UNITED STATES OF AMERICA еx rel. HASSAN FOREMAN, Plaintiff, - against - AECOM, AECOM GOVERNMENT SERVICES INC., AC FIRST LLC, and AECOM/GSS LTD., Defendants.
16 Civ. 1960 (LLS)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
April 13, 2020
LOUIS L. STANTON, U.S.D.J.
OPINION & ORDER
Relator Hassan Foreman brought this qui tam action on behalf of the United States of America pursuant to the False Claims Act,
BACKGROUND
The following facts are as alleged in the Third Amended Complaint (“TAC“) (Dkt. No. 66).
Defendants AECOM, AECOM Government Services Inc., AC First LLC, and AECOM/GSS Ltd. (collectively, “AECOM“) are affiliated defense contractors.
In 2010, AECOM entered into a Maintenance & Operational Support (“MOSC“) contract with the U.S. Army. Under the
The MOSC contract reimburses AECOM for its costs and pays an additional negotiated fixed fee. The contract was modified and extended multiple times between 2010 and 2018. To date, AECOM continues to perform under the contract and has been paid a total of approximately $1.9 billion.
Relator Hassan Foreman began working at AECOM as a Finance Analyst in August of 2013 and was promoted to Finance Supervisor in May of 2014.
Foreman alleges that AECOM and its employees violated numerous obligations under the MOSC contract and federal regulations. Those violations are separated into five categories: (1) improper labor billing, (2) inflated reports of man-hour utilization rate, (3) improper purchasing, tracking, and returning of government property, (4) entry into a “crony” contract with Bluefish, a payroll processing company, and (5) travel violations.
Labor Billing
AECOM submitted inaccurate labor timesheets to the
Employees who slept on the job or engaged in othеr leisure activities billed full eleven-hour days. AECOM had a policy of billing 154 hours per each two-week period regardless of the actual number of hours worked. On one occasion, six employees billed several hours for replacing and repairing one tire.
AECOM also billed for labor of untrained and uncertified employees when it was required to employ qualified and certified operators to properly track materials and inventory.
When AECOM learned of its billing issues, it attempted to correct old timesheets.
MHU Rate
Under the MOSC contract, AECOM is required to monitor and report on a monthly basis its man-hour utilization (“MHU“) rate, which is calculated by dividing the number of actual labor hours worked by the number of labor hours available. AECOM is required to have an MHU rate of 85 percent or greater, but its
Government Property
AECOM employed untrained and uncertified personnel who failed to properly account for and process property.
Employees ordered items through unauthorized “parts-only” work orders, which were not tied to particular equipment, and resulted in orders for excess and unused parts. “For example, if tires were properly ordered pursuant to an established vehicle program or work order, the system would trigger an alert if the number of tires did not match the number of trucks or the expected tire usage. A POWO could not be monitored in that fashion because it would not tie to an actual WO.” Id. ¶ 216.
Employees purchased the same items twice by ordering parts through the government supply system as well as on the commercial market, and requested reimbursement from the government for those duplicative work orders.
AECOM failed to report and return to the Army excess or unused parts and recoverable items, which are used items removed from vehicles and other equipment.
In 2013, Jonathan Nagel, the President and General Manager of AECOM switched AECOM‘s payroll services provider from Wells Fargo to Bluefish Global Payroll Solutions (“Bluefish“), falsely claiming that Wells Fargo no longer provided the services needed. Nagel had a prior business relationship with Bluefish‘s owner.
Bluefish‘s system did not function well and imposed high transaction fеes for each money transfer. In response to complaints about the fees, AECOM increased the hourly pay for affected employees by 2.6 percent, which led to a 0.2 percent increase in monthly billings to the government. AECOM also billed the government for the Bluefish training staff who spent “two full days assisting with distribution and activation of the cards as well as account holder questions.” Id. ¶ 290.
Foreman made a hotline complaint to the Inspector General‘s office reporting the Bluefish issues and Nagel‘s relationship with Bluefish‘s owner.
Travel Violations
Foreman was responsible for various aspects of booking and paying for AECOM employees’ air travel. In June of 2015, Foreman learned that Rethinam Rajendran, a Travel Coordinator, had booked a special air travel request for his co-worker and roommate Mahesh Parakandy Thattiyot, a Senior Financial Analyst.
Around the same time, Foreman also learned that Saravanan Sankaiah, a Payroll Specialist, did not return from his paid leave as scheduled. When he did return, he did not report to Foreman for duty as required under AECOM policy.
