SURRICK, District Judge.
Presently before the Court are Defendants PECO Energy Company, Philadelphia Regional Port Authority and General Dynamics American Overseas Marine's Motions To Dismiss the Amended Complaint. (ECF Nos. 43-45.) For the following reasons, the Motions will be granted in part and denied in part.
We have subject matter jurisdiction over the alleged violations of the False Claims
On January 29, 2003, the Philadelphia Regional Port Authority ("PRPA") and the United States entered into a contract, No. "N00033-03-C-5310." (Am. Compl. ¶ 14, ECF No. 18.)
On April 25, 2003, PRPA began ordering electric power from PECO Energy Company ("PECO"). (Id. at ¶¶ 16-17, 21.)
Relator Lothar E.S. Budike, Sr. is a federally licensed United States Marine Chief Engineer, and President of A-Valey Engineers, Inc. ("AVE"), a multi-disciplinary engineering and consulting firm. (Id. at ¶ 8.) AVE has over fifty years of experience in working with naval vessels. (Id. at ¶ 54.)
In 2005, PRPA hired AVE to provide on-call engineering services at its facilities. (Id. at ¶ 26.) AVE conducted a preliminary investigation. At the conclusion of this investigation, AVE recommended a comprehensive energy audit for PRPA. (Id.) After reviewing this recommendation, James T. McDermott Jr., Executive Director of PRPA, and Charles J. Lawrence, Director of Engineering for PRPA, expressed concern that PECO was submitting inflated bills for the electric power that was being supplied to the Vessels. (Id. at ¶ 29.) As a result, PRPA hired AVE to conduct the recommended comprehensive energy audit. (Id.) After the initial stages of the comprehensive audit, AVE confirmed to PRPA that its billing concerns were valid. (Id. at ¶ 30.)
On June 22, 2006, PRPA notified PECO that it had retained AVE to investigate the electric power charges and authorized PECO to release to AVE all documentation and information related to the investigation. (Id.) On August 7, 2006, AVE requested from PECO copies of certain documents, including contracts and monthly bills to PRPA from January 2003 to July 2006. (Id. at ¶ 31.) On August 21, 2006, PECO responded that all of the documents that AVE requested were not available since PECO had moved its office location and, over the course of the move, some documents had been discarded. (Id. at ¶ 32.) On September 18, 2006, AVE again requested the information it deemed necessary to complete its audit. (Id. at ¶ 35.) AVE also requested that PECO respond in writing to its request for documents. (Id.) On October 3, 2006, PECO stated that it did not possess any signed agreement between PECO and PRPA with respect to the Vessels. (Id. at ¶ 33.) PECO stated that the first bill that it submitted to PRPA, which had been paid, set forth the terms of agreement. (Id. at ¶ 34.) In addition, PECO provided AVE with "an informal, unexplained, customer totalized report for PECO meter (918MQEC-45482K) installed at the PRPA's LMSR Naval Vessel(s) location," as well as "non-specific blank forms and reference documents associated with the typical process required to energize a commercial customer's facility." (Id. at ¶ 36.) AVE concluded that it was not going to be provided with all of the documents requested from PECO. AVE continued to conduct the audit using information and documents obtained from PRPA's record retention system. (Id. at ¶ 37.) This included copies of PECO's monthly bills
As part of its investigation, AVE installed its own meter and monitoring equipment throughout the Vessels. (Id. at ¶¶ 38-39.) This enabled AVE to monitor continuously and capture the Vessels' energy consumption from September 29, 2006 to April 30, 2007. (Id. at ¶ 40.)
Relator alleges that "Defendants engaged in a pattern of deception, and fraudulently account[ed] for electric power supply purportedly used in the performance of a government program and contract that was billed to and paid by the United States" and that they
(Id. at ¶ 4.) Specifically, Relator alleges that PECO's monthly energy bills from September 4, 2003 to April 20, 2007 were "grossly inflated and unrealistic." (Id. at ¶ 44.)
In September 2006, shortly after AVE commenced capturing the Vessels' energy consumption, PECO's electric supply meter shut down and ceased to capture electric load usage data. (Id. at ¶ 41.) During this shut-down period, PECO submitted estimated load usage and meter data to PRPA for payment.
Relator's allegations of PECO's overcharges are as follows:
AVE discussed with PECO, PRPA, General Dynamics American Overseas Marine ("AMSEA"),
AMSEA subsequently requested that AVE drop its investigation because (i) there was no actual independent data going back several years to corroborate
PRPA issued a stop-work order, which terminated AVE's investigation. (Id. at ¶ 70.) AVE's contract was terminated. (Id. at ¶ 74.)
Relator submitted a complaint to the Attorney General of the United States and the United States Attorney's Office for the Eastern District of Pennsylvania. (Id. at ¶ 75.) In the complaint, Relator alleged that the "improper billing practices by PECO, PRPA and AMSEA were systemic and widespread in its implementation across the country whenever LMSR Naval Vessel(s) were docked and where they were using shore power electric supply power." (Id.)
On October 3, 2007, Relator filed a qui tam complaint, pursuant to the FCA. (Compl., ECF No. 1.) Relator alleged that the named defendant in the action, PECO, submitted false and fraudulent claims and cost reports to the United States Navy in order to obtain "hundreds of thousands of dollars in overpayment for electricity and related services." (Id. at ¶ 2.) Relator asserted three causes of action under the FCA: (i) presentation of false claims; (ii) making or using false records or statements to cause a false claim to be presented; and (iii) making or using false records or statements to avoid an obligation to refund. (Id. at ¶¶ 14-24.) Relator requested relief in the form of civil damages, treble damages and attorneys' fees and costs. (See Compl.) The qui tam complaint was sealed pursuant to 31 U.S.C. § 3730(b)(2).
On November 1, 2010, the United States notified the Court of its intention to not intervene in this action. (ECF No. 14.)
