
literally true or ambiguous but has the tendency to deceive consumers. Novartis Consumer
Health, Inc. v. Johnson & Johnson-Merck Consumer Pharmaceuticals Co., 290 F.3d 578, 586 (3d
Cir. 2002). In analyzing whether a representation is “literally false,” the court must determine
the unambiguous claims made and whether those claims are false; “only an unambiguous
message can be literally false.” Id. at 587 (internal citation omitted) (emphasis in original). If a
statement is literally true but tends to deceive consumers, it must be “tested by public reaction.”
Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943 (3d Cir. 1993) (internal citation omitted).
a plaintiff proves a claim is literally false, a court may grant relief without considering the
second prong. Warner-Lambert, 204 F.3d at 92 (citing Johnson & Johnson-Merck Consumer
Pharmaceuticals Co. v. Rhone-Poulenc Rorer Pharmaceuticals, Inc., 19 F.3d 125, 129 (3d Cir.
Knisely claims Cintas violated the Lanham Act by falsely (1) touting its governmentagency work and GSA schedule award at a trade show and in two press releases while
concealing its noncompliance under that schedule; (2) representing the capability and quality of
its shredding by exaggerating its disposition of clients’ confidential information in conformity
with regulatory and National Security Agency standards; and (3) misrepresenting its quality
controls while relying on subcontractors whose work it neither monitors nor controls. FAC ¶¶
203-244. Knisely contends that the first representation is misleading because it conveys the
unwarranted impression that Cintas is “trusted by the United States to shred government
documents,” Mem. in Opp. at 31. He alleges that these representations tended to deceive
customers who do business with Cintas because of their reliance on its misrepresentations,
causing Knisely’s central Pennsylvania shredding business to suffer. FAC ¶¶ 247-253.
Cintas argues that any Lanham Act claim predicated on its failure to disclose its
submission of false claims under the GSA schedule must fail because the FCA claim fails as a
matter of law. MTD at 22. Cintas also avers that other statements attributed to it -- the existence
of the GSA schedule; its use of SmartShred; its NSA shred-size claim -- are literally true or
puffery as in the case of the National Security Agency claim. Id. at 23-24. Cintas further
contends Knisely does not allege that Cintas’s use of subcontractors or the YouTube video
description misled any customers or violated any agreements. Id. at 25. Finally, because Cintas
contends that the statements at issue are literally true, it argues that Knisely fails to plausibly
allege damage because he has failed to tie any alleged Cintas misrepresentation to a customer
lost for Knisely. Id. 25-26.
As noted above, we address Knisely’s claims under the Rule 8 pleading standard.
Accordingly, we accept all Knisely’s well-pled allegations as true and consider only “whether
the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for
relief.” Fowler, 578 F.3d at 211 (internal quotation omitted). A district court weighing a
motion to dismiss asks only “whether the claimant is entitled to offer evidence to support the
claims.” Twombly, 550 U.S. at 564 n.8 (internal quotation omitted).
The gravamen of Knisely’s first Lanham Act claim is that Cintas misstated the degree of
its compliance with GSA shredding standards in order to misrepresent that it is “trusted by
United States Government to shred sensitive documents.” FAC ¶ 247. Under the standard
established in Novartis, a “literally false” representation may be either explicitly so or “conveyed
by necessary implication when, considering the advertisement in its entirety, the audience would
recognize the claim as readily as if it had been explicitly stated.” Novartis, 290 F.3d at 586-87
(quoting Clorox Co. v. Proctor & Gamble Commercial Co., 228 F.3d 24, 35 (1st Cir. 2000). As
our Court of Appeals held in Castrol, we must analyze the message conveyed in full context.
“When the challenged [representation] is implicitly rather than explicitly false, its tendency to . .
. mislead, confus[e] or deceiv[e] should be tested by public reaction.” Castrol, 987 F.2d at
943. But that determination is on the merits and cannot be made at the pleading stage. The court
may accept plaintiff’s allegations at the pleading stage that consumers were misled.9 See Alpha
Pro Tech, Inc. v. VWR Intern. LLC, 2013 WL 6179065 at *22 (E.D.Pa. Nov. 26, 2013) (Pratter,
J.). Therefore, we cannot dismiss Knisely’s claim that private shred customers were misled by
Cintas’s contention it was in compliance with GSA schedule standards, FAC ¶ 247.
