896 F.3d 834
7th Cir.2018Background
- Relator Jeffrey Berkowitz, president of a GSA-schedule vendor, sued nine competing GSA vendors under the False Claims Act (FCA), alleging they sold non‑TAA (Trade Agreements Act) compliant foreign-made products to the U.S. government while certifying compliance via GSA Trade Agreements Certificates.
- Berkowitz says he compiled reports comparing defendants’ GSA Advantage listings and sales to third‑party product lists that showed country‑of‑origin information, concluding defendants sold thousands of non‑designated‑country products.
- The government declined to intervene; Berkowitz filed a third amended qui tam complaint and attached reports and some GSA notices telling a subset of defendants to remove non‑compliant items.
- Defendants moved to dismiss under Rules 12(b)(6) and 9(b); the district court dismissed the complaint with prejudice for failure to plead fraud with particularity.
- On appeal, the Seventh Circuit reviewed de novo and affirmed, holding Berkowitz failed to plead the who/what/when/where/how of any alleged false claims or to allege sufficient knowledge or reckless disregard and materiality required for an implied‑false‑certification FCA theory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint pleads FCA claim with Rule 9(b) particularity | Berkowitz: compiled reports and GSA notices show defendants sold non‑TAA products and thus impliedly certified compliance when seeking payment | Defendants: allegations are generalized, lack transactional detail on specific claims/sales and who made false statements | Held: Dismissed — allegations lack the who/what/when/where/how required by Rule 9(b) |
| Whether implied false certification theory is sufficiently pleaded | Berkowitz: Trade Agreements Certificates + sales of non‑compliant products suffice to show implied certification and falsity | Defendants: mere sale of non‑compliant goods or regulatory violation is not enough to show a knowingly false claim | Held: Dismissed — plaintiff failed to plead specific misrepresentations or the necessary causal link to payment |
| Whether scienter (knowledge or reckless disregard) was adequately alleged | Berkowitz: defendants had reason to know (reports, some GSA warnings) so reckless disregard is established | Defendants: GSA notices limited, no allegations that warned defendants then billed for those flagged products; allegations show negligence at most | Held: Dismissed — scienter not pleaded with particularity or plausibly shown |
| Whether the alleged noncompliance was material under Escobar's framework | Berkowitz: noncompliance with TAA is material because it violates contract/regulation | Defendants: government paid millions for the items and did not decline payment, undermining materiality | Held: Dismissed — materiality not shown; government’s actual conduct (payments, limited enforcement notices) undercuts materiality |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations insufficient for plausibility)
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (limits on implied‑false‑certification theory; materiality and scienter requirements)
- United States ex rel. Gross v. AIDS Research Alliance—Chicago, 415 F.3d 601 (7th Cir. 2005) (FCA pleading requirements)
- Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreens Co., 631 F.3d 436 (7th Cir. 2011) (permitting some allegations on information and belief when facts inaccessible but requiring grounds for suspicion)
- United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 F.3d 770 (7th Cir. 2016) (need for precision and substantiation in fraud pleadings)
- United States ex rel. Fowler v. Caremark Rx, L.L.C., 496 F.3d 730 (7th Cir. 2007) (errors or negligence insufficient for FCA liability)