On April 8, 2011, Relator filed an Amended Complaint. (Am. Compl.) The Amended Complaint named as additional defendants PRPA and AMSEA and contained additional factual allegations. (Id.) The Amended Complaint alleged three Counts: (i) violation of the FCA (Count I); (ii) retaliation and discrimination under the FCA (Count II); and (iii) retaliatory discharge of Relator (Count III). (Id. at ¶¶ 77-86.) The relief requested was the same as in the original qui tam complaint. (Id. at ¶¶ 1, 81, 83, 86.) On May 4, 2011, we ordered that the Amended Complaint be unsealed and be served on Defendants. (May 4 Order, ECF No. 20.) On August 9, 2011, we ordered that all documents filed in this action by Relator be unsealed. (ECF No. 29.) The docket text for all docket entries in this action and all documents filed after the United States' notice to decline intervention were unsealed on August 22, 2011. (ECF No. 34.) On July 25, 2011, the Amended Complaint was served on PECO and PRPA. On August 1, 2011, the Amended Complaint was served on AMSEA. (ECF Nos. 39-41.)
On October 14, 2011, PECO filed a Motion To Dismiss Relator's Amended Complaint. (PECO Mot., ECF No. 43.) PECO seeks dismissal of the Amended Complaint on several grounds:
(PECO Br., ECF No. 43.)
On October 14, 2011, PRPA also filed a Motion To Dismiss the Amended Complaint. (PRPA Mot., ECF No. 44.) In its Motion, PRPA adopted and incorporated PECO's arguments with respect to (i) Relator's failure to comply with Court Orders and to timely serve the Amended Complaint, (ii) dismissal of Count I for failure to satisfy the pleading requirements of the Federal Rules of Civil Procedure, and (iii) dismissal of Counts II and III for failure to state a claim. (PRPA Br. 19, 27, 29, ECF No. 44.) In addition, PRPA asserted additional grounds for dismissal, including:
(PRPA Br.)
On October 28, 2011, AMSEA filed a Motion To Dismiss the Amended Complaint. (AMSEA Mot., ECF No. 45.) In addition to incorporating the arguments set forth by PECO and PRPA in their Motions To Dismiss, AMSEA contends that Relator has failed to state FCA and related retaliation claims against AMSEA, specifically. (AMSEA Br., ECF No. 45.)
Relator filed a Response opposing Defendants' Motions on December 28, 2011. (Rel.'s Resp., ECF No. 48; Rel.'s Mem., ECF No. 48-2.) On January 17, 2012, PECO, PRPA and AMSEA each submitted a Reply. (PECO Reply, ECF No. 49; PRPA Reply, ECF No. 50; AMSEA Reply, ECF No. 51.) On January 25, 2012, Relator filed a Reply to PECO's Reply memorandum. (Rel.'s Reply to PECO, ECF No. 52.) On February 6, 2012, Relator filed a Reply to PRPA's Reply memorandum (Rel.'s Reply to PRPA, ECF No.
Also on February 6, 2012, the Government filed a Statement of Interest, pursuant to 28 U.S.C. § 517, in response to Defendants' Motions. (Statement of Interest, ECF No. 55.) In its Statement of Interest, the Government seeks to correct the record with respect to its conversation with Relator's counsel. (Id. at 1.)
Defendants seek to dismiss the Amended Complaint based on Relator's failure to comply with two Court Orders requiring Relator to serve the unsealed Amended Complaint on Defendants and Relator's failure to timely serve Defendants. (PECO Br. 10; PRPA Br. 19; PECO Reply 2-6; AMSEA Br. 1 n. 1; see also May 4 Order ¶ 1.) Defendants assert that Relator "waited nearly four months after the court-ordered extension had expired, and nearly three months after this Court's second Order to serve PECO [and the other Defendants] with the Amended Complaint." (PECO Br. 11.) Defendants contend that Relator has not provided any justification for this delay in service, that good cause does not exist to excuse the untimely service and that, on these grounds, the Amended Complaint should be dismissed. (Id. at 11, 13.)
Relator argues that the Amended Complaint was timely served. Relator further contends that, in the event that this Court determines that the Amended Complaint was untimely served, good cause exists to excuse such untimely service. (Rel.'s Resp. Br. 12-13.)
Under Federal Rule of Civil Procedure 12(b)(5), a defendant may move to dismiss based on insufficient service of process. Rule 4(m) establishes the requirements with respect to service of process:
Fed.R.Civ.P. 4(m). In an action brought pursuant to the FCA, the 120-day time period for service mandated by Rule 4(m) begins with the unsealing of the complaint. United States ex rel. Pervez v. Maimonides Med. Ctr., No. 06-4989, 2010 WL 890236, at *5 (S.D.N.Y. Mar. 9, 2010); United States ex rel. Mailly v. Healthsouth Holdings, Inc., Nos. 07-2981, 09-483, 2010 WL 149830, at *2 (D.N.J. Jan. 15, 2010); Sweet v. TMI Mgmt. Sys., No. 05-1683, 2006 WL 3675709, at *2 (D.N.J. Dec. 12, 2006).
The original complaint was under seal from the filing date of October 3, 2007 to April 3, 2011.
Defendants assert that Relator has failed to allege particularized facts to support a viable claim that they knowingly and intentionally submitted any false or fraudulent claims in violation of the FCA. (PECO Mot. ¶ 5; PECO Br. 2-3, 13-26; PECO Reply 6-8; PRPA Br. 21.) Defendants assert that Relator is required, and has failed, to identify with particularity at least one specific claim submitted to the United States by any of the Defendants. (PECO Br. 16; AMSEA Br. 1; PRPA Br. 22.) They state that Relator does not, and cannot, provide the particular details of a scheme to submit false claims or demonstrate that such claims were actually submitted. In other words, Relator omits the "who, what, when where or how" of the alleged fraud. (PECO Br. 16 n. 3, 19; PRPA Br. 21.) PECO argues that Relator has failed to allege that it acted with the requisite scienter — knowingly or fraudulently. (PECO Br. 24; see also AMSEA Br. 2, 9; PRPA Br. 22.) AMSEA argues that Relator can not allege a FCA claim against it, since it simply operates certain ships for the United States Navy. It contends that the Amended Complaint alleges, at most, that AMSEA failed to assist Relator's efforts to substantiate and report the alleged fraud. (AMSEA Br. 2, 5-6, 8, 10.)