Foreman reported both travel-related issues in June of 2015 to the Finance Manager, John Conrad. After an internal investigation of the issues, AECOM decided not to take disciplinary action. Foreman then reported the issues to the Manager of Employee Relations, John Dearth. Foreman was notified on or about June 29, 2015 that after another investigation, no disciplinary action would be taken. Foreman informed AECOM management that he would report the issues outside the company.
Around the same time or shortly thereafter, Foreman heard rumors that his position at AECOM would be eliminated and that he would be terminated. On or about July 5, 2015, Foreman was terminated, despite receiving a positive performance review immediately prior to reporting the travel violations.
This Action
Foreman filed this action under seal on behalf of the United States on March 16, 2016. On March 16, 2018, the case was unsealed and Foreman filed an amended complaint. On
Foreman filed the TAC on September 25, 2019, alleging violations of various provisions of the FCA,
Defendants now move to dismiss the TAC.
DISCUSSION
On a motion to dismiss under
Defendants argue that the TAC should be dismissed because (1) claims related to labor billing, MHU, and property violations are barred by the FCA‘s “public disclosure bar,” (2) claims related to labor billing, MHU, and property violations do not allege materiality, (3) claims related to the Bluefish contract do not allege how the contract was a violation, (4) claims related to a failure to return property do not allege an obligation to return property or any specific property defendants failed to return, and (5) the retaliation claim does not allege that Foreman engaged in protected activity or that defendants were aware of any protected activity.
Public Disclosure Bar
The FCA‘s public disclosure bar states,
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.
With the 1986 amendments, Congress deliberately removed a previous provision that barred jurisdiction whenever the government had knowledge of the allegations or transactions in the relator‘s complaint. The pre-1986 versiоn of
Defendants argue that their labor billing, MHU, and
The DOD IG report is the only document or communication Foreman cites that was clearly publicly disclosed, as it is accessible on the Department of Defense‘s website.1 The report states that defendant AC First LLC failed to “account for more than 400 pieces of nonrolling stock equipment including three drone systems,” “did not conduct causative research to determine the events that led to the loss or the location” of missing property, and “did not report the property loss” to the 401st Army Field Support Brigade in Afghanistan. White Aff. Ex. 1.
However, those statements regarding lost or missing equiрment do not disclose the material elements of the property-related fraud alleged in the TAC, which include defendants’
Earlier disclosures will bar a relator‘s claim if they were “sufficient to set the government squarely upon the trail of the alleged fraud.” EMSL Analytical, Inc., 966 F. Supp. 2d at 298 (internal quotations omitted). The bar is triggered if “material elements” of the fraud have been publicly disclosed, and does not require that the alleged fraud, itself, have been disclosed. See U.S. ex rel. Rosner v. WB/Stellar IP Owner, L.L.C., 739 F. Supp. 2d 396, 405 (S.D.N.Y. 2010); see also Monaghan v. Henry Phipps Plaza W., Inc., 531 Fed. Appx. 127, 130 (2d Cir. 2013).
Furthermore, Foreman does not cite the DOD IG report in support of his own fraud allegations; rather, the report‘s conclusions merely “demonstrate that this is not the first time AECOM has been cited for serious property acquisition and tracking issues.” TAC ¶ 53. Thus, the publicly disclosed information in the DOD IG report is not “substantially the same” as the TAC‘s allegations.
With respect to the other government documents and communications, Foreman argues that they were not “publicly disclosed” under the FCA because they were not disclosed to anyone outside the government. See United States ex rel. Wood v. Allergan, Inc., 246 F. Supp. 3d 772, 789 (S.D.N.Y. 2017) (“Significantly, nine courts of appeals have held that the bar applies only where there has been a disclosure outside of the government.“) (emphasis in original).
The Second Circuit has not yet opined on this issue.
Id. (declining to follow “the sole court of appeals to conclude that disclosure to a competent public figure, without more, satisfies the ‘public disclosure’ requirement” and choosing “to follow the persuasive reasoning of the nine other Circuits to address the question“); see also United States v. Mount Sinai Hosp., 256 F. Supp. 3d 443, 454 (S.D.N.Y. 2017) (following Wood and holding that defendants’ submission of a letter to the Office of the Medicaid Inspector General was “insufficient to invoke the public disclosure bar.“).
There is no allegation or evidence that the other documents or communications were disclosed outside the government entities of the DCAA, DCMA, and Army. On the contrary, the DCMA corrective action request discussing AECOM‘s low MHU rate is designated as “CONFIDENTIAL,” White Aff. Ex. 2, and the DCAA report on AECOM‘s timesheet issues is labeled “FOR OFFICIAL USE ONLY,” “Confidential FOIA Exempt,” and “Highly Confidential,” id. Ex. 6.
