Emmet G. Sullivan, United States District Judge.
Pending before the Court are two motions to dismiss filed by Defendants Edward Brandon, Lily Brandon, and LB & B Associates, Inc. (hereinafter, "LB & B") (collectively, "LB & B Defendants"). Relators brought this action against the LB & B Defendants, as well as Bering Straits AKI, Chilkat Services, Inc., and two individual representatives of those companies pursuant to the qui tam provision of the False Claims Act ("FCA"), 31 U.S.C. § 3730(b). Relators allege that Defendants violated the FCA with respect to their participation in the Small Business Association's (hereinafter "SBA") Section 8(a) program and 8(a) Mentor Protégé program. On April 14, 2011, the Government filed its notice of election to intervene in part, electing to intervene in Relators' claims only insofar as they relate to the LB & B Defendants' participation in the Section 8(a) program, but not the Mentor-Protégé program. The Government subsequently filed its complaint in intervention on August 19, 2011. The Government's complaint in intervention asserts two additional causes of action against LB & B Defendants for common law negligent misrepresentation and fraud against the LB & B Defendants. Pending before the Court are the LB & B Defendants' motions to dismiss both complaints, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure.
The SBA's Section 8(a) program is a business development program for small businesses owned by individuals who are socially and economically disadvantaged. See 15 U.S.C. § 637(a); 13 C.F.R. § 124.1. Qualifying small businesses that are owned or controlled by socially or economically disadvantaged individuals may apply to the SBA, and if accepted into the program, they are eligible to receive preferential treatment in the form of "set aside" contracts. They are also eligible to receive technological, financial, and practical assistance. Relators' Compl. ¶ 15; Gov't Compl. ¶¶ 19-21.
In order for a small business to participate in the program, it must apply to and be certified by the SBA. It must first meet certain size requirements, see 13 C.F.R. Part 21, and it must also be "disadvantaged," which requires that at least fifty one percent of the business is owned and controlled by one or more individuals who are socially and economically disadvantaged. See 15 U.S.C. § 637(a)(4)(A)-(B); 13 C.F.R. § 124.105. The program defines socially "disadvantaged individuals" as those who have been "subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities." 13 C.F.R. § 124.103(a); see also 15 U.S.C. § 637(a)(5). "Economically disadvantaged" individuals are those socially disadvantaged individuals "whose ability to compete
Individuals who are members of certain racial and ethnic groups are considered to be presumptively socially disadvantaged. See 13 C.F.R. § 124.103(b)(1); see also 15 U.S.C. § 631(f)(1)(B)-(C) (explaining that socially disadvantaged individuals include "members of certain groups that have suffered the effects of discriminatory practices or similar invidious circumstances over which they have no control," including, but not limited to "Black Americans, Hispanic Americans, Native Americans, Indian tribes, Asian Pacific Americans, Native Hawaiian Organizations, and other minorities"). This presumption is rebuttable, and may be overcome by credible evidence to the contrary. See 13 C.F.R. § 124.103(b)(3). An individual who is not a member of one of these groups may nonetheless gain admission into the Section 8(a) program by establishing by a preponderance of the evidence that he or she is socially disadvantaged under criteria set forth in 13 C.F.R. § 124.103(c).
In the context of the Section 8(a) program, "control" requires that "both that disadvantaged persons have the power to control the company and that such persons actually exercise their authority to control the company." Gov't Compl. ¶ 26; see also 13 C.F.R. § 124.106. Although a non-disadvantaged individual may be involved in the management of a company that participates in the Section 8(a) program, that individual may not, inter alia, exercise actual control of the company or receive compensation that exceeds that of the socially or economically disadvantaged person who controls the company. See 13 C.F.R. § 124.106(e). Further, non-disadvantaged individuals who "transfer majority stock ownership or control of the firm to an immediate family member within two years prior to the application and remain involved in the firm as a stockholder, officer, director, or key employee of the firm" are subject to a rebuttable presumption that they actually control the firm. Id. § 124.106(f).
In addition to the Section 8(a) program, the SBA also administers a Mentor-Protégé program, which allows a non-Section 8(a) company to form a joint venture with a Section 8(a) eligible company. The program is designed to encourage an approved mentor, that is not a Section 8(a) concern, to provide managerial, financial, and technical assistance in order to improve a protégé's ability to bid on and compete for government contracts. See 13 C.F.R. § 124.520(a)-(b). The protégé must be in the development stage of participation in the Section 8(a) program, have never received an 8(a) contract, or have a size that is half the size of the corresponding NAICS code. Id. § 124.520(c).
In order to participate in the program, a mentor and protégé must submit their joint venture agreement to the SBA for approval. Id. § 124.513(a)(1). The Section 8(a) participant must be the "managing venturer" of the joint venture, and an employee of the Section 8(a) concern must
LB & B is a North Carolina company that has its principal place of business in Columbia, Maryland. It was certified by the SBA as a Section 8(a) concern on April 6, 1995. This certification was based on the status of President Lily Brandon, who is an Asian Pacific American. Relators' Compl. ¶¶ 7, 29; Gov't Compl. ¶ 12. Both Relators were employed at LB & B—Steven O. Sansbury was employed as an Operations and Maintenance Institutional Planner from 2000 until his separation from the company in 2003, Relators' Compl. ¶ 4; James Buechler was employed as an Assistant Project Manager at the FDA from July 2003 until August 2005, Id. ¶ 5.
