JON S. TIGAR, United States District Judge.
Before the Court are Plaintiff Gary Siebert's Motion for Summary Judgment or, in the alternative, for summary adjudication, and Defendant Gene Security Network's Motion for Partial Summary Judgment. ECF Nos. 109, 110. For the reasons set forth below, Siebert's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART, and Defendant's Motion for Partial Summary Judgment is DENIED.
On April 22, 2011, Plaintiff-relator Gary Siebert filed this False Claims Act ("FCA") case, alleging that Defendant Gene Security Network ("GSN")
GSN is a private biotechnology company that studies and conducts minimally invasive embryonic tests for the presence of genetic disorders. ECF No. 110 at 2. Matthew Rabinowitz, the company's CEO, founded the company in 2003. Id. at 1. Rabinowitz has testified that he managed financial matters and accounting for GSN from "the very early days," but that later on, the company hired "other people to manage that. . . ." ECF No. 110 at 2-3. Rabinowitz also participated in research and helped prepare and submit the grant proposals at issue here. ECF No. 110-3 at 6-7, 10.
Three NIH grants totaling $5,293,373 form the basis of Siebert's claims: $1,689,902 from the "Novel Informatics" grant, $1,799,814 from the "Array Informatics" grant, and $1,803,657 from the "Non-Invasive Aneuploidy" grant. ECF No. 109 at 1-2. GSN applied for the grants on December 12, 2007, April 7, 2008, and August 5, 2009, respectively. Id. at 2. GSN drew funds from those grants on nine separate occasions. ECF No. 109-40, Exs. 1-9.
At the time GSN applied for the three NIH grants, no GSN employee had experience with NIH grants. ECF No. 110 at 4-5. Rabinowitz, Croswell, McElroy, White, and several other employees have testified that they were not familiar with the specifics of the accounting regulations contained in 45 C.F.R. Part 74, and Rabinowitz has testified that he believed the only requirement in these regulations was the requirement that grant funds be used for the research NIH intended the grant to fund. Id. at 5-6.
Nonetheless, as part of the application process, GSN employees signed certifications that they were in compliance with the requirements of 45 C.F.R. Part 74.
ECF No. 109-15. This statement indicates that each drawdown of grant funds constitutes a discrete certification of compliance with 45 C.F.R. Part 74.
In August 2008, McElroy filled out a questionnaire from NIH. ECF No. 118 at 3-4; see ECF No. 109, Ex. D. That questionnaire was titled "Financial Questionnaire: Evaluation of Financial Management Systems," and contained the following pertinent language:
ECF No. 118 at 4 (citations omitted).
Like the certifications and questionnaire, the NIH Grants Policy Statement ("Statement") required compliance with 45 C.F.R. Part 74. ECF No. 109 at 4. Section 8.3.1 of the Statement provides:
Id. The Statement was incorporated by reference into each verification of compliance that GSN submitted to NIH in conjunction with GSN's applications for grant awards. Id. at 2.
Finally, award notices that NIH sent out for each drawdown of the grants contained a statement regarding the terms and conditions of the grants that referred to "45 CFR Part 74" and the "NIH Grants Policy Statement." ECF No. 118 at 4; see ECF No. 109-40, Exs. 1-9.
GSN asks the Court to exclude two items of evidence in support of Siebert's motion for summary judgment. First, GSN seeks to exclude the testimony of Michelle Bulls, the director of the Office of Policy for Extramural Research Administration at the NIH. ECF No. 119 at 18-24. Second, GSN seeks to exclude the 2010 audit report prepared by Newman Associates. Id. at 11-12.
Bulls submitted a declaration in support of Siebert's motion for summary judgment, describing the application and certification process for grants like those received by GSN. Although she works at the NIH, she did not personally participate in the review of GSN's applications or the award of any money to GSN.
GSN contends that Bulls provides improper expert opinion because (1) Siebert failed to disclose Bulls as an expert witness, (2) Bulls' testimony is not helpful or reliable under Federal Rule of Evidence 702, and (3) in her testimony, Bulls renders impermissible legal conclusions. Id. at 18-23. GSN also contends that Bulls' testimony as a fact witness is inadmissible because Bulls does not have personal knowledge of GSN's grant applications and awards. Id. at 23-24.