Relator argues that a more "generous" or "flexible" Rule 9(b) standard should apply and that scienter may be averred generally. (Rel.'s Resp. 14.) He contends that he "clearly identifies that PECO, PRPA and AMSEA made misstatements regarding the amount of kilowatts used by the U.S. Navy. The Defendants were part of the `group' who helped compile and/or cover up the overcharges." (Id. at 17.)
A complaint may be dismissed for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Courts need not accept "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements...." Id. "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Id. at 1950. This "`does not impose a probability requirement at the pleading stage,' but instead `simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary
The Federal Rules of Civil Procedure create a system of pleading whereby the particularity with which a litigant must state his claims varies with the substance of his assertions. As a general matter, pleadings setting forth one or more claims must contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). However, when a litigant alleges fraud, he must do so "with particularity." Fed. R.Civ.P. 9(b). In order to satisfy this exacting standard, the plaintiff must "plead (1) a specific false representation of material fact; (2) knowledge by the person who made it of its falsity; (3) ignorance of its falsity by the person to whom it was made; (4) the intention that it should be acted upon; and (5) that the plaintiff acted upon it to his damage." Shapiro v. UJB Fin. Corp., 964 F.2d 272, 284 (3d Cir.1992) (citing Christidis v. First Pa. Mortg. Trust, 717 F.2d 96, 99 (3d Cir.1983)). The stringency of this requirement stems from the goal of the Federal Rules of
2 James Wm. Moore et al., Moore's Federal Practice § 9.03[1][a] (3d ed. 2002) (citations omitted).
Rule 9(b) commands that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b). Pursuant to this heightened pleading standard, plaintiffs must "plead with particularity the `circumstances' of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir.1984). This requires a description of the "`who, what, when, where and how' of the events at issue." In re Rockefeller Ctr. Props., Inc. Secs. Litig., 311 F.3d 198, 217 (3d Cir.2002) (internal quotation marks and citation omitted). Rule 9(b) is generally considered satisfied when a defendant has "fair notice" of the charges against it. United States v. Kensington Hosp., 760 F.Supp. 1120, 1126 (E.D.Pa.1991).
The Third Circuit has recognized, however, that most purveyors of fraud, and especially those who engage in fraudulent activities within the corporate sphere, are consciously and vigilantly engaged in an effort to disguise the nature of their endeavors. See Craftmatic Secs. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir.1989) (explicitly noting that "sophisticated defrauders" can be expected to attempt to "conceal the details of their fraud"). In order to account for this reality, Rule 9(b)'s particularity requirement is properly relaxed "when factual information [regarding the defendant's conduct] is peculiarly within the defendant's knowledge or control." Id. "Nonetheless, even under a non-restrictive application of the rule, pleaders must allege that the necessary information lies within defendants' control, and their allegations must be accompanied by a statement of the facts upon which the allegations are based." Id.
To state a claim under Section 3729(a)(1) of the FCA, a plaintiff must plead three elements: "(1) the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant knew the claim was false or fraudulent." Schmidt, 386 F.3d at 242 (quoting Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 182 (3d Cir.2001)).
Relator has adequately pleaded a claim against PECO under Section 3729(a)(1). Pursuant to the January 29, 2003 contract between PRPA and the United States, "PRPA [was] to provide auxiliary support services to the LMSR Naval Vessel(s) while they were in port" and "the United States [was to] order reimbursable electric power service from the PRPA." (Am. Compl. ¶¶ 14-16.) Pursuant to the contract, PRPA would subcontract electric services from another entity — in this case, PECO. (Id. at ¶¶ 16, 18-20.) Relator alleges that PECO submitted electric power bills to PRPA. These bills were to be reimbursed, and ultimately paid, by the United States.
Relator adequately alleges the "who, what, when, where, and how" of a Section 3729(a)(1) claim. In re Rockefeller Cntr., 311 F.3d at 217. He establishes the "what" and "how" elements of fraud by alleging that PECO "fraudulently account[ed] for electric power supply purportedly used in the performance of a government program and contract" that was billed to, and paid for by, the United States, and "fraudulently manipulated and grossly inflated the cost of the monthly utility bills submitted to the United States, by directly inflating the units of kilowatts consumed, installing expensive and unnecessary capacitor bank equipment, charging the United States and Commonwealth of Pennsylvania for unnecessary costs and misrepresenting the level of services provided to the United States." (Am. Compl. ¶ 4.) The Amended Complaint provides specific examples of this conduct. (See, e.g., id. at ¶¶ 30-37, 45-51.) Although Relator does not provide many specific dates in the Amended Complaint, he adequately alleges "when" the FCA violations occurred. These violations occurred from September 4, 2003 to 2007. (Id. at ¶ 44); see United States ex rel. Hunt v. Merck-Medco Managed Care, L.L.C., 336 F.Supp.2d 430, 437 (E.D.Pa.2004) (denying motion to dismiss on Rule 9(b) grounds and finding that although "[t]he scope of the complained-of conduct is vast, and occurred over a long period of time," the complaints specified the "general time frame" over which the fraudulent conduct allegedly occurred). Relator alleges the "where" by identifying that the fraud took place on the Vessels at the Terminal. (Am. Compl. ¶ 45.) Relator alleges the "who" of the FCA violation. He alleges that Nancy Vizzard, PECO's employee, acted on behalf of PECO and took specific actions to perpetrate the fraud from around August 21, 2006 to September 18, 2006. Specifically, in response to AVE's requests for documentation, she claimed that the requested documents were not available (id. at ¶ 32) and provided AVE with non-responsive documents in an attempt to perpetrate and conceal the fraud (id. at ¶ 36). Such allegations are sufficient to withstand a motion to dismiss on grounds of failure to plead with particularity. See Gibbons v. Kvaerner Phila. Shipyard, Inc., No. 05-685, 2006 WL 328362, at *6-7 (E.D.Pa. Feb. 10, 2006) (denying motion to dismiss because plaintiff sufficiently pleaded the "essential factual background" to support her FCA claim); see also United States v. Torkelsen, No. 06-5674, 2007 WL 4245736, at *7 (E.D.Pa. Dec. 3, 2007) (denying motion to dismiss because plaintiff alleged complex scheme and when complaint was read in light most favorable to plaintiff, fraud could be reasonably inferred); United States ex rel. Drescher v. Highmark, Inc., 305 F.Supp.2d 451, 461 (E.D.Pa.2004) (denying motion to dismiss because of "the potential existence of sets of facts under which [defendant] may, in fact, be liable under the FCA"); United States ex rel. Givler v. Smith, 775 F.Supp. 172, 181-82 (E.D.Pa.1991) (denying motion to dismiss because in the complaint, relator identified the fraudulent acts and the party allegedly defrauded).