Defendants argue that the documents and communications were
Here, in contrast to Stinson, the allegations of fraud were not just potentially accessible to strangers, they were actually divulged to strangers to the fraud, namely the innocent employees of John Doe Corp. While the search warrant was being executed, the investigators spoke to numerous employees of John Doe Corp., some of whom knew of the fraud. But, more importantly, many of these individuals knew nothing about defendants’ ongoing scheme; they were strangers to the fraud. These people were neither targets of the investigation nor potential witnesses. The government may have hoped that these individuals were pоtential witnesses, but it is clear that they were not.
When these innocent employees learned of the fraud, they were under no obligation to keep this information confidential. We cannot accept the relator‘s argument that simply because other members of the public did not have a legal right to pry the allegations of fraud from the mouths of these innocent employees, there was no “public disclosure“. Were this Congress’ intent, we would expect a narrower exception to jurisdiction, one that bars only those actions based on generally accessible government documents and news media accounts. Section 3730(e)(4)(A) is not so circumscribed.
Id. at 322-23. “Once allegations of fraud are revealed to members of the public with no prior knowledge thereof, the government can no longer throw a cloak of secrecy around the allegations; they are irretrievably released into the public
Defendants argue that Foreman was an “innocent” employee who learned of the alleged fraud from the government investigation and audit reports. Defendants also argue that because Foreman was able to access the documents, they were potentially accessible to other innocent employees as well. “It is implausible that these reports were not potentially accessible to anyone who went looking for them at AECOM that was similarly situated to Foreman.” Defs. Reply Br. at 7-8. See Doe, 960 F.2d at 322 (citing Third Circuit holding that “because any diligent member of the public could have gone to court and demanded to see the documents, there was public disclosure. Potential accessibility by those not a party to the fraud was the touchstone of public disclosure.“).
It cannot be determined from the TAC that Foreman was an “innocent” employee or a “stranger to the fraud” like those in Doe. It is unknown at this time how or when Foreman accessed the government reports, and there is no evidence that he lacked prior knowledge of the alleged fraud. Rather, he personally observed “multiple wasted hours” and “that timesheets for the two-week period were frequently turned in on the second Wednesday of the period.” TAC ¶¶ 84, 163.
Nor is there any evidence or other indication that innocent
It cannot be determined as a matter of law at this stage that the public disclosure bar applies.
False Certifications: Labor, MHU, and Property
Foreman alleges that defendants falsely certified to the government in invoices and requests for reimbursement that they were in compliance with requirements under the MOSC contract. See Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 1993-94, 195 L. Ed. 2d 348 (2016):
The implied false certification theory can be a basis for FCA liability when a defendant submitting a claim makes specific representations about the goods or services provided, but fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that make those representations misleading with resрect to those goods or services.
A “misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government‘s payment decision in order to be actionable under the False Claims Act.” Id. at 2002. The FCA states, “the term ‘material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”
“The materiality standard is demanding. The False Claims Act is not ‘an all-purpose antifraud statute,’ Allison Engine, 553 U.S. at 672, 128 S. Ct. 2123 or a vehicle for
In sum, when evaluating materiality under the False Claims Act, the Government‘s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive. Likewise, proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.
Foreman alleges that “AECOM‘s compliance with applicable legal and contractual requirements was material to the Government‘s payment decision” because the government “required AECOM to comply with these requirements in order to invoice its labor costs,” “emphasized the importance of such requirements in the DCAA Auditor‘s Manual,” and had previously enforced timesheet requirements against another company in a separate action. TAC ¶ 92. He also points to “the substantial size of AECOM‘s invoices” and “internal AECOM documents and AECOM‘S public filings” showing that defendants sought to address violations. Id. None of those sufficiently demonstrates materiality. See Universal Health, 136 S. Ct. at 2003 (“A misrepresentation cannot be deemed material merely because the
Defendants argue that their false certifications of compliance with respect to labor billing and timesheets, MHU rate, and government property were not material to the government‘s payment decision because the government was aware of those violations but continued to pay defendants and extend the MOSC contract.
