PENCHENG SI, Plaintiff, v. LAOGAI RESEARCH FOUNDATION, et al., Defendants.
Civil Action No. 09-cv-2388 (KBJ)
United States District Court, District of Columbia.
Signed October 14, 2014
73
KETANJI BROWN JACKSON, United States District Judge
Anthony Mirenda, Catherine C. Deneke, Ara Gershengorn, Foley Hoag, LLP, Boston, MA, Clara E. Brillembourg, Foley Hoag LLP, Daniel Sage Ward, Ward & Ward, PLLC, Washington, DC, for Defendants.
MEMORANDUM OPINION
KETANJI BROWN JACKSON, United States District Judge
Relator Pencheng Si (“Relator“) is a computer technician who once worked for Defendants Laogai Research Foundation (“LRF“) and the China Information Center (“CIC“) in the District of Columbia. Relator brings this action under the False Claims Act (“FCA“),
Before this Court at present is Defendants’ second motion to dismiss Relator‘s complaint with respect to this matter. (Defs.’ Mot. to Dismiss Pl.‘s Am. Compl. (“Defs.’ Mot.“), ECF No. 49.) This Court previously agreed with Defendants that Relator‘s initial complaint was deficient under
On September 30, 2014, this Court issued an order granting in part and denying in part Defendants’ motion to dismiss, and stating that the Court would release a subsequent memorandum opinion explain-
I. BACKGROUND
A. The Parties
Defendants LRF and CIC are both nonprofit corporations based in the District of Columbia. (Am.Compl.¶¶ 9-10.) LRF has the “the purported purpose to educate Chinese people about the Laogai system” (id. ¶ 15), which, according to the New Oxford American Dictionary, is “a system of labor camps, many of whose inmates are political dissidents.” New Oxford Am. Dictionary 952 (2nd ed.2005); see also id. (noting that the word “laogai” means “reform through labor” in Chinese). CIC was created and funded “to promote an independent media outlet for Chinese citizens in China unaffected by Chinese government influences.” (Am.Compl. ¶ 17.) Both corporations rely on federal grants from the State Department‘s National Endowment for Democracy (“DOS/NED“) program. (Id. ¶¶ 14-18.)
Relator worked for LRF and CIC from May of 2003 until he was fired in June of 2008. (Id. ¶ 7.) Defendants originally hired Relator as a computer technician, but during his time as an employee of LRF and CIC, Relator acquired new titles—such as Assistant Director of CIC—and new responsibilities. (Id.) At the same time that Relator was advancing professionally, he also began learning more about the inner workings of the organizations and became increasingly concerned about what he viewed as unlawful conduct. (See id.) Such conduct ranged from alleged minor frauds (e.g., Defendant Wu exaggerating his life story) to alleged egregious illegalities (e.g., Defendant Wu embezzling Corporate Defendants’ money).
It appears undisputed that Defendant Wu was, for all intents and purposes, the controlling force behind LRF and CIC when Relator worked for those organizations. (Id. ¶ 12.) Before arriving in the United States from China in the 1980s, Wu spent some period of time detained in a Chinese forced labor camp. (See id. ¶¶ 30-42 (pointing to inconsistencies in Wu‘s story but not disputing that he spent some time in a Chinese prison)). Wu is now President and Executive Director of LRF and the Publisher of CIC. (Id. ¶ 12.) According to Relator, Wu is also a font of ethical and financial impropriety.
B. The Amended Complaint
This lawsuit stems primarily from a series of allegedly unlawful acts that Relator
1. Allegations Of Fact
a. Defendant Wu Misrepresented His Personal Story
The first type of misconduct Relator alleges in his amended complaint is that Defendant Wu “aggrandize[d] and embellish[ed] his experiences and background in China so as to create a persona of the persecuted, victimized intellectual who had to flee China.” (Id. ¶ 26.) To bolster this claim, Relator points to a number of examples of Wu providing inconsistent explanations regarding the reasons for his imprisonment in a forced labor camp and the length of time he spent in that camp. (Id. ¶¶ 30-37 (pointing to at least four different explanations Wu has given for his own imprisonment: (1) he had criticized the Soviet invasion of Hungary, (2) he had skipped school, (3) he had stolen money, and (4) he was wealthy and Catholic).) Relator also claims that Wu has lied about the activities he engaged in after arriving in the United States from China by falsely claiming to have been a visiting geology professor at the University of California, for example, and by exaggerating his connection to the Hoover Institution of Stanford University. (Id. ¶¶ 38-42.)
b. LRF And CIC Engaged In Illicit Lobbying
The amended complaint also catalogues in great detail dozens of examples of circumstances in which Corporate Defendants allegedly engaged in lobbying in contravention of an explicit certification that no grant funding would be spent on such activities. (Id. ¶¶ 50-75.)3 For example, Corporate Defendants allegedly lobbied a number of congressmen with the intent that they would support an increase in the budgets of LRF and CIC. (Id. ¶¶ 52-54, 56, 58, 63.) The amended complaint also alleges that Defendants “hosted conferences and/or receptions [for] members of Congress” (id. ¶ 66), wrote letters to and met with members of Congress, advocating for certain bills and policy positions (id. ¶¶ 59, 61, 65, 67-70), and even contributed
Notably, in addition to providing numerous examples of Corporate Defendants’ allegedly illegal lobbying efforts, the amended complaint also alleges that the government specifically warned Defendants about their improper lobbying efforts on at least two occasions. In 2004, government officials overseeing the DOS/NED grant process purportedly warned Defendants not to lobby with federal funds. (Id. ¶ 71.) Then in 2006, government officials went even further, sending an email “express[ing] ... disappointment with the fact that a significant portion of LRF‘s work was influencing the U.S. Government and inform[ing] Defendant Wu that LRF need[ed] to shift its efforts to LRF‘s ‘goal’ of ending gross human rights violations.” (Id. ¶ 49.)
