A1 Procurement, LLC. et al v. Thermcor, Inc. et al

Filing 126

ORDER ADOPTING REPORT AND RECOMMENDATIONS; finding as moot 83 Motion to Disqualify Counsel; denying 87 Motion to Dismiss for Lack of Jurisdiction; adopting Report and Recommendations 116 ; finding as moot 117 Report and Recommendations; granting 125 Motion to Withdraw as Attorney. Signed by Chief District Judge Rebecca Beach Smith on 1/15/2016. Copies distributed to all parties and Mr. Storms. (cchr)

FI LED
UNITED

STATES

DISTRICT

EASTERN DISTRICT

COURT

OF VIRGINIA

JAN 1 5 2016

Norfolk Division

A1

PROCUREMENT,

ULtHK, U S. DiSTRiCT COURT

LLC,

NORf^OLK VA

Relator,

V.

ACTION NO:

THERMCOR,

INC.,

2:15cv015

et al..

Defendants.

MEMORANDUM

This

matter

Withdraw

filed

Procurement,

comes

before

by Derrick

LLC,

on

ORDER

the

Storms,

December

court

counsel

18,

on

the

for

2015.

the

EOF

Motion

to

Relator,

Al

No.

125.

The

Defendants take no position on the Motion to Withdraw.

See Resp.

to

the

Obj .

at

12,

EOF

GRANTS

the

Motion

counsel

No. 123.

Reports
Nos.

the

court

and Recommendations

116,

Motion

before

Withdraw,

good

117.

to

The

Dismiss

Jurisdiction

or,

Motion

or,

in

to

The
Revoke

the

are

Mr.

shown,

ECF

the

Hac

for

addressed
Vice

the

Defendants'

Lack
for

Can Be Granted;

Pro

Alternative,

for

Alternative,

R&R

longer

two

Action

other

no

Judge's

This
the

is

Magistrate

R&R addressed

in

Storms

court

filed November 18, 2015.

(R&R),

the

first

Claim Upon Which Relief
("Motion").

and

cause

in the case.

Further,

to

For

of

the

Admission

Storms'

Subject

Failure

and

"Joint

to

Matter
State

a

for Other Relief"
Defendants'
of

"Joint

Derrick

Disqualification;

Storms

and

for

other

Relief"

("Motion

to

Revoke") .

granted the Motion to Withdraw,
MOOT.

As

further

such,

the

it

is

Given

that

the

court

has

the Motion to Revoke is deemed

unnecessary

R&R and corresponding

for

the

court

objections

to

address

on the Motion

to

Revoke.

As

to

the

Motion

to

Dismiss,

recommended denying the Motion.

the

Magistrate

Judge

The court will now address that

R&R, the Defendants' Objections, and the Relator's Reply.
I.

On November 3,

PROCEDURAL HISTORY

2011,

the Relator filed its original qui tam

Complaint in the Southern District of Florida.

ECF No. 1.

The

Complaint alleges that the Defendants made false statements and
claims to the Small Business Administration
"Service-Disabled

status.

111

Veteran-Owned

51-67.

On

about their

Business"

Small

("SBA")

("SDVOSB")

December 3, 2013,

the

court

ordered

that the Complaint be unsealed and directed the Relator to serve
the Complaint on the Defendants.

ECF No.

the

Amended

Relator

Complaint"),
involvement

filed

which
in

the

its

added
SBA's

First

allegations
8(a)

17.

On May 21, 2014,

Complaint

relating

to

("Amended

Defendants'

Minority

Sole-Source

Southern

District

Program.

Am. Compl. nil 65-86, ECF No. 25.

On

January

transferred venue

12,

ECF No. 57.

15,

2015,

the

of

to the Eastern District of Virginia.

The Defendants

Florida
Order at

filed an Answer to the Amended

Complaint on January 29,

at

the request of

2015,

ECF No.

the Defendants,

64,

2015,

ECF No.

85.

the Defendants filed the instant Motion

and corresponding Memorandum in Support. ECF Nos.
July 30,

2015,

in response

2015,

the court ordered all prior

sealed documents in the case to be unsealed.

On July 17,

and on July 2,

87,

88.^ On

the United States filed a Statement of Interest

to the Motion.

ECF No.

95.

Memorandum in Opposition on July 31, 2015,

The

Relator filed a

ECF No.

96,

and the

Defendants filed a Reply on August 6, 2015. ECF No. 99.

On August 7, 2015, the Motion was referred to United States

Magistrate Judge Lawrence R. Leonard, pursuant to the provisions
of 28 U.S.C.

72(b),

§ 636(b)(1)(B)

and Federal Rule of Civil Procedure

to conduct hearings,

necessary,

and

to submit

including evidentiary hearings,

to

proposed findings of fact,
for

the

disposition

of

the

the undersigned district

if

judge

if applicable, and recommendations
Motion.

