BERYL A. HOWELL, Chief Judge.
The relator, Brady Folliard, initiated this lawsuit, pursuant to the qui tam provision of the False Claims Act ("FCA"), 31 U.S.C. § 3730(b)(1), seven years ago, against two defendants, Westcon Group, Inc. ("Westcon") and one of its wholly-owned subsidiaries, Comstor Corporation ("Comstor"), alleging that the defendants, along with another wholly-owned subsidiary of Westcon, Westcon North America Inc. ("Westcon NA"), sold to the U.S. government "thousands of" mostly unspecified products made by Cisco Systems, Inc. ("Cisco") that originated in non-designated countries in violation of the Trade Agreement Act ("TAA"), 19 U.S.C. §§ 2501 et seq. Rel.'s Third Am. Compl. ("TAC") ¶¶ 1-2, 143, ECF No. 65. These allegations were initially predicated on the relator's "direct and independent knowledge" gained from his position as a Strategic Account Executive for Insight Public Sector Inc. ("Insight"), a company that partnered with the defendants "on multiple sales." Compl. ¶ 10, ECF No. 1; TAC ¶ 5. After almost five years of investigation and the defendants' production of data documenting over $123 million in sales, as well as 49 charts, each of which "encompasses hundreds of pages" of Cisco's product information, see TAC ¶¶ 137-38; see also id., Ex. 17-17F, Defs.' Produced Sales Data, ECF Nos. 65-19-24; id., Ex. 18, Cisco Production Cover Letter (dated Apr. 19, 2013) ("Cisco Production Letter"), ECF No. 65-25, the United States declined to intervene, see U.S.'s Not. Election Decline Intervention ("U.S.'s Not.") at 1, ECF No. 43. The operative Third Amended Complaint seeks treble damages and civil penalties of "not less than $5,500 and not more than $11,000 for each violation of" the FCA by the defendants "from 2005 and continuing to the present." TAC ¶¶ 1, 182-99; id. 47-48. The defendants have moved to dismiss the Relator's Third Amended Complaint, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), on grounds that: (1) the "claims are based on, and substantially similar to, prior public disclosures," for which the relator is not an "original source," and therefore are barred, under 31 U.S.C. § 3730(e)(4), Defs.' Mot. Dismiss Rel.'s TAC ("Defs.' Mot.") at 1-2, ECF No. 67; and (2) the
The relator alleges that the defendants submitted false claims and false statements to the U.S. government under two Federal Supply Schedule ("FSS") contracts awarded to the defendants by the General Service Administration ("GSA") authorizing the defendants' sale to the federal government of information technology ("IT") products. TAC ¶¶ 3, 7, 10, 37. Summarized below is the relevant factual history, as alleged in the Third Amended Complaint and its twenty attachments, followed by the procedural history of this litigation.
For over two decades, the defendants have used two FSS contracts to offer for sale to the federal government "thousands of Cisco products. Id. ¶¶ 7-11, 143. These products are largely unidentified in the Third Amended Complaint, except for nineteen "representative" examples of purchase orders, reflecting 46 transactions for items delivered to the federal government between September 29, 2008, and December 12, 2013. Id. ¶¶ 116-35 (discussing two purchase orders), 145-81 (discussing seventeen additional purchase orders).
The second FSS contract at issue, designated as GS-35F-0563U, has been held by Westcon NA since 2008, and is the vehicle through which the defendants presently sell IT products, including Cisco products, either directly or through partners. Id. ¶¶ 10-11, 45; see also id., Ex. 2, Westcon Contract GS-35F-0563U ("Westcon Contract"), ECF No. 65-3. Based on data from 2006 through 2012 for both contracts, nearly $500 million of the defendants' $600
The defendants' contracts are governed by the TAA, 19 U.S.C. §§ 2501 et seq., which "implements numerous multilateral and bilateral international trade agreements and other trade initiatives." TAC ¶ 58; see also Westcon Contract at 9 (requiring compliance with TAA); Comstor Contract at 6 (same). Under the TAA and its implementing regulations, the Federal Acquisition Regulations ("FAR"), items sold through GSA FSS contracts must be "U.S.-made or designated country end products." TAC ¶ 58. The FAR defines "end product" as "those articles, materials, and supplies to be acquired under the contract for public use." Id. ¶ 59 (quoting FAR 52.225-5(a)). The FAR also provides a list of designated countries, including signatories to the World Trade Organization ("WTO") Government Procurement Agreement ("GPA") and to bilateral trade agreements with the U.S. See id. ¶¶ 75-76 (citing FAR 52.225-5(a)). Countries such as China and Malaysia, which are not on the FAR list, are identified by exclusion as non-designated countries. Id. ¶¶ 75-76. For the purposes of the TAA, an end product is "U.S.-made" or from a "designated country" when the item was completely manufactured, grown, or produced, or else "substantially transformed" in the U.S. or a designated country. Id. ¶ 77 (citing 19 U.S.C. § 2518(4)(B); 19 C.F.R. § 177.22(a)).
The FAR imposes on vendors, such as the defendants, a general obligation to sell under the FSS contract "only U.S.-made or designated country end products," id. ¶ 72 (citing FAR 52.225-5(b)), and a continuing obligation to certify that each end product sold through a FSS contract is TAA compliant, id. ¶ 67 (citing FAR 52.225-6(a) ("The offeror certifies that each end product, except those listed in paragraph (b) of this provision, is a U.S.-made or designated country end product, as defined in the clause of this solicitation entitled `Trade Agreements.'")). Should the defendants seek to sell an end product that is not from a designated country, the defendants must identify the item to the GSA before offering the item for sale. Id. ¶ 69 (citing FAR 52.225-6(b) ("The offeror shall list as other end products those supplies that are not U.S.-made or designated country end products.")).
The defendants may also sell to the U.S. Government, without violating the TAA, "open market" items that are not included on the pricelists accompanying the FSS contracts, even when those items originate in non-designated countries. Id. ¶¶ 87-88 & n.10; see also Westcon Contract at 12 (allowing for sale of open market items, "also known as incidental items, noncontract items, non-Schedule items, and items not on [an FSS] contract"); Comstor Contract at 8-9 (same). The FAR permits vendors to procure these non-contract, "open-market" items in the interest of "administrative convenience," as long as specified requirements under FAR 8.402(f) are met, including requirements for publicizing proposed contract actions and engaging in competitive procedures. TAC ¶ 89-94.
At all times relevant to the instant litigation, the relator worked as a Strategic Account Executive at Insight, a "Value
Through his work selling the defendants' products, the relator "routinely accessed" country-of-origin ("COO") charts, which "Cisco regularly created," and "list[ed] product numbers and country-of-origin information for thousands of Cisco products." Id. ¶ 108. Cisco provides these charts to vendors, including the relator's employer, Insight, so that the vendors may "check the Country of Origin to comply with government regulations in selling products to the government." Id. ¶ 109. In reviewing such COO charts alongside the defendants' pricelists and the purchase orders processed by Insight under the defendants' FSS contracts, the relator began to suspect that the defendants were failing to comply with the TAA in two ways. Id. ¶ 111-13; see also id., Ex. 15, Decl. Brady Folliard, Strategic Account Exec., Insight Public Sector ("Folliard Decl."), ECF No. 65-16 (explaining review process). First, he found the defendants "were including non-TAA-compliant products on their FSS contract pricelists," and that they "in fact sold" such products "to the United States Government by concealing the products' true COO information." Id. ¶¶ 111-12. Second, the relator came to believe that the defendants "routinely circumvented their TAA-compliance obligations by marking certain end products from non-designated countries as `open market,' but then selling those products outside the open market protocol outlined in FAR 8.402." Id. ¶ 113.