Id. Underlying this holding was the court's recognition that, without some allegation of the presentation of a false claim to the government, even if a defendant's acts are improper, no damage has been done to the public fisc. Id. Some Circuits have followed Clausen and have held that the identification in the complaint of a false claim "is the sine qua non of a False Claims Act violation." See, e.g., United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 727 (10th Cir.2006). Other Circuits have rejected this requirement. See, e.g., United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir.2009).
Relying on Clausen, the Third Circuit held in United States ex rel. Quinn v. Omnicare, 382 F.3d 432, 440 (3d Cir.2004), that an FCA action requires the identification of at least one specific claim, and that a relator's theory that false claims "must have been" submitted could not survive summary judgment. The Quinn court stated that an FCA relator must come to court with a "claim in hand." Id. However, Quinn was decided at the summary judgment stage, and district courts in the Third Circuit remain divided as to whether an FCA action requires identification of at least one specific claim on a motion to dismiss. See Wilkins, 659 F.3d at 308 (noting that Quinn was decided on a summary judgment motion). Some courts have dismissed qui tam complaints that failed to identify an actual false claim. See United States ex rel. Bartlett v. Tyrone Hosp., Inc., 234 F.R.D. 113, 121 (W.D.Pa. 2006); United States ex rel. Schmidt v. Zimmer, Inc., No. 00-1044, 2005 WL 1806502, at *3 (E.D.Pa. July 29, 2005) (citing Quinn and Clausen). Other courts have distinguished Quinn, noting that the decision upheld a grant of summary judgment, as opposed to a motion to dismiss, and included criticisms of Clausen. See, e.g., United States ex rel. Singh v. Bradford Reg'l Med. Ctr., No. 04-186, 2006 WL 2642518, at *7 (W.D.Pa. Sept. 13, 2006); United States ex rel. Landsberg v. Levinson, No. 03-1429, 2008 WL 2246308, at *1 (W.D.Pa. May 29, 2008). For example, in Singh, the court held that requiring the pleading of particularized evidence of a false claim contravenes the Third Circuit's "flexible" interpretation of Rule 9(b) and "would effectively negate the Third Circuit's instruction that `Plaintiffs are free to use alternative means of injecting precision and some measure of substantiation
The Rule 9(b) requirement that a plaintiff plead with particularity serves to place the defendant on notice of the precise misconduct with which it is charged, and "charges of immoral and fraudulent behavior." Seville, 742 F.2d at 791. In the instant action, we fail to see how requiring Relator to provide a single claim example would put PECO in a better position to answer and defend against Relator's claims. The fraud of the instant claims does not turn on anything unique to an individual claim or anything that would be revealed from an examination of any claim. Relator alleges that PECO "fraudulently manipulated and grossly inflated the cost of the monthly utility bills submitted to the United States, by directly inflating the units of kilowatts consumed, installing expensive and unnecessary capacitor bank equipment, charging the United States and Commonwealth of Pennsylvania for unnecessary costs and misrepresenting the level of services provided to the United States." (Am. Compl. ¶ 4.) This allegation is a sufficient description of the scheme since the fraudulent conduct at issue does not rely on any specific claim. See United States ex rel. Underwood v. Genentech, Inc., 720 F.Supp.2d 671, 680 (E.D.Pa.2010) (finding allegation of scheme, supported by details, sufficiently informed defendant of the "precise misconduct" charged); Singh, 2006 WL 2642518, at *7 (finding that it was unnecessary for relator to provide a single claim example because "[t]he addition of specific identifying information of each claim adds little to complete the description of the scheme since the fraudulent conduct at issue does not rely on any specific claim"); see also Merck-Medco, 336 F.Supp.2d at 439 (noting that plaintiffs could not be expected to allege every single false statement that was created as a result of the alleged scheme and holding that plaintiffs' description of defendant's system of creating false records and statements sufficient). The Amended Complaint sufficiently alerts PECO of the alleged wrongdoing. We will not require Relator to provide a single claim example in these circumstances.