The Court finds that Bulls' testimony does not constitute improper expert testimony. A lay witness is entitled to give testimony in the form of an opinion if the testimony is "(a) rationally based on the witness's perception; (b) helpful to clearly understanding the witness's testimony or to determining a fact in issue; and (c) not based on scientific, technical, or other specialized
The matters to which Bulls testifies are not matters that require "scientific, technical, or specialized knowledge." They are observations about the ordinary inner workings of the NIH, derived from her personal experience. As the drafters of the Evidence Code recognized in an advisory note to Rule 701,
FRE 701, adv. committee note (2000); see also Hynix, supra, at *4 (citing advisory committee note). Where, as here, a witness is testifying as to institutional operations and practices based on personal knowledge that the witness has accrued over the course of several years of employment, the witness is providing lay testimony not subject to Rule 702. See, e.g., United States v. Munoz-Franco, 487 F.3d 25, 35-36 (1st Cir.2007) (permitting opinion testimony by a lay witness where the witness had personal knowledge of bank operations and banking practices that derived from his employment); In re Google Ad-Words Litig., No. 5:08-CV-3369 EJD, 2012 WL 28068, at *5-7 (N.D.Cal. Jan. 5, 2012) (permitting two different Google employees to testify about how that company's AdWords and AdSense systems worked and how advertisers responded to them, based on the witnesses' personal experiences at the company).
The only case GSN cites to the contrary, United States ex rel. Jones v. Brigham & Women's Hospital, 678 F.3d 72 (1st Cir. 2012), is not helpful. The issue in Jones was that the district court had not determined whether to admit or exclude the expert testimony of Dr. Daniel Teitelbaum, who was proffered as an expert statistician by the relator in an FCA lawsuit. 678 F.3d at 84. The question was not whether Teitelbaum was an expert — a fact that neither side disputed — but whether he was qualified to render specific opinions about the statistical analysis he had performed. Id. Thus, the court in Jones never reached the question presented here. Moreover, there was no suggestion that Teitelbaum had ever worked at the National Institute on Aging, which was the agency at issue in Jones. Thus, unlike the witness in Munoz-Franco, and unlike Bulls in this case, Teitelbaum was not testifying from a base of personal experience. Jones simply is not relevant to the Court's determination.
The final basis on which GSN argues that Bulls should have testified as an expert is Bulls' response to a deposition question indicating that her testimony might fall under Rule 702. ECF No. 119 at 19 (citing Bulls' deposition testimony). Whether Bulls is an expert is a question of
The Court is also not persuaded by GSN's objection that Bulls lacks personal knowledge of GSN's applications and awards. As discussed above, Bulls may testify as a fact witness because she has personal knowledge of the general NIH grant procedures she discusses. See Fed. R.Evid. 602 (permitting testimony of witnesses with personal knowledge of the matters regarding which they testify). As part of her employment, she is required to be aware of NIH grant regulations and policies, and various documents outlining the same. ECF No. 109-35, ¶ 3. She can testify from personal knowledge as to these matters. And to the extent she testified as to GSN's grant applications, she relied on the grant applications that are in evidence. See id. ¶¶ 10-15.
Bulls' testimony, except for her legal conclusions, is admissible.
GSN also seeks to exclude the Newman Associates audit report, ECF No. 109-28, because it was not properly authenticated under Federal Rule of Evidence 901, and because it is inadmissible hearsay under Rules 801 and 802, and not an admissible business record under Rule 803. ECF No. 119 at 11-12. Siebert contends that the report "is properly authenticated because GSN produced the audit report and bates labeled it." ECF No. 120 at 1. Further, Siebert argues the report is not inadmissible hearsay because the report constitutes a party admission, and GSN has adopted the report and its contents as true under Federal Rule of Evidence 801(d)(2)(A) and (B), respectively. Id. at 2. Finally, Siebert contends the report is admissible as a business record under Rule 803. Id.
