United States Ex Rel. Petras v. Simparel, Inc.
857 F.3d 497
| 3rd Cir. | 2017Background
- Andre Petras, former CFO of Simparel, sued under the False Claims Act (FCA) alleging a "reverse" FCA claim, retaliation, and conspiracy after his termination; district court dismissed all claims (reverse FCA dismissed without prejudice initially, then dismissed again).
- L Capital, a private VC licensed by the SBA, invested in Simparel and held preferred shares that entitled holders to accrued dividends if the board declared dividends or the company was liquidated; the SBA became receiver of L Capital in 2012.
- Petras alleged Simparel officers (Roth, Grilli) hid financial deterioration, skipped board meetings, withheld financial statements from the SBA, and diverted assets to related entities to avoid triggering obligations to pay accrued dividends to the SBA-receiver.
- Petras’ theory: those actions knowingly and improperly avoided an obligation to pay money to the Government under 31 U.S.C. § 3729(a)(1)(G) (reverse FCA); he also claimed retaliation under § 3730(h) and a conspiracy to violate the FCA.
- The Third Circuit considered (1) whether the SBA, acting as receiver for a private entity, counts as the "Government" for FCA purposes and (2) whether the alleged dividend obligation was an "obligation" under the FCA when the challenged conduct occurred.
- The court affirmed dismissal: it held the SBA as receiver was not acting as the Government for FCA purposes, and even if it were, the alleged dividend obligation was too contingent/speculative to qualify as an FCA "obligation;" conspiracy and retaliation claims therefore also failed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the SBA acting as receiver for L Capital is the "Government" under the FCA | Petras: SBA as receiver should count as Government (so avoiding payment to SBA is avoiding obligation to Government) | Simparel: SBA as receiver is not a Government actor but stepped into private entity's shoes; not the Government for FCA purposes | Court: SBA as receiver was not the Government; it acted in private capacity as receiver, so FCA does not apply |
| Whether contingent accrued dividends constituted an "obligation" under 31 U.S.C. § 3729(b)(3) when misconduct occurred | Petras: "established duty, whether or not fixed" includes contingent obligations that could reasonably occur | Simparel: obligation must exist at time of misconduct; purely contingent/discretionary duties (board declaration/liquidation) are not FCA obligations | Court: "obligation" must exist at time of the improper conduct; these dividends were too contingent/speculative to qualify |
| Whether Petras adequately pleaded reverse-FCA fraud with Rule 9(b) particularity | Petras: amended complaint added facts to plausibly show fraudulent concealment to avoid obligation | Simparel: allegations were speculative and failed to show a definite obligation or required particularity | Court: even accepting allegations, plaintiff failed to plead an obligation and therefore failed to state a reverse FCA claim |
| Whether retaliation and conspiracy claims survive without a viable underlying FCA claim | Petras: his protected conduct and notice to defendants sufficed for retaliation; conspiracy stands independent | Simparel: whistleblower protection covers only conduct furthering a viable FCA action; conspiracy depends on an underlying violation | Court: retaliation fails because no viable FCA claim (and notice insufficient); conspiracy fails because no underlying FCA violation |
Key Cases Cited
- United States v. Beszborn, 21 F.3d 62 (5th Cir. 1994) (receiver stands in shoes of failed private institution and is not necessarily a government actor)
- United States ex rel. Adams v. Aurora Loan Servs., Inc., 813 F.3d 1259 (9th Cir. 2016) (conservator/receiver stepping into private entity's shoes does not transform it into a federal instrumentality for FCA claims)
- Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176 (3d Cir. 2001) (elements and whistleblower protection framework under the FCA)
- United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co., 839 F.3d 242 (3d Cir. 2016) (discussion of FERA amendments and obligations arising at time of importation for reverse-FCA liability)
- United States ex rel. Simoneaux v. E.I. duPont de Nemours & Co., 843 F.3d 1033 (5th Cir. 2016) (contingent penalties that are discretionary are generally not "obligations" under the reverse-FCA provision)
- O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994) (receiver doctrine: agency as receiver "steps into the shoes" of failed financial institution)