c. Defendants Made Improper Payments To Third Parties In Violation of Their Grant Obligations
Relator also alleges that LRF and CIC—through Defendant Wu—made numerous fraudulent payments to third parties using federal grant money. Much like the list of alleged lobbying violations, Relator gives extensive examples of these supposedly improper payments—e.g., payments to friends of Wu for work that was never performed, payments to other nonprofit corporations, payments to contractors providing personal services to Wu rather than services to Corporate Defendants, and payments to Wu himself for personal expenses. (Id. ¶¶ 76-82, 86.)
The amended complaint contains only two instances where Corporate Defendants are alleged to have made statements to the government regarding payments to third parties: at one point, Relator alleges that LRF and CIC “submit[ted] falsified documentation” to the government regarding use of grant funding that was, in fact, used for personal expenses (id. ¶ 86), and at another point, Relator alleges that Corporate Defendants falsely reported that no government funds were being spent on an ongoing lawsuit (id. ¶ 96). No details are provided about the form or nature of these submissions to the government.
d. Defendant Wu Made Fraudulent Claims For Reimbursement And Improperly Retained Fees
Relator‘s allegations regarding Defendant Wu‘s false or fraudulent receipt of funds for his own personal use appear to come in two varieties. First, Relator alleges that Defendant Wu “often travelled for personal reasons but had [the State Department] pay for that travel.” (Id. ¶ 88.) According to the amended complaint, in order to accomplish this, “Wu, with the assistance of his wife, created false timesheets, travel authorizations, receipts for hotels and other expenses,” and that these false documents formed the basis of the reimbursement. (Id.) Defendants had apparently certified at some unspecified prior time that timesheets submitted for reimbursement would be accurate. (Id. ¶ 89.)
Second, in addition to claiming fraudulent reimbursements for personal travel expenses, Relator claims that Wu failed to turn over additional speaking and travel fees to Corporate Defendants. (Id. ¶¶ 87, 94.) By keeping this money as well as the reimbursement from the government, Wu allegedly obtained “double recovery.” (Id.) Although Relator does not say so explicitly, the amended complaint suggests that such double recovery is improper and that Wu had an obligation to disclose these speaking and travel fees to the government. The amended complaint claims that Wu did not disclose this double recovery to the government. (Id.)
The broad contention that Defendants made false representations in grant applications is repeated at various times throughout the amended complaint. Relator begins by alleging that LRF has been receiving grant funding from the State Department since at least 1992, and that CIC has been receiving grant funding from that same source since at least 2002. (Id. ¶¶ 15, 17.) Relator also states that CIC‘s funding is renewed annually. (Id. ¶ 17.) Regarding the alleged misrepresentations in those applications, the amended complaint mostly contains very general contentions. (See, e.g., id. ¶ 12 (“Corporate Defendants, with the assistance of Defendant Wu, knowingly submitted, caused to be submitted and/or facilitated the submission of false and fraudulent documents ... in order to secure payments which were used by Defendants for prohibited and unauthorized uses.“).)
The complaint provides two examples of allegedly false statements in Defendants’ grant applications. First, according to Relator, the grant applications falsely included the exaggerations about Defendant Wu‘s life story described above. (Id. ¶¶ 29, 41-42.) Second, the complaint alleges that Defendants’ grant applications misrepresented who was on their board of directors. (Id. ¶¶ 109-11.) For example, Defendants allegedly listed a Professor Yu Ying-shih as a “Director,” when in fact he had merely agreed to advise the board. (Id. ¶ 109.)
f. Defendants Unlawfully Terminated Relator Because He Raised Concerns About Their Unlawful Conduct
The final category of factual allegations in the amended complaint concerns Relator‘s contention that he was terminated in retaliation for engaging in protected activity under the FCA. (See id. ¶¶ 181-186.) Relator recounts several conversations in which he allegedly expressed concern about Defendants’ misuse of funds and “the billing of the DOS/NED Program for monies that Corporate Defendants were not entitled to receive[.]” (Id. ¶ 113.)
First, Relator alleges that he approached Wu in 2005 to “sp[eak] with him about the absence of a proper system to account for Corporate Defendant[s‘] financial and cash management.” (Id.) According to the amended complaint, Wu responded by telling Relator to “mind [his] own business,” and then offered to reimburse Relator for the cost of his personal laptop using company funds. (Id. (alteration in original).) Relator alleges that he met with Wu again in February of 2006 to discuss Wu‘s misuse of funds for personal expenses (id. ¶ 115), and that he also discussed with Wu the misuse of funds for a private lawsuit in April of 2007 (id. ¶ 116). Relator next alleges that he had a conversation with Wu‘s wife, Chinglee Chen (Corporate Defendants’ accountant) in January of 2008, in which Relator told Chen that she should come to the office to work instead of staying home. (Id. ¶ 117.)