As to authentication, which serves to determine the genuineness of an item of evidence, GSN argues that Siebert cannot authenticate the report because Siebert has no personal knowledge of the report. ECF No. 119 at 11-12 (citing Orr v. Bank of Am., NT & SA, 285 F.3d 764, 775-76 (9th Cir.2002)). But Siebert is not required to have personal knowledge of the document, because GSN produced the document to Siebert in discovery, thereby authenticating it. Maljack Prods., Inc. v. GoodTimes Home Video Corp., 81 F.3d 881, 889 n. 12 (9th Cir.1996) (holding that documents produced by a party in discovery were deemed authentic when offered by the party-opponent); 31 Fed. Practice & Procedure: Evidence § 7105, at 39 ("Authentication can also be accomplished through judicial admissions such as . . . production of items in response to . . . [a] discovery request.").
As for the document's admissibility under Rule 801(d)(2), the Court finds that GSN adopted or believed the information in the report was true, as indicated by its letter to the NIH, wherein it responded to the information contained in the report as accurate and true. See Fed.R.Evid. 802(d)(2)(B); ECF No. 109-31.
The Court will admit the Newman Associates audit report.
Summary judgment is proper when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is "genuine" only if there is sufficient evidence for a reasonable fact-finder to find for the non-moving party, and "material" only if the fact may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). All reasonable inferences must be drawn in the light most favorable to the non-moving party. Olsen v. Idaho State Bd. of Med., 363 F.3d 916, 922 (9th Cir.2004). Unsupported conjecture or conclusory statements, however, do not create a genuine dispute of material fact and will not defeat summary judgment. Surrell v. Cal. Water Serv. Co., 518 F.3d 1097, 1103 (9th Cir. 2008). The Court may grant summary judgment as to a "part of each claim or defense" provided no genuine dispute of material fact exists and the movant is entitled to judgment as a matter of law as to that part of the claim or defense. Fed. R.Civ.P. 56(a).
Under 31 U.S.C. § 3729(a)(1)(A) and (B), the charged FCA provisions, liability attaches where one "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" or "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." The elements of an FCA violation under § 3729 are: (1) a false statement or fraudulent course of conduct; (2) that is material, and (3) made with knowledge of that falsity, that causes (4) the government to pay out money. United States v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir.2011).
GSN contends that the Court should grant summary judgment in its favor because Siebert has provided no colorable evidence to show that an FCA violation occurred before August 2010. ECF No. 110. Specifically, GSN contends that Siebert has supplied scant and insufficient evidence to show GSN's "knowledge" that it supplied false claims to the United States prior to August 2010 and that the information it submitted to the NIH for funding was material to the grant decision. Id. at 9-11. Siebert counters that it is entitled to summary judgment as to the pre-August-2010 period as well as later periods because all elements of an FCA violation — including knowledge — have been conclusively shown. ECF No. 118.
The element "knowingly" under the FCA can be satisfied by one of three possible levels of scienter: actual knowledge, deliberate ignorance, or reckless disregard of the truth or falsity of the statement at issue. 31 U.S.C. § 3729(b)(1)(A). No specific intent to defraud is required on the part of the alleged violator. Id. subsection (B). Deliberate indifference and reckless disregard can be means of inferring actual knowledge in the absence of direct evidence. See, e.g., United States v. Krizek, 111 F.3d 934, 941 (D.C.Cir.1997) ("In some cases, recklessness serves as a proxy for forbidden intent."). Innocent mistakes and negligence, however, do not lead to FCA liability. Wang v. FMC Corp., 975 F.2d 1412, 1420 (9th Cir.1992).
In other contexts, the Ninth Circuit has defined deliberate ignorance to incorporate two components: (1) a subjective belief in a high probability that a fact exists, and (2) deliberate actions taken to avoid learning
Siebert has not provided evidence from which a reasonable jury could find that GSN acted with either actual knowledge or deliberate indifference prior to August 2010. Rabinowitz testified, without contradiction, that he had no actual knowledge of the specific accounting requirements contained in 45 C.F.R. Part 74 before August 2010. ECF No. 110 at 10 (explaining that he was aware of "the fundamental regulation that [a grantee] needed to spend the money on the research that [the grantee] was doing," but that he only "became aware of the more specific regulations later on."). Rabinowitz clearly knew there were some requirements under those regulations, id. but the only evidence on the subject suggests he was not aware of the specific requirements with which Siebert has alleged he failed to comply. Siebert cites no evidence to the contrary.
