Lewis, Chief Judge.
THIS MATTER comes before the Court on Defendant Southland Gaming of the Virgin Islands, Inc.'s "Motion to Dismiss and Strike" (Dkt. No. 28); Defendants Southland Amusement and Vending, Inc. and Robert Huckabee, III's "Motion to Dismiss and Strike" (Dkt. No. 30); Defendants' "Motion to Strike Plaintiff's Declaration" (Dkt. No. 40); Defendants' "Joint Motion for Hearing" (Dkt. No. 43); and the parties' respective Oppositions and Replies (Dkt. Nos. 37, 42, 44, 45). For the reasons that follow, the Court will grant in part and deny in part Defendants' Motions to Dismiss and Strike; deny Defendants' Motion to Strike Plaintiff's Declaration; and deny Defendants' Joint Motion for Hearing. Based on these rulings, this case will be dismissed.
Plaintiff David Nissman ("Plaintiff"), proceeding as a qui tam relator,
As required by the FCA, the Complaint was filed under seal to allow the United States time to investigate the claims asserted by Plaintiff and to determine whether to intervene. See 31 U.S.C. § 3730(b)(2).
Defendants move to dismiss Plaintiff's Complaint pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), 12(b)(3), and 12(b)(6), for failure to plead fraud with particularity, lack of subject matter jurisdiction, improper venue, and failure to state a claim upon which relief can be granted, respectively. (See id.). Defendants also move to strike Plaintiff's Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(f), on the grounds that the allegations contained in the Complaint are irrelevant, immaterial, scandalous, unsubstantiated, and false. (See id. at 4, 3). In response, Plaintiff has filed an Opposition, (Dkt. No. 37), along with a self-executed Declaration (Dkt. No. 37-1). Defendants have jointly moved to strike the Declaration pursuant to Local Rule of Civil Procedure 7.1(d) and Federal Rule of Civil Procedure 12(f). (Dkt. No. 40). The Court will grant Defendants' Motions to Dismiss on subject matter jurisdictional grounds, and deny Defendants' Motions to Strike. Because of the dismissal for lack of subject matter jurisdiction, the Court will not reach Defendants' remaining grounds for relief on the merits.
Acting pursuant to legislation passed in late 2002, which authorized video lottery gaming in the Virgin Islands, the Virgin Islands Lottery, an agency of the Virgin Islands Government, entered into a contract with Southland Gaming that, according to Southland Gaming, designated it "as the exclusive contractor for the placement and operation of video lottery terminals and other gaming devices (i.e., slot machines) within various retail establishments, resorts, and entertainment centers throughout St. Thomas and St. John." (Compl. ¶ 21) (quoting the Southland Gaming website) (internal quotation marks omitted) (emphasis in original).
Second, Plaintiff alleges that Defendants have fraudulently misrepresented to the Virgin Islands Government that they are operating a video lottery system, when in fact they are "operating slot machines and running the functional equivalent of casinos on St. Thomas and St. John, which are prohibited by Virgin Islands law." (Compl. ¶ 30).
Plaintiff has asserted two causes of action against Defendants — both under the FCA, 31 U.S.C. § 3729. (See Dkt. No. 1 at 41-46).
The Virgin Islands Lottery ("Lottery"), the "official lottery of the Virgin Islands," is a statutorily created, "instrumentality of the Government of the Virgin Islands ... managed by a Director, subject to the supervision of the Virgin Islands Lottery Commission." 32 V.I.C. § 243. The Director is appointed by the Governor and "serve[s] at the pleasure of the Governor." 32 V.I.C. 245(a). The Virgin Islands Lottery Commission (the "Commission") is a seven-member body, comprised of the Commissioner of Finance, the Director of the Office of Management and Budget (or his designee), and five members appointed by the Governor to a four-year term. 32 V.I.C. § 244.
Another power and duty of the Commission is the distribution of all revenue generated by the Lottery. See 32 V.I.C. § 246(a)(11). By statute, the Commission allocates at least twenty percent (20%) of the net income to the General Fund of the Treasury of the Virgin Islands, see id. at § 246(a)(11)(i), which, in turn, is distributed among various Virgin Islands Government entities, funds, and programs, see id. The Commission also distributes a portion of the proceeds derived specifically from "games under each contract between the Virgin Islands Lottery and a private contractor of lottery games, including the proceeds under a contract with a contractor of video lottery games," to certain Virgin Islands Government entities, funds, and programs. See id. at § 246(a)(11)(iv). A small percentage of proceeds derived exclusively from the video lottery is also distributed to various Virgin Islands programs and departments located on St. Thomas and St. John. See id. at § 246(a)(11)(iv)-(v). The remaining revenue is used to pay prizes to winning ticket holders, cover costs incurred in the operation and administration of the Lottery, and maintain a reserve fund. See id. at § 246(a)(11)(ii), (iii), (vi).