LB & B was incorporated in 1992. Govt. Compl. ¶ 28. Initially, the Board of Directors of the company had six members, only two of whom were socially and economically disadvantaged: Ms. Brandon and her son, F. Edward Brandon Jr. Relators and the Government allege that neither possessed sufficient skills or experience to run a company engaged in LB & B's main lines of business—government contracts, manufacturing, facilities management, and government services. Id. ¶¶ 29-30. Three of the other directors, including Defendant F. Edward Brandon, Ms. Brandon's husband, had extensive experience in government contracting and the other lines of business. Id. ¶ 31. Despite her alleged lack of experience, Ms. Brandon was selected as the president of the company. Moreover, though she contributed substantially the same amount as the other directors, Ms. Brandon's financial contribution was treated as equity and she was given 51 percent of the company's stock. Id. ¶¶ 33-34.
In 1994, prior to applying for Section 8(a) certification, all of the directors of the company except for Ms. Brandon officially resigned, though they stayed on as employees with the same titles and salaries as before their resignations. Id. ¶¶ 35-37. The Government alleges that two of the original directors sold their stock to Ms. Brandon at this time at the share price set at the time of the company's formation despite the fact that the company had grown in the interim. As a result of this sale, Ms. Brandon acquired an 81 percent interest in the company. Id. ¶ 39.
On December 28, 1994, LB & B initially applied for Section 8(a) certification. The Government alleges that there were a number of misrepresentations on the initial application. For instance, Ms. Brandon's salary was listed as $64,000 and Mr. Brandon's total compensation was listed at $42,500. According to the Government, Ms. Brandon's salary was actually $13,692.16 while Mr. Brandon's total compensation was $18,126.60. Because Mr.
Further, on its application, LB & B represented that Ms. Brandon would be responsible for the day-to-day operation of the company and described Mr. Brandon's role as limited to assisting the president. Id. ¶¶ 48-49. However, the Government alleges that Ms. Brandon had "no meaningful substantive role" in the daily operations of the company, and did not:
Id. ¶ 50. Those functions were instead overseen by Mr. Brandon and others. Id. ¶ 51. Thus, the Government alleges that Ms. Brandon's actual role at the company "failed to satisfy the statutory and regulatory requirements of control sufficient to participate in the Section 8(a) business development program." Id. ¶ 52.
After receiving LB & B's initial application for certification, the SBA requested additional materials from the company. The SBA specifically noted that Ms. Brandon's résumé did not appear to indicate that she had the necessary skills to manage and operate the company. The SBA asked LB & B to provide a fuller explanation of who had such skills at the company. Id. ¶ 54. The Government alleges that in responding to this request for information, Defendants further misrepresented Ms. Brandon's skills and role by stating that she had prior management experience in the manufacturing industry, that she had direct control over daily operations, that only she could sign company commitments and checks, and that she controlled the finances of the company. Id. ¶¶ 56-60.
The Government alleges that on the basis of these misrepresentations, the SBA certified LB & B as a Section 8(a) concern on April 6, 1995 for a period of nine years to conclude in April 2004. Id. ¶ 61. On the basis of this certification, LB & B was able to market itself as a Section 8(a) program participant and bid on "set-aside" contracts, which the Government contends it began to actively and aggressively do after February 1, 1997. Id. ¶¶ 62-67; 82-84. Moreover, on the yearly certifications that it submitted after April 1995, the Government alleges that LB & B continued to falsely certify, as it had on its original application, that Ms. Brandon controlled the company and that she was the only person at the company who could commit monies and sign company checks. Id. ¶¶ 68-81. For instance, during this period, the Government alleges that at least five additional people at the company had the authority to sign company checks and make commitments. Id. According to the Government, that Ms. Brandon did not actually control the company is further evidenced by the numerous company memoranda issued by Mr. Brandon between 1996 and 2004 on the full range of company operations. Id. ¶¶ 80-81.
After LB & B "graduated" from the Section 8(a) program in 2004, the Government alleges that Ms. Brandon resigned as president and Mr. Brandon officially took on the role he had been performing for years. Id. ¶¶ 85-86. Nevertheless, LB & B purportedly continued to represent itself as a woman-owned and -operated business until at least 2007. Id. ¶ 88.
In addition to the allegations above, Relators also allege that Defendants engaged in fraud in two joint ventures that LB & B entered into with Section 8(a) concerns under the SBA Mentor Protégé program. Relators allege that in late 2003 and early 2004, prior to its "graduation" from the Section 8(a) program, LB & B began to search for protégé companies "so that it could continue to illegally benefit from the 8(a) programs' [sic] advantages on bids on government contracts." Relators' Compl. ¶ 50. To that end, Relators claim that LB & B entered into discussions with Bering Straits Aki, LLC (hereinafter "BSA"), an Alaskan, Inuit company owned by Defendant Gail Schuber, regarding a proposed mentor-protégé relationship. Id. ¶¶ 50-52. On August 16, 2004, a little over four months after LB & B exited the Section 8(a) program, the SBA approved a joint venture agreement between LB & B and BSA, pursuant to which the joint venture was able to secure several government contracts, including contracts with the Centers for Medicare & Medicaid Services, the General Services Administration Public Buildings Services, the Federal Emergency Management Agency, and the United States Air Force. Id. ¶¶ 52-53. Relators allege that the project managers for these contracts were LB & B employees until January 2005, which was after the joint venture was approved by the SBA. Id. ¶ 55. These project managers purportedly did not switch their employment to BSA until January 2005, when they were instructed to do so by a senior vice president at LB & B. Id. ¶ 56.