The documents and reports cited in the TAC demonstrate that the government investigated and knew about defendants’ violations concerning labor billing, MHU rate, аnd property.2 Specifically, a 2014 evaluation by the DCAA found that defendants’ employees had access to and “the opportunity to edit other employees’ timesheets,” were “not properly reviewing timesheets for completeness and accuracy,” were signing and
A 2012 corrective action plan by the DCMA discusses defendants’ “Failure to enter labor hours data into SAMS,” “Failure to track cost of reworked supplies data in SAMS,” and “Failure to track and manage shelf life items using SAMS.” Id. Ex. 3. It also states, “Accurate Man Hour utilization is not being maintained in SAMS theater wide. This issue is the most recent in a trend of deficiencies related to the required use of Logistics Information Systems.” Id. A 2012 corrective action request by the DCMA states, “Contractor is well under the required Utilization Rate of 85%; Utilization Rate for 1-30Sep12 was 26%.” Id. Ex. 2. “The 401st did, indeed, mandate lower staffing levels when it became aware of low utilization rates.” TAC ¶ 171.
“In late 2011 and first quarter of 2012,” a DCMA property management system analysis concluded that “AC FIRST‘s system for control and accounting of Government Property at Bagram Airfield is INADEQUATE.” Id. ¶ 264. The analysis “noted that the failure to record and manage inventory ‘can lead to questions of
Despite its knowledge of those violations, the government extended the MOSC contract multiple times. See TAC ¶ 41:
The MOSC-A Contract was a cost-plus fixed fee contract, Contract No. W911SE-07-D-0004-BA01, with a period of performance for one base year (January 28, 2010 to January 27, 2011) plus four option years, which could extend the MOSC-A Contract until January 27, 2015. The Army elected to extend the contract through the four option years. The MOSC-A Contract would have expired on January 27, 2015, but a modification extended it for six months on January 16, 2015 until July 27, 2015 with a plan for a further incrementally funded bridge contract. Each option year constituted a new MOSC-A Contract between AECOM and the Army. On information and belief, the MOSC-A Contract was modified as late as June 5, 2018 and is still being performed.
The contract states, “Option Years 1-4: In determining whether to award the option years, the Government will take into account the contractor‘s previous performance on this task order.” Id. ¶ 45. There is no indication that the government refused to pay defendants or demanded repayment due to the labor billing, MHU, or property violations. Rather, “From 2010 through 2018, the MOSC-A Contract was amended, modified, or extended a myriad of
Foreman‘s claims regarding defendants’ false certifications of compliance with labor billing, MHU, and property requirements are not material and therefore not actionable under the FCA, and are dismissed.
False Certification: Bluefish Contract
Foreman also claims that defendants falsely certified their compliance with the requirement to “select subcontractors (including suppliers) on a competitive basis” due to the Bluefish contraсt. TAC ¶ 284. However, the TAC does not allege how Bluefish was not selected on a competitive basis or how the contract was a “crony” contract. See United States ex rel. Chorches for Bankr. Estate of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 81 (2d Cir. 2017) (“Qui tam complaints filed under the FCA, because they are claims of fraud, are subject to
Although the TAC alleges that Nagel falsely stated that Wells Fargo “no longer provided the needed services,” id. ¶ 284, a letter from a Wells Fargo Managing Director to AECOM‘s Senior Vice President states that Wells Fargo “has reviewed the AGS Paycard program and determined that the program exceeds our risk tolerance and will be closed down,” and “would work closely with AECOM/AGS management team to ensure a smooth transition to a suitable product for the company‘s payroll/disbursement needs.” White Aff. Ex. 9.
Foremаn‘s claims regarding defendants’ false certification of compliance with the requirement of competitive bidding of contracts is dismissed.
Conversion Claim
Foreman claims that in addition to making false certifications to the government, defendants failed to return
The TAC alleges generally that excess parts and recoverable items were not accounted for or returned to the government. It states, “on a wide-scale basis, the work order was not being properly created, closed or audited, resulting in recoverable items not being returned or duplicates not being controlled.” TAC ¶ 243. It quotes an AECOM supervisor discussing “parts ordered and not needed etc. leading to some of the excess parts issues we have run across,” and stating
Not turning the recoverable items in using the EUM method (no credit for the parts SUPER BAD [tire example 6k etc] and incorrect records for the ones that have any legacy data at all as well as the table stack up 3900 on the front side 10K ++ back side risk of discovery during long term audit and not being able to show what the heck we did with the parts or that we did it wrong).
Id. ¶¶ 234, 249. It also cites an internal report that states, “Incorrect disposition has caused recoverable items to be left on AC FIRST SAMSIE database, and failure of proper credit to the USG [U.S. Government] and significant liability to AC FIRST.”
Reverse False Claim
Foreman also brings a “reverse” false claim under
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.