Keeping in mind that no proof of specific intent to defraud is required, Relator adequately alleges that PECO "knew the claim was false or fraudulent." Wilentz, 253 F.3d at 182. Relator asserts that PECO knowingly attempted to conceal its overbilling practices. (Am. Compl. ¶¶ 45-46.) In support of this allegation, Relator states that PECO, through its employee, Vizzard, refused to comply with Relator's request for documents for the investigation of PECO's billing practices. (See id. at ¶¶ 30-37.) Relator further alleges that PECO "knowingly and intentionally prepared an illusory contractual document purported to establish electric supply power for the LMSR Naval Vessel(s)." (Id. at ¶ 45.) To conceal the overbilling, PECO subsequently drafted another contract once the Vessels arrived at the Terminal that reduced the electric demand requirements but were still "unrealistic." (Id. at ¶ 46.) In support of the allegation that PECO had knowledge, Relator alleges that the rates that PECO charged were much higher than the average retail price of electricity for commercial consumers. (Id. at ¶ 49.) Another engineering company, Avoca Engineers and Architects, LLC, agreed with AVE's opinion that the energy consumption charged by PECO was not "physically or mathematically" possible. (Id. at ¶ 51.) When the Amended Complaint is read in a light most favorable to Relator, it can reasonably be inferred from these facts that PECO knew of its overbilling
For similar reasons, Relator has adequately alleged that PECO made or used, or caused PRPA to make or use, a false record in order to cause the false claim to be actually paid or approved by the Government. Zimmer, Inc., 386 F.3d at 242; see also Allison Engine, 553 U.S. at 668, 128 S.Ct. 2123 (explaining that "a person must have the purpose of getting a false or fraudulent claim `paid or approved by the Government' in order to be liable under § 3729(a)(2)"). The Amended Complaint does not specifically allege that PECO knew that PRPA was seeking reimbursement from the United States, or that PECO knew that the bills it submitted to PRPA would be the basis for reimbursement by the United States. Nevertheless, based on the facts alleged, it is reasonable to infer that PECO knew that the bills it submitted to PRPA would ultimately be paid by the Government. As discussed supra, in Part III.B.1.a, Relator has properly alleged PECO's involvement in a scheme to defraud the Government. It is alleged that PECO knowingly and intentionally submitted fraudulent inflated bills to PRPA, that PRPA concealed PECO's overbilling practices, and that fraudulent bills were submitted to the United States for payment. Moreover, PECO knew that it was supplying electric power to LMSR Naval Vessels. Based upon the allegations in the Amended Complaint, it is logical to conclude that PECO knew that the United States was ultimately paying the bills for these Government vessels. Accordingly, Relator's Section 3729(a)(2) claim against PECO will not be dismissed.
In the Amended Complaint, Relator alleges that:
(Am. Compl. ¶ 47.) Based on the allegation that PRPA decreased the amount in charges that PECO was billing to it, it is reasonable to infer that PRPA knew about PECO's overcharges and attempted to conceal the fraudulent practice from the Government. The Third Circuit has stated that "[d]espite Rule 9(b)'s stringent requirements... `courts should be "sensitive" to the fact that application of the Rule prior to discovery "may permit sophisticated defrauders to successfully conceal the details of their fraud."'" In re Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1418 (3d Cir.1997) (citing Shapiro v. UJB Fin. Corp., 964 F.2d 272, 284
There are no allegations in the Amended Complaint showing that AMSEA knowingly made, or caused to be made, a false claim paid by the United States. Indeed, the Amended Complaint states that AMSEA believed that the Vessels could draw the amount of kws that were being billed by PECO in its invoices to PRPA. (Am. Compl. ¶ 70.)
Relator states that AVE brought "all the issues outlined in this complaint" to the attention of AMSEA. (Id. at ¶ 67.) He further alleges that "AMSEA became active in the investigation and ... concluded that AVE electrical readings were accurate and consistent with current AMSEA readings." (Id. at ¶ 68.) In addition, he alleges that PRPA and AMSEA together concluded that PECO's electric charges were up to forty percent higher than both AMSEA's and AVE's meter readings. (Id. at ¶ 69.) Subsequently, however, "AMSEA requested that the investigation be dropped" because it "had no actual independent electrical metered data going back several years to corroborate AVE's findings" and "AMSEA stated that the LMSR Naval Vessel(s) could in fact draw the amount of electric kws that were invoiced/billed by PECO." (Id. at ¶ 70.) As a result, AVE's investigation was "circumvented." (Id.) Relator alleges that "the only independent data missing over the last several years, which AMSEA could have provided to complete this investigation was a copy of the electric bills / payments made to the utility companies that provided electrical service to the LMSR Naval Vessel(s) while they were in AMSEA's control." (Id. at ¶ 72.) At most, these allegations show that AMSEA failed to assist Relator with his investigation of overcharges. These allegations cannot support a conclusion that AMSEA knowingly prepared fraudulent bills; knowingly overcharged PRPA or the United States; knowingly submitted, or caused to be submitted, false claims to the United States; or knowingly used, or caused to be made or used, a false record in order for a false claim to be paid. See United States ex rel. Piacentile v. Wolk, No. 93-5773, 1995 WL 20833, at *4 (E.D.Pa. Jan. 17, 1995) ("Mere inaction is not enough to constitute a violation of the False Claims Act.") Indeed, there is no allegation that AMSEA was even aware of the existence of the contract between PRPA and the United States.
To show liability under 31 U.S.C. § 3729(a)(7), a plaintiff must demonstrate that a defendant "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."
In the Amended Complaint, Relator alleges that he and AVE were "discharged and discriminated against in the terms and conditions of his employment contract by the PRPA and AMSEA" in violation of 31 U.S.C. § 3730(h) of the FCA. (Am. Compl. ¶ 83.)
Defendants contend that Count II should be dismissed because Relator cannot show that he is, or ever was, an employee of Defendants and therefore lacks standing to assert this Count. Defendants argue that at most, Relator can only show that he was an independent contractor. (PECO Br. 27 n. 8; PECO Reply 9; PRPA Br. 27; PRPA Reply 5-6; AMSEA Br. 6, 10-11; AMSEA Reply 4-5.)
Relator argues that he has standing because Section 3730(h) was amended in May 2009 to extend a cause of action for retaliation to contractors, in addition to employees. (Rel.'s Br. 20.)
We agree with Defendants. In enacting the 2009 amendment, Congress explicitly provided that the amendment "shall take effect on the date of enactment of this Act and shall apply to conduct on or after the date of enactment." Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4(f), 123 Stat. 1617, 1625. Where Congress has "expressly provided that the statute in question ... should not apply retrospectively ..., then we should follow Congress' express prescription and apply the statute accordingly." Mathews v. Kidder, Peabody & Co., 161 F.3d 156, 160 (3d Cir.1998).
Because the conduct that Relator challenges occurred before or during 2007, he cannot claim the benefit of the post-amendment version of Section 3730(h). See Lytle v. Capital Area Intermediate Unit, 393 Fed.Appx. 955, 958 (3d Cir.2010) ("Plaintiffs challenge only conduct occurring well before 2009, and we can find no authority that would give them the benefit of the amended version of § 3730(h).").