Siebert also has not produced evidence of deliberate ignorance by GSN. Deliberate ignorance requires a willful or deliberate act by the defendant taken to avoid learning the truth, Yi, 704 F.3d at 805, but Siebert points to no evidence of a deliberate act by GSN or its responsible employees to avoid learning the requirements contained in 45 C.F.R. Part 74. Instead, Siebert's opposition to GSN's motion for partial summary judgment focuses on the allegation that GSN failed to investigate whether it complied, or to learn whether it was in compliance, with 45 C.F.R. Part 74, despite its various certifications of compliance with those regulations. See, e.g., ECF No. 118 at 3 ("Despite not having anyone with previous experience or knowledge of NIH grant application and funding procedures and requirements, no one at GSN bothered to familiarize themselves with the NIH regulations governing the award of those grants."). While this may support a finding of reckless disregard, see infra, it will not support a finding of deliberate indifference.
Viewing the evidence in the light most favorable to Siebert, he has provided sufficient evidence of reckless disregard to survive GSN's motion for partial summary judgment.
Most on point are the "false certification" cases in the Ninth Circuit. See, e.g., United States ex rel. Hopper v. Anton, 91 F.3d 1261 (9th Cir.1996), and United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166 (9th Cir.2006).
In Anton, a relator brought an FCA suit against the Los Angeles Unified School District, alleging the District submitted false claims for federal funds while in knowing violation of a federal statute regarding funding for special education programs. 91 F.3d at 1263-64. Among other things, the District submitted regular certifications
In Hendow, two enrollment counselors employed by the University of Phoenix alleged "that the University falsely certifies each year that it is in compliance with the incentive compensation ban" — a statutory ban that prohibits universities from paying recruiters on a per-student basis — "while intentionally and knowingly violating that requirement." Id. 461 F.3d at 1169. The relators alleged a number of flagrant attempts to cover up the lack of compliance, including statements by the University's head of enrollment that "we need to show the Department of Education what they want to see," real and fake files containing performance reviews of recruiters, and policy changes designed to obscure the violations. Id. The court found that plaintiff adequately alleged an FCA claim, including scienter. Id. at 1177-78. The court reaffirmed Anton and the general rule that certifications of compliance with statutory or regulatory requirements, and subsequent failure to comply with those requirements, can serve as the basis for a reckless disregard finding under the FCA. Id. at 1170-72. Anton and Hendow confirm that where an FCA defendant has certified compliance with statutory or regulatory criteria, and then fails to familiarize itself with those criteria, the defendant acts in reckless disregard of the truth or falsity of the statement of compliance with those criteria.
In other cases not involving false certifications, courts have found FCA defendants liable for reckless disregard where they have failed to familiarize themselves with applicable statutes or regulations. For example, in United States v. Mackby, 261 F.3d 821 (9th Cir.2001), the owner of a physical therapy clinic instructed clinic employees to use his physician father's PIN number on claim forms to bill Medicare for physical therapy services provided at the clinic. But his father "never referred provided medical services at or for the [clinic], never referred any patients to the clinic and was never involved with the care or treatment of its patients." Id. at 825. The PIN was provided on forms submitted to Medicare, and checks were made payable to Mackby's father. Id. Various communications from Medicare were addressed to Mackby's father but sent to the clinic. Id. The communications contained statements informing recipients that the PIN for the performing physician or supplier had to be used on claim forms submitted to Medicare. Id. at 826-27.
The Mackby court concluded that "[p]articipants in the Medicare program have a duty to familiarize themselves with the legal requirements for payment." Id. at 828 (relying on Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984). Specifically, "[b]y failing to inform himself of [Medicare] requirements, particularly when twenty percent of Asher Clinic's patients were Medicare beneficiaries, [Mackby] acted in reckless disregard or in deliberate ignorance of those requirements,
Similarly, in Krizek, the D.C. Circuit Court of Appeals found that, despite a lack of certification, a psychiatrist and his wife acted in reckless disregard of the falsity of their Medicare billings where they submitted claims for reimbursement based on "seriously deficient" billing records. 111 F.3d at 936. "Mrs. Krizek completed the submissions with little or no factual basis; she made no effort to establish how much time Dr. Krizek spent with any particular patient; and Dr. Krizek `failed utterly' to review bills submitted on his behalf." Id. at 937. The court found most telling that "there were a number of days . . . when even the shoddiest recordkeeping would have revealed that false submissions were being made — those days on which the Krizeks' billing approached twenty-four hours in a single day." Id. Moreover, Dr. Krizek was just as liable as his wife because he "delegated to his wife authority to submit claims on his behalf. In failing `utterly' to review the false submissions, he acted with reckless disregard." Id.