Section 3729(a)(1)(G) of the False Claims Act ("FCA") imposes liability on any person who, inter alia, "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." 31 U.S.C. § 3729(a)(1)(G) (effective May 20, 2009). This provision of the FCA, known as the "reverse false claims" provision, imposes liability for "an alleged fraudulent effort to reduce a liability owed to the government rather than to get a false or fraudulent claim allowed or paid." United States ex rel. Atkinson v. Pa. Shipbuilding Co., 473 F.3d 506, 514 n. 12 (3d Cir.2007).
On May 20, 2009, Congress passed the Fraud Enforcement and Recovery Act of 2009 ("FERA"), Pub. L. No. 111-21, 123 Stat. 1617 (2009), which amended and renumbered several provisions of the FCA, including the reverse false claims provision. Under the prior version of the reverse false claims provision, then codified at 31 U.S.C. § 3729(a)(7), the FCA stated that a person violates the FCA who "knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government." 31 U.S.C. § 3729(a)(7). This version of the reverse false claims provision required a relator to prove that "the defendant made or used (or caused someone else to make or use) a false record
Under the current version of the reverse false claims provision, codified at 31 U.S.C. § 3729(a)(1)(G), the requirement that a person must make or use a false record or statement to conceal, avoid, or decrease an obligation to pay the United States Government is no longer the sole basis upon which a claim can be premised. In its current form, which went into effect on May 20, 2009, a relator can either prove that the defendant made or used a false record or statement that was "material to" an obligation to pay the United States Government or that the defendant "knowingly conceal[ed] or knowingly and improperly avoid[ed] or decrease[d] an obligation to pay or transmit money or property to the Government." 31 U.S.C. § 3729(a)(1)(G). The alternative ground for liability now allows a relator to state a reverse false claim without alleging that the defendant used a false record or statement.
The Complaint in the instant case quotes the current version of the reverse false claims provision, 31 U.S.C. § 3729(a)(1)(G), see Compl. ¶¶ 8, 210, but cites to the prior version, 31 U.S.C. § 3729(a)(7), see Compl. ¶¶ 16, 29. Because the 2009 FERA amendments to the FCA are not retroactive, the current version of the reverse false claims provision applies to conduct alleged in the Complaint that occurred after May 20, 2009, and the prior version to conduct alleged in the Complaint that occurred before May 20, 2009. See FERA § 4, Pub. L. No. 111-21, 123 Stat. 1617, 1625 (2009); see also Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 946, 117 S.Ct. 1871, 138 L.Ed.2d 135 (1997) (stating that "the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place ....") (citing Landgraf v. USI Film Products, 511 U.S. 244, 265, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994)). For subject matter jurisdictional purposes, however, the analysis and result are the same.
Defendants' Motions to Dismiss are premised on the argument that the Court lacks subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). (Dkt. No. 28 at 1-2; Dkt. No. 30 at 2). Defendants also argue, in the alternative, that Plaintiff has failed to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), and that Plaintiff has failed to plead fraud with particularity, as required by Federal Rule of Civil Procedure 9(b). (Dkt. No. 28 at 1-4; Dkt. No. 30 at 2). As will be discussed herein, the Court finds that it lacks subject matter jurisdiction over Plaintiff's FCA claims, and will therefore grant Defendants' Motions to Dismiss under Rule 12(b)(1).
Under Federal Rule of Civil Procedure 12(b)(1), a motion to dismiss "may be treated as either a facial or factual challenge to the court's subject matter jurisdiction." Church of the Universal Bhd. v. Farmington Twp. Supervisors, 296 Fed. Appx. 285, 287-88 (3d Cir.2008) (citing
"In reviewing a facial challenge... `the court must only consider the allegations of the complaint and documents referenced therein and attached thereto, in the light most favorable to the plaintiff.'" In re Schering Plough Corp. Intron, 678 F.3d 235, 243 (3d Cir.2012) (quoting Gould Elecs., Inc., 220 F.3d at 176). A review of factual challenges, however, allows the court to "weigh and consider evidence outside the pleadings." Constitution Party v. Aichele, 757 F.3d 347, 358 (3d Cir.2014) (quoting Gould Elecs., Inc., 220 F.3d at 176) (internal quotation marks omitted)).