In the alternative, Relator argues that his retaliation claims "date back to late 2009, well after May 20, 2009, the date § 3730(h) was amended." (Rel.'s Resp. 21.) In support of this argument, he alleges additional facts that were not alleged or referred to in the Amended Complaint. Relator instead attaches exhibits to his Response. (See id. at 17-18, 20-21.) Because these additional allegations do not appear in the Amended Complaint, they cannot be considered here. See In re Burlington Coat Factory, 114 F.3d at 1426 (stating that courts deciding a Rule 12(b)(6) motion to dismiss are limited to the allegations found in the complaint, exhibits attached to the complaint and matters of public record); Pension Benefit Guar. Corp., 998 F.2d at 1196 (noting same); Burgess-Walls v. Brown, No. 11-275, 2011 WL 3702458, at *9 (E.D.Pa. Aug.
A court may consider an exhibit to a defendant's motion to dismiss if the plaintiff's claims are based on that document and if that document is indisputably authentic. Pryor v. Nat'l Coll. Athletic Ass'n, 288 F.3d 548, 560 (3d Cir.2002); Pension Benefit Guar. Corp., 998 F.2d at 1196. Here, the exhibits which Relator now seeks to have the Court consider — specifically, Exhibits 6, 13, 14 and 15 — were not "integral to or explicitly relied upon" in the Amended Complaint. In re Burlington Coat Factory, 114 F.3d at 1426 (internal quotations and citation omitted). Furthermore, Relator does not attach an affidavit or declaration to the Response attesting that the exhibits are authentic. Accordingly, we must rely solely on the allegations contained in the Amended Complaint. See Diener v. Renfrew Ctrs., Inc., No. 11-4404, 2011 WL 4401720, at *6 n. 3 (E.D.Pa. Sept. 22, 2011) (refusing to consider exhibit attached to response to motion to dismiss because the exhibit was both unauthenticated and constituted hearsay offered for the truth of the matter asserted). Relator's claims accrued before May 20, 2009, when Section 3730(h) provided a cause of action only to employees. Because there is no allegation in the Amended Complaint that he or AVE was anything other than an independent contractor, Relator lacks standing to pursue his False Claims Act retaliation claims.
In the Amended Complaint, Relator alleges in Count III that "[b]y harassing and abruptly discharging [Relator], the defendants willfully and in bad faith retaliated against him in violation of the clear public policy mandated by the False Claims Act and state law, causing him in excess of $1,000,000 in damages." (Am. Compl. ¶ 86.)
Defendants argue that Count III should be dismissed because (i) Relator "fail[s] to
Relator does not address these arguments in his Response. He instead alleges for the first time a conspiracy by and among Defendants to retaliate against him. He argues that claims of retaliation need not meet the heightened pleading requirements for substantive claims under the FCA. (Rel.'s Resp. 18-19.)
Relator alleges that Defendants' conduct is actionable under "state law" and "decisions of the courts of the Commonwealth of Pennsylvania." (Am. Compl. ¶ 86.) However, he fails to articulate a theory under which he intends to proceed. A generalized reference to Pennsylvania's tort law is not sufficient to survive a motion to dismiss. See Twombly, 127 S.Ct. at 1965 n. 3 (explaining that Rule 8 still requires a plaintiff to provide "fair notice" of both "the nature of the claim" and the "grounds" upon which the claim rests); Goldhaber v. Higgins, 576 F.Supp.2d 694, 728 (W.D.Pa.2007) (dismissing Pennsylvania state law claims because amended complaint failed to identify a common law tort theory under which plaintiff could proceed in accordance with Pennsylvania law).
Nevertheless, even if Relator did specifically allege a state law theory, his claim would be dismissed for failure to state a claim. We have already determined that Relator is, at most, an independent contractor, and not an employee of Defendants. It is unclear whether a wrongful discharge claim is available to independent contractors, although there is authority indicating that it is not. See Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 111 (3d Cir.2004) (finding "no Pennsylvania case [that] addresses whether there are limitations on a company's ability to terminate an independent contractor (as opposed to an employee)"); see also Spyridakis v. Riesling Grp., Inc., No. 09-1545, 2009 WL 3209478, at *7 n. 8 (E.D.Pa. Oct. 6, 2009) ("Defendant does, however, make a very strong argument that in view of Pennsylvania's reluctance to allow employees to assert wrongful discharge claims except in the narrowest of circumstances, there is little reason to extend the tort to apply to independent contractors."). Moreover, nothing in the Amended Complaint indicates that the contract between AVE and PRPA was anything other than an at-will contract. Cf. Daniel Adams Assocs., Inc. v. Rimbach Pub., Inc., 360 Pa.Super. 72, 519 A.2d 997, 1003 (1987) (affirming directed verdict favoring employer on wrongful discharge claim because employee was "an independent contractor whose contract was terminable at will upon notice").
To the extent that an independent contractor has standing to bring a state wrongful discharge retaliation claim, such claim is available only if there is no statutory remedy for the alleged retaliatory discharge. See Preobrazhenskaya v. Mercy Hall Infirmary, 71 Fed.Appx. 936, 941 (3d Cir.2003) (holding that Pennsylvania law does not recognize a common law cause of action for violating public policy where there is a statutory remedy); Wolk v. Saks Fifth Ave., Inc., 728 F.2d 221, 223-24 (3d Cir.1984) ("The availability of a
PRPA has moved to dismiss on the ground that it is not a "person" under the FCA since it is an "arm" of the Commonwealth of Pennsylvania, and therefore, is entitled to sovereign immunity under the Eleventh Amendment. (PRPA Mem. 6.)
To determine whether PRPA is a "person" subject to qui tam liability under the FCA,
Relator asserts that the first of the three factors continues to be the "most important" and cites two cases, Bass v. Consol. Rail Corp., No. 93-875, 1994 WL 25380 (E.D.Pa. Jan. 31, 1994), and Holt Cargo Sys., Inc. v. Del. River Port Auth., 20 F.Supp.2d 803 (E.D.Pa.1998), in support of his argument that PRPA is not an arm of the Commonwealth of Pennsylvania.
