Smith v. Athena Construction Group, Inc.
Civil Action No. 2018-2080
| D.D.C. | Mar 25, 2022Background
- Athena Construction Group, a Virginia small contractor, held SBA certifications including HUBZone and obtained federal subcontracts from 2011–2018; Relator William "Bill" Smith worked for Athena (2011–2016) as Director of Operations and Project Superintendent.
- Smith filed a qui tam FCA suit alleging two schemes: (1) Athena fraudulently obtained/maintained HUBZone status by misrepresenting employee residency; and (2) Athena participated in a recurring pass‑through scheme, selling its small‑business status to prime contractors who performed the work while Athena collected fees. Smith also alleged retaliation.
- The United States declined to intervene after two investigations; Smith proceeded and filed a Third Amended Complaint naming Athena and multiple primes (Balfour Beatty, Barton Malow, CAS, Commonwealth); defendants moved to dismiss (CAS answered).
- The court dismissed all pass‑through claims against Athena and the moving prime contractors—principally on the FCA public‑disclosure bar and for failure to plead but‑for causation—denying leave to amend those claims.
- The court allowed to proceed Smith’s HUBZone implied‑false‑certification claims (Counts I & II) and his FCA retaliation claim (Count V) against Athena; it dismissed the reverse false‑claim (Count IV) against Athena; claims against nonmovant CAS survived.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness (statute of limitations) | Smith: SAC filed Oct 22, 2018 is within 3‑year window from public notice (July 19, 2016). | Athena: claims untimely; relies on unsealing/service dates or earlier notice. | Court: rejects Athena; filing date controls; pass‑through allegations timely. |
| FCA public‑disclosure bar / original‑source status | Smith: as former Director with documents (hard drive) he has independent knowledge and is original source. | Athena: pass‑through scheme was publicly disclosed in prior Ming/TM complaint; Smith did not show voluntary pre‑filing disclosure to government. | Court: public disclosure applies; Smith failed to prove original‑source (no showing he provided info to gov’t pre‑filing); pass‑through claims barred. |
| Fraud‑in‑the‑inducement causation (pass‑throughs) | Smith: primes used Athena’s status to obtain/keep prime awards; scheme induced government contracts. | Defendants: fail‑to‑allege but‑for causation; alleged pass‑through agreements post‑date prime awards. | Court: dismissed these claims for failure to plead but‑for causation—the alleged pass‑throughs mostly arose after awards. |
| HUBZone implied‑false‑certification (materiality & particularity) | Smith: Athena repeatedly misrepresented employee residency (2011–2017) to obtain HUBZone set‑aside contracts; this misrepresentation was material. | Athena: challenges materiality and Rule 9(b) particularity. | Court: denies dismissal—Escobar factors show plausible materiality and TAC pleads who/what/when/where with sufficient particularity; Counts I & II survive. |
| Reverse false claim | Smith: asserts reverse‑false‑claim liability to avoid obligations. | Athena: no distinct obligation owed to government pleaded beyond concealment of fraud. | Court: dismisses Count IV—no independent monetary obligation alleged to trigger reverse claim. |
| Retaliation (post‑employment) | Smith: Athena retaliated after his employment (threatened sanctions; breach‑of‑contract suit) in response to protected activity. | Athena: FCA anti‑retaliation doesn't cover post‑employment acts; also lacked knowledge. | Court: adopts view that FCA can protect former employees (following Sixth Circuit approach), finds Athena had notice and retaliatory acts followed—retaliation claim survives. |
Key Cases Cited
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176 (Sup. Ct. 2016) (establishes demanding materiality standard for implied false certification)
- United States ex rel. Cimino v. IBM Corp., 3 F.4th 412 (D.C. Cir.) (but‑for causation required for fraud‑in‑the‑inducement claims)
- United States v. Strock, 982 F.3d 51 (2d Cir. 2020) (applies Escobar factors to small‑business certification fraud)
- Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S. Ct. 1507 (Sup. Ct. 2019) (§ 3731(b)(2) limitations framework applies regardless of government intervention)
- United States ex rel. Felten v. William Beaumont Hosp., 993 F.3d 428 (6th Cir.) (FCA’s anti‑retaliation can protect former employees alleging post‑termination retaliation)
- Potts v. Ctr. for Excellence in Higher Educ., Inc., 908 F.3d 610 (10th Cir.) (takes narrower view that FCA retaliation excludes post‑employment acts)
- United States ex rel. Shea v. Cellco P'ship, 863 F.3d 923 (D.C. Cir.) (Rule 9(b) particularity standards for fraud pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (Sup. Ct. 2009) (pleading must state a plausible claim)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (Sup. Ct. 2007) (plausibility pleading standard)