LB & B also entered into a mentor-protégé relationship with Ckilkat Services, an Alaskan corporation, at some point in 2006. Id. ¶ 64. Also in 2006, LB & B hired Sheldon L. Jahn as a senior vice president. Relators allege that Mr. Jahn's employment was transferred from LB & B to Chilkat in late 2006 or early 2007, after the SBA had already approved the joint venture, so that he could serve as the general manager of the joint venture. Id.
On or about December 27, 2004, Relators filed an action alleging similar claims relating to Defendants' participation in the Section 8(a) program in the United States District Court for the District of Maryland. See United States ex rel. Sansbury v. LB & B Associates, Inc., No. 04-4018. On May 5, 2006, the Government filed a notice of its election not to intervene.
After the Government declined to intervene in the District of Maryland action, Relators filed a sealed qui tam complaint in this court on February 1, 2007, alleging violations of the FCA. The United States was contemporaneously served with the Complaint. The Government filed several motions for an extension of time to determine whether it would intervene in the claims raised in Relators' complaint. During this time, the Government met with both Relators and Defendants and attempted to resolve the matter short of continued litigation. On April 14, 2011, the Government filed a notice of election to intervene; it elected to intervene in that part of the action that relates to Defendants' participation in the Section 8(a) program and declined to intervene in the remaining claims relating to participation in the Mentor-Protégé program. Upon the unsealing of the action before this Court on June 29, 2011, Defendants moved to unseal the District of Maryland action, which was eventually unsealed on October 13, 2011. On August 19, 2011, after Defendants were served with Relators' complaint, the Government filed its complaint in intervention. Defendants filed motions to dismiss both the Relators' complaint
A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the complaint. See Browning v. Clinton, 292 F.3d 235, 242 (D.C.Cir.2002). In order to be viable, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation marks and citations omitted). The plaintiff need not plead all of the elements of a prima facie case in complaint, Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511-14, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002), nor must the plaintiff plead facts or law that match every element of a legal theory. See Krieger v. Fadely et al., 211 F.3d 134, 136 (D.C.Cir. 2000).
However, despite these liberal pleading standards, 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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted); Twombly, 550 U.S. at 562, 127 S.Ct. 1955. A claim is facially plausible when the facts plead in the complaint allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). While this standard does not amount to a "probability requirement," it does require more than a "sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).
"[W]hen ruling on a defendant's motion to dismiss [pursuant to Rule 12(b)(6)], a judge must accept as true all of the factual allegations contained in the complaint." Atherton v. D.C. Office of the Mayor et al., 567 F.3d 672, 681 (D.C.Cir.2009) (quoting Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007)). The court must also give the plaintiff "the benefit of all inferences that can be derived from the facts alleged." Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994)(internal citation omitted). Despite this, a court need not "accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint. Id. Further, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements" are not sufficient to state a claim. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal citation omitted).
This Circuit has held that complaints brought under the False Claims Act are subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b). See United States ex rel. Totten v. Bombardier Corp. and Envirovac, Inc., 286 F.3d 542, 551-52 (D.C.Cir.2002) ("Every circuit to consider the issue has held that, because the False Claims Act is self-evidently an anti-fraud statute, complaints brought under it must comply with Rule 9(b)."). Rule 9(b) requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b). This specificity requirement "normally . . . means that the pleader must state the time, place and content of the false misrepresentations, the fact misrepresented and what was obtained or given up as a consequence
Likewise, in the context of the FCA, "the circumstances that must be pleaded with specificity are matters such as the time, place, and contents of the false representations, such representation being the element of fraud about which the rule is chiefly concerned." Totten, 286 F.3d at 552 (internal citation omitted) (emphasis in original); Shekoyan v. Sibley Int'l. Corp., 217 F.Supp.2d 59, 73 (D.D.C.2002) (noting that in the FCA context, "a claimant must typically allege the identity of the person who made the fraudulent statement, the time, place and content of the misrepresentation, the resulting injury, and the method by which the misrepresentation was communicated") (internal citation omitted).
The FCA provides a civil penalty and treble damages against any individual who: (1) knowingly presents or causes to be presented a false or fraudulent claim for payment or approval by the United States, 31 U.S.C. § 3729(a)(1); (2) knowingly makes, uses, or causes to be made or used, a false record or statement material to getting a false or fraudulent claim paid or approved by the Government, id. § 3729(a)(2); or (3) conspires to defraud the United States by getting a false or fraudulent claim allowed or paid, id. § 3729(a)(3). To enforce these and other provisions of the FCA, a private person, known as a "relator," may bring a civil or qui tam action in the government's name. 31 U.S.C. § 3730(b)(1). If the government elects to intervene, it shall then have the primary responsibility for prosecuting the action, although the relator may continue as a party to the action, subject to certain limitations enumerated in the statute. Id. § 3730(c)(1).