To illustrate the relator's discovery of the defendants' "misconduct," the Third Amended Complaint cites two example purchase orders that Insight placed under the defendant Weston's GSA FSS contract in 2010 and 2011. Id. ¶¶ 116-17, 126 (citing id., Ex. 14, Purchase Order (dated Sept. 24, 2010), ECF No. 65-15; id., Ex. 16, Purchase Order (dated July 28, 2011), ECF No. 65-17); Folliard Decl. Eight of the nine items identified in the Third Amended Complaint as sold through these two purchase orders were listed as "open market" items, and one item is described as an "end product." See id. ¶¶ 117-35. The relator alleges that he determined, upon review of Cisco COO charts, that the items had always originated in non-specified non-designated countries. Id. ¶¶ 122, 127-35. Based on the relator's understanding of the FAR's treatment of "open market" items of certain monetary values, the Third Amended Complaint claims that these eight items, along with the one identified end product, should have been TAA-compliant and that the defendants engaged in fraudulent activities by selling these items from non-compliant countries. Id. ¶¶ 95, 135 (citing FAR 8.405-1(b) ("micro-purchase threshold")).
Before filing his original Complaint, on April 15, 2011, the relator disclosed to the
On January 29, 2016, almost five years after the relator initiated his qui tam suit, the United States filed notice of its decision to decline intervention. U.S.'s Not. at 1. Thereafter, on March 4, 2016, both the relator's original Complaint and First Amended Complaint were unsealed. Order at 1, ECF No. 46. After the relator filed a Second Amended Complaint, see Second Am. Compl., ECF No. 48, the defendants moved to dismiss, and their motion was considered at a hearing on January 24, 2017, see Min. Order (dated Jan. 25, 2017). At the close of the hearing, the relator was allowed to amend his complaint a third time, resulting in the denial, as moot, of the defendants' then-pending first motion to dismiss. Id.
The Third Amended Complaint, filed on February 23, 2017, asserts four claims against each defendant for violations of two versions of two provisions of the FCA, both before and after those two provisions were amended by the Fraud Enforcement Recovery Act ("FERA"), Pub. L. No. 111-21, 123 Stat. 1617 (2009). The first two counts allege in almost identical language that the defendants violated the FCA's "presentment provision" by "knowingly submitt[ing], and caus[ing] to be submitted" to the government "false or fraudulent claims for payment and reimbursement" that the government paid, "unaware of the falsity of the ... claims made by the Defendants," regarding country-of-origin information. TAC ¶¶ 182-189. Count I alleges the FCA's presentment provision, in 31 U.S.C. § 3729(a)(1) (2008), was violated by defendants' claims submitted "before May 20, 2009," and Count II alleges the same for claims submitted "after May 20, 2009," in violation of 31 U.S.C. § 3729(a)(1)(A) (2009). See id. Similarly, the remaining two counts assert virtually identical claims under pre- and post-FERA amendment versions of the FCA's "false statement clause." Id. ¶¶ 190-99. Count III alleges that the defendants "knowingly made, used or caused to be made or used, material false statements to obtain" payments from the government for false claims made "before June 7, 2008," in violation of 31 U.S.C. § 3729(a)(2) (2008), and Count IV alleges the same for false claims made "after June 7, 2008," in violation of 31 U.S.C. § 3729(a)(1)(B) (2009). Id. ¶¶ 190-99. All four counts are based on allegations that the defendants sold non-TAA compliant end products, resulting in over $8 million in sales "attributable to fraud." Id. ¶¶ 143, 184, 188, 193, 198. The relator alleges that the non-compliant products at issue fall into two categories: (1) products on the defendants' FSS pricelists for which the country-of-origin information
The defendants have again moved to dismiss these claims.
"`Federal courts are courts of limited jurisdiction,' possessing `only that power authorized by Constitution and statute.'" Gunn v. Minton, 568 U.S. 251, 256, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994)). Indeed, federal courts are "forbidden ... from acting beyond our authority," NetworkIP, LLC v. FCC, 548 F.3d 116, 120 (D.C. Cir. 2008), and, therefore, have "an affirmative obligation `to consider whether the constitutional and statutory authority exist ... to hear each dispute,'" James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1092 (D.C. Cir. 1996) (citation omitted).
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, the plaintiff bears the burden of establishing the court's jurisdiction by a preponderance of the evidence. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). When considering a motion under Rule 12(b)(1), the court must accept as true all uncontroverted material factual allegations contained in the complaint and "construe the complaint liberally, granting plaintiff the benefit of all inferences that can be derived from the facts alleged, ... and upon such facts determine jurisdictional questions." Am. Nat'l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011) (internal quotation marks and citations omitted). Although the court is required "to take as true all well-pled factual allegations within [the] complaint," the court must "disregard any legal conclusions, legal contentions couched as factual allegations, and unsupported factual allegations within the complaint." Gulf Coast Mar. Supply, Inc. v. United States, 867 F.3d 123, 128 (D.C. Cir. 2017). In evaluating subject matter jurisdiction, the court may look beyond the complaint to "undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Banneker Ventures, LLC v. Graham, 798 F.3d 1119, 1129 (D.C. Cir. 2015) (quoting Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992)).
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Wood v. Moss, ___ U.S. ___, 134 S.Ct. 2056, 2067, 188 L.Ed.2d 1039 (2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). A claim is facially plausible when the plaintiff pleads factual content that is more than "`merely consistent with' a defendant's liability," and "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556-57, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see also Rudder v. Williams, 666 F.3d 790,
As when considering a motion to dismiss for lack of subject matter jurisdiction, the court must accept all factual allegations in the complaint as true for the purposes of the motion, "even if doubtful in fact," Twombly, 550 U.S. at 555, 127 S.Ct. 1955; see also Harris v. D.C. Water & Sewer Auth., 791 F.3d 65, 68 (D.C. Cir. 2015), "but is not required to accept the plaintiff's legal conclusions as correct," Sissel v. U.S. Dep't of Health & Human Servs., 760 F.3d 1, 4 (D.C. Cir. 2014). In addition, courts "ordinarily examine" other sources "when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
To withstand a motion to dismiss for failure to state a fraud claim, including a claim under the FCA, the plaintiff must meet the pleading standard set out in Federal Rule of Civil Procedure 9(b), which provides that "a party must state with particularity the circumstances constituting fraud or mistake." FED. R. CIV. P. 9(b); see also Universal Health Servs., Inc. v. United States ex rel. Escobar ("Escobar"), ___ U.S. ___, 136 S.Ct. 1989, 2004 n.6, 195 L.Ed.2d 348 (2016) ("False Claims Act plaintiffs must also plead their claims with plausibility and particularity under Federal Rules of Civil Procedure 8 and 9(b)."); United States ex rel. Totten v. Bombardier Corp. ("Totten I"), 286 F.3d 542, 551-52 (D.C. Cir. 2002) ("[B]ecause the False Claims Act is self-evidently an anti-fraud statute, complaints brought under it must comply with Rule 9(b)."). This heightened pleading standard is designed to "discourage[] the initiation of suits brought solely for their nuisance value, and safeguard[] potential defendants from frivolous accusations of moral turpitude," as well as "guarantee all defendants sufficient information to allow for preparation of a response." United States ex rel. Heath v. AT & T, Inc. ("Heath"), 791 F.3d 112, 123 (D.C. Cir. 2015) (first alteration in original) (quoting United States ex rel. Williams v. Martin-Baker Aircraft Co., Ltd. ("Williams"), 389 F.3d 1251, 1256 (D.C. Cir. 2004)).
