FRANCHITTI v. COGNIZANT TECHNOLOGY SOLUTIONS CORPORATIONFRANCHITTI v. COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION
Case Information
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY JEAN-CLAUDE FRANCHITTI,
Civil Action No. 3:17-cv-06317 Plaintiff ,
v.
MEMORANDUM AND ORDER COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION et al.,
Defendants .
This case is before the Court on Defendant’s motion to dismiss Plaintiff’s amended qui tam complaint. (ECF No. 18). The Court heard oral argument on July 20, 2021. For the reasons that follow, Defendant’s motion is granted in part and denied in part.
B ACKGROUND
A. Facts
Plaintiff Jean-Claude Franchitti (“Plaintiff” or “Franchitti”) is a former employee of Defendants Cognizant Technology Solutions Corporation and Cognizant Technology Solutions U.S. Corporation [1] (“Defendant” or “Cognizant”). Cognizant provides technology services to its corporate clients on an individual project basis, as many of its clients do not have in-house IT departments. (Am. Compl. ¶ 15).
Many of Cognizant’s employees are foreign workers, for whom Cognizant must apply for visas when they travel to the United States to work on projects. ( Id. ¶¶ 18-19). The three primary types of visas Cognizant secures for its foreign workers are H-1B, L-1, and B-1. ( ¶ 19). Because the distinctions between those visas are at the heart of this case, a brief description of each follows.
i. H-1B Visas
H-1B visas are intended for temporary, specialized labor.
The United States awards 65,000 H-1B visas (plus 20,000 for applicants with at least a master’s degree) through a highly competitive lottery system each year. [2] Id . Generally, the selection process begins in March and, if selected in the lottery, an H-1B visa recipient may start working in the United States in October of the same year. H-1B Electronic Registration Process , USCIS, https://www.uscis.gov/working-in-the-united-states/temporary-workers/h-1b-specialty- occupations-and-fashion-models/h-1b-electronic-registration-process (last visited June 22, 2021). While the cost of an H-1B application may vary depending on the type of employer, it would likely be about $6,460 for a large company with many foreign workers like Cognizant. See H and L Filing Fees for Form I-129, Petition for a Nonimmigrant Worker , USCIS, https://www.uscis.gov/forms/all-forms/h-and-l-filing-fees-for-form-i-129-petition-for-a- nonimmigrant-worker (last visited June 22, 2021); I-129, Petition for a Nonimmigrant Worker , USCIS, https://www.uscis.gov/i-129 (last visited June 22, 2021); ( see also Am. Compl. ¶ 25).
ii. L-1 Visas
L-1 visas are intended for applicants who have worked for their employer abroad for at least
one continuous year within the preceding three years, and will provide services to the same
employer in the United States in a capacity that is managerial, executive, or involves specialized
knowledge or expertise in the employer’s operations.
iii. B-1 Visas
B-1 visas are intended for short-term visitors for business purposes, which can include
attending a conference, consulting with business associates, negotiating a contract, and
participating in short-term trainings.
Cognizant hired Franchitti as a Director in 2007 and promoted him to Assistant Vice President in 2011. (Am. Compl. ¶ 32). Franchitti alleges that, during the course of his employment, he observed several types of fraud in Cognizant’s visa application procedures.
First, he alleges that Cognizant routinely applied for H-1B visas for future, prospective work. This allowed it to maintain a population of “travel ready” workers who could immediately travel to the United States when a labor need arose, thereby circumventing the unreliable, competitive, and time-consuming H-1B lottery process. ( ¶¶ 39-40). To secure these prospective H-1B visas, Cognizant allegedly falsified job descriptions and projects in invitation letters which described the work that the “travel-ready” employees would perform in the United States. ( Id. ¶ 45). Franchitti cites email correspondence and internal documents regarding this practice, in which he was pressured to participate. ( Id. ¶¶ 40-43; see, e.g. , ECF Nos. 17-4, 17-9, 17-11, 17-12, 17-16). For example, he was asked to explain to team members Cognizant’s need “to get associates visa-ready, so if a suitable opportunity arises in the US we can move quickly,” (Am. Compl. ¶ 41), and to sign hundreds of fraudulent invitation letters, ( id. ¶¶ 46-47). When Franchitti raised concerns about these practices with his supervisor, the responsibility to sign invitation letters was transferred to another Cognizant employee. ( Id. ¶ 50).
Second, Franchitti alleges that Cognizant routinely applied for L-1 and B-1 visas instead of H-1B visas to save money and avoid the H-1B lottery process. ( Id. ¶¶ 52-53).