Defendants first argue that, because the Government has intervened in this action with respect to the claims regarding their participation in the 8(a) program, those claims have been rendered impermissibly duplicative, and Relators thus lack standing to bring them. See Defs.' MTD Relators' Compl. at 19-20. Relators argue that Defendants cannot seek to dismiss the portions of their complaint in which the Government has intervened. Rather, they argue that the only way for Defendants to limit their participation is to file a motion pursuant to 31 U.S.C. § 3730(c)(2)(D), which states that "[u]pon a showing by the defendant that unrestricted participation during the course of the litigation by the person initiating the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense, the court may limit the participation by the person in the litigation." Relators' Opp'n at 17 (quoting 31 U.S.C. § 3730(c)(2)(D)). The Government agrees that its complaint in intervention is the operative complaint as to all claims in which it has intervened. However, the Government notes that Relators also still have the right to continue in the action as parties with respect to those intervened claims. The Government therefore recommends that the Court deny as moot Defendants' motion to dismiss the Section 8(a) claims in Relators' initial complaint. See Gov't's Opp'n at 5 n.1.
The FCA states that "[a] person may bring a civil action for a violation of section 3729 for the person and for the United States government." 31 U.S.C.
Most other courts that have addressed this issue have dismissed relators' superseded claims. See, e.g. Feldman, 808 F.Supp.2d at 649 (dismissing relator's amended complaint for lack of standing because it was "superseded in its entirety by the Government's Amended Complaint"); United States ex rel. Magee v. Lockheed Martin Corp., No. 09-324, 2010 WL 972214, at *2-*3, 2010 U.S. Dist. LEXIS 23295, at *8-*9 (S.D.Miss. Mar. 12, 2010) (same); United States ex rel. Becker v. Tools & Metals, Inc., No. 3:05-CV-0627, 2009 U.S. Dist. LEXIS 27507, at *6, *17-*19 (N.D.Tex. March 31, 2009); In re Pharm. Indus. Average Wholesale Price Litig., No. 01-12257, 2007 WL 4287572, at *4-5, 2007 U.S. Dist. LEXIS 89835, at *17 (D.Mass. Dec. 6, 2007) ("[O]nce the government has intervened, the relator has no separate free-standing FCA cause of action.") (citing United States ex rel. Barajas v. Northrop Corp., 147 F.3d 905, 910 (9th Cir.1998))); but see United States ex rel. Landis v. Tailwind Sports Corp., No. 10-cv-976, 51 F.Supp.3d 9, 27-29, 2014 WL 2772907 at *7-*8, 2014 U.S. Dist. LEXIS 83313 at *23-*28(D.D.C. June 19, 2014) (refusing to dismiss relators' intervened claims on the basis that they no longer had standing because the text of the FCA does not require it).
However, dismissal is by no means required especially where, as here, Defendants have made no showing that the Relators' participation during the course of the litigation will cause them undue burden or expense that would justify limiting their participation. Therefore, because the Government's complaint in intervention supersedes Relators' complaint with respect to the intervened claims, and because Relators have the right to continue as parties to this action, the Court will deny Defendants' motion to dismiss Relators' claims, to the extent that they are duplicative of the Government's claims, as moot.
Defendants argue that all of the Government's FCA claims that predate February 1, 2001 are barred by the statute of limitations. The FCA provides that:
31 U.S.C. § 3731(b). The Act further states that "[f]or statute of limitations purposes, any . . . Government pleading shall relate back to the filing date of the complaint of the person who originally brought the action, to the extent that the claim of the Government arises out of the conduct, transactions, or occurrences set forth, or attempted to be set forth, in the prior complaint of that person." Id. § 3731(c).
Neither party disputes that the Government's claims arise out of the conduct, transactions, and occurrences set forth in Relators' complaint, and that the Government's complaint thus "relates back" to the date of the filing of Relators' complaint. Defs.' MTD Govt.'s Compl. at 15-16; Govt.'s Opp'n at 11. Defendants argue that because the Government did not file its complaint in intervention within three years of the date when it should have known of any potential claims—that is, February 1, 2007, the date on which Relators filed their initial complaint—the Government cannot avail itself of the ten-year statute of limitations in section 3731(b)(2), and thus only a six-year statute of limitations applies. Therefore, according to Defendants, the Government may only maintain claims for violations that are alleged to have occurred after February 1, 2001, six years prior to the filing of Relators' complaint. MTD Govt.'s Compl. at 16.
The Government argues that Defendants ignore a fundamental principle of the qui tam mechanism: "that for statute of limitations purposes, the Government stands in the shoes of the relator." Govt.'s Opp'n at 9. Thus, if a relator's claim is timely, so too will a government complaint in intervention alleging the same wrongdoing be timely, regardless of when it is filed. Id. The Government admits that it was aware of Relators' claims beginning on or around December 27, 2004, when the same Relators filed a qui tam action in the United States District Court for the District of Maryland. Id. at 5, 12-14. The Government argues that because the initial complaint in this action was filed by Relators on February 1, 2007, within three years of the date when U.S. officials became aware of the claims on December 27, 2004, the Government's complaint in intervention can apply to claims as far back as February 1, 1997, even though the Government did not file its complaint in intervention until August 19, 2011. Id. at 12-14. The Government's theory then is that it can avail itself of the ten year statute of limitations in section 3731(b)(2) by operation of section 3731(c)'s relation-back provision.