The plaintiff must plead with sufficient particularity "the time, place and content of the false misrepresentations, the fact misrepresented and what was retained or given up as a consequence of the fraud." Williams, 389 F.3d at 1256 (quoting Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1278 (D.C. Cir. 1994)); see also United States ex rel. Shea v. Cellco P'ship ("Shea"), 863 F.3d 923, 936 (D.C. Cir. 2017). In other words, the plaintiff must provide the "who," "what," "when," and "where" with respect to the circumstances of the fraud, so that the defendant is put
The defendants present three grounds for dismissing the relator's Third Amended Complaint. First, they argue that the Third Amended Complaint is barred, under 31 U.S.C. § 3730(e)(4), because the alleged fraud has been publicly disclosed previously, and the relator is not an original source. Defs.' Mem. Supp. Mot. Dismiss ("Defs.' Mem.") at 8-17, ECF No. 67-1. Second, according to the defendants, the Third Amended Complaint fails to state a claim upon which relief can be granted, under either the FCA's presentment provision or the false statement provision, because the Third Amended Complaint lacks plausible allegations of falsity, materiality, and scienter. Id. at 18-33, 37 n.11. Finally, the defendants contend the Third Amended Complaint fails to plead facts of the alleged fraudulent scheme with the particularly required to put the defendants on notice under Rule 9(b). Id. at 33-40. These challenges are addressed seriatim.
The defendants contend that the Third Amended Complaint must be dismissed under the FCA' public disclosure bar because the allegations of fraud were disclosed in the relator's complaints in prior qui tam lawsuits and in the government's response to the relator's FOIA request. Defs.' Mem. at 9. Further, the defendants argue that the relator cannot overcome the bar because he has not demonstrated that he is "an original source." Id. at 13. As
"The FCA encourages insiders to expose fraudulent conduct, but does not reward relators who seek to profit by bringing suits to complain of fraud that has already been publicly disclosed." United States ex rel. Oliver v. Philip Morris USA Inc. ("Oliver I"), 763 F.3d 36, 39 (D.C. Cir. 2014); see also United States ex rel. Springfield Terminal Ry. Co. v. Quinn ("Springfield Terminal"), 14 F.3d 645, 651 (D.C. Cir. 1994) ("The history of the FCA qui tam provisions demonstrates repeated congressional efforts to walk a fine line between encouraging whistle-blowing and discouraging opportunistic behavior."). To that end, the FCA contains a public disclosure bar, codified at 31 U.S.C. § 3730(e)(4)(A), that "limits the ability of a private party to bring a qui tam suit where the fraud is already publicly known," unless the claims are brought by the Attorney General or an "original source" of the information underlying the claims. Oliver I, 763 F.3d at 39; Shea, 863 F.3d at 927 ("The bar prohibits private parties from bringing suit based on a fraud already disclosed through identified public channels (unless the relator is `an original source of the information')." Thus, "[t]he FCA sets up a two-part test for determining jurisdiction." United States ex rel. Findley v. FPC-Boron Emps.' Club, 105 F.3d 675, 681 (D.C. Cir. 1997). First, the court must determine whether the information underlying the allegations and transactions has been publicly disclosed through enumerated channels. See Springfield Terminal, 14 F.3d at 651. "If — and only if — the answer to the first question is affirmative, will the court then proceed to the original source inquiry." Id. (internal quotation marks and citation omitted); see also Oliver I, 763 F.3d at 39 n.3 ("Because we conclude that the information supporting Oliver's claim had not been publicly disclosed, we do not reach the question whether Oliver was an `original source.'").
Section 3730(e)(4)(A) was amended, effective March 23, 2010, as part of the Patient Protection and Affordable Care Act, see Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 10104(j)(2), 124 Stat. 119, 901-02 (2010). The pre-amendment version of § 3730(e)(4)(A), enacted in 1986, provided:
31 U.S.C. § 3730(e)(4)(A) (1986). As amended, section 3730(e)(4)(A) currently provides:
31 U.S.C. § 3730(e)(4)(A) (2010).
As a threshold matter, the parties agree that the 2010 amendment is not retroactive, and thus the alleged conduct occurring prior to March 23, 2010, which covers the bulk of the relevant sales, would be subject to the pre-amendment version of the public disclosure bar, while later alleged conduct would be subject to the post-amendment version. See Defs.' Mem. at 8 n.2; Rel.'s Opp'n Defs.' Mot. Dismiss ("Rel.'s Opp'n") at 9, ECF No. 69; see also TAC ¶ 12 ("[T]he vast majority of those sales occurred in the early years ... 2006 and 2007.").
Nonetheless, under both the pre-and post-amendment versions of § 3730(e)(4)(A), a court must decide if either "the allegation of fraud itself" or "the transactions that give rise to an inference of fraud" have been publicly disclosed. United States ex rel. Oliver v. Philip Morris USA Inc. ("Oliver II"), 826 F.3d 466, 471 (D.C. Cir. 2016) (emphases added); Shea, 863 F.3d at 933; see also 31 U.S.C. § 3730(e)(4)(A) (1986) ("No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions...." (emphasis added)). "`Transaction' in this sense `refers to two or more elements that, when considered together, give rise to an inference that fraud has taken place.'" Oliver II, 826 F.3d at 471 (quoting Oliver I, 763 F.3d at 40).
The D.C. Circuit has set out a now familiar formula to assess whether a transaction was publicly disclosed: "[I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that
Applied to the facts of this case, the transaction would be the fact that the defendants were selling TAA non-compliant products to the government (X), plus the fact that the defendants falsely certified that they were complying with the TAA (Y), which permits the inference that the defendants committed fraud (Z). See Oliver II, 826 F.3d at 471; see also Springfield Terminal, 14 F.3d at 655 ("Fraud requires recognition of two elements: a misrepresented state of facts and a true state of facts." (emphasis in original)). If either X and Y, or Z, was in the public domain before the relator brought this action, then the plaintiff's claims, under the applicable version of the public disclosure bar, cannot proceed. See Oliver II, 826 F.3d at 471.
The defendants contend, without distinguishing the analysis for pre- and post-amendment sales under § 3730(e)(4)(A), that the Z element in this case, i.e., the fraud alleged, was "`based upon' and substantially similar' to the allegations of fraud raised in earlier qui tam actions." Defs.' Mem. at 10. Since "there is a comparable `allegation' of fraud in the prior public disclosures," the defendants reason that "the D.C. Circuit's X + Y = Z formulation ... is not applicable." Defs.' Reply Supp. Mot. Dismiss ("Defs.' Reply") at 4, ECF No. 71.
At the outset, the defendants summarize their understanding of the "core allegation of fraud in the instant suit: "that Comstor — allegedly the sole authorized FSS contract holder for Cisco products prior to March 17, 2010 — sold Cisco products to the government that were manufactured in non-designated countries and therefore violated the [TAA]." Defs.' Mem. at 10. The relator does not dispute this summary of his fraud allegations but contests that he "previously asserted these same allegations relating to the sale of purportedly non-compliant Cisco products to the government in [the] earlier qui tam actions in this district against multiple resellers." Id.; accord Rel.'s Opp'n at 11.