Relator also contends that, in March of 2008, he spoke with a member of the board of both Corporate Defendants, Tienchi Martin, to discuss “possible actions, internal and external, that could be taken to correct Defendant Wu‘s improper, unethical, and illegal conduct with respect to the inappropriate use of funds” for the aforementioned private lawsuit. (Id. ¶ 118.) According to Relator, Martin shared the concerns with other board members, and Wu found out about these conversations. (Id. ¶¶ 118-19.) Three months later, Wu terminated Relator‘s employment, allegedly noting that Relator “kn[ew] too much about what [Wu is] doing” and issuing threats and bribes to prevent Relator from revealing the alleged fraud. (Id. ¶ 120.)
2. Legal Actions (Counts)
Without specifically linking any of the types of conduct or examples that Relator details to any particular legal cause of action, Relator‘s amended complaint maintains generally that all of the actions of Defendants described above constitute one or more violations of the FCA. Citing different provisions of that statute, Relator sets forth five FCA-related counts. Count I is brought under
Notably, although each of the counts specifically states that certain paragraphs of the prior recitation of facts are “reallege[d] and incorporat[ed] by reference” (id. ¶¶ 126, 139, 152, 166), the same comprehensive set of paragraph citations—all of the facts previously alleged in the complaint—are listed for each of the complaint‘s first four counts. This means that none of the fraud counts in the amended complaint specifies which particular set of facts Relator believes support the count. Moreover, the first four counts themselves contain no meaningful differentiation, since the same ten paragraphs of broad boilerplate text are recited as the substance of each count, including such generalized statements as “LRF and CIC sought grants and funds from [the] United States and in order to receive the grants and funds made representations that were not true and made these misrepresentations intentionally” (id. ¶¶ 128, 141, 153, 167), and “[t]he Defendants not only were awarded grant funds when they should not have been but they also caused most of the grant funds, if not all of the grant funds[,] to be misused because they were used primarily for lobbying, which fell outside the stated purpose of the grant” (id. ¶¶ 135, 148, 160, 174).
C. Procedural History
Relator first filed the instant lawsuit on December 17, 2009. (See Compl., ECF No. 2.) After the Government declined to intervene in March of 2012 (see U.S.‘s Notice of Election to Decline Intervention, ECF No. 14), Relator served the initial complaint on Defendants in January of 2013. (See Affs. of Service, ECF Nos. 23-26.) In April of 2013, Defendants moved to dismiss that complaint. (See Defs.’ Mot. to Dismiss, ECF No. 29.)
On August 21, 2013, this Court ruled on Defendants’ motion to dismiss, ordering Relator to clarify the complaint. In particular, the Court faulted the recitation of counts in the complaint for “realleg[ing] and incorporat[ing] by reference all sixty-
In the wake of this Court‘s ruling regarding the deficiency of the initial complaint, Relator filed an amended complaint in which he added 104 new paragraphs containing a barrage of new facts, most of which give color to Defendants’ business practices and finances, and describe conduct that does not appear to be related to statements or submissions to the government.4 Defendants now seek dismissal once again, arguing that the amended complaint fares no better than its predecessor. (See Defs.’ Mot. at 1.) Defendants’ motion to dismiss has been fully briefed, and is now ripe for the Court‘s consideration.5
II. LEGAL STANDARDS
A. Motions To Dismiss Under Rule 12(b)(6)
“Although ‘detailed factual allegations’ are not necessary to withstand a
In deciding whether to grant a motion to dismiss under
B. Motions To Dismiss Under Rule 9(b)
C. Fraud And Retaliation Actions Brought Under The FCA
Generally speaking, the FCA “provides a cause of action for private parties, known as ‘relators,’ to bring suits on behalf of the federal government for false or fraudulent statements made to the government.” United States ex. rel. Tran v. Computer Sciences Corp., No. 11-CV-0852 (KBJ), 53 F.Supp.3d 104, 116, 2014 WL 2989948, at *7 (D.D.C.2014). At the time of the great majority of the conduct giving rise to the instant litigation, the FCA used slightly different nomenclature and a different numbering convention than exists in the statute today; it imposed liability on any person who
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval; [or] (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government[.]
On May 20, 2009, Congress amended the FCA by enacting the Fraud Enforcement and Recovery Act of 2009 (“FERA“), Pub.L. No. 111-21, 123 stat. 1617. The current, post-FERA version of the FCA establishes liability for any person who
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.
A lawsuit alleging that a defendant made a false claim for payment in violation of
A lawsuit brought under
A number of different legal theories can support a cause of action brought under either or both of
The fraudulent inducement theory prescribes liability “for each claim submit-
The D.C. Circuit has also long recognized an “implied” false certification theory, which provides that FCA liability may attach where the relator shows that the defendant “withheld information about its noncompliance with material contractual requirements” despite having earlier promised—i.e., certified—that it would comply with those requirements. Sci. Applications Int‘l Corp., 626 F.3d at 1269; see also Head, 798 F.Supp.2d at 196. A relator may establish implied false certification by pointing to “express contractual language linking compliance to eligibility for payment[,]” or in other ways, such as by alleging that “both parties to the contract understood that payment was conditional on compliance with the requirement at issue.” Sci. Applications Int‘l Corp., 626 F.3d at 1269. Importantly, a relator “must prove by a preponderance of the evidence that compliance with the legal requirement in question is material to the government‘s decision to pay.” Id. at 1271.