The Government provides no support for its theory that if the Relator files its initial complaint within three years of when the
Similarly, the cases on which Defendants rely also do not address the precise issue presented here as most of them predate the 2009 amendments. See United States ex rel. Frascella v. Oracle Corp., 751 F.Supp.2d 842 (E.D.Va.2010); United States ex rel. Purcell v. MWI Corp., 520 F.Supp.2d 158 (D.D.C.2007); United States v. Intrados/Int'l Mgmt. Group, 265 F.Supp.2d 1 (D.D.C.2002). Indeed, all of these cases hold that the relation-back provision allows the government to take advantage of the six-year statute of limitations from the date of the filing of the relator's initial complaint, a point that is not in dispute here.
For instance, in Frascella, defendants, like Defendants here, argued that many of the government's claims were barred by the applicable statute of limitations. 751 F.Supp.2d at 848. There, relator filed his sealed complaint on May 29, 2007 and the government filed its complaint in intervention on July 29, 2010, more than three years after relator's initial complaint. Id. The Frascella court, however, did not reach the precise question raised here—whether the Government can avail itself of the ten-year statute of limitations even where it failed to file a complaint in intervention within three years of Relator's complaint—because the government conceded that it should have known of any potential claims against defendant when relator filed his complaint. Id. at 849 n. 3. Instead, the government argued that claims based on alleged false statements made thirteen years prior to the filing of relator's complaint were timely because the U.S. officials charged with responsibility to act could not reasonably have known of those claims prior to the filing of relator's complaint. Id. at 849. The Frascella court found the government's argument unavailing because a 1998 audit by the GSA had uncovered some of the same false statements alleged in relator's complaint. The government, the court held, was thus on inquiry notice of these statements such that a reasonable person would investigate. Id. at 851-853. Despite Defendants' contention that the facts of Frascella are identical to those here, there was no earlier filed qui tam action at issue in Frascella that the government claimed was the specific starting date for statute of limitations purposes. See Defs.' MTD Govt.'s Compl. at 17.
Similarly, the issue before the court in Purcell was analytically distinct. There,
Finally, Defendants cite to Intrados, which is also inapposite. That case, while brought under the FCA, was not a qui tam action. Instead, the United States directly sued defendants under the Act. In doing so, the government argued that claims based on conduct that occurred more than six years prior to the filing of its complaint were timely because defendants had concealed the alleged fraud. 265 F.Supp.2d at 10. The court ruled that the government "did not exercise due diligence in uncovering the fraud," especially because a relevant audit of the alleged fraudulent conduct was completed more than three years before the filing of the government's complaint. Id. at 11. Thus, claims relating to invoices submitted more than six years before the filing of the government's complaint were time barred. Id. at 10-11.
The plain text of section 3731(b)(2) appears to only relate to the government. However, several courts, including one in this District, have concluded that where the government does not intervene, the relator can take advantage of the tolling provision in section 3731(b)(2). See, e.g., U.S. ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 474 F.Supp.2d 75, 82-89 (D.D.C.2007) (collecting cases evidencing a three-way split among jurisdictions about whether and when relators may invoke the tolling provision, and holding that relators may take advantage of the tolling provision even where the government does not intervene and that the limitations period is measured by the knowledge of the relevant government official); see also U.S. ex rel. Malloy v. Telephonics Corp., 68 Fed.Appx. 270, 273 (3d Cir.2003) (holding that relators may invoke the tolling provision and basing the tolling period's start on the relator's own knowledge); U.S. ex rel. Ven-A-Care of the Fla. Keys, Inc. v. Actavis Mid Atlantic LLC, 659 F.Supp.2d 262, 273-74 (D.Mass.2009) (concluding that relators may invoke the tolling provision and basing the beginning of the period on the knowledge of the relevant government official). This view, while not a majority view, does offer some support for the Government's theory—if the Relators here can take advantage of 3731(b)(2), their initial
As explained above, none of the cases cited by either party adequately describe the situation currently before the Court, where Relator filed a second suit in a different court within three years of the relevant U.S. official learning of the alleged fraud through the filing of the first suit. Nor is the Court aware of any such cases. Thus the court must look to the text of the statute for guidance. See Murphy Exploration & Prod. Co. v. United States DOI, 252 F.3d 473, 480 (D.C.Cir. 2001) (citing Carter v. United States, 530 U.S. 255, 271 (2000)). By its express terms, section 3731(b)(2) is silent as to whether it applies to Relators. However, subsection (b) of section 3731 begins by stating that it applies to "civil action[s] under section 3730," which includes actions brought by both the Government and Relators.
Thus, looking at the language of section 3731(b) as a whole, it seems clear that it includes Relators, at least in actions in which the Government has intervened, and there is nothing in section (b)(2) to suggest that Relators are excluded. See Pogue, 474 F.Supp.2d at 84; see also Landis, 2014 WL 2772907 at *15, 2014 U.S. Dist. LEXIS 83313 at *51. This reading of Section 3731(b) is also consistent with Graham, in which the Supreme Court did not differentiate between relators and the government with respect to actions brought under section 3730(b). 545 U.S. at 415, 125 S.Ct. 2444.
The legislative history of section 3731(b) also supports this interpretation of the
Following the reasoning of Pogue, which allows relators to take advantage of the tolling provision of section 3731(b)(2) if they file a complaint within three years of the relevant government official learning of the fraud, which they did here, the Court finds that the government's claims dating back to February 1, 1997 are timely. As the Pogue court noted, "[m]easuring (b)(2)'s limitations period by the government's knowledge, and never the relator's, makes sense because it means that . . . the government will be able to recover upon the maximum amount of claims within the overall ten-year repose period." 474 F.Supp.2d at 88.