In the instant case, Defendants have made a facial challenge to the Court's subject matter jurisdiction, asserting that Plaintiff has failed to plead sufficient facts to establish jurisdiction under the FCA. (See Dkt. No. 29 at 5; Dkt. No. 31 at 4-5); see also Batchelor v. Rose Tree Media Sch. Dist., 759 F.3d 266, 271 (3d Cir.2014) (stating that a facial challenge "contest[s] the sufficiency of the pleadings"). Accordingly, the Court must "review only whether the allegations on the face of the complaint, taken as true, allege facts sufficient to invoke the jurisdiction of the [] court." Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 188 (3d Cir.2006) (citations omitted)); see also Culver v. United States Dep't of Labor OSHA, 248 Fed.Appx. 403, 406 (3d Cir.2007) ("Facial challenges to subject matter jurisdiction `contest the sufficiency of the pleadings, and the trial court must accept the complaint's allegations as true.'") (quoting Taliaferro, 458 F.3d at 188).
Defendants move to dismiss the instant action on the basis, inter alia, that the FCA applies only to false claims made against the United States and not to an agency of the Virgin Islands Government, such as the Virgin Islands Lottery, that does not receive federal funding. (Dkt. No. 29 at 5-11; Dkt. No. 31 at 4-5). In support of this argument, Defendants rely heavily on the definition of the term "claim" found in section 3729(b)(2)(A) of the FCA. According to Defendants, the Virgin Islands Lottery must be deemed either an agent of the United States, see 31 U.S.C. § 3729(b)(2)(A)(i), or a recipient of federal funds, see 31 U.S.C. § 3729(b)(2)(A)(ii), in order for the FCA to apply. (Dkt. No. 29 at 8; Dkt. No. 31 at 4-5). Defendants maintain that neither is the case here.
In opposition, Plaintiff concedes that the FCA governs claims against the United States Government, but argues that the Virgin Islands, an unincorporated territory of the United States, is not an independent sovereign, such as a state, but rather "a mere instrumentality of the United States." (Dkt. No. 37 at 9, n. 4). This argument is premised on the fact that Congress has plenary power pursuant to the Territory Clause of the United States Constitution to regulate the unincorporated territories of the United States, including the Virgin Islands. (See id. at 12); see also U.S. CONST. art. IV, § 3, cl. 2 ("The Congress shall have power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States ...."). According to Plaintiff, a fraud against the Virgin Islands is a fraud against the United States. (Dkt. No. 37 at 17).
The threshold issue before the Court is whether the relationship between the Virgin Islands and the United States renders a fraud against an agency of the Virgin Islands Government a fraud against the United States for purposes of the FCA. Defendants argue that "binding precedent from this Court and the Third Circuit [] recognize that the Virgin Islands Government is separate and distinct from the United States Government[.]" (Dkt. No. 29 at 5; Dkt. No. 31 at 4). Plaintiff, on the other hand, argues that "a diligent analysis of the statutory language of the FCA and of the special relationship between the United States and the Virgin Islands" supports the "simple fact" that "an unincorporated territory is not a separate sovereign from the United States, but is instead a mere instrumentality of the United States." (Dkt. No. 37 at 9). Upon consideration of the arguments advanced by the parties and the relevant legal authority, the Court concludes that the Virgin Islands and its agencies are not instrumentalities of the United States Government for purposes of the civil provisions of the FCA.
In their Motions to Dismiss, Defendants cite to United States v. Gumbs, 283 F.3d 128, 44 V.I. 376 (3d Cir.2002), for the proposition that "the Government of the Virgin Islands is not a `person or officer' or `department or agency' of the United States, within the meaning of the FCA." (Dkt. No. 29 at 10; Dkt. No. 31 at 5). In response, Plaintiff argues that Defendants' reliance on Gumbs is "misplaced" because the salient issue — whether the Virgin Islands is an agency of the United States — was never litigated by the parties or addressed by the court. (Dkt. No. 37 at 17 n. 5 ("It is obvious from the court's opinion that the court merely assumed that a claim against the Virgin Islands was not a claim against a `department or agency' of the United States[.]")). Plaintiff argues further that the defendant in Gumbs was charged with violating the criminal provisions of the FCA, which (unlike the civil provisions of the FCA) contain the definition of a "department" and an "agency" of the United States. (See id.).
In United States v. Gumbs, the defendant contractor, Lincoln Gumbs, was convicted of causing the Government of the Virgin Islands to make or present a false claim to a federal department (the United States Department of the Interior) in violation of 18 U.S.C. § 2(b) and § 287 — the criminal provisions of the FCA. See 283 F.3d at 130.
The Third Circuit, in reversing and remanding the case to the trial court, concluded that there was "insufficient evidence from which a rational jury could find beyond a reasonable doubt that Gumbs knew that he was causing the [Government of the Virgin Islands] to make or present a false claim [to the Department of the Interior]." Id. at 131. In reaching this conclusion, the Third Circuit stated that there was "no evidence that Gumbs knew that his contract was funded by anyone other than the [Government of the Virgin Islands]" and that it was "undisputed that Gumbs presented his claims for payment to the [Government of the Virgin Islands], which is neither a `person or officer in the civil, military, or naval service of the United States,' nor a `department or agency' of the United States, as defined in 18 U.S.C. [§] 6 ...." Id. at 131-32.