The complaints in Apptis and World Wide Technologies use almost identical language to allege that the defendants submitted false claims and made false statements to the U.S. government "in connection with improper pricing and the selling of non-compliant products," in violation of the TAA. See Apptis Compl. ¶¶ 4, 22-32; World Wide Technologies Compl. ¶¶ 4, 22-32. Each defendant allegedly sold Cisco products as "a certified partner of Cisco Systems" to the government through Solutions for Enterprise-Wide Procurement ("SEWP") contracts that required compliance with the TAA. Apptis Compl. ¶¶ 7, 14; World Wide Technologies Compl. ¶¶ 7, 14. The relator, in preparing government proposals for his employer, Insight, another Cisco partner, "became familiar with Cisco products being offered for sale by" each defendant, including the "Cisco products that were produced in non-designated countries." World Wide Technologies Compl. ¶¶ 15, 18; Apptis Compl. ¶¶ 15, 18. "He learned of these products by communicating with his supervisors who had been in contact with Cisco representative about proposals and by communicating directly with a Cisco Representative about certain products." World Wide Technologies Compl. ¶ 18; Apptis Compl. ¶ 18. More "specifically," he exchanged emails with Steve Marcellino, the Government Programs Coordinator for Comstor, which
Turning now to the public-disclosure-bar analysis, the complaints in Apptis and World Wide Technology do not actually make any allegations or provide any information about the sales by the instant defendants. Nonetheless, the defendants contend that the Third Amended Complaint is barred because the relator's complaints in Apptis and World Wide Technologies "specifically identified
In considering whether the allegations in the instant action are "substantially similar to" or "based upon" the allegations in the three prior qui tam cases, the key question is "whether the publicly disclosed information could have formed the basis for a governmental decision on prosecution, or could at least have alerted lawenforcement authorities to the likelihood of wrongdoing." United States ex rel. Settlemire v. District of Columbia ("Settlemire"), 198 F.3d 913, 918 (D.C. Cir. 1999) (internal quotation marks omitted); see also United States ex rel. Davis v. District of Columbia ("Davis I"), 679 F.3d 832, 836 (D.C. Cir. 2012). Here, the defendants contend that law enforcement would have been alerted to the wrongdoings alleged in the instant action because the relator's "prior qui tam actions identified Comstor by name; alleged that Comstor's authorized re-sellers were selling non-TAA compliant Cisco products to the government; and that the same Comstor employee confirmed that the products being sold to the government were non-compliant." Defs.' Reply at 6 (emphasis in original).
The aspects of the complaints in the relator's other qui tam cases highlighted by the defendants obscure the fundamental fact that those prior complaints assert no allegations against the defendants. First, only two of the qui tam complaints even identify the defendants by name, and, in doing so, they only mention Comstor as "a designated point of sale for Cisco products." Apptis Compl. ¶ 19; World Wide Technologies Compl. ¶ 19. The filings say nothing about the defendants' involvement in the alleged fraudulent scheme. Second, and relatedly, the allegations against the resellers are not directly linked to Comstor, especially since Comstor is alleged to be "a designated point of sale," Apptis Compl. ¶ 19; World Wide Technologies Compl. ¶ 19, and not the designated point of sale. Finally, the fact that a Comstor representative confirmed the products being sold were non-compliant does not create an inference that Comstor participated in any scheme to defraud the government,
To be sure, the defendants need not be named in the public disclosures to trigger the bar, see, e.g., United States ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F.Supp.2d 25, 48 (D.D.C. 2007) (finding where prior public disclosures "alleged that certain specific Columbia facilities had engaged in certain specific techniques for defrauding Medicare," and "many other facilities, not named therein, had engaged in similar fraudulent practices," a qui tam suit against a "not named" Columbia facility for Medicare fraud was barred), and the bar can be triggered even when "a qui tam suit [is] `even partly based upon publicly disclosed allegations or transactions.'" United States ex rel. J. Cooper & Assocs., Inc. v. Bernard Hodes Grp., Inc., 422 F.Supp.2d 225, 235 n. 10 (D.D.C. 2006) (quoting United States ex rel. Precision Co. v. Koch Indus., 971 F.2d 548, 552 (10th Cir. 1992)) (rejecting "plaintiff's argument that its qui tam claim is not `based upon' information in [a report] merely because the Report does not mention actual payments or claims for payment."). Nonetheless, the instant case is distinguished from such situations because none of the qui tam complaints previously filed by the relator suggested "other" entities complicit in the alleged fraud scheme, or, more importantly, alleged that the instant defendants were involved in the alleged fraud. Rel.'s Opp'n at 10. Indeed, contrary to the defendants' argument that the relator here "simply `provid[es] "more specific details'" or `reveal[s] specific instances of fraud where the general practice has already been publicly disclosed,'" Defs.' Mem. at 10 (quoting Oliver II, 826 F.3d at 472 (quoting Settlemire, 198 F.3d at 919 (D.C. Cir. 1999))), the Third Amended Complaint targets the defendants for the first time as being involved in fraudulent activity violative of the FCA, even though the alleged manner of execution of the fraud scheme allegedly was also used by the defendants named in the other cases.
Thus, the relator's earlier filed qui tam actions would not have meaningfully alerted any government investigator of the fraud presently alleged. See Settlemire, 198 F.3d at 918; see also United States v. CSL Behring, L.L.C., 855 F.3d 935, 942-44 (8th Cir. 2017) (noting "[i]n order to bar claims against a particular defendant, the public disclosures relating to the fraud must either explicitly identify that defendant as a participant in the alleged scheme, or provide enough information about the participants in the scheme such that the defendant is identifiable" as
For these reasons, the defendants' arguments regarding the relator's prior qui tam actions provide no basis for dismissing the claims as barred by the public disclosure bar.
The Third Amended Complaint focuses on two categories of allegedly non-compliant Cisco products that the defendants sold to the federal government: products sold through the defendants' GSA FSS contracts and products "incidental" to the contracts, which the relator argues were improperly identified as "open market" items. TAC ¶¶ 9, 11. The relator bases these allegations on his review of 49 quarterly
The relator has plead claims under both the presentment and false statement provisions of the FCA for both pre- and post-FERA amendment conduct. Specifically, the relator alleges, in Counts I and II, violations of the pre-FERA presentment clause for claims submitted prior to May 20, 2009, and of the post-FERA presentment clause for claims submitted after May 20, 2009, respectively; and, in Counts III and IV, violations of the pre-FERA false statement clause for statements made prior to June 7, 2008, and of the post-FERA false statement clause for statements made after June 7, 2008, respectively.
In its current form, the FCA provides for civil liability for anyone who: (1) "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval," 31 U.S.C. § 3729(a)(1)(A); or (2) "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim," § 3729(a)(1)(B). The "presentment clause," in 31 U.S.C. § 3729(a)(1)(A), and "false statement clause," § 3729(a)(1)(B), have always been "complementary," as they were "designed to prevent those who make false records or statements to get claims paid or approved from escaping liability solely on the ground that they did not themselves present a claim for payment or approval." United States ex rel. Totten v. Bombardier Corp. ("Totten II"), 380 F.3d 488, 501 (D.C. Cir. 2004) (emphasis in original). In amending the presentment clause, formerly codified at 31 U.S.C. § 3729(a)(1), FERA removed language requiring that the claim be presented to an officer or employee of the government or armed forces. FERA § 4(a). The FERA amendment to the false statement clause, formerly codified at 31 U.S.C. § 3729(a)(2), replaced the language of "false record or statement to get a false or fraudulent claim paid or approved by the government" with "statement material to a false or fraudulent claim." FERA § 4(a). The presentment clause was made effective the day of enactment, May 20, 2009, and the false statement amendment clause was made retroactive to June 7, 2008. FERA § 4(f). In alleging claims under these provisions or any other provision of the FCA, the relator must satisfy Rule 9(b)'s heightened pleading standard. See Heath, 791 F.3d at 123; Totten I, 286 F.3d at 551-52.