In addition to its claims pursuant to the FCA, the Government has also brought claims for common law fraud and negligent misrepresentation. These claims are governed by 28 U.S.C. § 2415, the general federal statute of limitations, which provides that "every action for money damages brought by the United States or an officer or agency thereof which is founded upon a tort shall be barred unless the complaint is filed within three years after the right of action first accrues." 28 U.S.C. § 2415(b). Because claims of negligent misrepresentation and fraud sound in tort, they are governed by this three year statute of limitations, Intrados, 265 F.Supp.2d at 14, subject to tolling where "facts material to the right of action are not known and reasonably could not have been known by an official of the United States charged with the responsibility to act in the circumstances." 28 U.S.C. § 2416(c).
Defendants argue that because the Government's common law claims were brought more than three years after the date the relevant Government official could reasonably have known of them, i.e., February 1, 2007, they are time-barred and must be dismissed. Defs.' MTD Govt.'s Compl. at 25. The Government argues to the contrary that its fraud claims are also subject to section 3731(c)'s relation back provision because it provides that if the Government elects to intervene in a qui tam action, it may file its own complaint to "clarify or add detail to the claims in which the Government is intervening and to add any additional claims with respect to which the Government contends it is entitled to relief." Govt.'s Opp'n at 17 (quoting 31 U.S.C. § 3731(c)) (emphasis in original). Thus, the Government argues that the tolling provision of section 3731(b)(2) applies to its common law claims and that its claims relating to conduct after February 1, 1997 are timely. Id. at 18 n. 8.
The Government is correct that its complaint in intervention relates back to the
It is axiomatic that a plaintiff bringing an action for fraud under the FCA must, first and foremost, allege that an actual false claim or statement was presented to the government. See Totten, 286 F.3d at 551; U.S. ex rel. Head v. Kane Co., 798 F.Supp.2d 186, 195-96 (D.D.C.2011). The FCA defines "claims" to include "any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded." 31 U.S.C. § 3729(c). Congress has emphasized that the FCA should be broadly interpreted "to reach all types of fraud . . . that might result in financial loss to the Government." United States v. Neifert-White Co., 390 U.S. 228, 232, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968). Accordingly, "[f]alse claims under the FCA take a variety of forms." United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1266 (D.C.Cir.2010). These include: (1) presentment claims; (2) fraudulent inducement claims; and (3) false certification (express or implied) claims. See id. (endorsing implied false certification theory as basis for FCA claims in D.C. Circuit); U.S. ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321, 1326 (D.C.Cir. 2005) (recognizing that claims based upon fraudulent inducement are actionable under the FCA).
To state a claim for a false claim under the FCA, a plaintiff must show that "(1) the defendant submitted a claim to the government, (2) the claim was false, and (3) defendant knew the claim was false." United States ex rel. Harris v. Bernad, 275 F.Supp.2d 1, 6 (D.D.C.2003). The FCA does not require proof of specific intent to deceive when a defendant presents false or fraudulent claims to the government. 31 U.S.C. § 3729(b); United States v. TDC Mgmt. Corp., Inc., 24 F.3d 292, 296 (D.C.Cir.1994).
An FCA plaintiff may also plead a claim under 31 U.S.C. § 3729(a)(1)(B), which provides a cause of action against anyone who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." Section 3729(a)(1)(B) attaches FCA liability to a defendant who prepares in support of a claim a statement that it knows to be a misrepresentation. United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488, 500-01 (D.C.Cir.2004).
According to Defendants, Relators' sole allegation that Defendants violated the FCA with regard to its participation in the Mentor-Protégé program is that Defendants "falsely certified in the joint venture agreements submitted to SBA for approval. . . that the joint venture employed general managers who were from 8(a), Alaskan, Intuit companies." Defs.' MTD Relators' Compl. at 22 (citing Compl. ¶ 71). As such, Defendants argue that Relators have failed to state a claim under the FCA
According to the applicable SBA regulations, when a mentor and protégé partner for the purpose of an 8(a) contract, they must submit a joint venture agreement to the SBA for approval. 13 C.F.R. § 124.513. The agreement must contain, inter alia, "a provision . . . [d]esignating an 8(a) Participant as the managing venturer of the joint venture," and an employee of the managing venturer as the project manager responsible for performance of the 8(a) contract. Id. § 124.513(c)(2). Here, Relators have alleged that Defendants made false representations regarding the employment of several project managers of the relevant joint ventures. According to Relators' complaint, which must be taken as true at this stage in the litigation, James Krulic was listed as the general manager of the BSA-LB & B joint venture on the joint venture agreement approved by the SBA on August 16, 2004 despite the fact that he was an LB & B employee at the time. Relators' Compl. ¶ 52. Relators further allege that Mr. Krulic did not become a BSA employee until January 2005, well after the joint venture was approved and even then only at the direction of senior employees at LB & B. Id. ¶¶ 53-56. With respect to the Chilkat joint venture, Relators allege that Mr. Jahn was a senior vice president at LB & B during 2006, and that LB & B and Chilkat entered into a joint venture agreement in which he was listed as the project manager. Id. ¶¶ 63-64. Relators allege that in late 2006 or early 2007, Mr. Jahn's employment was switched to Chilkat for the purposes of the joint venture agreement. Id. ¶ 64. Relators do not provide a specific date for the approval of the joint venture, noting only that it was approved "in or about 2006." Id. ¶ 64. Relators also contend that Relator Buechler did in fact work with the BSA/LB & B joint venture. See Relators' Opp'n at 22 n.6 (citing Compl. ¶¶ 61-62).