2. “Reverse” FCA Actions
knowingly makes, uses, or causes 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[.]
Notably, the existing “reverse false claim” statutory provision is broader than the pre-FERA version, which had imposed liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”
As will be described below, the parties here vigorously dispute which definition of “obligation” is applicable to the circumstances presented in this case.
3. Conspiracy
Also relevant here is
4. Retaliation
Finally, the FCA also provides some measure of protection against retaliation for relators who choose to take action “in furtherance of” the objectives of the FCA. See
[a]ny employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole.
III. ANALYSIS
In the swirl of facts presented in Relator‘s amended complaint, it is exceedingly difficult to determine which of the specific factual allegations regarding the Defendants’ conduct are intended to support each count. Indeed, with the exception of the allegations of fact that relate to Relator‘s firing, Relator has not clearly specified which alleged facts relate to each count, and to the extent that some of the FCA fraud actions can be proved by multiple theories, Relator has also failed to indicate which legal theory underpins each count. For this reason alone, a conclusion that Relator‘s fraud-related FCA counts should be dismissed for failure to state a claim under
A. Relator‘s Presentment And Material False Statement Actions (Counts I-II) Do Not Satisfy The Requirements Of Rules 12(b)(6) Or 9(b)
The first two counts of the amended complaint are for presentment of false or fraudulent claims for payment under
1. Relator‘s Presentment Theory
As stated above, a cause of action under
However, even though Relator may have stated a presentment theory with respect to the reimbursement allegations for the purpose of
Relator argues, with some support, for a relaxed application of
Relator also points to misconduct other than reimbursement of falsified travel expenses as potentially giving rise to a presentment action (see Relator‘s Mem. in Supp. of his Opp‘n to Defs.’ Mot. (“Relator‘s Opp‘n“), ECF No. 52, at 20-22), but none of those instances satisfy the three elements noted above. For example, Relator notes that Defendants did not fully abide by the terms of their grant funding (id. at 21). This may be so; however, failure to abide by the terms of a grant does not, in itself, involve submitting a claim to the government. Relator also argues that the amended complaint provides details about other circumstances in which employees improperly billed the government (id.), and he cites two paragraphs that illustrate this improper billing (see Am. Compl. ¶¶ 80, 107). The first paragraph establishes no such thing—it states only that the employees were paid with grant funds, not that they were directly paid by the government—and the second merely says that incorrect information “was reported” to the government without any allegation that this report was in any way connected to a claim for payment. Only Relator‘s reimbursement allegation satisfies
2. Relator‘s Fraudulent Inducement Theory
As explained above, a cause of action can be stated under FCA
statements or inconsistencies that Wu made in publications, brochures, and other media (see, e.g., id. ¶¶ 30-37), and also in a 2007 affidavit to the Department of Justice‘s Executive Office of Immigration review (id. ¶ 38). But, as alleged, these examples generally bear no relationship to a false statement made to the government in connection with a requested claim for payment. See United States ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F.Supp.2d 129, 136 (D.D.C. 2010) (“[F]raud is pled if a plaintiff alleges fraud in the inducement for payment.“).
Only one example in the complaint satisfies the foundational requirement that the defendant has made a false statement to the government in connection with a request for money: the allegation that the exaggerations regarding Wu‘s background were included in Defendants’ grant applications. (See Am. Compl. ¶¶ 29, 41-42.) With respect to that one potential instance of fraud, however, Relator fails to allege materiality, even while devoting many paragraphs to describing the manner in which Wu overstated or misstated his qualifications as a labor camp veteran. That is to say, although Relator has detailed several statements allegedly made in grant applications that he maintains are gross mischaracterizations of Wu‘s history, Relator has ignored his obligation to allege facts from which this Court could infer that the State Department would not have awarded Corporate Defendants funding had they known that Wu had spent fewer years imprisoned in a Chinese prison labor camp than he reported. (See id. ¶¶ 28-43.) And the same deficiency applies to Relator‘s allegation that Corporate Defendants falsely listed certain individuals as serving on their board of directors in their grant applications. (Id. ¶¶ 109, 111)
It is also clear that, even if one was to set aside or excuse Relator‘s failure to allege materiality, the amended complaint lacks the specificity
3. Relator‘s False Certification Theory
Liability for an FCA violation arises under a false certification theory where (1) a party certifies that he or she will comply with a particular contractual condition, (2) that party then fails to comply with that condition, (3) the party misrepresents this noncompliance, and (4) compliance with the condition is “material to the government‘s decision to pay.” Sci. Applications Int‘l Corp., 626 F.3d at 1269-71. Relator‘s false certification theory centers on Defendants’ lobbying activities and the fact that Defendants supposedly certified that grant funds would not be spent on those activities. (Am. Compl. ¶¶ 22, 44-45.) Allegedly, Defendants not only failed to comply with this condition, they misrepresented their noncompliance to the government. (Id.) However, this Court concludes that Relator‘s false certification theory satisfies neither
It is well established that
But materiality cannot be set aside as far as FCA fraud claims are concerned. See Sci. Applications Int‘l Corp., 626 F.3d at 1271 (holding that materiality is a central element in proving false certification, and that its presence must be “rigorously” enforced). Thus, even if Relator‘s conclusory allegations regarding the certification were sufficient to survive a
gations that are neither vague nor conclusory and that cover all the elements that comprise the theory for relief.” (internal quotation marks and citation omitted)).