And in United States v. Stevens, the court found an FCA defendant acted in reckless disregard of regulatory requirements, despite not certifying compliance with those requirements. 605 F.Supp.2d 863 (W.D.Ky.2008). Stevens involved an FCA claim against a doctor, his pain management clinic, and clinic employees. Id. The court cited Krizek as holding that "in the healthcare setting, a physician demonstrates `reckless disregard' when he fails to take reasonable steps to ensure that his clinic's claims for governmental reimbursement are accurate." Id. at 867. The court found the doctor acted in reckless disregard of Medicare requirements when he "did not properly oversee the billing" for services he provided and used a Medicare code for services that he did not provide in his billing submissions. Id. at 867-68.
These cases support the general principle that those who submit claims to the government for reimbursement may be acting in reckless disregard as to the truth or falsity of their submissions if they fail to take steps to confirm the accuracy of those submissions. Applying this principle to the record before the Court, it is clear that there is a jury issue as to scienter before August 2010.
GSN argues this case is like those in which courts found that FCA defendants did not act in reckless disregard of legal requirements, because the requirements were not clear to the defendants and the defendants failed to secure a legal opinion interpreting them. See, e.g., Hagood v. Sonoma Cnty. Water Agency, 81 F.3d 1465 (9th Cir.1996); United States ex rel. Quirk v. Madonna Towers, Inc., 278 F.3d 765, 768 (8th Cir.2002); Hochman v. Nackman, 145 F.3d 1069, 1079 (9th Cir.1998). These cases are factually distinguishable, however, because the defendants in them formed a reasonable belief concerning a disputed legal question. GSN does not contend that it or its employees formed such a belief — to the contrary, GSN contends that its employees never even read the regulations and had no knowledge of them. See ECF No. 121 at 13 ("Natera admits that it was unfamiliar with these technical accounting regulations"). The "disputed legal question" cases do not have any bearing here.
GSN also attempts to construct a "red flag" requirement in the case law, arguing that "in the absence of some `red flag' or aggravating circumstance, the mere failure to review a regulation that is applicable to a government grant, contract or program does not constitute `reckless disregard'. . . ." ECF No. 121 at 2. But the cases GSN cites in support of this argument
And even if there were a "red flag" requirement, the Court notes that a certification requirement, like the one presented here, could serve as a red flag to an applicant that compliance with certain regulations is required.
GSN has failed to show that it is entitled to partial summary judgment as to the issue of whether, prior to August 2010, GSN had "knowledge" that it was not in compliance with 45 C.F.R. Part 74. The cases suggest that, in similar circumstances to those alleged here, FCA defendants have been found to have acted in reckless disregard as to the truth or falsity of their statements to the government. At a minimum, the question of knowledge presents a factual issue rife with credibility determinations, all of which are suited to a jury determination. GSN's motion for partial summary judgment fails.
GSN alleges that Siebert must not only prove that GSN "knowingly" submitted a false claim, but also that GSN had knowledge that the false information was material to NIH's decision to approve GSN's grant application. ECF No. 110 at 11 (citing United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1272 (D.C.Cir. 2010), and United States v. DRC, Inc., 856 F.Supp.2d 159, 172 (D.D.C.2012)). While the D.C. Circuit has identified knowledge of materiality as an element of an FCA violation, the Ninth Circuit has not, despite having had ample opportunity to do so. See, e.g., Anton, 91 F.3d 1261. In the absence of controlling Ninth Circuit precedent, this Court will not impose this requirement.
Even if knowledge of materiality were an issue, however, there is sufficient evidence here for a jury to find it. GSN was required to certify compliance with the accounting regulations found at 45 C.F.R. Part 74, and those certifications incorporated the Grants Policy Statement, which provided that compliance was "essential to the grant relationship," and "that NIH cannot support the research unless it has assurances that its funds will be used appropriately, adequate documentation of transactions will be maintained, and assets will be safeguarded." ECF No. 109 at 20. Further, the 2008 questionnaire GSN submitted to NIH provided that "Demonstration of a grantee's management capabilities is one of the evaluative criteria used in the administrative review process prior to issuance of an award." Id. Thus, Siebert has pointed to evidence showing GSN was aware of the materiality of compliance with these regulations for receiving NIH grants.