In assessing the first factor of the immunity analysis, we examine (1) whether payment will come from the state's treasury, (2) whether the agency has the money to satisfy the judgment, and (3) whether the sovereign has immunized itself from responsibility for the agency's debts. Fitchik, 873 F.2d at 659. The Third Circuit has stated that "the nature of the state's obligation to contribute may be more important than the size of the contribution." Id. at 660 (citing Blake v. Kline, 612 F.2d 718, 723 (3d Cir.1979)). "What is significant is whether the money that pays the fine will come from the state treasury rather than the agency's funds, or (alternatively) whether the state must reimburse the agency and thus effectively pay the debt." Id.
In its Motion to Dismiss, PRPA attaches a Declaration of Edward G. Henderson, the Director of Finance of PRPA, and a chart showing a financial breakdown of all funds received by PRPA from Fiscal Years 2002 to 2011. (Henderson Decl. ¶¶ 1, 3 & Ex. B, PRPA Mot. Ex.) PRPA asserts that in the fiscal year 2012, the Commonwealth provided $2,463,000 in operating funds and $4,603,850 for bond payments, which the Commonwealth has guaranteed on behalf of PRPA. (Id. at ¶¶ 4-5.) Through the Capital Budget Improvement Acts, the Commonwealth of Pennsylvania provides additional necessary funds to PRPA to improve port facilities. In fiscal year 2010-11, the Commonwealth provided to PRPA $23,731,063 in capital funds for the PRPA projects. (Id. at ¶ 6.) Over the past ten years, the Commonwealth provided $394,993,575 to PRPA, whereas PRPA only received $123,229,617 from its revenues or from other incidental sources. (Id. at ¶ 7.) On average, the Commonwealth contributed 76.2 percent of PRPA's funding. (Id. & Henderson Decl. Ex. B.)
Although the Third Circuit has previously held that the percentage of funding an agency receives from the Commonwealth is the "most important factor" in the analysis of the first factor, Bolden v. Southeastern Pa. Transp. Auth., 953 F.2d 807, 819 (3d Cir.1991),
55 Pa. Stat. Ann. §§ 697.6(c)(1), (3), (4). As explained in Bass, "[t]his disclaimer is precisely the immunization from liability that the Third Circuit has found dispositive on the issue of funding." Bass, 1994 WL 25380, at *2; see also Holt, 20 F.Supp.2d at 819 (stating same). Although the PRPA Act permits the expenditure of public moneys to support the agency, that support is not mandated. 55 Pa. Stat. Ann. § 697.2(b). This absence of legal liability is "a compelling indicator that the state-treasury criterion ... weighs against immunity." Cooper, 548 F.3d at 304; see also Bowers, 475 F.3d at 547-48 (finding that where the code was "not entirely clear" whether the state had an obligation to fund, the first Fitchik factor "may tilt the scale against immunity because statutory language does not clearly obligate the State of Iowa to pay the University's debts"). Accordingly, we conclude that this first factor weighs against immunity.
With respect to the second factor — PRPA's status under state law — courts look at (1) how state law treats the agency generally, (2) whether the entity is separately incorporated, (3) whether the
PRPA argues that this second factor weighs "heavily," not "slightly," in favor of granting immunity to the agency. (PRPA Mem. 15.) In support of this argument, PRPA points to: (1) the fact that PRPA is characterized as an "instrumentality of the Commonwealth" and "agency of the Commonwealth" by state statute, see 55 Pa. Stat. Ann. § 697.4; (2) the language of the PRPA Act, 55 Pa. Stat. Ann. § 697.18;
In Cooper, SEPTA made similar arguments. SEPTA argued that its enabling statute characterized the agency as an agency and instrumentality of the Commonwealth, that the enabling statute stated that the agency "shall continue to enjoy sovereign and official immunity," that SEPTA had the power of eminent domain and that SEPTA is not immune to taxation. Cooper, 548 F.3d at 307. The Court in Cooper explained that the enabling legislation granted it attributes that are characteristic of an arm of the state and attributes that are not. Noting that "SEPTA's status under state law ha[d] not changed markedly since Bolden" in that it "retain[ed] the same essential attributes as before," and that the law governing the weighing of these attributes together had not materially changed since Bolden, the Court found that the second factor weighed slightly in favor of a finding of sovereign immunity. Id. at 308. The same is true here. There are certain attributes of PRPA under state law that weigh against immunity. For example, PRPA has the power to sue and to be sued. 55 Pa. Stat. Ann. § 697.6(b)(2). It
The factors for determining PRPA's status under state law do not point clearly in one direction. However, when we consider all of these factors together, it is clear that this second Fitchek factor weighs slightly in favor of Eleventh Amendment immunity. See Holt, 20 F.Supp.2d at 819 (concluding that second Fitchik factor weighed slightly in favor of Eleventh Amendment immunity since PRPA's status was similar to that of SEPTA, and since the Court in Bolden held that the combination of factors for this second factor weighed slightly in favor of granting Eleventh Amendment protection); Bass, 1994 WL 25380, at *2 ("PRPA's status under Pennsylvania law is almost identical to that of SEPTA; both entities have some sovereign-like characteristics and others that are unlike an arm of the Commonwealth. The Third Circuit has determined that this combination of factors weighs slightly in favor of granting Eleventh Amendment protection.") (internal citations omitted).
Courts in the Eastern District of Pennsylvania have stated that, with respect to this third factor, PRPA is "somewhat more autonomous than New Jersey Transit, [but] it has somewhat less autonomy than SEPTA since PRPA board members are all appointed by elected Commonwealth officials." The Court in Holt found this factor to weigh "slightly in favor" of granting Eleventh Amendment protection, while the Court in Bass found this factor, "[a]t the most," to "weigh slightly in favor of Eleventh Amendment protection ...." Holt, 20 F.Supp.2d at 819-20; Bass, 1994 WL 25380, at *3.