Although Gumbs involved a violation of the criminal provisions of the FCA, it is nevertheless instructive that the Third Circuit, in holding that Gumbs did not possess the requisite mens rea for the offense charged, stated that the Virgin Islands is neither a department nor an agency of the United States. Because the criminal provisions of the FCA were originally codified with the civil provisions under the 1863 Act, see Act of Mar. 2, 1863, ch. 67, § 3, 12 Stat. 698, until it was bifurcated in 1878 and re-codified at 18 U.S.C. § 2 and § 287, see Cook County v. United States ex rel. Chandler, 538 U.S. 119, 128 n. 8, 123 S.Ct. 1239, 155 L.Ed.2d 247 (2003), it is reasonable to conclude that the criminal and civil provisions of the FCA should be similarly interpreted. See United States v. McBride, 362 F.3d 360, 371 (6th Cir.2004) (utilizing § 3729(c) of the civil provisions of the FCA to define the term "claim" in § 287 — one of the criminal provisions of the FCA); see also United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428, 444 (6th Cir.2005) (citing McBride, 362 F.3d at 371).
In any event, the conclusion that the Virgin Islands is not an agency or instrumentality of the United States for purposes of the civil provisions of the FCA is independently supported by an examination of the relationship between the Virgin
In Harris v. Boreham, the Third Circuit explained:
Id. at 113 (internal citations omitted). The Court went further to state:
Id. at 114 (internal citations omitted).
Based on this understanding of the intent of Congress in creating the governments of the unincorporated territories, the Court concluded that "the unincorporated territory of the Virgin Islands [is] a body politic quite distinct from the Government of the United States and that [the Virgin Islands has] attributes of sovereignty which [have] been delegated to it by the Government of the United States but which [are] distinct from the powers of [the United States Government]." Id. at 114. The Court noted that "this distinction... is indicated not only by the Organic Act [of 1936] itself but by later enactments." Id. at 115.
Using the 1900 Foraker Act of Puerto Rico as an example, the Court reasoned that Congress by the Organic Act of 1936 conferred upon the Virgin Islands "attributes of sovereignty," including a government
Id.; see also Bluebeard's Castle, Inc. v. Government of the Virgin Islands, 321 F.3d 394, 399 n. 9 (3d Cir.2003) ("The form of government in the Virgin Islands is defined by the Organic Act, originally passed by Congress in 1936[.]").
These "attributes of sovereignty" were then expanded by the Revised Organic Act of 1954, 48 U.S.C. § 1541, et seq., which was intended by Congress "to give a greater degree of autonomy, economic as well as political, to the people of the Virgin Islands." Water Isle Hotel & Beach Club, Ltd. v. Kon Tiki St. Thomas, Inc., 795 F.2d 325, 327 (3d Cir.1986) (citing 1954 U.S. Code Cong. & Admin. News 2585, 2616).
In the judicial arena, "the Revised Organic Act of 1954 was amended [in 1984] to give the local legislature the authority to divest the District Court of all non-federal question, non-diversity jurisdiction." Berne v. Boschulte, 6 F.Supp.2d 443, 444 (D.V.I. 1998). Initially, the District Court of the Virgin Islands was "more like a state court of general jurisdiction than a United States district court." Privateer Bay Mgmt. Corp. v. Heirs of Sewer, 102 Fed. Appx. 228, 231 (3d Cir.2004) (quoting Carty v. Beech Aircraft Corp., 679 F.2d 1051, 1057 (3d Cir.1982) (internal quotation marks omitted)). This is because the District Court "had [original] jurisdiction over most local matter[s]." Bluebeard's Castle, 321 F.3d at 401 (citing Brow v. Farrelly, 994 F.2d 1027, 1034, 28 V.I. 345 (3d Cir. 1993)). In 1990, however, the Virgin Islands legislature, pursuant to the authority granted by the 1984 amendments to the Revised Organic Act, enacted a statute that divested the District Court of original jurisdiction over all local civil actions. See Parrott v. Gov't of the Virgin Islands, 230 F.3d 615, 619, 43 V.I. 277 (3d Cir.2000). Consequently, the jurisdiction of the District Court became "equivalent, at least in the civil context, to that of a United States District Court." Club Comanche, Inc. v. Gov't of the Virgin Islands, 278 F.3d 250, 256 (3d Cir.2002).