Given the similarity of the conduct prohibited by both provisions of the FCA, the parties do not meaningfully distinguish them in their briefing. For organizational clarity, the presentment claims in Counts I and II are addressed first before turning
To bring a claim under the presentment provision of the FCA, a relator must allege factual allegations plausibly showing that the defendant submitted "[1] a claim to the government, [2] that the claim was false, and [3] that the defendant knew that the claim was false.'" United States ex rel. Davis v. District of Columbia ("Davis II"), 793 F.3d 120, 124 (D.C. Cir. 2015) (quoting United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214, 218 (D.C. Cir.2003)). The falsity must also be material to the government's decision to pay in order to be actionable under the FCA. See Escobar, 136 S.Ct. at 1996; see also United States v. Sci. Applications Int'l Corp. ("SAIC"), 626 F.3d 1257, 1269 (D.C. Cir. 2010). While conceding the first element as to submission of claims to the government, the defendants vigorously dispute the sufficiency of the allegations as to the other two elements. See generally Defs.' Mem. at 18-33; Rel.'s Opp'n at 18-19. The Third Amended Complaint sufficiently alleges that the defendants presented false claims with respect to certain end products, but the relator has not adequately pled that the claims presented were material to the federal government's decision to pay, or that the defendants "knowingly" presented the false claims. Consequently, neither count, as detailed below, survives the defendants' dismissal motion.
"In the paradigmatic case, a claim is false because it `involves an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.'" SAIC, 626 F.3d at 1266 (quoting Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001), abrogated on other grounds by Escobar, 136 S.Ct. 1989)). Alternatively, however, "a plaintiff may proceed under the so-called `certification' theory of liability," under which "the falsity of a claim for payment rests on a false representation of compliance with an applicable federal statute, federal regulation, or contractual term." United States ex rel. McBride v. Halliburton Co. ("McBride"), 848 F.3d 1027, 1031 (D.C. Cir. 2017) (internal quotation marks and citations omitted). "False certifications can be either express or implied." SAIC, 626 F.3d at 1266. "An expressly false claim is, as the term suggests, a claim that falsely certifies compliance with a particular statute, regulation or contractual term, where compliance is a prerequisite to payment." Mikes, 274 F.3d at 698. An "implied false certification" occurs "[w]hen ... a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements." McBride, 848 F.3d at 1031 (alteration in original) (quoting Escobar, 136 S.Ct. at 1999). The Third Amended Complaint alleges that the defendants made "express and implied false certifications of compliance with contractual and regulatory requirements," TAC ¶ 2; see also id. ¶ 86, but, for the most part, the parties do not discuss the two forms of false certification separately. Instead, the parties' analysis relies on the standard for alleging implied false certifications, which therefore is this Court's focus.
The D.C. Circuit has explained that implied false certification claims for the underlying claim for payment at issue need not include "express contractual language specifically linking compliance to eligibility for payment." SAIC, 626 F.3d at 1269. A showing "that the contractor withheld information about its noncompliance with material contractual requirements" is sufficient to state such a claim. Id. Both the Supreme Court and the D.C. Circuit, however, have instructed that "courts should continue to police expansive implied
The defendants argue broadly that the relator has failed to "plead facts sufficient to allege falsity" for three reasons: (1) generally, the relator "relied on outdated country-of-origin charts that do not correspond to the dates of the alleged transactions"; (2) for configurable items, the relator improperly "examined the origin of individual items rather than the end products into which they were `substantially transformed'"; and (3) for "non-contract, open market items," the relator "failed to allege any factual or legal basis to conclude that government purchases of [this category of items] from Defendants were in any way unlawful or otherwise improper." Defs.' Mem. at 18.
In response to the defendants' first argument regarding the relator's reliance on outdated quarterly COO charts, the relator explains that he used the "most reliable and complete COO data available." Rel.'s Opp'n at 23.
The relator does not dispute that "a temporal gap exists between the dates of certain transactions and the applicable COO charts for the products involved in those transactions," but rather argues that "some products did not appear on every quarterly Cisco COO chart" and, in any event, "every COO chart on which products involved in sales discussed in the Complaint appeared, those products were
This conclusion is consistent with that of other cases, in which the relator in this case and another relator have used the same methodology of cross-referencing COO charts with sales data or product lists to allege the defendants in those cases sold non-compliant end products. See, e.g., United States ex rel. Folliard v. Synnex Corp. ("Synnex"), 798 F.Supp.2d 66, 80 (D.D.C. 2011) (finding that "facts create a strong inference that a false claim was submitted" where relator compared product and country-of-origin lists); United States ex rel. Folliard v. CDW Tech. Servs., Inc., 722 F.Supp.2d 20, 23, 29 (D.D.C. 2010) (determining that the relator had sufficiently alleged the existence of a false claim where his complaint was based on a review of vendor products lists, indicating country of origin, alongside a list of 140 end products allegedly sold by defendants); United States ex rel. Berkowitz v. Automation Aids ("Berkowitz"), No. 13 C 08185, 2017 WL 1036575, at *6 (N.D. Ill. Mar. 16, 2017) (where relator "put[] together his suit by combining product lists (specifying the origin of the products) received in the course of his ordinary business with data regarding products sold by the Defendants," the court found it could "reasonably infer ... that the Defendants sold supplies made in non-designated countries to the government") (internal quotation marks and citation omitted). Despite the temporal disconnect of some, or even the majority, of the COO charts, the periods overlap with some purchase orders, as the defendants concede, to support a finding that the relator has plausibly alleged that the instant defendants sold some non-compliant end products, particularly when granting the relator "the benefit of all inferences that can be derived from the facts alleged." Synnex, 798 F.Supp.2d at 81 (quoting Kowal, 16 F.3d at 1271).
With respect to the defendants' second falsity argument, the relator has not created such a plausible inference with respect to items Cisco labeled as "configurable options," as opposed to "end products." The parties agree that the defendants sold at least some configurable option items from non-designated countries, but also that the TAA is concerned with the country-of-origin information of "end products," as distinct from "configurable options." See Defs.' Mem. at 21 (citing FAR 52.225-6; 19 U.S.C. § 2518(4)(B); 19 C.F.R. § 177.22(a)); Rel.'s Opp'n at 25; see also Westcon Contract ¶ 8 (requiring TAA compliance for end products); Comstor Contract ¶ 8 (same). The distinction between "end product" and "configurable option" product is relevant in assessing falsity. Cisco's COO charts, which are attached to the Third Amended Complaint, highlight this distinction and state that Cisco defines a "configurable option" as an item that "is not orderable by itself and may be considered a configurable option of an end product," in which "case, the country of origin of the corresponding end product would apply." Defs.' Mem. at 22 (citing, e.g., Rel.'s COO Source Docs. at 14-16). In other words, "configurable options" are items that have not yet been "substantially transformed" into end products and thus need not individually, for the purposes of government procurement, originate in a designated country.