In sum, this Court concludes that neither the presentment count (Count I) nor the false statement count (Count II) can survive Defendants’ motion to dismiss for failure to comply with the requirements of
B. Relator‘s Reverse FCA Action (Count III) Is Inadequately Pled Even Under The Post-FERA Legal Standard
In the third count of the amended complaint, Relator asserts that Defendants’ conduct violates the provision of the FCA that prescribes the making of reverse false claims. As noted,
Defendants maintain that the alleged conduct underlying Relator‘s reverse false claim action occurred prior to the passage of the FERA amendments and the current, broad definition of “obligation” is therefore inapplicable. (Defs.’ Mem. at 24-25.) Further, Defendants take the position that, prior to FERA, an “obligation” only meant “an existing, concrete obligation to pay, whether through contract, regulation, or judgment.” (Id. at 25.) Defendants argue that Relator would be unable to prevail under this definition, because he has not pointed to any specific contractual or statutory duty to pay that existed at the time of the purported misrepresentations. (Id. at 25-26.) For his part, Relator‘s consistent citation to
Notably, the parties’ dispute over the appropriate scope of the relevant “obligation” was apparently so intriguing that the U.S. government waded into this matter to present its position on the issue, even though it had declined to intervene with respect to the prosecution of this FCA case. (See U.S.‘s Stmt. of Interest Concerning Defs.’ Renewed Mot. to Dismiss Qui Tam Compl., ECF No. 56, at 3-13.) The government‘s “statement of interest” speaks only to the law, and it argues that the pre-FERA “obligation” definition in section 3729(a)(7) reaches situations where there is either merely a potential obligation or there is a general “duty to pay money or to transmit property to the Government[,]” even if the particular amount owed is not fixed. (Id. at 6.)
Although the government apparently could not resist the temptation to weigh in on the parties’ “obligation” dispute, this Court finds that there is no reason for the Court to do so under the present circumstances because Relator‘s amended complaint clearly fails to satisfy the requirements of
Indeed, only three paragraphs in the entire amended complaint reference anything that could be construed as an obligation to the government. Two of those paragraphs appear under the recitation of Count III and are simply conclusory statements disconnected from the rest of the complaint. (See id. (“Defendants were obligated to not use and/or disgorge grant funds improperly paid to them by virtue of the fact that they were either prohibited or unallowable costs.“); id. ¶ 164. (“Defendants knowingly made, used, or caused to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government[.]“).) It is well established that “the Federal Rules do not require courts to credit a complaint‘s conclusory statements without reference to its factual context.” Iqbal, 556 U.S. at 686, 129 S.Ct. 1937.
The third relevant paragraph states in part that Defendants’ misrepresentation of their lobbying activities was “made with the intent to avoid any sort of repayment of federal funds already spent” (Am. Compl. ¶ 71), which is apparently an attempt to assert that Defendants’ improper use of government funds triggered some sort of repayment obligation, and that, by lying about this improper use, Defendants concealed this obligation in violation of
In his opposition to the present motion, Relator attempts to argue that an obligation arose out of Defendants’ concealment of their allegedly fraudulent activity. (Relator‘s Opp‘n at 27-29.) Under this telling, the concealment (which is alleged in the complaint) prevented the government from uncovering fraud and requiring repayment of the grant funds that the government had provided. (Id.) But by this logic, just about any traditional false statement or presentment action would give rise to a reverse false claim action; after all, presumably any false statement actionable under
Finally, it is also apparent that Relator cannot now claim that there is a general obligation to repay all instances of misuse of grant funds when the amended complaint does not state as much. Nor can Relator satisfy
duty to pay the government arose out of any of the sources Relator belatedly highlights, it is well established that, “[i]n deciding a motion brought under
C. Relator‘s Conspiracy Action (Count IV) Must Be Dismissed Under Rule 12(b)(6)
In the fourth count of the amended complaint, Relator alleges that Wu and the Corporate Defendants conspired to violate the FCA. (See Am. Compl. ¶¶ 166-180.) This count can be disposed of in short order for one simple reason: there can be no conspiracy to commit fraud in violation of the FCA if an underlying false claim has not been adequately alleged. See Halberstam, 705 F.2d at 477 (noting that “civil conspiracy depends on performance of some underlying tortious act” and is not actionable apart from an underlying tort); Amin, 26 F.Supp.2d at 165 (dismissing a conspiracy action because, among other reasons, defendants were not liable for any underlying violation of the FCA). As explained, Relator‘s actions under
This Court need not proceed to address any other problems with Relator‘s conspiracy allegation, but it is worth mentioning that there are additional patently obvious flaws with this count. For example, while Relator appears to maintain that Wu, LRF, and CIC conspired to present false claims and false statements to the government, under the intra-corporate conspiracy doctrine, one entity “cannot conspire with its employees, and its employees, when acting within the scope of their employment, cannot conspire among themselves.” Head, 798 F.Supp.2d at 201 (internal quotation marks and citation omitted). Thus, Wu cannot be said to have conspired with either LRF or CIC as a matter of law. See id. Furthermore, to the extent that two corporate entities can conspire with each other, see Estate of Heiser v. Islamic Republic of Iran, 466 F.Supp.2d 229, 267 (D.D.C. 2006), the complaint makes clear that Wu was the driving force behind the alleged illegality, and it is devoid of any facts from which this Court could infer that CIC and LRF each separately agreed to join any conspiracy to defraud the government. What is more, the amended complaint also specifically alleges that CIC was a “wholly-controlled affiliate” of LRF (Am. Compl. ¶ 10), and it is well established that one corporation and a wholly-owned subsidiary cannot conspire with each other. See Corsi v. Eagle Publ‘g, Inc., No. 07-cv-2004, 2008 WL 239581, at *3 n. 2 (D.D.C. Jan. 30, 2008) (citing Dickerson v. Alachua Cnty. Comm‘n, 200 F.3d 761, 767 (11th Cir. 2000) & Travis v. Gary Cmty. Mental Health Ctr., Inc., 921 F.2d 108, 110 (7th Cir. 1990)); see also Rawlings v. Dist. of Columbia, 820 F.Supp.2d 92, 103 (D.D.C. 2011) (noting that “there is no conspiracy if the conspiratorial conduct challenged is essentially a single act by a single corporation” (emphasis added) (internal quotation marks and citation omitted)). Accordingly, Count III fails as a matter of law for a variety of reasons, and thus must be dismissed.
