United States v. Baxter
3:23-cv-00336
N.D. Cal.May 8, 2025Background
- Plaintiff Relator LLC, a qui tam relator, sued Santa Lucia Preserve Company (SLPC), its CEO Karen Baxter, and former CFO Andrew Simer under the False Claims Act (FCA), alleging SLPC fraudulently obtained a PPP loan based on ineligibility due to controlling two private member clubs.
- Relator claimed SLPC controlled the Preserve Golf Club and Ranch Club, both with restricted memberships, purportedly making them ineligible under CARES Act PPP loan rules.
- SLPC applied for and received a PPP loan of over $2.1 million, later fully forgiven.
- Procedurally, the United States declined to intervene; Relator amended its complaint twice after initial motions to dismiss were granted.
- Defendants moved to dismiss the Second Amended Complaint, contending Relator failed to allege plausible ownership, fraud, or scienter, and that claims were legally and factually deficient.
- Court granted the motion to dismiss the SAC with prejudice, denying leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the public disclosure bar applies | Info from PandemicOversight.gov does not bar claim | Publicly available PPP data bars suit under FCA | Relator’s claim not barred by public disclosure |
| Whether complaint plausibly alleges fraud (FCA element) | SLPC’s management of exclusive clubs made it ineligible | SLPC does not own clubs or land; no plausible fraud alleged | No plausible fraud alleged; claim dismissed |
| Whether complaint sufficiently alleges scienter | Defendants knowingly submitted false PPP certifications | Only conclusory allegations of knowledge/intent | No facts showing knowledge or intent; dismissed |
| Individual defendants’ liability | Baxter/Simer, as CEO/CFO, must have participated | No specific facts of individual participation or scienter | No facts supporting individual liability |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (Supreme Court 2007) (pleading standard for plausibility)
- Ashcroft v. Iqbal, 556 U.S. 662 (Supreme Court 2009) (pleading must show reasonable inference of liability)
- Vess v. Ciba-Geigy Corp., 317 F.3d 1097 (9th Cir. 2003) (fraud claims must meet rule 9(b) specificity)
- United States v. United Healthcare Ins. Co., 848 F.3d 1161 (9th Cir. 2016) (specificity in FCA pleadings)
- U.S. ex rel. Hendow v. Univ. Phoenix, 461 F.3d 1166 (9th Cir. 2006) (scienter requirement under FCA)
- Usher v. City of Los Angeles, 828 F.2d 556 (9th Cir. 1987) (courts draw inferences in plaintiff’s favor on Rule 12(b)(6))