For its L-1 visa applications, Cognizant allegedly issued fraudulent invitation letters attesting to the managerial and/or specialized duties the visa recipients would perform – much of which was fabricated. ( Id. ¶ 54). Franchitti alleges Cognizant’s fraud was two-fold: (1) it improperly secured L-1 visas for future projects, and (2) the work the employees actually performed did not meet the criteria for an L-1 visa. ( Id. ¶¶ 53-55).
In addition, Cognizant allegedly brought foreign workers to the United States on B-1 visas to perform billable work that required an H-1B visa. ( Id. ¶ 56). Franchitti cites internal correspondence indicating that Cognizant knowingly approved B-1 visa holders to perform paid services in the United States, even though the B-1 visa does not authorize such work. ( Id. ¶ 57).
Third, Franchitti alleges that Cognizant falsely certified that it would pay its H-1B employees the legally required wage rate when, in fact, it paid those employees substantially less than their colleagues who performed the same work but did not require visas. ( ¶ 58). He asserts that keeping its employee expenses low allowed Cognizant to offer its customers a lower price and make more profit. ( Id. ¶¶ 59-60).
In sum, Franchitti argues the United States has been harmed by Cognizant’s fraudulent practices because (1) it has been deprived of its interest in the visas and the ability to control their distribution in accordance with the law; (2) it was deprived of application fees when Cognizant improperly applied for L-1 and B-1 visas for work that required a more expensive H- 1B visa; and (3) Cognizant’s underpayment of its H-1B visa workers has deprived the United States of significant tax revenue by reducing the required amount of its payroll tax contributions. [3] ( Id. ¶¶ 63-65). Each of those harms, he alleges, arose from Cognizant’s submission of false certifications and false claims during the visa application process. And, but for those false claims and false statements, Cognizant’s visa applications would have been denied because its foreign workers were not eligible for the visas they received. ( Id. ¶¶ 68-73).
B. Procedural History
Franchitti timely filed his original qui tam complaint on August 22, 2017 (ECF No. 1).
See
C. Venue & Jurisdiction
This Court has jurisdiction over this matter pursuant to
D ISCUSSION
A. Legal Standard
When a complaint involves allegations of fraud, a plaintiff must meet the heightened
pleading requirements of Rule 9(b) to state a claim under
Courts in [the District of New Jersey] have found that a plaintiff may satisfy that requirement in one of two ways: (1) by pleading the date, place, or time of the fraud; or (2) using an alternative means of injecting precision and some measure of substantiation into their allegations of fraud.
Loving Care Agency
,
B. False Claims Act
Private persons may bring a qui tam action on their own behalf and on behalf of the
United States for a violation of the False Claims Act.
First, the Court must evaluate whether Franchitti’s complaint sufficiently pleads a false
claim or reverse false claim under
C. Claims
Franchitti alleges Cognizant violated
A person violates section (A) if they “knowingly present[], or cause[] to be presented, a
false or fraudulent claim for payment or approval.” A person violates section (B) if they
“knowingly make[], use[], or cause[] to be made or used, a false record or statement material to a
false or fraudulent claim.” In relevant part, a “claim” is “any request or demand, whether under
a contract or otherwise, for money or property and whether or not the United States has title to
the money or property, that-- (i) is presented to an officer, employee, or agent of the United
States.”
In
Cleveland v. United States
,
The analyses in
Cleveland
and
Majestic
are instructive. Like a license, a visa has no
value to the government beyond the revenue stream from application fees. Rather, “[i]t licenses,
subject to certain conditions, engagement in pursuits that private actors may not undertake
without official authorization.”
Cleveland
,
Because the Court finds that a visa is not property, Franchitti has failed to allege a false
or fraudulent “claim” under either
D. Reverse False Claims
Franchitti alleges Cognizant violated
knowingly make[], use[], or cause[] to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.
To state a claim under this section, Franchitti must show that there was an “obligation” as
defined by the FCA. “[T]he term ‘obligation’ means an established duty, whether or not fixed,
arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship,
from a fee-based or similar relationship, from statute or regulation, or from the retention of any
overpayment.”
There is little case law on this precise issue. In one factually similar case, the relator
argued that “[b]ecause Defendants falsely obtained cheaper [B-1] visas, they avoided an
obligation to pay the government the higher fees associated with the more expensive unskilled-
worker visa.”
Lesnik v. Eisenmann SE
,
Other courts to interpret “obligation” under the FCA have focused on whether the
defendant had a contractual, statutory, or regulatory obligation.
See, e.g.
,
United States ex rel.
Customs Fraud Investigations, LLC. v. Victaulic Co.
