692 F.Supp.3d 71
W.D.N.Y.2023Background
- Defendant Document Reprocessors of New York, Inc. (DRNY) is a GSA-approved contractor; principals Eric and Muriel Lundquist each own 50% of DRNY. Relator Quintin J. Schwartz, Sr. was DRNY’s general manager for ~28 years.
- DRNY performed a FEMA-funded Jersey City disaster-contract (initially ~2012; renewed 2017) that Relator alleges was subject to GSA/federal prevailing-wage requirements.
- Relator alleges DRNY failed to pay prevailing wages/benefits to many employees, and attached a spreadsheet showing sample shortfalls; he repeatedly raised compliance concerns, refused to sign certifications, and was terminated on February 19, 2020.
- Relator filed a qui tam FCA action (March 2020); the United States declined to intervene (Aug. 2021). Relator filed an amended complaint (Aug. 2022) adding the Lundquists; Defendants moved to dismiss under Fed. R. Civ. P. 9(b).
- The amended complaint asserts (1) FCA fraud/false claims under 31 U.S.C. § 3729(a)(1)(A)/(B) (express false certification), and (2) FCA retaliation under § 3730(h).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| FCA fraud (express false certification) — whether Relator pleaded specific false claims submitted to the government | DRNY held itself out as GSA-certified, obtained FEMA-funded Jersey City contract, submitted payment requests to Jersey City while not paying prevailing wages | Complaint fails Rule 9(b): no specific claims identified, no allegation that payment requests contained express certifications, no facts showing materiality | Dismissed: plaintiff failed to plead with particularity or show plausible/material false claims; fraud claim dismissed under Rule 9(b) |
| Individual liability / conspiracy to hold Lundquists liable (piercing corporate veil) | Alleges principals were part of the wrongdoing and a conspiracy to violate the FCA | Insufficient to pierce corporate veil; no properly pleaded conspiracy; intra-corporate conspiracy doctrine bars claim against officers acting for corporation | Dismissed as part of fraud claim; conspiracy theory not pleaded (and intra-corporate doctrine noted) |
| FCA retaliation (§ 3730(h)) — whether retaliation claim survives pleading challenge | Relator engaged in protected activity (investigating/raising noncompliance, refusing to sign certifications) and was terminated in retaliation | Defendants made no substantive challenge to the retaliation claim | Survives: retaliation claims need not meet Rule 9(b) and were plausibly pleaded under Rule 12(b)(6) |
| Applicability of Rule 9(b) post-Escobar/Bishop — whether particularity requirement applies to FCA fraud | Relator contends Bishop/related authority limit Mikes and impact pleading | Defendants maintain Rule 9(b) continues to apply to FCA fraud claims | Court: Rule 9(b) remains applicable to FCA fraud claims; Bishop did not eliminate the Rule 9(b) particularity requirement |
Key Cases Cited
- United States ex rel. Chorches for Bankr. Est. of Fabula v. Am. Med. Response, Inc., 865 F.3d 71 (2d Cir. 2017) (Rule 9(b) standards for FCA qui tam complaints and proof required to plead claims)
- Ladas v. Exelis, Inc., 824 F.3d 16 (2d Cir. 2016) (applying Rule 9(b) to FCA complaints; particularity requirements)
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016) (materiality requirement for False Claims Act claims)
- United States ex rel. Foreman v. AECOM, 19 F.4th 85 (2d Cir. 2021) (distinguishing express and implied false certification theories)
- United States v. Strock, 982 F.3d 51 (2d Cir. 2020) (factors relevant to materiality in FCA context)
- Bishop v. Wells Fargo & Co., 870 F.3d 104 (2d Cir. 2017) (discussion of Mikes and Escobar but not eliminating Rule 9(b) applicability)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standards and reasonable inferences)