The defendants provide another helpful chart identifying 22 "configurable option" products included within the Third Amended Complaint's example purchase orders. See Defs.' Mot., Ex. E, Chart of Alleged Transactions Involving Configurable Options at 1-2, ECF No. 67-7 (providing chart of 22 products). This list was compiled by reviewing the relator's exhibits, including the Cisco COO charts, and identifying
As to these configurable option items, the relator unpersuasively contends that these items were line items in the defendants' purchase orders, reflecting their sale "on an a la carte basis" and "
The relator's own exhibits state that a configurable option's country of origin is determined by the end product, see, e.g., Rel.'s COO Source Docs. at 14-16, not the configurable item itself. Without any other factual allegations to show the configurable options items sold by the defendants were never "transformed," the relator has not created an inference that these items needed to comply with the TAA. Thus, with respect to such configurable options items, which may have originated in non-designated countries and appear as individual line items on the defendants' purchase orders, the relator fails to sufficiently plead the existence of a false claim due to these items originating in a non-designated country.
Finally, the defendants' last challenge to the falsity prong of the relator's false certification allegations relates to sixteen products that the defendants sold as "open market" items on the purchase orders attached to the Third Amended Complaint, which items originated in non-designated countries and were valued as high as $96,321.96, with some valued at a fraction of that amount, at only a few thousand dollars or less. See Defs.' Mem. at 25-28; see also Defs.' Mot., Ex. G, Chart of Alleged Open Market Acquisitions ("Chart of Alleged OM Acquisitions") at 1, ECF No. 67-9 (providing chart of 16 items compiled from TAC ¶¶ 120, 127-130, 160, 164, 168, 174 nn.22-23, 176).
The parties dispute the monetary threshold that would require the vendor to ensure TAA-compliance for these open market items. While the relator argues, based on his understanding of the FAR's "micro-purchase threshold," that the value of fourteen of the sixteen items required TAA-compliance, Rel.'s Opp'n at 27, the defendants posit that the relator has not alleged falsity with respect to any of these open market items because "[n]one of the transactions ... meet or exceed" the applicable "TAA Threshold," and therefore "do not trigger applicability of the TAA's country-of-origin requirements." Defs.' Mem. at 25-26. The relator contends that the FAR's "micro purchase limit, which has ranged between $2,500 and $3,500 for the relevant time period," applies to the open
Putting aside this debate about which values trigger TAA-compliance obligations for open market items, the relator's allegations that these open market items needed to comply with TAA country-of-origin requirements fall far short of plausibly establishing falsity. The relator relies for his open market item allegations on specific regulations that are silent regarding TAA-compliance for open market items. For example, the "FAR's only discussion of `open market' sales appears in FAR 8.402," TAC ¶ 88, which, in a single subsection, permits the government to procure open market items that are "not on the [FSS]" for "administrative convenience ... "only if" certain requirements are met, including that "[a]ll applicable acquisition regulations pertaining to the purchase of the items not on the Federal Supply Schedule have been followed (e.g., publicizing (Part 5), competition requirements (Part 6), acquisition of commercial items (Part 12), contracting methods (Parts 13, 14, and 15), and small business programs (Part 19))." FAR 8.402(f)(1). FAR 8.402(f) does not directly refer to the TAA, and nor do any of the other pertinent FAR regulations cited by the relator in the Third Amended Complaint. See TAC ¶ 95 (citing FAR 8.405-1(b), which states that "[o]rdering activities may place orders at, or below, the micro-purchase threshold with any [FSS] contractor that can meet the agency's needs."); Id. (citing FAR 2.101, which "defines the micro purchase limit, which has ranged between $2,500 and $3,500 for the relevant time period."); see also FAR 8.401 (defining "ordering activity" as entities that place orders through GSA Schedule contracts).
To be sure, the regulations cited by the relator clearly impose rigorous obligations vendors of open market items that exceed the micro purchase threshold. See FAR 8.402(f) (discussing obligations, including those related to publication and competition). Nonetheless, none of these provisions specifically discuss imposing TAA requirements for sales of open market items, which by definition are outside the FSS contract. By contrast, the defendants rely on FAR regulations that explicitly discuss the application of the TAA when the items sold have a value over $191,000 ("TAA-threshold"), see Defs.' Mem. at 25 (citing FAR 25.402(b); FAR 25.1101(c)(1)); see also Defs.' Reply at 9 (citing FAR 25.402-03), and none of the open market items at issue in the Third Amended Complaint meet or exceed that value. Thus, the legal predicate for the relator's claim — that any products with values over the micro-purchase threshold, set out in FAR 2.101, must originate from designated countries — is legally unsupportable, when FAR 25.402(b) expressly makes acquisitions of open market items subject to the TAA only when the value is over the TAA-threshold.
In sum, the relator has sufficiently alleged falsity as to end products sold by the defendants through their GSA FSS contracts, but falls short in alleging the existence of false claims with respect to configurable options or open market items.
Even though the relator has crossed the false certification hurdle with respect to end products sold by the defendants, he fails to plead materiality adequately under an FCA presentment claim. The Supreme Court, in Escobar, 136 S.Ct. at 2003, clarified that the standard for pleading materiality under the FCA is "demanding." There, the Supreme Court considered an appeal from the First Circuit in a qui tam suit alleging that the defendant healthcare provider had violated the FCA "under an implied false certification theory of liability" by submitting "reimbursement claims that made representations about the specific services provided by specific types of professionals," while "fail[ing] to disclose serious violations of regulations pertaining to staff qualifications and licensing requirements for these services." Id. at 1998. The First Circuit had held, inter alia, that the healthcare provider's non-compliance with conditions of payment was "sufficient to establish the falsity of a claim for reimbursement," and also that the relator had "properly pleaded that the condition of payment at issue was a material one" because "[t]he express and absolute language of the regulation in question, in conjunction with the repeated references to supervision throughout the regulatory scheme, constitute dispositive evidence of materiality." United States v. Universal Health Servs., Inc., 780 F.3d 504, 514-517 (1st Cir. 2015), vacated and remanded, ___ U.S. ___, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016) (internal quotation marks and citations omitted).
On appeal, the Supreme Court confirmed "that, at least in certain circumstances, the implied false certification theory can be a basis for liability," but stressed that enforcement of the "rigorous materiality requirement" for alleging liability under the FCA requires an evaluation of multiple factors. Escobar, 136 S.Ct. at 1995-96, 2003. The FCA defines materiality as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." Escobar, 136 S.Ct. at 2002 (quoting 31 U.S.C. § 3729(b)(4)). This definition is derived from "common-law antecedents," id. (quoting Kungys v. United States, 485 U.S. 759, 769, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988)), such that, under both the FCA and the common law, "materiality look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation," id. at 2002-03 (quoting 26 R. LORD, WILLISTON ON CONTRACTS § 69:12, p. 549 (4th ed. 2003)). This "materiality standard is demanding," as the FCA is not "`an all-purpose antifraud statute' or a
In Escobar, the Supreme Court enumerated several pertinent factors in determining materiality, stressing that "materiality cannot rest on `a single fact or occurrence as always determinative.'" Id. at 2001 (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 39, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011)). First, "the Government's decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive." Id. at 2003. Second, "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" supports a finding that the requirement is material. Id. Third, and "[c]onversely, 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." Id. Fourth, "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." Id. at 2003-04.
In short, the Supreme Court's decision "makes clear that courts are to conduct a holistic approach to determining materiality in connection with a payment decision, with no one factor being necessarily dispositive." United States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103, 109 (1st Cir. 2016).