As the Third Circuit has explained, "[t]he Virgin Islands court structure, incorporating the Appellate Division of the District Court as an appellate tribunal for local law, reflect[ed] Congress's intent to encourage `the development of a local Virgin Islands appellate structure with greater autonomy with respect to issues of Virgin Islands law.'" Id. (quoting In re Alison, 837 F.2d 619, 622 (3d Cir.1988)). Congress's intent in this regard was realized in 2004 with the establishment of the Supreme Court of the Virgin Islands, which assumed jurisdiction over all appeals from the Superior Court of the Virgin Islands, see Defoe, 702 F.3d at 739,
To conclude that the Virgin Islands is a mere instrumentality of the United States, so as to bring it within the scope of the civil provision of the FCA on that basis would be contrary to the increased autonomy vested in the Virgin Islands and which it has enjoyed as a result of Congressional and local legislative action over the years. Thus, this Court finds, as has the Third Circuit, that "[w]hile not sovereign, in the true sense of that term, the Revised Organic Act has conferred upon [the Virgin Islands] attributes of autonomy similar to those of a sovereign government or a state." In re Estate of Hooper, 359 F.2d 569, 578 (3d Cir.1966). Accordingly, "sensitivity to the division between federal and territorial power ... seems appropriate, given Congress's choice to treat Virgin Islands law ... with much of the independence of state law." Bluebeard's Castle, 321 F.3d at 401.
Plaintiff's additional argument does not alter the Court's conclusion. In his Opposition, Plaintiff cites 31 U.S.C. § 3732(b)
As a preliminary matter, Plaintiff's quantum leap from the existence of 31 U.S.C. § 3732(b) to the conclusion that a fraud against an agency of the Virgin Islands Government is a fraud against the United States for purposes of the civil provisions of the FCA is devoid of any support whatsoever. He relies solely on what he construes as the "only reasonable explanation." (Id.).
However, Plaintiff's argument is weakened by the fact that "[s]ection 3732(b),
Thus even assuming — without deciding — that territories are not included within the scope of § 3732(b), as Plaintiff claims, the Legislature of the Virgin Islands is not precluded from enacting local laws regarding false claims. Indeed, not only does the Legislature have the authority, but it has in fact used its authority by enacting a criminal statute that prohibits fraudulent claims against the Government of the Virgin Islands. See 14 V.I.C. § 843.
Based on the foregoing, the Court concludes that the Virgin Islands and its agencies are not instrumentalities of the United States for purposes of the civil provisions of the FCA.
Having concluded that the Virgin Islands is not an agency or instrumentality of the United States for purposes of the civil provisions of the FCA, the Court must next determine whether the FCA otherwise applies to the claims in this case. Under section 3729(b)(2)(A) of the FCA, the term "claim" is defined as:
31 U.S.C. § 3729(b)(2)(A)(i)-(ii). Thus, for Plaintiff's claims to fall within the scope of the FCA, the Virgin Islands Lottery must be deemed "a contractor, grantee, or other recipient" of federal funds. See, e.g., United States ex rel. V.I. Hous. Auth. v. Coastal Gen. Constr. Servs. Corp., 299 F.Supp.2d 483, 485 (D.V.I.2004) ("The United States Department of Housing and Urban Development ["HUD"] provides federal funds to the [Virgin Islands Housing Authority], bringing the actions within the scope of the False Claims Act[,] 31 U.S.C. § 3729-3733.") (footnote omitted).
In the instant case, there is no allegation in the Complaint that the Virgin Islands Lottery is a contractor, grantee, or other recipient of federal funds. (See Dkt. No. 1 at 6 (stating that "the Virgin Islands Lottery runs and owns its own Lottery and is the owner of all monies collected")). At best, Plaintiff alleges that Defendants have retained millions of dollars that rightfully belong to the Virgin Islands Government.
As noted earlier, the Virgin Islands Lottery funds all of its operations with the revenue generated from its lottery games, and uses the proceeds from the games to support various entities, funds, and programs in the Territory. See 32 V.I.C. § 246(a)(11). Accordingly, it is the Virgin Islands Government, and not the United States Government, that would suffer economically from Defendants' alleged fraud.
Because the Court has already concluded that the Virgin Islands is not an agency or instrumentality of the United States Government, nor is there any indication that the Virgin Islands Lottery is a contractor, grantee, or other recipient of federal funds, the Court will grant Defendants' Motions to Dismiss for lack of subject matter jurisdiction and dismiss Plaintiff's FCA claims pursuant to Rule 12(b)(1).
Plaintiff argues that this Court has subject matter jurisdiction over his claims under the reverse false claims provision of the FCA because Defendants have allegedly violated numerous federal statutes that subject Defendants "to significant fines and forfeitures by the United States Government." (Dkt. No. 37 at 20). By allegedly violating these statutes, Plaintiff contends that Defendants have avoided an "obligation" to pay money to the United States Government in violation of 31 U.S.C. § 3729(a)(1)(G). (Id. at 18, 20).