Relators additionally allege that although Mr. Krulic and Mr. Jahn were listed as "general managers" by defendants, they were, in actuality, project managers. According to Relators, they were employees of LB & B and then moved over to the joint venture, such that the relevant "project manager" was not from an 8(a) protégé company. See id. at 20-21. Relators also contend that they should be allowed to conduct discovery on the work these men performed to see if Defendants were in contravention of the applicable regulations. See id. at 21; see also Allen v. Beta Constr., 309 F.Supp.2d 42, 47 (D.D.C.2004) ("[W]hile significant details [] will be necessary . . . these details are not necessary at this very preliminary stage of litigation.").
Relators have provided more than the requisite "short and plain statement of the claim showing that [they are] entitled to relief." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (internal quotation marks and citations omitted). They have also stated more than just one false claim or statement in the relevant joint venture agreements. As such, Defendants cannot credibly argue that they are not on notice of the claims against them with respect to their joint ventures with BSA and Chilkat or the false claims or statements they allegedly made in connection with those joint ventures. While Relators may not have pled sufficient facts to ultimately succeed on the merits of their claim, that is not required at this stage in the litigation. "Indeed, [Relators], having first stated a claim with sufficient specificity," which the Court finds that they have for the reasons stated in Section III.B.2 supra, "must be allowed to fill in those details through the discovery process, especially because these details are in defendants' possession and will be identified when produced in discovery." Allen, 309 F.Supp.2d at 47.
Defendants argue that the Government's Section 8(a) claims and Relators' claims relating to their participation in the Mentor-Protégé program fail because they have failed to plead those claims with the particularity required by Fed. R. Civ.P. 9(b).
It is well established in this Circuit that "the simplicity and flexibility contemplated by the rules must be taken into account" when reviewing a complaint under Rule 9(b). United States ex rel. McCready v. Columbia/HCA Healthcare, 251 F.Supp.2d 114, 116 (D.D.C.2003). Most importantly, Rule 9(b)'s particularity requirement must be read in concert with Rule 8, which requires only that a complaint contain a "short and plain statement" of the claim. See Cannon, 642 F.2d at 1386 (holding that "[t]he requirement of particularly does not abrogate Rule 8, and it should be harmonized with the general directives . . . of Rule 8 . . .") (internal citations and quotation marks omitted); Allen, 309 F.Supp.2d at 46.
Defendants' narrow reading of Rule 9(b) would essentially eviscerate this standard and require claimants to provide detailed proof of their allegations at this early stage in the litigation. That is simply not what is required on a motion to dismiss pursuant to Rule 9(b). Pogue, 238 F.Supp.2d at 269. Rather, at this stage in the litigation, an FCA "plaintiff need not allege with specificity every element of its cause of action if the complaint contains allegations from which an inference may be drawn that the plaintiff will produce evidence on the essential elements." Intrados, 265 F.Supp.2d at 7. Indeed, the language of Rule 9(b) makes clear that "particularity [must be pled] only with respect to the circumstances constituting fraud. . . ." United States ex rel. Folliard v. CDW Tech. Servs., Inc., 722 F.Supp.2d 20, 27 (D.D.C.2010). This is especially true where, as here, the Government's FCA claims are based on a fraudulent "scheme," in which the circumstances make it likely that the alleged fraud was "consummated through the presentment of false claims." United States ex rel. Head v. Kane, 798 F.Supp.2d 186, 203 (D.D.C. 2011) (quoting United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir.2009)).
The Government argues that it has pled its FCA "false claim" and "false statement" claims with particularity. Specifically, the Government contends that it is has set forth: (1) the who (the LB & B Defendants); (2) the what (express and implied representations regarding the extent of Ms. Brandon's control of LB & B and its eligibility for the Section 8(a) program); (3) the when (on or after February 1, 1997 in certifications to the SBA and in set-aside contracts, and until LB & B's graduation from the 8(a) program); (4) the where or with whom (the SBA and Government agencies that award set-aside contracts); (5) the how (claims for payment submitted pursuant to set-aside contracts that were obtained based on a fraudulent 8(a) certification, statements in annual 8(a) certifications, and contract materials submitted by the SBA to Government agencies to secure 8(a) contracts); and (6) damages (Section 8(a) contracts and modifications/extensions to those contracts, and payments on invoices made pursuant to those contracts). Gov't's Opp'n at 22.
Similarly, Relators argue that their claims relating to Defendants' participation in the SBA Mentor-Protégé program survive a Rule 9(b) challenge. According to Relators, they have alleged a claim of fraud in the inducement. Relators' Opp'n at 24-26. They also contend that they have not alleged an open ended time frame—they have stated that the LB & B/BSA joint venture was approved in 2004 and that the LB & B/Chilkat joint venture was approved in 2006. They argue that these facts are sufficient at this stage in the litigation.