D. Relator‘s Retaliation Action (Count V) Is Pled Adequately And Survives The Instant Motion To Dismiss
The amended complaint‘s final count alleges that Defendants’ termination of Relator‘s employment violated the FCA‘s anti-retaliation provision. (Am. Compl. ¶¶ 181-186.) As a threshold matter, unlike the FCA fraud allegations in Counts I through IV, allegations regarding retaliation in violation of the FCA “are ‘unconstrained by the fraud pleading standard’ and ‘need satisfy only
1. The Complaint Contains Sufficient Allegations Of “Protected Activity”
According to the amended complaint, Relator “brought to Defendants’ attention what he reasonably believed to be improper and fraudulent acts” (Relator‘s Opp‘n at 38); specifically, he repeatedly complained to Wu about improper billing practices and misuse of funds, and eventually informed a board member about the purportedly unlawful conduct, suggesting that the board take action to stop it (Am. Compl. ¶¶ 113-18). The pre-FERA retaliation provision of the FCA specifically listed “lawful acts” for which an employee was entitled to protection, and this list “include[d] investigation for, initiation of, testimony for, or assistance in an action to be filed” under the FCA.
Of course, not all of a relator‘s investigative efforts can necessarily support an actionable retaliation count: the investigation “must concern ‘false or fraudulent’ claims[,]” rather than mere “non-compliance with federal or state regulations.” Id. at 740 (citations omitted); cf. Hoyte v. Am. Nat‘l Red Cross, 518 F.3d 61, 68-70 (D.C. Cir. 2008) (affirming dismissal of the relator‘s FCA retaliation action where the complaint only referenced the defendants’ “mere regulatory noncompliance“—i.e., failure to follow procedures set forth in a consent decree); see also McKenzie v. BellSouth Telecomms., Inc., 219 F.3d 508, 517 (6th Cir. 2000) (noting that the relator‘s reports of wrongdoing must be directed towards an investigation into fraud on the government in order to qualify as “protected activity” under the FCA). Be that as it may, “several courts have said that internal reporting of false claims is itself an example of a protected activity” that can give rise to an FCA retaliation action. Yesudian, 153 F.3d at 741 n. 9 (collecting cases); see also Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 186-87 (3d Cir. 2001) (noting that internal reporting may constitute a protected activity). Ultimately, the determination of “what activities constitute ‘pro-
tected activity’ is a fact specific inquiry[,]” Hutchins, 253 F.3d at 187, and as the D.C. Circuit has noted, “protected activity” was meant to be interpreted broadly. Yesudian, 153 F.3d at 741.
For example, in United States ex rel. Yesudian v. Howard University, 153 F.3d 731 at 745, the D.C. Circuit considered whether relator‘s internal reports and investigation were a sufficient basis to establish that relator had engaged in protected activity for the purpose of his FCA retaliation action. In that case, the relator worked in the Purchasing Department at Howard University, which received federal funding and had contracts with the General Services Administration. Id. at 734-35. The relator contended that his supervisor retaliated against him after he repeatedly reported to his supervisor‘s superiors that the supervisor had engaged in a number of financial improprieties related to the University‘s receipt of federal funding from the General Services Administration. Id. At those superiors’ requests, the relator collected evidence from other employees to substantiate his reports, id.; the supervisor terminated the relator‘s employment shortly after learning of the relator‘s efforts, id. at 735. The D.C. Circuit affirmed the district court‘s entry of summary judgment in defendant‘s favor on all of the underlying false claims counts, but it found that the relator had alleged and established sufficient facts for a reasonable jury to find a violation of the FCA‘s retaliation provision because the relator was “investigating matters that reasonably could lead to a viable [FCA] case.” Id. at 740 (internal quotation marks omitted).