Defendants oppose this argument on two grounds. (See Dkt. No. 42 at 9-15). First, Defendants argue that "Plaintiff does not allege that Defendants submitted any false statements to the United States. Therefore, there is no basis for a `reverse' false claim[.]" (Id. at 11 (distinguishing the instant case from the two cases cited by Plaintiff in his Opposition, United States ex rel. Sequoia Orange Co. v. Oxnard Lemon Co., 1992 WL 795477, 1992 U.S. Dist. LEXIS 22575 (E.D.Cal. May 5, 1992) and United States ex rel. Stevens v. McGinnins, Inc., 1994 U.S. Dist. LEXIS 20953 (S.D.Ohio Oct. 26, 1994), where the defendants submitted false statements to the United States to avoid fines and penalties)). Assuming that Defendants' contention incorporates the 2009 FERA amendments to the FCA, the Court agrees, for the reasons previously discussed, that the alleged submission of false statements to the Virgin Islands Government does not constitute submission of such statements to the United States under the FCA.
Second, Defendants argue that contingent or potential fines are not "obligations" for purposes of the FCA. (See Dkt. No. 42 at 11-12). In support of this argument, Defendants state that "no fines or penalties have been levied against Defendants;" "no charges have been brought against Defendants;" and "Defendants are entitled to defend themselves against charges that they violated federal law before there would be an `obligation' to pay fines or penalties to the United States." (Id. at 10). Defendants also assert that "[c]ourts in the Third Circuit have held that an `obligation' for purposes of the reverse false claim provision does not `encompass[]
Before the 2009 FERA amendments, the FCA did not contain a definition of the term obligation. In its absence, several courts of appeal held that "unassessed civil and criminal penalties for regulatory [and statutory] violations were `contingent' obligations that could not form the basis of a reverse false claim." United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co., 2015 WL 1608455, at *15 n. 10, 2015 U.S. Dist. LEXIS 46929, at *41 n. 10 (E.D.Pa. Apr. 10, 2015) (citing American Textile Mfrs. Inst., Inc. v. Limited, Inc., 190 F.3d 729, 738 (6th Cir.1999); United States ex rel. Hoyte v. Am. Nat'l Red Cross, 518 F.3d 61, 67 (D.C.Cir.2008); United States ex rel. Bain v. Ga. Gulf Corp., 386 F.3d 648, 657 (5th Cir.2004)). In 2009, as part of the FERA amendments, Congress added a definition of the term "obligation," specifying that an obligation means "an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment." 31 U.S.C. § 3729(b)(3) (emphasis added).
The parties disagree over the meaning of this definition. Plaintiff contends that the relevant language in the definition is "whether or not fixed," which provides for "unfixed statutory and regulatory obligations," and that "by providing for unfixed statutory and regulatory obligations, Congress has abrogated the earlier decisions which held that contingent and potential statutory and regulatory fines are not obligations under the reverse false claim[s] provision[] of the FCA." (Dkt. No. 37 at 19 (citing United States v. Q Int'l Courier, Inc., 131 F.3d 770, 773 (8th Cir. 1997)). Defendants, on the other hand, argue that the relevant language in the definition is "established duty," and that "a contingent or potential fine is not an `established duty.'" (Dkt. No. 42 at 13) (footnote omitted). Defendants also state that "the intent of the language `whether or not fixed' was to cover `fixed unliquidated obligations,' such as tariffs on imported goods." (Id. (quoting John T. Boese, Civil False Claims and Qui Tam Actions § 2.01[L], at 2-78).
The Court agrees that Plaintiff has failed to identify an "established duty" that would bring this matter within the scope of the FCA. The addition of the phrase "whether or not fixed" to the reverse false claims provision was not meant to cover the type of contingent obligations Plaintiff contemplates — i.e., unadjudicated and unassessed statutory fines. See United States ex rel. Boise v. Cephalon, Inc., 2015 WL 4461793, at *1 n. 1, 2015 U.S. Dist. LEXIS 94448, at *3 n. 1 (E.D.Pa. July 21, 2015). "[The] phrase refers to `whether or not the amount owed was fixed at the time of the violation' rather than whether an obligation to pay was fixed." Id. (quoting 1 John T. Boese, Civil False Claims and Qui Tam Actions § 2.01[L], 2-83 (2014)); see also Kane ex rel. United States v. Healthfirst, Inc., 120 F.Supp.3d 370, 388 (S.D.N.Y.2015) (stating that "[the] legislative history indicates that Congress intended for FCA liability to attach in circumstances where ... there is an established duty to pay money to the government, even if the precise amount due has yet to be determined").