,
In
Pemco
, the court found that the defendant decreased its obligation to pay money to the
government by misrepresenting the true value of the equipment it purchased from the Air Force.
In
Victaulic
, the defendant imported millions of pounds of improperly marked pipe
fittings without reporting that they were improperly marked, thereby avoiding the 10% marking
duty required by the Tariff Act of 1930.
Just as the defendant in Pemco submitted false records to pay less than the true value of the airplane equipment, Cognizant submitted false statements about the nature of its employees work to pay lower visa application fees. And, like the marking duty in Victaulic , Cognizant’s obligation to pay the correct visa application fee accrued upon its submission of the visa application. Cognizant’s obligation was governed by the USCIS regulatory scheme but, unlike Pemco and Victaulic , there is no statute or pre-existing contract at issue here.
A plain language reading of the statute suggests that Cognizant had an obligation to pay
the appropriate fee for the privileges associated with its desired visa. This could be characterized
as an “implied contractual” or “fee-based” relationship under
For the foregoing reasons, Franchitti has sufficiently stated a reverse false claim under
E. Public Disclosure Bar
The False Claims Act contains a public disclosure bar provision, which provides: The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed--
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media,
unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
In interpreting that provision, the Third Circuit has stated that “[w]here the fraud has
been publicly disclosed — either because the public documents set out the allegation of fraud
itself [Z] or its essential elements [X+Y] — a relator’s claim will be barred so long as it is
‘“supported by” or “substantially similar to” [the] public disclosures.’”
United States v.
Omnicare, Inc.
,
Other circuits have held that the public disclosures must set the government “on the trail”
of the defendant – that is, alert the government to the possibility of the defendant’s fraud.
See,
e.g.
,
United States ex rel. Reed v. KeyPoint Gov’t Sols
.,
Even if the public disclosure bar is triggered, a relator may proceed with his or her FCA
action if he or she is “an original source of the information” that was publicly disclosed.
“[O]riginal source” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.
Defendant argues that Franchitti’s complaint is barred because certain news articles,
reports, and other documents attached to its motion to dismiss publicly disclose the substance of
Franchitti’s allegations. (
See
Moving Br. Exs. 1-7). Although the applicability of the public
disclosure bar must be resolved early in the litigation, it is difficult to draw a conclusion at this
time based on the present record. Further, many courts that ruled on this issue did so after some
discovery had been conducted, or a more complete factual record had been established.
See, e.g.
,
United States ex rel. Silver v. Omnicare, Inc
.,
F. Tax Bar
The FCA contains a “tax bar” provision which states that the Act “does not apply to
claims, records, or statements made under the Internal Revenue Code of 1986.”
The Second Circuit has articulated a two-part test to determine if the tax bar is triggered: (1) whether the case depends entirely on a purported violation of the Tax Code; and (2) whether the IRS has authority to recover the precise amounts the plaintiff is seeking. Lissack , 377 F.3d at 153. The court emphasized that the application of the tax bar is not limited to cases that seek to recover taxes but, rather, depends on whether the claim “rises or falls on finding a violation of the Tax Code.” Id. at 153-154.
Under the first prong, the Lissack Court found
the fraud was the failure to conform to IRS rules for maintaining tax-exempt status of advance refunding bonds. The municipalities’ purchase of SLGS bonds and Treasury securities thus “harmed” the Government only because the Tax Code’s anti-arbitrage rules required that the municipalities purchase different amounts of those securities than they actually did.
Id. at 154. Under the second prong, “[b]oth the IRS’s involvement in policing the sort of fraud alleged by Lissack and the IRS’s ability to recover for the Government the precise amounts that Lissack seeks in his FCA action indicate to us that Lissack’s claims fall within the scope of the Tax Bar.” at 156.
The Court must determine whether Franchitti’s claim is barred to the extent that he argues Defendant deprived the United States of income tax revenue by underpaying its H-1B visa employees. For the following reasons, the Court finds that neither prong of the Lissack test has been met.
First, the immigration regulatory scheme, not the Tax Code, regulates the wages of foreign workers. Pursuant to the Immigration and Nationality Act:
(1) No alien may be admitted or provided status as an H-1B nonimmigrant in an occupational classification unless the employer has filed with the Secretary of Labor an application stating the following:
(A) The employer--
(i) is offering and will offer during the period of authorized employment to aliens admitted or provided status as an H-1B nonimmigrant wages that are at least--
(I) the actual wage level paid by the employer to all other individuals with similar experience and qualifications for the specific employment in question, or
(II) the prevailing wage level for the occupational classification in the area of employment,
whichever is greater, based on the best information available as of the time of filing the application . . . .