ECF

No.

100.

The

court

further ordered that the parties argue the Motion at the oral

hearing already scheduled on the Motion to Revoke. ECF No. 103.

On August 28, 2015, the Magistrate Judge conducted the hearing.
ECF No.

108.

The Magistrate Judge filed the R&R,

in which he

recommended denying the Motion, on November 18, 2015.

^ The Defendants filed the Motion to Revoke and corresponding
Memorandum in Support on July 1, 2015. ECF Nos. 83, 84.

By copy of the R&R,

the parties were advised of their right

to file written objections

to

the

findings

and recommendations

made by the Magistrate Judge. The Defendants filed Objections on
December 7,

2015.

ECF No.

122.

The Relator filed a

Response to

the Objections on December 18, 2015. ECF No. 124.
II.

STANDARD OF REVIEW

A. Magistrate Judge's Report and Recommendation
Pursuant

Procedure,

to

the

Rule

72 (b)

court,

of

having

entirety, shall make a ^

the

Federal

reviewed

Rules

the

of

record

Civil

in

its

novo determination of those portions

of the R&R to which the Parties have specifically objected. Fed.

R.

Civ.

P.

72(b).

The court may accept,

whole or in part,

Judge,
U.S.C.

reject,

or modify,

in

the recommendations made by the Magistrate

or recommit

the

matter

to him

with

instructions.

28

§ 636(b)(1).

B.

Motion

to

Dismiss

for

Lack

of

Subject

Matter

Jurisdiction and Failure to State a Claim

The

Defendants

first

challenge

the

Complaint

for

lack of

subject matter jurisdiction. If the court determines that there
is

subject matter

jurisdiction,

the

Defendants

alternatively

request the court use its discretion to sanction the Relator and
dismiss the case for failure to state a

claim upon which relief

can be granted. Mem. Supp. at 14; see United States ex rel. Ubl
V.

IIF Data Sols. ,

No.

CIV.A.

1:06-CV-641,

2009 WL 1254704,

at

*3

n.2

(E.D.

proper

Va.

May 5,

remedy

for

a

failure

United

States

908,

912

v.

Va.

Clark/Smoot/Russell,
"that

a

Inst.

(E.D.

violation

frustration of

the

failure

of

to

course,

comply

requirements might be dismissal

to state a
Am.

("In many cases,

relator's

3730 (b) (2)'s procedural
action for

2009)

claim."

of

that

1989)));

results

Scis.,

see

432

in

with
of

the

{citing Erickson ex rel.

Biological

796 F.3d 424,

the

716

also

(4th Cir.

an

F.

Smith

2015)

incurable

Supp.

and

v.

(holding
egregious

^statutory objectives underlying the

filing

and service requirements,' merits dismissal with prejudice under
the False Claims Act"

(quoting United States ex rel.

Martin Marietta Corp.,

60 F.3d 995,

2009 WL 1254704, at *3 n.2

998

(2d Cir.

Pilon v.

1995)));

(stating that when "no cure exists,

dismissal is the proper remedy"

(quoting Erickson,

716 F. Supp.

at 912)) .

On

a

motion

to

jurisdiction,

"[t]he

jurisdiction .

.

dismiss

for

lack

burden

of

proving

. is on the plaintiff,

jurisdiction." Adams v.

Bain,

of

subject

subject

matter

matter

the party asserting

697 F.2d 1213,

1219 (4th Cir.

1982) . The plaintiff meets that burden by proving subject matter

jurisdiction exists by a preponderance of the evidence. United
States ex rel.

2009).

Vuyvuru v.

Determining

if

Jadhav,

555 F.3d 337,

subject matter

347

(4th Cir.

jurisdiction exists

may

require the district court to "go beyond the allegations of the

complaint"

to

decide

jurisdiction. Adams,
III.

independently

the

existence

of

697 F.2d at 1219.

DEFENDANTS'

OBJECTIONS TO THE R&R

The Defendants have five objections

to the R&R.

The court

will address the objections in turn.
A. The Defendants' First Objection is OVERRULED

First,

the

Defendants

object

that

the

Magistrate

Judge

erroneously concluded that the relevant filing requirements of
the False Claims Act

They

argue

that

{"FCA")

the

are not jurisdictional. Obj. at 4.

filing

requirements

of

the

FCA

are

jurisdictional, not procedural, and thus, the Relator's alleged
failure to comply with them means a per se dismissal of the
claim. Id. at 4-7.^ This is essentially the same argument made in
the Defendants' Motion to Dismiss. Mem. Supp.

at 7-13. However,

both parties now rely on the Smith case, which was issued after

The relevant requirements are found at 31 U.S.C. § 3730(b)(2)
A copy of the complaint and written disclosure of
substantially all material evidence and information
the person possesses shall be served on the Government

pursuant to Rule 4(d)(4) of the Federal Rules of Civil
Procedure. The complaint shall be filed in camera,
shall remain under seal for at least 60 days, and
shall not be served on the defendant until the court
so orders. The Government may elect to intervene and

proceed

with

the

action

within

60

days

after

it

receives both the complaint and the material evidence
and information.
Id.

briefing

concluded but

positions.