Here, too, the retaliation count survives even as the underlying FCA fraud counts do not. Unencumbered by the specificity requirement in this context, the amended complaint can easily be read to allege that Relator engaged in some level of investigation to determine the scope and frequency of the suspected fraud, given the allegation that Relator “sought to ascertain other facts to determine how far in scope and how often these irregularities were occurring.” (Am. Compl. ¶ 124.) What is more, the complaint alleges that Relator brought the information that he had learned during the course of this investigation to Wu‘s attention. Although some of Relator‘s reported conversations appear to reflect Wu‘s own statements about Corporate Defendants’ internal reimbursement practices and therefore do not relate directly to defrauding the government (see, e.g., id. ¶ 115 (noting that Wu told Relator that he could debit Corporate Defendants’ accounts to compensate Relator for personal expenses); id. ¶ 117 (noting Chen‘s practice of staying home from work while still getting paid)), Relator does allege that he was investigating suspected fraudulent acts related to grant funding and other activities, and the amended complaint contains facts that, if true, put Wu on notice of the possibility that Relator‘s investigations may reasonably have led to an FCA action. In particular, Relator alleges that, in 2005, he met with Wu to discuss “the billing of the DOS/NED Program for monies that Corporate Defendants were not entitled to receive[.]” (Id. ¶ 113.) Relator also alleges that, in 2007, he warned that Wu should “not use federal money to sponsor a lawsuit against Yahoo!” specifically because “federal monies were only to be spent on DOS/NED program-related expenses.” (Id. ¶ 116.) Relator further alleges that he raised certain improper spending concerns with board member Martin and discussed “possible actions, internal and external, that could be taken to correct” the conduct. (Id. ¶ 118.) Drawing all inferences in Relator‘s favor and following the D.C. Circuit‘s instruction that “protected activity” should be interpreted broadly, see Yesudian, 153 F.3d at 740, these allegations
Defendants’ argument that Relator‘s investigation into, and reports of, fraud do not give rise to an actionable RCA retaliation action because they were part of his ordinary job responsibilities (see Defs’ Mem. at 28 (contending that the complaint “does not raise the inference that Si did anything but perform his job functions and report to a supervisor“)) is unavailing. It is true that “plaintiffs alleging that performance of their normal job responsibilities constitutes protected activity must overcome the presumption that they are merely acting in accordance with their employment obligations to put their employers on notice” of any protected activity. Martin-Baker, 389 F.3d at 1261 (internal quotation marks and citation omitted); see also Schweizer, 677 F.3d at 1239 (noting that the relator‘s retaliation action could not succeed because her “job was to ensure compliance with government contracts“). But the amended complaint belies Defendants’ argument that this so-called ”Martin-Baker presumption” applies here. Relator has alleged that he worked for Corporate Defendants as a “computer technician” and later became either “Assistant Director” or “Computer/office manager.” (Am. Compl. ¶ 7.) The amended complaint specifically notes that Relator was never “responsible for Defendants’ compliance” but merely had access to “some billing and accounting information.” (Id.) Taking these allegations of fact as true, Relator‘s alleged investigation into Corporate Defendants’ billing practices, and also his suggestion to Martin that they take possible external actions to stop further wrongdoing, was outside the scope of Relator‘s job responsibilities, and thus satisfies the “protected activity” element of an FCA retaliation action.
2. The Complaint Contains Sufficient Facts From Which To Infer The Requisite Causal Connection
The allegations in the amended complaint also state a plausible claim that Wu was terminated because of his protected activity. The “causation” element of a retaliation action requires a relator to show both that “(a) ‘the employer had knowledge the employee was engaged in protected activity‘; and (b) ‘the retaliation was motivated, at least in part, by the employee‘s engaging in [that] protected activity.‘” Yesudian, 153 F.3d at 736 (alteration in original) (quoting S.Rep. No. 99-345, at 35); Sharma v. Dist. of Columbia, 791 F.Supp.2d 207, 218 (D.D.C. 2011) (same); see also Saunders v. Dist. of Columbia, 958 F.Supp.2d 222, 228 (D.D.C. 2013) (noting that the relator need only show that protected FCA activity was a “contributing factor” in the employment action (quoting Payne v. Dist. of Columbia, 722 F.3d 345, 353 (D.C. Cir. 2013))). The D.C. Circuit has called the standard for notice “flexible: ‘the kind of knowledge the defendant must have mirrors the kind of activity in which the plaintiff must be engaged[,]‘” Martin-Baker, 389 F.3d at 1260 (quoting Yesudian, 153 F.3d at 742), except that “‘the employer [has to be] aware that the employee is investigating fraud‘“; otherwise, “‘the employer could not possess the retaliatory intent necessary to establish a violation of
The amended complaint here alleges that Relator expressed his concerns about Corporate Defendants’ billing practice as it related to the receipt of DOS/NED grant funding directly to Wu, and also that Relator had suggested to a board member that they take “possible actions” to stop the alleged fraud. (Id. ¶ 118.) These allegations are plainly sufficient at this stage of the litigation to support a plausible contention that Defendants were on notice of Relator‘s protected activity.