“Subsection (a)(1)(G) is referred to as the ‘reverse false claims’ provision because it covers claims of money owed to the government, rather than payments made by the govеrnment.” United States ex rel. Kester v. Novartis Pharm. Corp., 43 F. Supp. 3d 332, 368 (S.D.N.Y. 2014) (citation and internal quotation marks omitted).
“To prove a claim under subsection (a)(1)(G), a plaintiff must show: (1) proof that the defendant made a false record or statement (2) at a time that the defendant had a presently-existing obligation to the government-a duty to pay money or
Foreman‘s reverse false claim alleges that defendants retained and failed to return overpayments and property from the government. That claim, however, is based on the same labor billing and property violations underlying the direct false claims, which allege that defendants submitted false certifications in their invoices requesting payment and retained those payments. See United States ex rel. Hussain v. CDM Smith, Inc., No. 14-CV-9107 (JPO), 2017 WL 4326523, at *9 (S.D.N.Y. Sept. 27, 2017):
Hussain‘s reverse false claim allegation boils down this: CDM received payment on its false claims and thus “retain[ed] Government funds to which they were not entitled.” (Dkt. No. 34 at 18.) Hussain cites the legislative history of the reverse false claim provision to argue that Congress intended it to be construed broadly, and that a reverse false claim includes “[the] knowing and improper retention of funds without notice to the Government.” (Id.)
But even if Congress intended the statute to have a broad sweep, this is a sweep too far. “A complaint that ‘makes no mention of any financial obligation that the [defendant] owed to the government’ and ‘does not specifically reference any false records or statements used to decrease such an obligation’ must be dismissed.” Wood, 2017 WL 1233991, at *34 (alteration in original) (quoting Wood ex rel. United States v. Applied Res. Assocs., Inc., 328 Fed. Appx. 744, 748 (2d Cir. 2009)). Hussain does not “identify any existing financial obligation [that CDM] owed to the Government,” let alone “any specific false record or statement that [CDM] made to avoid such a purported obligation.” Haas v. Guiterrez, No. 07 Civ. 3623, 2008 WL 2566634, at *5 (S.D.N.Y. June 26, 2008).
The TAC does not identify a separate obligation to return overpayments or excess property to the government. It cites a
In support of his reverse false claims, Relator alleges that various providers of health services billed for and received benefits that were “in the form of overpayments known to Defendants.” (SAC ¶¶ 182-83.) The SAC, however, is devoid of any factual information to suggest that either Defendant owed a financial obligation to the Government. Relator‘s reverse false claim allegations-which essentially boil down to various providers allegedly receiving payment on false claims and thus retaining Government funds to which they were not entitled-are not an adequate basis on which to allege a reverse false claim.
Accordingly, the reverse false claim is dismissed.
Retaliation
Foreman claims that he was terminated in retaliation for reporting AECOM employees’ two travel violations and the Bluefish contract, in violation of
“To sustain an action under § 3730(h), a plaintiff must prove (1) that he engaged in conduct protected under the statute, (2) that defendants were aware of his conduct, and (3) that he was terminated in retaliation for his conduct.” United States ex rel. Sarafoglou v. Weill Med. Coll. of Cornell Univ., 451 F. Supp. 2d 613, 624 (S.D.N.Y. 2006) (citation and internal quotation marks omitted).
With respect to the travel violations, Foreman did not engage in protected conduct because the complaints he made about the employees’ air travel request and failure to return from leave or report in for duty were not reasonably directed at exposing a fraud upon the government. Those complaints discussed employee violations of a federal regulation and AECOM policy; they were not complaints that the employer, AECOM, engaged in fraudulent conduct actionable under the FCA.
With respect to the Bluefish contract, Foreman complained to the Inspector General‘s office, but he does not allege that
Accordingly, the retaliation claim is dismissed.
CONCLUSION
Defendants’ motion to dismiss the Third Amended Complaint (Dkt. No. 67) is granted.
Plaintiff‘s brief requests leave to amend. The reasons for dismissal of the Third Amended Complaint do not turn on points of pleading. They reflect the underlying invalidity of the merits of the claims, such as the government‘s continued disregard of defendants’ shortfalls as being insufficiently serious or consequential (“material“) to justify either litigation or severance of the relationship.
Nevertheless, plaintiff has leave to move for leave to serve a fourth amended complaint, attaching a copy of the proposed pleading.
So ordered.
Dated: New York, New York April 13, 2020
Louis L. Stanton
LOUIS L. STANTON U.S.D.J.