In the instant case, Plaintiff alleges that Defendants have violated numerous federal (and territorial) statutes, and that these statutes subject Defendants to "significant fines and forfeitures by the United States Government." (Dkt. No. 37 at 20). Plaintiff asserts that "[t]he fact that no such fines have been imposed is irrelevant[.]" (Id.). However,
Boise, 2015 WL 4461793, at *3, 2015 U.S. Dist. LEXIS 94448, at *10 (quoting Am. Textile Mfrs., 190 F.3d at 738); see also Zelenka, 436 F.Supp.2d at 706 (finding obligation to pay inspection fees was contingent upon government agency's decision to inspect shipments and that it was therefore not an obligation under the reverse false claims provision), aff'd, 260 Fed. Appx. 493 (3d Cir.2008).
Federal Rule of Civil Procedure 12(f) permits a court to "strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." FED. R. CIV. P. 12(f); see also Collura v. City of Philadelphia, 590 Fed. Appx. 180, 185 (3d Cir.2014). Immaterial matter has been defined as "that which has no essential or important relationship to the claim for relief." Donnelly v. Commonwealth Fin. Sys., 2008 WL 762085, at *4, 2008 U.S. Dist. LEXIS 28604, at *10 (M.D.Pa. Mar. 20, 2008) (quoting Delaware Health Care v. MCD Holding Co., 893 F.Supp. 1279, 1291-92 (D.Del.1995) (internal quotation marks omitted)). "Impertinent matter consists of statements that do not pertain, and are not necessary, to the issues in question." Id. Scandalous matter "improperly casts a derogatory light on someone, most typically on a party to the action." Id. at *4, 2008 U.S. Dist. LEXIS 28604, at *11 (quoting Carone v. Whalen, 121 F.R.D. 231, 233 (M.D.Pa.1988) (internal quotation marks omitted)).
A court has "considerable discretion" in deciding a motion to strike under Rule 12(f). Carter v. Newman, 2015 WL 858876, at *1, 2015 U.S. Dist. LEXIS 23919, at *2 (D.N.J. Feb. 27, 2015). However, "such motions are `not favored and usually will be denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties, or if the allegations confuse the issues in the case.'" Griswold v. Coventry First LLC, 2015 WL 710365, *7, 2015 U.S. Dist. LEXIS 19455, *20 (E.D.Pa. Feb. 18, 2015) (quoting River Road Dev. Corp. v. Carlson Corp., 1990 WL 69085, at *3, 1990 U.S. Dist. LEXIS 6201, at *7 (E.D.Pa. May 23, 1990)); see also Great West Life Assurance Co. v. Levithan, 834 F.Supp. 858, 864 (E.D.Pa.1993) ("Motions to strike are often not granted if there is an absence of a showing of prejudice to the moving party.").
"The standard for striking a complaint or a portion of it is strict, and `only allegations that are so unrelated to the plaintiffs' claims as to be unworthy of any consideration should be stricken.'" Steak Umm Co., LLC v. Steak `Em Up,
Defendants move to strike the entire Complaint in this matter on the grounds that the allegations contained therein are "rumors[] and innuendo that are wholly irrelevant, immaterial, impertinent, salacious, unsupported, [and] demonstrably false[.]" (Dkt. No. 31 at 11; see also Dkt. No. 29 at 20 n. 15). Specifically, Defendants argue that "the facts alleged in [the] Complaint do not state a claim under the False Claims Act"; accusations in the Complaint that "Defendants ... violat[ed] a number of federal statutes ... are irrelevant to Plaintiff's claims under the FCA"; and paragraphs 175 to 208 of the Complaint "attempt[] to paint Defendants, their attorney and even their attorney's wife in a scandalous light." (Dkt. No. 31 at 11-13).
In response, Plaintiff asserts that the "allegations [in the Complaint] are neither `baseless,' as asserted by Defendants, nor so unrelated to the claimed violations of the FCA that they are unworthy of consideration." (Dkt. No. 37 at 31). He further asserts that "the accusations of federal law violations ... subject [Defendants] to significant federal fines and forfeitures. As such, the allegations, if proven at trial, establish numerous obligations [Defendants] avoided in their illegal gaming activities." (Id.). According to Plaintiff, "the allegations [in the Complaint] are also relevant to the issue of whether [] Defendants are operating a legal video lottery system in the Virgin Islands, as they are required to do ...." (Id.).