The Government also clearly links Defendants' false claims and statements to payments made by various Government agencies. See Govt.'s Compl. ¶ 66 (noting that in March 1998 LB & B was awarded a set aside contract with the U.S. Army Operational Test and Evaluation Command and in March 1999 it was awarded a contract with the U.S. Army Material Command Acquisition Center). Those allegations are sufficient; the Government is not required to plead specific dates, invoices, or payment amounts pursuant to a Section 8(a) scheme that spanned many years. Folliard, 722 F.Supp.2d at 31 ("Although defendants argue that relator must provide `transaction dates' on which individual claims were submitted, this is incorrect."). Indeed, this court has routinely held that "`while Rule 9(b)'s particularity requirement applies to the [contention] that the request was fraudulent,' Rule 12(b)(6)'s `general standards apply to the. . . existence of a request for payment.'" Kane, 798 F.Supp.2d at 205 (quoting Folliard, 722 F.Supp.2d at 27).
Relators have also provided sufficient details, including the specific joint venture agreements and the fact that project managers listed on the agreements as being employees of the protégé companies were actually LB & B employees at the time those representations were made. Relators have further alleged that LB & B employees were aware of those facts and directed the relevant employees to switch their employment to the protégé companies. They need not allege more at this stage. See Allen, 309 F.Supp.2d at 46; see also United States ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F.Supp.2d 129, 137 (D.D.C.2010) (holding that the government had alleged enough on a motion to dismiss by alleging the defendant had predicated each sale with a fraudulent representation).
Thus, the Court finds that both the Government and Relators have provided more than enough detail to satisfy Rule 9(b)'s purpose of guaranteeing Defendants have "`sufficient information to allow for preparation of a response.'" United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C.Cir.2004) (quoting Cannon, 642 F.2d at 1385). "While significant details which will be necessary for plaintiff[s] to succeed on the
Defendants also move to dismiss the Government and Relators FCA conspiracy claims pursuant to Rule 12(b)(6) because they have not pled any agreement or overt act. Defendants additionally argue that the FCA conspiracy claims are barred by the intra-corporate conspiracy doctrine.
Section 3729(a)(3) of the FCA attaches liability to anyone who "conspires to defraud the Government by getting a false or fraudulent claim allowed or paid." The FCA does not define "conspiracy," but "courts have held that general civil conspiracy principles apply to FCA conspiracy claims." Westrick, 685 F.Supp.2d at 140. Thus, the intra-corporate conspiracy doctrine, a principle of civil conspiracy law, applies to FCA conspiracies as well. Under this doctrine, "a corporation cannot conspire with its employees, and its employees, when acting in the scope of their employment, cannot conspire among themselves." United States ex rel. Fago v. M & T Mortg. Corp., 518 F.Supp.2d 108, 117 (D.D.C.2007).
There is no dispute that Defendants Edward Brandon and Lily Brandon are or were employees of Defendant LB & B. Thus, any conspiracy claims between these individual Defendants and LB & B fail pursuant to the intra-corporate conspiracy doctrine. See Kane, 798 F.Supp.2d at 201-02 (dismissing an FCA conspiracy claim where plaintiffs had alleged a conspiracy between employees of the corporation and the corporation itself). Thus, the Government's conspiracy claims fail to state a claim.
However, to the extent that Relators have alleged a conspiracy between employees of LB & B, LB & B itself, BSA, and/or Chilkat, those claims are not barred under that doctrine. In order to state a claim for conspiracy pursuant to the FCA, Relators must show "(1) that defendant[s] conspired with one or more persons to have a fraudulent claim paid by the United States, (2) that one or more of the conspirators performed any act to have such claim paid by the United States, and (3) that the United States suffered damages as a result of the claim." United States v. Bouchey, 860 F.Supp. 890, 893 (D.D.C.1994). Here, Relators have alleged that LB & B conspired with BSA and Chilkat to form a joint venture that did not meet the applicable requirements; that the project managers listed on the joint venture agreements were LB & B employees, not employees of the protégé companies, as required; that at some point after the joint ventures were approved, the relevant employees switched their employment from LB & B to the protégé companies; and that the joint ventures were able to secure set aside contracts as a result of the misrepresentation. At this stage in the litigation, Relators have alleged sufficient facts to survive a motion to dismiss. See Westrick, 685 F.Supp.2d at 141 (finding that assertions of meetings between employees of two companies were sufficient to state a claim for conspiracy).
Relators did not serve Bering Straits AKI, Chilkat Services, or the individual
For the reasons stated above, the Court
Another court in this District, relying on Graham, has found that section 3731(b)(2) does not apply to Relators. See Landis, 2014 WL 2772907 at *13-15*, 2014 U.S. Dist. LEXIS 83313 at *44-*53. There, in determining whether a relator could take advantage of section 3731(b)(2)'s tolling provision in an action in which the Government had intervened, the court declined to follow Pogue and held that "it is not reasonable to construe Section 3731(b)(2) to mean that the application of tolling to relator's lawsuit turns on the knowledge of the responsible United States government official, when the government has in fact declined to prosecute the claims brought by the relator and the government has not intervened or become a party to the relator's lawsuit." Id. at *15, 2014 U.S. Dist. LEXIS 83313 at *51. The court reasoned that the "most reasonable and intuitive construction of section 3731(b)(2) is that `a civil action under section 3730' does not apply to all actions under section 3730, but only as to those actions in which the United States has `acted,' by seeking to participate." Id. Thus, the court held that with respect to Relators claims against non-intervened defendants, the six year statute of limitations in section 3731(a) applied. This holding, however, does not in any way impact the effect of the tolling provision on claims for which the government has intervened and whether those claims are timely if a relator files suit within three years of the relevant government official's knowledge.