PRPA argues that this third factor should weigh "heavily" in favor of a
While the first factor weighs against a finding that PRPA is an arm of the Commonwealth of Pennsylvania, factors two and three weigh in favor of such a finding. Since the three factors hold equal weight, and since the first factor does not weigh substantially against such a finding, we are compelled to conclude that PRPA is an arm of the Commonwealth and not a "person" for purposes of FCA qui tam liability. See McCauley v. Univ. of the Virgin Islands, 618 F.3d 232, 240 (3d Cir.2010) (affirming district court's conclusion that defendant was an arm of the Territory and not a person for purposes of Section 1983 where the latter two Fitchik factors weighed in favor of defendant being an arm of the territory and the first funding factor weighed slightly against that conclusion); Heppler, 2011 WL 2881221, at *8 ("Ultimately, the Court concludes that the PLCB is entitled to sovereign immunity under the Eleventh Amendment. The second and third factors, status at state law and autonomy, both weigh in favor of granting immunity, while only the funding factor weighs against granting immunity."). Accordingly, all Counts against PRPA will, therefore, be dismissed.
Relator requests that, in the event that "the Court should find fault with the Relator's Complaint on its face," he be granted permission to amend the Amended Complaint to "correct any deficiencies." (Rel.'s Resp. 41.) Defendants request dismissal of all three Counts with prejudice.
The dismissal of Counts II and III against the Defendants will be with prejudice. Any further amendment would be futile, since, as discussed supra, Relator was, at most, an independent contractor. See Lake v. Arnold, 232 F.3d 360, 373 (3d Cir.2000) (noting that district court has discretion to deny leave to amend if amendment would be futile); cf. United
Although we have already granted Relator leave to amend the complaint once, the dismissal of Count I against AMSEA, and of the Section 3729(a)(7) claim against all Defendants, will be without prejudice. Federal Rule of Civil Procedure 15(a)(2) provides that the Court should "freely give leave" to amend the complaint "when justice so requires." The Third Circuit has held that "if a complaint is vulnerable to 12(b)(6) dismissal, a district court must permit a curative amendment, unless an amendment would be inequitable or futile." Phillips, 515 F.3d at 236 (citations omitted). The FCA is not intended to necessarily prevent the amendment of a complaint, particularly for the failure to comply with Rule 9(b), but only the amendment of a complaint through the help of discovery. See United States ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F.Supp.2d 28, 36-37 (D.D.C.2003); Tyrone Hosp., 234 F.R.D. at 133. Because the current record does not demonstrate that amendment of the Amended Complaint would be inequitable or futile with respect to Count I against AMSEA, or the Section 3729(a)(7) claim against all Defendants, leave to amend will be granted. See Foglia v. Renal Ventures Mgmt., 830 F.Supp.2d 8, 23 (3d Cir.2011) (granting leave to amend because of failure to demonstrate inequitability or futility as to FCA claims). Relator will be given the opportunity to cure the deficiencies that we have identified in the Amended Complaint and attach a proposed Second Amended Complaint with respect to Count I.
For these reasons, Defendants' Motions are granted in part and denied in part.
An appropriate Order follows.
In addition, an individual against whom an employer retaliated for assisting with an FCA investigation or proceeding may bring a private cause of action. 31 U.S.C. § 3730(h). Under Section 3730(h), the individual may seek remedies, including reinstatement, two times the amount of backpay in addition to interest on the backpay, special damages, litigation costs and attorneys' fees. Id.; see generally Graham Cnty., 545 U.S. at 412, 125 S.Ct. 2444.
Pursuant to Federal Rule of Civil Procedure 12(b)(6), all factual allegations are viewed in the light most favorable to the nonmoving party. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir.2008); see also Ashcroft v. Iqbal, 556 U.S. 662, 677, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ("When assessing whether the complaint satisfies [the 12(b)(6)] standard, courts must treat a complaint's allegations as true.").
The terms "knowing" and "knowingly" mean that a person, with respect to information, "(1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information." Id. at § 3729(b). "[N]o proof of specific intent to defraud is required." Id.
(Am. Compl. ¶ 4; see also id. at ¶¶ 77-81 (no allegation of agreement or conspiracy by or among Defendants).) Moreover, the Amended Complaint states that the "pertinent part" of the False Claims Act consists of subsections (1), (2) and (7) of Section 3729(a), as set forth prior to the 2009 amendments to the Act by Congress. (See id. at ¶ 13.) Noticeably absent is any reference to subsection (3), which concerns a conspiracy claim under the Act.
31 U.S.C. § 3730(h) (2000). The amended version of the Section states:
31 U.S.C. § 3730(h) (2011) (emphasis added).
With respect to the first factor, the Court found that since Bolden, the amount of funding SEPTA received from the state had increased. While noting that the increased proportion of state funding improved SEPTA's argument for immunity, the Court concluded that it "no longer afford[ed] this subfactor the same weight [it] did in Bolden." Id. at 304. The Court also noted that post-Doe, "the key factor in our assessment of the state-treasury prong" is the potential legal liability of the Commonwealth for SEPTA's debts." Id. The Court held that "[w]hile the Commonwealth provides substantial funding, SEPTA also receives a significant amount of its funding from non-state sources of revenue — and whether two-third or one-half of SEPTA's overall budget, it totals in the hundreds of millions." Id. at 306. SEPTA could satisfy an adverse judgment from the non-state sources. Accordingly, this factor weighed against a finding of sovereign immunity. Id.
With respect to the second factor, the Court noted that "little has changed with regard to SEPTA's status under state law since Bolden." Id. at 306-07. Thus, this factor weighed slightly in favor of finding sovereign immunity. With respect to the third factor, the Court observed that SEPTA's autonomy had diminished since Bolden. The Court found that this third factor weighed slightly against a finding of Eleventh Amendment immunity. Id. at 311.
While Relator challenges the financial breakdown of funds, as presented by PRPA, he makes only unsupported conclusions that PRPA seeks to conceal its true financial status. In any event, the percentage of revenue that PRPA receives from the Commonwealth is not determinative. See id. at 303 (stating that whether SEPTA receives thirty-five percent or fifty-two percent of its revenue from the Commonwealth is not determinative because "[a]lthough relevant, the percentage of Commonwealth funding is no longer predominant").
55 Pa. Stat. Ann. § 697.18.
55 Pa. Stat. Ann. § 697.14.