Nor can we dismiss Knisely’s claim that Cintas allegedly misled customers about its
adherence to “stringent information destruction security practices,” id. ¶ 229, while allegedly
farming out a portion of its contracts to subcontractors who lack GSA certification and yet label
disposal bins with Cintas’s name. Id. ¶¶ 230-240. If a representation is literally true but
misleading, as Knisely alleges, a plaintiff cannot prevail “by arguing how consumers could react;
[he] must show how consumers actually do react." Highmark Inc. v. UPMC Health Plan, Inc.,
276 F.3d 160, 171 (3d Cir. 2001) (citations and internal quotation omitted). His allegations,
taken as true, entitle him to offer evidence to support his contention and we cannot, therefore,
grant Cintas’s motion here.
Similarly, we cannot dismiss the claimed representation that Cintas shredded documents
“by pierce [and] tear method to meet the highest (DIN Level 6) security standards,” where DIN
Although we must accept Knisely’s allegations as pled, we caution him that the bar on the
merits is a high one, as the Novartis court held: “The greater the degree to which a message
relies upon the viewer or consumer to integrate its components and draw the apparent
conclusion, however, the less likely it is that a finding of literal falsity will be supported.”
Novartis, 290 F.3d at 587 (quoting with approval United Indus. Corp. v. Clorox Co. 140 F.3d
1175, 1181 (8th Cir.1998)).
Level 6 is the National Security Agency’s standard for shredding top-secret documents, 1 mm x
5 mm or smaller, far smaller than can be achieved by pierce and tear. FAC ¶ ¶ 103, 217. Cintas
contends that claim is mere puffery. “Puffery is an exaggeration or overstatement expressed in
broad, vague, and commendatory language.” Castrol, 987 F.2d at 945. The “puffing” rule
amounts to a seller’s privilege “to lie his head off,” but only so long as “he says nothing
specific.” Id. (citing W. Page Keeton, et al. Prosser and Keeton on the Law of Torts § 109, at
756-57 (5th ed. 1984)). Had Cintas claimed only to offer the “highest” security standard, that
general claim of superiority would have been puffery. But a claim that is both specific and
measurable, as here, is one that may be tested and is therefore actionable under the Lanham Act
even if it does not invoke a direct comparison to a competitor. Id. Cintas also contends the
allegation, stripped of context, fails to indicate whether the interpolated parenthetical -- (DIN
Level 6) -- was part of Cintas’s representation. Reply at 11. But Knisely’s allegation meets Rule
8 pleading standards and the elements of a Lanham Act claim and we cannot, therefore dismiss it
at the pleading stage.
We will, however, dismiss the claim concerning SmartShred’s ability to reduce
documents to “unidentifiable confetti” to comply with “regulatory requirements.” “Taken
together,” Rule 8(a) and Rule 8(d)(1) “underscore the emphasis placed on clarity and brevity by
the federal pleading rules.” In re: Westinghouse Sec. Litig., 90 F.3d 696, 702 (3d Cir. 1996)
(internal citation omitted). Dismissal under Rule 8 is proper when a complaint “left the
defendants having to guess what of the many things discussed constituted [a cause of action].”
Binsack v. Lackawanna Cnty. Prison, 438 Fed. Appx. 158, 160 (3d Cir. 2011). Knisely fails to
allege that the SmartShred statement was either false or misleading because it hinged on Cintas’s
GSA schedule compliance as opposed to the vague and undefined regulatory requirements.
For the reasons stated above, we will grant Cintas’s motion to dismiss as to the False
Claims Act and the Lanham Act allegations concerning SmartShred. But we will deny Cintas’s
motion to dismiss the Lanham Act allegations that it misleadingly represents its government
business, quality controls, and the residual size of its pierce and shred document destruction to
gain customers at Knisely’s expense.
BY THE COURT:
/S/ STEWART DALZELL, J.
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