The

proposition

before

Defendants

that

only

oral

argue

seal

argument,

that

breaches

the

to

case

— not

support

stands

their

the

filing

other

for

and

service requirements of the FCA — are not jurisdictional. Obj .
at 4-7.

The Relator argues that the Magistrate Judge correctly

construed

Smith

as

holding

that

all

service requirements are procedural,
at

of

the

not

FCA's

filing

jurisdictional.

and

Resp.

3-4.

The Magistrate Judge made no error in determining that the
filing

and

service

jurisdictional.

requirements

of

the

FCA

are

not

The Fourth Circuit held in Smith that "[t]he

procedural requirements of the False Claims Act, including its
seal provision,

'are not jurisdictional, and violation of those

requirements does not per se require dismissal.'" Smith,
F.3d at

430

Aircraft Co.,

(quoting United States ex rel.
67 F.3d 242,

245

(9th Cir.

Lujan v.

1995)).

796

Hughes

Further,

in

Ubl, the court noted that nothing in the legislative history of

the FCA supports the reading that § 3730(b)(2)'s requirements

are jurisdictional.
that

"if

courts'

the

2009 WL 1254704,

service

jurisdiction,

and

it

filing

at *3.

It further stated

requirements

potentially

could

circumscribed

frustrate

the

overarching purpose of the False Claims Act, which is to prevent
fraud perpetrated by private parties against

the government."

Id. Accordingly, the Defendants' first objection is OVERRULED.

B. The Defendants'

The

Defendants

Second Objection is OVERRULED

next

object

to

the

Magistrate

Judge's

"denial of its alternative request for relief,

namely dismissing

this

Obj .

case

for

failure

to

state

a

claim."

at

7.

This

objection relates to the Fourth Circuit's holding that a court

may dismiss a claim for a violation of the FCA's procedural

requirements when the violation results in an "incurable and

egregious frustration of

'the statutory objectives underlying

the filing and service requirements.'" Smith,

796 F.3d at 430

(quoting Pilon, 60 F.3d at 998). The Defendants argue that the
Relator's

alleged

frustrate"

the purposes behind the FCA's

and

as

such,

the

procedural

court

should

violations

have

did

"incurably

filing requirements,

used

its

discretion

to

dismiss the case. Obj. at 7. The Relator argues that the United
States has asserted that it was properly served and that it was

not prejudiced by any alleged service or filing defect for both
the original Complaint and the Amended Complaint. Resp. at 5.

This argument was briefed by the Defendants and argued at
the hearing,

and,

as

the Defendants recognize,

this reason is at the court's discretion.

See Obj.

Supp.

the

at

14-15.

The

court

finds

that

dismissal

for

at 7-8; Mem.

Magistrate

Judge

properly reviewed and analyzed all the relevant facts and made

no error in concluding that

any,

did

not

incurably

the

filing and service defects,

frustrate

the

purpose

of

the

if

statute.

Accordingly, the Defendants' second objection is OVERRULED.
C. The Defendants' Third Objection is OVERRULED

Third,

the

Defendants

object

that

the

Magistrate

Judge

applied the post-2010 version of the public disclosure bar. Obj.
at 8.^ The Defendants contend that many of the contracts in this

case are controlled by the pre-2010 version of the statute, and
the claims on those contracts,

at least,

at

respond

8-9.

The

Relator

Defendants admit,

did

however,

not

must be dismissed.

to

this

objection.

that this objection "is premised,

The public disclosure bar of § 3730(e)(4)(A) states:
The court shall dismiss an action or claim under this

section,
unless
opposed by
the
Government,
if
substantially the same allegations or transactions as
alleged in the action or claim were publicly
disclosed—

(i)

in

a

Federal

criminal,

civil,

or

administrative hearing in which the Government or
its agent is a party;
(ii)
in
a
congressional.
Government

Accountability Office, or other Federal
hearing, audit, or investigation; or
(iii)

report,

from the news media,

unless the action is brought by the Attorney General

or

the

person

bringing

source of the information.
Id.

the

action

is

an

original

Id.

The
of

course,

on there having been a public disclosure."

Magistrate Judge
in this case,
recommendation.
Defendants'

determined

Id.

at 9.

that no public disclosure

The

occurred

and the court agrees with the Magistrate Judge's
See

infra

Part

III.D.

