Paul A. Cimino v. International Business Machines Corporation
3f4th412
| D.C. Cir. | 2021Background
- Relator Paul Cimino, a former IBM senior sales rep, alleged IBM used a falsified Deloitte audit to induce the IRS to sign a $265 million, 5-year software license renewal the IRS did not want.
- IBM allegedly manipulated audit results to create large compliance-penalty figures, presented them to IRS officials (notably Deputy CIO Jim McGrane while another official was on vacation), and conditioned waiving penalties on entering the renewal.
- After the contract executed, IBM allegedly disguised $87 million in compliance penalties as fees for new licenses/support that were never provided.
- Cimino filed a qui tam FCA complaint; the government declined to intervene and the district court dismissed his complaint for failure to plead causation/materiality for fraudulent inducement and for failure to plead presentment with Rule 9(b) particularity.
- The D.C. Circuit held that fraudulent-inducement claims under the FCA require actual but-for causation and materiality; it reversed dismissal of the inducement claim (plausibly pleaded causation and materiality) and affirmed dismissal of presentment claims for lack of particularity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does fraudulent inducement under the FCA require causation? | Cimino: no, causation not required. | IBM: yes, common-law fraud requires causation. | Causation is required. |
| If causation is required, what standard governs it? | Cimino: proximate cause/substantial-factor test suffices. | IBM: actual causation under but-for test required. | Actual cause — but-for standard required. |
| Did Cimino plausibly plead causation and materiality for fraudulent inducement? | Cimino: yes — audit induced renewal; IRS would not have renewed otherwise. | IBM: no — IRS had doubts and continued payments, so pleading fails. | Pleading sufficient: court finds allegations plausibly show but-for causation and materiality; reversal of dismissal. |
| Did Cimino plead presentment of false claims with Rule 9(b) particularity? | Cimino: billed $87M for licenses not provided (alleged). | IBM: allegations lack specifics (when, who) and impermissible 'information and belief'. | Dismissal affirmed for failure to plead who presented claims, when, and supporting factual basis. |
Key Cases Cited
- Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016) (FCA incorporates common-law meanings like 'fraudulent' and recognizes materiality requirement)
- U.S. ex rel. Marcus v. Hess, 317 U.S. 537 (1943) (fraud in procurement can taint subsequent government payments)
- Paroline v. United States, 572 U.S. 434 (2014) (but-for causation explained as default causation test)
- Comcast Corp. v. Nat'l Ass'n of African Am.-Owned Media, 140 S. Ct. 1009 (2020) (but-for is the default/common-law causation rule)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility threshold for complaints)
- Allison Engine Co. v. U.S. ex rel. Sanders, 553 U.S. 662 (2008) (FCA is not an all-purpose antifraud statute)
- U.S. ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321 (D.C. Cir. 2005) (discussing fraudulent-inducement theory under the FCA)
- U.S. ex rel. McBride v. Halliburton Co., 848 F.3d 1027 (D.C. Cir. 2017) (continued payment despite knowledge can indicate immateriality)