The Secretary of Labor is responsible for investigating and remedying violations of the
wage requirement provision.
If the Secretary finds, after notice and opportunity for a hearing, that an employer has not paid wages at the wage level specified under the application and required under paragraph (1), the Secretary shall order the employer to provide for payment of such amounts of back pay as may be required to comply with the requirements of paragraph (1), whether or not a penalty under subparagraph (C) has been imposed.
Thus, while underpaying H-1B workers deprives the IRS of income tax revenue, it does
not appear to violate any tax law or regulation. On the contrary, it is a direct violation of the
Immigration and Nationality Act. Other courts have applied the tax bar when a relator’s FCA
claim was based on a specific provision of the tax code, and refused to apply it when the claim
was based on a violation of a different statutory scheme.
See U.S. ex rel. Calilung v. Ormat
Indus., Ltd
., No. 3:14-CV-00325-RCJ,
The second element of the
Lissack
test is whether the IRS could have uncovered and
prosecuted the violation. Here, it is not clear that the IRS can discern when employees are being
paid less than the wage required by immigration law. While numerous IRC and treasury
regulations pertain to foreign workers, their purpose is to establish how foreign workers should
be taxed – not how they should be paid.
See, e.g.
,
In sum, because Franchitti’s claims concern a violation of the immigration – not tax – laws, and because the Secretary of Labor – not the IRS – is the authority tasked with enforcing the prevailing wage provision, the tax bar does not apply here.
C ONCLUSION
Franchitti has sufficiently pleaded a reverse false claim under section (G) of the FCA.
Therefore, Defendant’s motion to dismiss is denied as to the paragraphs of the complaint
alleging violations of
O RDER
THIS MATTER having come before the Court on Defendant’s motion to dismiss the Relator’s amended complaint (ECF No. 18); and the Court having carefully reviewed and taken into consideration the submissions of the parties, as well as the arguments and exhibits therein presented; and for good cause shown; and for all of the foregoing reasons,
IT IS on this 17th day of August 2021,
ORDERED that Defendant’s motion to dismiss (ECF No. 18) is granted in part and denied in part, as follows:
(1) Defendant’s motion is
granted
as to the paragraphs alleging violations of
(2) Defendant’s motion is denied as to the paragraphs alleging violations of31 U.S.C. § 3729(a)(1)(G) ; and it is further
ORDERED that the parties should confer and communicate with the Magistrate Judge within 30 days to conduct discovery concerning the application of the public disclosure bar provision; and it is further
ORDERED that Defendant’s motion to dismiss the original complaint (ECF No. 16) is dismissed as moot.
s/ Peter G. Sheridan PETER G. SHERIDAN, U.S.D.J.
Notes
[1] Cognizant Technology Solutions Corporation is the parent company of Cognizant Technology Solutions U.S. Corporation. (Am. Compl. ¶ 7, ECF No. 17).
[2] For context, USCIS received 308,613 H-1B visa applications for Fiscal Year 2022 and 274,237 applications for Fiscal Year 2021. H-1B Electronic Registration Process , USCIS, https://www.uscis.gov/working-in-the-united- states/temporary-workers/h-1b-specialty-occupations-and-fashion-models/h-1b-electronic-registration-process (last visited June 22, 2021).
[3] Franchitti does not allege a violation of the Internal Revenue Code – he submits that Cognizant complied with the tax laws by paying the requisite 7.65% in payroll taxes for each employee. Rather, he asserts that if Cognizant paid its H-1B workers the legally required wage, its payroll tax contributions would have been significantly greater. ( ¶ 65).
[4] By contrast, a veteran’s fraudulent affidavit and application for hospitalization were considered a claim for money
or property under the FCA because the value of the medical services, equipment, and medicines he received had a
tangible financial value.
Alperstein v. United States
,
[5] “The reverse false claims provision of the FCA was revised as part of the Fraud Enforcement and Recovery Act of
2009 (FERA).”
Id
. at 253.
The FERA made two substantial changes. First, it added to the reverse false claims
provision the phrase “or knowingly conceals or knowingly and improperly avoids
or decreases an obligation to pay or transmit money or property to the
Government.” Second, it defined an “obligation” as “an established duty, whether
or not fixed, arising from an express or implied contractual, grantor-grantee, or
licensor-licensee relationship, from a fee-based or similar relationship, from
statute or regulation, or from the retention of any overpayment.”
Id
. Those changes “broadened the scope to which reverse false claims liability would attach,” following the narrow
interpretation of “obligation” in
American Textile Manufacturers Institute, Inc. v. The Limited, Inc.
,