Accordingly,

the

third objection is OVERRULED.

D. The Defendants' Fourth Objection is OVERRULED

Next,

the Defendants argue that

the Magistrate Judge was

incorrect in concluding that no public disclosure occurred. Obj.
at

9.

When determining

if

a

public

disclosure

occurred

for

purposes of the FCA, a district court must determine "i) whether
the disclosure occurred via a source specifically identified in

the statute, (ii) whether the disclosure was made »public' prior

to the filing of the relevant complaint, and (iii) whether the

public

disclosure

revealed

'allegations

or

transactions.

United States ex rel. Beauchamp v. Academi Training Ctr. ,—Inc.,

933 F. Supp. 2d 825, 840 (E.D. Va. 2013). The Defendants contend
that the SBA protest regarding the Defendants' SDVOSB status is

a public disclosure under this definition,

Obj.

at 10;

the

Relator argues that it is not. Resp. at 6-7.

The

Magistrate

Judge

correctly

concluded

that

the

SBA

protest satisfies the first prong of the test because it "likely
falls under the 'administrative' aspect of § 3730(e)(4)." R&R at
28. As to whether there was a public disclosure of the protest,

the Fourth Circuit has held that "'public disclosure'
10

requires

that

there be some act of disclosure outside of

United

States

ex

rel.

Conservation Dist.,
United

(1st

States

Cir.

ex

777

rel.

2007)).

be

Wilson

Thus,

to

disclosure

to be made

Graham

F.3d 691,

Rost

disclosure

v.

v.

accessible
to

to

Cty.

Soil

(4th Cir.

697

Pfizer,

public

2015)

Inc.,

strangers

507

to

the

2d

at

84 0.

Voluntarily

government official alone

" (i)

the

public,

(ii)

the

(iii)

the

fraud,

revealing

is not enough.

(quoting
728

disclosure to be placed in the public domain."

Supp.

Water

720,

general

F.3d

&

requires

disclosure

the

the government."

or

Beauchamp,

information

Id.

at

844.

933 F.

to

a

("[T]here

is no sound reason for construing the public disclosure bar to
include

disclosures

that

have

only been

revealed

to Government

officials.").

As such,
that

the

SBA

protestor,

the Magistrate Judge made no error in determining
protest,

the public domain,"
purposes of applying

Contracting"

"only

circulated

§

3730(e)(4).

between

the

and the personnel in the SBA's
and was

did not qualify as a

not

"published or in

public disclosure for

R&R at 29.

Accordingly,

the

fourth objection is OVERRULED.

E. The Defendants'

Finally,

the

failed to accept,
be

was

the protested concern,

Office of Government

Defendants'

which

dismissed

Fifth Objection is OVERRULED

Defendants

object

or evaluate,

"because

the

that

the

Magistrate

Judge

its argument that the case should

District

11

Court

for

the

Southern

District

of

objection
District

matter

Florida

is
of

should

premised
Florida

jurisdiction

understandable

that

on

have

their

done

so."

argument

that

should have dismissed

sua

sponte."

Mem.

Obj .

for

at

12.

"the

Southern

lack of

Supp.

at

This

subject

10.

It

is

the Magistrate Judge did not address this

issue as it appears in their Memorandum

in Support to merely

provide support for the Defendants' claims and to show harm, not
as a separate argument. Mem. Supp. at 10-14. This court will not
construe
case

Eleventh

should have

Circuit

precedent

to

been dismissed under

determine
that

whether

Circuit's

law,

the
nor

will it second-guess the Southern District of Florida's decision
not

to dismiss sua sponte.^ Accordingly,

the Defendants'

fifth

objection is OVERRULED.
V.

This

court,

having

Magistrate Judge's R&R,

Conclusion

examined

the

Objections

and having made ^

to

the

novo findings with

respect thereto, overrules the Defendants' Objections, and does
hereby

adopt

recommendations

and
set

approve
forth

in

in
the

full
R&R

the
of

the

findings
United

and
States

Magistrate Judge filed on November 18, 2015, with respect to the

objections. Accordingly, the court DENIES the Motion to Dismiss.
^ Regardless, the Defendants cite only to an unpublished case
that involves different procedural defects from the instant
case. Mem. Supp. at 10, 14 (citing Foster v. Savannah Commc'n,
140 F. App'x 905 (11th Cir. 2005)).
12

For the

reasons

stated herein,

Withdraw and DENIES

the

court GRANTS the Motion to

the Motion to Revoke as MOOT.

The Clerk is

DIRECTED to forward a copy of this Memorandum Order to counsel
for all parties and to Mr. Storms.

IT IS SO ORDERED.

/s/
Rebecca Beach Smith

ChiefJudge
REBECCA BEACH SMITH
CHIEF JUDGE

January \5, 2016

13