In "evaluating a motion to strike allegations of a complaint, the court must accept as true all factual allegations in the complaint and view all reasonable inferences in the light most favorable to [the plaintiff], just as on a motion to dismiss pursuant to FED. R. CIV. P. 12(b)(6)." Luppino v. Mercedes-Benz USA, LLC, 2013 WL 6047556, at *3, 2013 U.S. Dist. LEXIS 161689, at *8 (D.N.J.2013) (citation omitted). Here, Defendants have not met the high burden of showing that the allegations contained in the Complaint — paragraphs 175 to 208, in particular — bear no relation to Plaintiff's claims under the FCA or that the allegations in the Complaint are prejudicial to any party to this action. See Flanagan v. Wyndham Int'l, Inc., 2003 WL 23198798, at *1, 2003 U.S. Dist. LEXIS 24211, at *3 (D.V.I. Apr. 21, 2003) ("To prevail on a motion to strike, the movant must show that the allegations being challenged are so unrelated to Plaintiff's claims as to be unworthy of any consideration and that their presence in the pleadings will be prejudicial."). Defendants offer only conclusory statements, unsupported by any legal analysis, that are insufficient to warrant the "drastic remedy" of striking the Complaint. (See, e.g., Dkt. No. 31 at 13 ("Plaintiff's scandalous suggestions and outrageous innuendo are false and misleading, wholly irrelevant, highly prejudicial, and should be stricken
In connection with his Opposition to Defendants' Motions to Dismiss, Plaintiff filed a "Declaration Concerning Challenge to Original Source Information." (Dkt. No. 37-1). In response, Defendants filed a "Motion to Strike Plaintiff's Declaration," pursuant to Local Rule of Civil Procedure 7.1(d)
(Dkt. No. 40 at 1). Plaintiff opposes the Motion to Strike on several grounds. (Dkt. No. 44).
The instant Motion to Strike relates to Defendants' argument to dismiss Plaintiff's Complaint under the public disclosure bar of the FCA, 31 U.S.C. § 3730(e)(4), the merits of which the Court did not address. (Dkt. No. 29 at 11-13; Dkt. No. 31 at 5).
In his Opposition to Defendants' Motions to Dismiss, Plaintiff contends that he was the "first" to discover and allege that:
(Dkt. No. 37 at 22-23). Plaintiff also refers the Court to the "sworn" Declaration at issue here, which he states "presents the details of his investigation, and establishes that the allegations underlying the FCA claims in the Complaint had not been previously disclosed." (Id. at 23).
To the extent that Defendants argue that Plaintiff's Declaration is "redundant,
For the foregoing reasons, Defendants' "Motions to Dismiss and Strike" (Dkt. Nos. 28, 30), will be granted as they relate to subject matter jurisdiction (Federal Rule of Civil Procedure 12(b)(1)), and denied as they relate to striking the Complaint (Federal Rule of Civil Procedure 12(f)). In addition, Defendants' "Motion to Strike Plaintiff's Declaration" (Dkt. No. 40) will be denied, including for mootness, and Defendants' "Joint Motion for Hearing" (Dkt. No. 43) will be denied.
An appropriate Order accompanies this Memorandum Opinion.
31 U.S.C. § 3730(b)(2).
Id. at 321, 98 S.Ct. 1079 (emphasis added; internal citations omitted). The Court notes that Wheeler specifically referenced the enactment and enforcement of criminal laws. Further, it addressed dual sovereignty in the context of a criminal prosecution that involved the issue of double jeopardy. See Wheeler, 435 U.S. at 314, 98 S.Ct. 1079. The constitutional rights of a defendant in a criminal case are quite different from the considerations at issue in a civil FCA suit. The Court finds that the issues present in the case at hand are more analogous to those set forth in Harris v. Boreham, 233 F.2d 110, 114 (3d Cir.1956) (stating, in the context of the applicability of the Federal Tort Claims Act to the Virgin Islands, that "Congress may create a territorial government for an unincorporated territory and may confer upon it an autonomy similar to that of the states"); Jackson v. W. Indian Co., 944 F.Supp. 423, 428-29 (D.V.I.1996) (concluding that "because the Virgin Islands enjoys many of the `trappings of a sovereign governmental entity,' even if that sovereignty is a creation of Congress, the Virgin Islands should be treated in the same way as a state when analyzing the applicability of antitrust laws"); and, as discussed above, United States v. Gumbs, 283 F.3d 128, 132, 44 V.I. 376 (3d Cir.2002) (stating, in the context of the criminal provisions of the FCA, that "the [Government of the Virgin Islands] ... is neither a `person or officer in the civil, military, or naval service of the United States,' nor a `department or agency' of the United States...."). Each of these cases involved the interpretation of a federal statute — as here — rather than an interpretation of the constitutional rights of criminal defendants, as in Wheeler.
14 V.I.C. § 843.
155 Cong. Rec. S. 4539 (daily ed. Apr. 22, 2009) (statement of Sen. Kyl). Senator Kyl's amendment was accepted without objection. See id. His explanation of the amendment provides further support for the Court's conclusion.