In defense of the materiality element of his claims, the relator primarily relies on Escobar's first factor — the government's express condition of payment — even though Escobar emphasized that "statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment," 136 S.Ct. at 2001, and that this factor is "not automatically dispositive," Id. at 2003. The relator contends that "[t]he entire regulatory framework contemplates that, after the initial offers and Trade Agreements Certifications are made, government contracting officers will continue to `rely on the offeror's certification of end product origin,' unless the offeror says otherwise." Rel.'s Opp'n at 32 (citing FAR 25.501(b)). He bolsters this argument with citations to various regulatory provisions, including: (1) FAR 52.225-6, which requires defendants "to complete the Trade Agreements Certificate" "[b]efore being permitted to contract with the Government," Rel.'s Opp'n at 31; (2) FAR 52-225-5(b), which requires the defendants continually to certify compliance with the TAA and list non-compliant end products sold to the government, id. at 32; and (3) FAR 25.502(b), which requires "government contracting officers" to "generally reject deliveries that include any products from non-designated countries," id. at 33.
Other than these regulatory requirements, the relator provides no factual allegations 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," as set out in Escobar's second factor. Escobar, 136 S.Ct. at 2003. Instead, the Third Amended Complaint, which was filed after the government was fully informed for years about the relator's allegations regarding the defendants' purported role in the fraudulent scheme, is silent as to whether the government took any action whatsoever against the defendants, or took steps to cancel the FSS contracts at issue upon finding out about submission of claims for non-TAA compliant items, or even sent notices regarding TAA non-compliance to the defendants. Any of those steps by the government could have supported a plausible
Simply put, the relator provides no allegation that meets the examples described by the Supreme Court, including whether "the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated," or "regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated," Escobar 136 S.Ct. at 2003-04, as showing the materiality of "the particular statutory, regulatory, or contractual requirement" underlying the relator's claims, id. at 2003.
Moreover, the relator "acknowledges that `exceptions to the rules requiring TAA compliance exist.'" Defs.' Reply. at 22 (quoting Rel.'s Opp'n at 33). Indeed, the Third Amended Complaint quotes a GSA newsletter advising vendors to "ensure your company is compliant with the TAA requirements," and stating: "If problems exist, we will work with you to address compliance issues." TAC ¶ 83 (emphasis in original) (quoting id., Ex. 11, GSA Steps Issue No. 10 (dated Mar. 2006) ("GSA Steps") at 2, ECF No. 65-12). GSA's expressed willingness to "work with," vendors in order to address compliance issues instead of outright rejecting claims, see id. (quoting GSA Steps at 2), certainly shows that the government may continue to make payments even when TAA violations are known.
Without more than citations to the regulatory framework, the relator has failed to show that any alleged false claim was material to the government's decision to pay. See Escobar, 136 S.Ct. at 2003 ("A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment."); see also Knudsen v. Sprint Commc'n. Co., Civ. No. 13-04476 (CRB), 2016 WL 4548924, at *13, 2016 U.S. Dist. LEXIS 118438, at *44 (N.D. Cal. Sep. 1, 2016) (finding relator's Second Amended Complaints "only point to the regulations," which "is not sufficient to meet the rigorous standard for pleading materiality"); United States ex rel. Poehling v. Unitedhealth Grp., Inc. et al., Civ. No. 1608697 (MWF) (SSx), 2018 WL 1363487, at *9-10 (C.D. Cal. Feb. 12, 2018) (finding government failed "to adequately plead the materiality requirement of the FCA, as described in Escobar," where the government merely alleged "that Defendants were obligated by various regulations and contracts to comply with the
In sum, the relator has not alleged sufficient facts to show that any sales of non-TAA compliant products by the defendants were material to the government's decision to pay for Cisco products.
While failure to plead sufficiently the materiality of the false certifications underlying the relator's claims warrants dismissal of the presentment claims altogether, this conclusion is also supported by the relator's failure to provide sufficient factual allegations to show scienter, the third element of an FCA presentment claim. See 31 U.S.C. § 3729(a)(1)(A). Liability attaches to one who "knowingly presents... a false or fraudulent claim for payment or approval." Id. (emphasis added).
For implied false certification claims, the plaintiff must show that the defendant must have known both "(1) that it violated a contractual obligation, and (2) that its compliance with that obligation was material to the government's decision to pay." SAIC, 626 F.3d at 1271. The FCA defines "knowingly" to mean "actual knowledge," "deliberate ignorance of the truth or falsity of the information," or "reckless disregard of the truth or falsity of the information." 31 U.S.C. § 3729(b)(1)(A); see also Escobar, 136 S.Ct. 1989 at 1996; SAIC, 626 F.3d at 1266. "Although Congress defined `knowingly' to include some forms of constructive knowledge, its definition of that term imposes liability for mistakenly false claims only when the defendant deliberately avoided learning the truth or engaged in aggravated gross negligence." SAIC, 626 F.3d at 1274-75. Indeed, under the FCA, "reckless disregard is simply a linear extension of gross negligence," United States v. Krizek, 111 F.3d 934, 941 (D.C. Cir. 1997) (internal quotation marks and citation omitted), "an extreme version of ordinary negligence," or "`gross negligence-plus,'" id. at 942-43 (D.C. Cir. 1997); see also United States ex rel. Folliard v. Gov't Acquisitions, Inc., 764 F.3d 19, 29 (D.C. Cir. 2014); SAIC, 626 F.3d at 1269; United States ex rel. K & R Ltd. P'ship v. Massachusetts Hous. Fin. Agency, 530 F.3d 980, 983 (D.C. Cir. 2008). For that reason, "innocent mistakes and negligence remain defenses under the Act." SAIC, 626 F.3d at 1266 (internal quotation marks and citation omitted).
As with all elements of an FCA claim, allegations of scienter are subject to the particularity requirements of Rule 9(b). Totten I, 286 F.3d 542, 551-52. Rule 9(b) permits scienter to be averred generally, but courts require "plaintiffs to plead the factual basis which gives rise to a strong inference of fraudulent intent." United States ex rel. Tessler v. City of New York ("Tessler"), 712 Fed.Appx. 27, 29 (2d Cir. 2017) (quoting O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991)). Indeed, the scienter requirement under the FCA, along with the materiality requirement, is "addressed through strict enforcement," SAIC, 626 F.3d at 1270-71, and is "rigorous," in order to allay "concerns about fair notice and open-ended liability." Escobar, 136 S.Ct. 1989 at 2002.
The Third Amended Complaint alleges that the defendants "knowingly" made both express and implied false certifications. See TAC ¶¶ 3, 9, 11, 86, 184, 188, 193, 198. The defendants argue that such "conclusory allegations" fail to meet the standards for pleading scienter because the relator has not pled "plausible facts from which the Court may reasonably infer knowledge of the falsity." Defs.' Mem. at 29-30 (emphasis in original). In response, the relator emphasizes that "scienter may be pled generally," Rel.'s Opp'n at 28, and, in any event, that the Third Amended Complaint "adequately alleges
At the outset, the allegations regarding the volume of the products offered for sale by the defendants that were not TAA-compliant appear to include far more than just non-compliant end products, confusingly including both configurable option and open market items for which the relator has failed to plausibly allege falsity. See supra Part III.B.2.A.
More importantly, the relator misconstrues the applicable standard. As noted, scienter may be "averred generally" but that does not obviate pleading the underlying facts with particularity. See Tessler, 712 Fed.Appx. at 29. Under Rule 9(b), to show scienter by a company, the relator must plead with particularity facts demonstrating "how the company itself institutionalized and enforced its fraudulent scheme." Heath, 791 F.3d at 125. The complaint must "make[] clear, in other words, that corporate levers were pulled ..." Id. In Heath, the D.C. Circuit found that the relator had sufficiently alleged that the defendant telecommunications company had "fraudulently overbilled the [Federal Communication Commission's] Universal Service Fund from 1997 through 2009." Id. at 117. To demonstrate that the company had "knowingly" engaged in the fraud, the relator's complaint alleged that the company had engaged "in institutionalized training and enforcement failures, ... compounded by efforts at concealment," Id. at 122, including by "chos[ing] not to train its employees," Id. at 117, so that "employees remained ignorant of the requirement" for proper billing, Id. at 124, despite the company being made aware of the problem and entering a consent decree that required "train[ing of] its employees," Id. at 125. The Circuit concluded the relator "provides factual specificity concerning the type of fraud, how it was implemented, and the training materials used, all of which is then corroborated by the concrete example of [an] audit documenting the very type of overbilling that follows the complaint's pattern." Id. at 126.