Relator also has alleged sufficient facts to support an inference that his engagement in protected activity was what motivated Defendants to terminate his employment. In assessing the causal link between protected activity and a relator‘s termination, courts often consider the temporal proximity between the employer‘s notice of the conduct and the relator‘s termination. See, e.g., Schweizer, 677 F.3d at 1240 (finding a causal connection where relator was fired two weeks after disclosing his fraud suspicions to defendants); Martin-Baker, 389 F.3d at 1262 (holding that, because “his suspension and termination occurred just after he disclosed” the allegedly fraudulent conduct “to his superior, [the relator] has satisfactorily alleged” causation (emphasis added)); Pitts v. Howard Univ., No. 13-1398, 13 F.Supp.3d 14, 16-17, 19-21, 2014 WL 69032, at *1, *4 (D.D.C. 2014) (finding a sufficiently alleged causal connection where plaintiff was demoted one year after raising concerns about his employer‘s tax practices); see also Strong v. Univ. Healthcare Syst., LLC, 482 F.3d 802, 808 (5th Cir. 2007) (noting that, while temporal proximity alone may not be enough to prove causation, it can be sufficient to establish a prima facie case). Applying this factor to the case at bar, the amended complaint‘s allegation that Wu terminated Relator within months of learning that Relator had reported fraudulent billing practices to a board member (see Am. Compl. ¶¶ 118-120) is sufficient to give rise to an inference of causation, see Schweizer, 677 F.3d at 1240; Martin-Baker, 389 F.3d at 1262; Pitts, 13 F.Supp.3d at 18-19, 2014 WL 69032, at *3.
Defendants attempt to avoid this conclusion by focusing on the three-year gap between when Relator first reported possible fraud (in 2005) and when he was eventually terminated (in 2008). (See Defs.’ Mem. at 31 (“It is implausible that Defendants waited, not three weeks, but three years to terminate Si in supposed ‘retaliation’ for reporting his concerns.“). But the allegations in the amended complaint involve not an isolated misconduct report but repeated attempts on Relator‘s part to address the situation in a manner that reflects a pattern of escalating concern: after Relator‘s repeated discussions of fraud that were voiced directly to Wu fell on deaf ears, Relator finally went above Wu‘s head and raised his concerns about Defendants’ misuse of grant funds with a member of the board of directors. (Am. Compl. ¶ 118.) And it was only three months after that event—which included Relator‘s articulated threat of possibly taking external action—that Defendants terminated Wu‘s employment. Given these facts, it is entirely plausible to infer that Defendants decided to terminate Relator when Relator took his concerns to the board and threatened to act on them.
3. Relator Can Maintain This Action Against Wu In His Individual Capacity
Finally, despite Defendants’ protest, this Court finds that the complaint contains enough allegations of fact regarding the relationship between Defendant
In this circuit, a two-pronged test is used to determine whether to pierce the corporate veil: “(1) is there such a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist?; and (2) if the acts are treated as those of the corporation alone, will an inequitable result follow?” Siewick, 191 F.Supp.2d at 21 (quoting Labadie Coal Co. v. Black, 672 F.2d 92, 96 (D.C. Cir. 1982)). With respect to this test, courts consider such factors as “domination of the organization by a single individual” and failure to maintain corporate formalities, including “diversion of the corporation‘s funds or assets to non-corporate uses such as personal use by the . . . dominant, controlling person.” United States v. Emor, 850 F.Supp.2d 176, 207 (D.D.C. 2012). And not all factors need to be present to justify piercing; rather, the court‘s analysis “depends more on the facts than on any sharply defined underlying legal standard[.]” United States v. Pena, 731 F.2d 8, 13 (D.C. Cir. 1984).
Relator‘s amended complaint alleges in no uncertain terms that Relator was an employee of LRF and CIC, and that Wu was working “on behalf of Corporate Defendants” when he terminated Relator. (Am. Compl. ¶ 183; see also 14.)12 The complaint also includes ample allegations of fact that raise a plausible inference that Wu and the Corporate Defendants shared a common identity such that piercing the corporate veil may be appropriate. For example, Relator explicitly alleges that Wu had “de facto control” over both organizations. (Am. Compl. ¶ 12). The amended complaint thus alleges that Wu is the dominant, controlling force behind both Corporate Defendants, which weighs in favor of piercing the corporate veil. See Emor, 850 F.Supp.2d at 207. Furthermore, the amended complaint repeatedly alleges that Wu regularly used corporate funds for personal expenses (see, e.g., id. ¶¶ 82, 95), which, if true, provides further justification for piercing the corporate veil, see Emor, 850 F.Supp.2d at 207 (citation omitted).
It may well turn out that, after the record is fully developed during discovery, the facts of Wu‘s relationship with the Corporate Defendants is other than Relator represents and thus that veil-piercing is not appropriate. For example, further information on the control exercised by the board of directors of LRF and CIC will likely play an important role in deciding the extent to which Wu dominates those organizations. But at this stage of the litigation, Relator has alleged sufficient facts to raise a plausible inference that Wu is the alter ego of LRF and CIC, and thus this Court rejects without prejudice Defendants’ argument that Relator cannot maintain his FCA retaliation action against Defendant Wu in his individual capacity.
IV. CONCLUSION
For the reasons explained above, Relator has not satisfied the pleading standards of
UNITED STATES of America, v. Tyrone HINES, Defendant. Criminal No. 10-cr-150-01 (CKK)
United States District Court, District of Columbia.
Signed October 15, 2014