Thus, Heath illuminates the type of factual allegations necessary to plead that a corporate entity "knowingly" engaged in fraud. The relator, here, has not plead such facts. Merely alleging a time period, the volume of items sold and total sales value involved in the underlying alleged fraud scheme, see Rel.'s Opp'n at 30, is not enough to show scienter. Rather, for scienter to be sufficiently plead, the relator must provide details about specific actions taken by the defendant to facilitate and further the alleged fraudulent scheme. See, e.g., United States ex rel. Groat v. Boston Heart Diagnostics Corp., Civ. No. 15-487 (RBW), 296 F.Supp.3d 155, 164-66, 2017 WL 6327540, at *8 (D.D.C. Dec. 11, 2017) (finding relator sufficiently plead "knowing violation of [defendant's] `legal duty to ensure that it is not submitting false or incorrect claims to Government'" where she alleged facts to show that the defendant "engaged in a scheme to encourage
In addition, the defendants contend that scienter is not sufficiently shown because the defendants "reasonably rel[ied] on Cisco's country-of-origin and `configurable option' designations when processing orders for government sales." Defs.' Mem. at 30. As support, the defendants rely on United States ex rel. Folliard v. Govplace ("Govplace"), 930 F.Supp.2d 123, 137 (D.D.C. 2013), aff'd sub nom. United States ex rel. Folliard v. Gov't Acquisitions, Inc., 764 F.3d 19 (D.C. Cir. 2014), where the same relator alleged another company had knowingly submitted false claims in violation of the TAA. There, the court emphasized the "gross negligence-plus" standard in granting summary judgment to the defendant, after determining the relator could not "convince a reasonable jury that [the defendant] `knowingly' submitted false claims" where the defendants had "reasonably relied on representations made by its IT partner ... that the products in question were made in TAA-compliant countries," even if the products, in fact, had originated in non-designated countries. Id. at 126, 134-37.
Govplace provides only limited help to the defendants here because, in that case, the issue was whether the defendants had reasonably relied on information from a third party regarding country of origin. Id. at 134-37. In the instant matter, reasonable reliance only aids the defendants with respect to the open market items and "configurable option" items. The former, by definition and at the values indicated, did not need to originate in a designated country, and the latter, as reflected in Cisco's COO charts, also did not need to originate in a designated country because only "the country of origin of the corresponding end product" applies. See, e.g., Rel.'s COO Source Docs. at 14-16. With respect to the alleged TAA non-compliant end products sold by the defendants, Govplace does not support the defendants' position because the Cisco COO charts, as provided by the relator, demonstrate that items sold by the defendants originated in non-designated countries.
The relator meanwhile argues with respect to all the items, the defendants "cannot rely on Cisco to negate the scienter element" because "Cisco never indicated to Defendants that any of the products at
For the reasons provided above, the realtor has failed to plead the elements required to allege a presentment claim under the FCA, and, thus, Counts I and II must be dismissed.
In addition to alleging violations of the presentment provision of the FCA, the relator alleges in Counts III and IV that the defendants violated the FCA's false statement provision. See TAC ¶¶ 190-99. Prior to May 20, 2009, the false statement provision created liability for anyone who "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." 31 U.S.C. § 3729(a)(2) (2008). The Supreme Court construed the provision's language "to get" as denoting purpose, requiring a showing that a defendant intended that the government pay the false claim to be held liable under section 3729(a)(2). Allison Engine, 553 U.S. at 668-69, 128 S.Ct. 2123.
In response to the Supreme Court's decision in Allison Engine, Congress enacted the FERA on May 20, 2009. FERA amended and recodified section 3729(a)(2) as section 3729(a)(1)(B), which now creates liability for anyone who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." § 3729(a)(1)(B). FERA "amend[ed] the FCA to clarify and correct erroneous interpretations of the law" decided in Allison Engine, including by eliminating the false statement provision's intent requirement. S. Rep. No. 111-10, at 10 (2009), as reprinted in 2009 U.S.C.C.A.N. 430, 438. This amended provision was given retroactive effect as if enacted on June 7, 2008, and so applies to all "claims" under the FCA that are pending on or after that date. Pub. L. No. 111-21, 123 Stat. at 1625 (codified as 31 U.S.C. § 3729 note).
Here, the relator alleges that the defendants violated the false statement provisions by "falsely represent[ing] the country of origin of the products that it sold and offered for sale to the United States Government," both before and after June 7, 2008, in violation of the TAA, TAC ¶¶ 193, 198, and supports these claims with the same underlying facts for the presentment clause claims. The defendants address Counts III and IV in a single footnote, see Defs.' Mem. at 37 n.11, arguing,
With respect to Count III, the relator has provided no particularized allegations regarding purported fraudulent transactions from before June 7, 2008. Indeed, the Third Amended Complaint expressly states that the relator's "analysis begins with sales from 2008" because the defendants "did not provide sufficient sales data from the earliest years requested." TAC ¶ 145 n.16. This is after the government conducted an investigation lasting almost five years. Moreover, among the 46 example transactions that the relator has presented to allege the defendants violated the FCA, the earliest took place in September 2008. See TAC ¶ 150. While a relator may sufficiently plead a "fraudulent scheme with particularity," by "provid[ing] examples of specific false claims submitted to the government pursuant to that scheme," United States ex rel. Tessler v. City of New York, Civ. No. 14-6455 (JMF), 2016 WL 7335654, at *2 (S.D.N.Y. Dec. 16, 2016), aff'd, 712 Fed.Appx. 27 (2d Cir. 2017) (quoting United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007)), the specific examples should cover the relevant time period in order to "ensure that defendants have adequate notice of the charges against them to prepare a defense," see United States v. Toyobo Co., 811 F.Supp.2d 37, 44 (D.D.C. 2011) (quoting United States ex rel. McCready v. Columbia/HCA Healthcare Corp., 251 F.Supp.2d 114, 116 (D.D.C. 2003)). Thus, with no additional information on sales from before September 2008, Count III fails to meet the particularity requirements of Rule 9(b) and must be dismissed.
Count IV also does not survive for the same reasons that Counts I and II are dismissed. To state a material false statement claim under the post-FERA false statement provision in section 3729(a)(1)(B), "a plaintiff must allege that (1) the defendant made or used a `record or statement; (2) the record or statement was false; (3) the defendant knew it was false; and (4) the record or statement was `material' to a false or fraudulent claim." United States ex rel. Keaveney v. SRA Int'l, Inc., 219 F.Supp.3d 129, 153 (D.D.C. 2016) (quoting United States ex rel. Hood v. Satory Global, Inc., 946 F.Supp.2d 69, 85 (D.D.C. 2013)). As detailed, supra in Part III.B.2, the relator has failed to meet the standards for pleading materiality and scienter under the FCA, and, thus, Count IV must likewise be dismissed.
For the foregoing reasons, the defendants' Motion to Dismiss is
A separate Order consistent with this Memorandum Opinion will be filed contemporaneously.