Siebert also moves for summary judgment in his favor, as to the entire period encompassed by the three NIH grants to GSN. GSN argues that there are triable issues of material fact concerning three elements of the FCA: the falsity of statements made to the NIH; the materiality of the alleged statements; and GSN's knowledge of the falsity of those statements, or scienter.
Siebert alleges three separate actions, or failures to act, that render false GSN's statements that it was in compliance with NIH accounting regulations. First, Siebert alleges that GSN "certified the existence of accounting systems which met the standards required by the NIH" in each "grant application, Financial Questionnaire, and NIH SBIR Verification." ECF No. 109 at 15. In particular, Siebert alleges that GSN was required by NIH regulations to use project-based accounting, but failed to do so. GSN argues that its accounting system complied with NIH regulations. Second, Siebert alleges that GSN violated NIH regulations by failing to require employees to maintain time-sheets. Lastly, Siebert alleges that GSN commingled NIH grant funds with other funds. GSN acknowledges that it was required to "maintain[] adequate records to track its grant income and expenses for each of its grants," ECF No. 119 at 6, but denies that time-sheets or segregated bank accounts were required.
To evaluate Plaintiff's arguments, it is useful to look at each of these three categories separately: project-based accounting, commingling of funds, and time sheets.
The evidence regarding whether GSN used project-based accounting is in conflict. On the one hand, in 2010, the NIH required GSN to conduct a compliance audit for calendar year 2009. ECF No. 109-16 (West Depo.) 106:5-7. GSN hired a third party auditing firm, Newman Associates, to conduct the required audit. In its report, Newman Associates scrutinized all three of the relevant grants. See ECF No. 109-28 (Newman Report). With regard to the Non-Invasive Aneuploidy grant, Newman noted that under 45 C.F.R. § 74.21(b), GSN was required to maintain a reporting system that includes "[r]ecords that identify adequately the source and application of funds for HHS-sponsored activities. These records shall contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, outlays, income and interest," and "[c]omparison of outlays with budget amounts for each award." Id. at 8 (quoting regulation). Newman concluded that
Id.
On the other hand, GSN argues that it actually did use project-based accounting, incorporating a combination of "initial employment letters which established schedules, payroll records, the NIH budget which allocated employee time to projects, progress reports that [GSN] submitted to the NIH, reviews of the Excel spreadsheets
Id. at 2-3. This conflicting testimony and evidence raises a genuine dispute of material fact as to whether GSN adequately used project-based accounting, and therefore truthfully certified its compliance with 45 C.F.R. § 74.21(b).
The Court also finds that, viewing the evidence in the light most favorable to GSN, as it must do, there is a dispute of material fact regarding whether GSN's certifications were false with regard to its commingling of funds.
The dispute takes two forms: first, it is not clear that the regulation prohibits commingling
Regarding GSN's compliance with the regulation, GSN employees did acknowledge that GSN deposited grant funds into, and withdrew them from, the same accounts used for other funds. They did not create separate accounts for the NIH grants. See, e.g., ECF No. 109-16 (Venkata West Depo.) 114:12-21. But GSN employees also testified that GSN was tracking funds and otherwise complying with 45 C.F.R. § 74.21(b)(3). See, e.g., ECF No. 119-9 (Robin McElroy Depo.) at 43. Moreover, Plaintiff's counsel has been clear that Siebert does not allege that GSN ever misused NIH funds, i.e., spent them for purposes that were not authorized by the terms of the grants. ECF No. 119-3 (Rabinowitz Depo.) at 93-94. Thus, viewed in the light most favorable to GSN, it had adequate procedures to maintain effective control over the funds and property
Siebert also argues that GSN's failure to use timesheets made its certifications false. He points out that the regulations require grantees to maintain "[a]ccounting records, including cost accounting records that are supported by source documentation." ECF No. 109 at 16 (citing 45 C.F.R. § 74.21(b)(7)). Siebert argues that GSN's failure to use timesheets for its employees violates this regulation and therefore that its certification of compliance with § 74.21 is false. Siebert also points to the statement in the 2008 questionnaire that indicates employees were submitting semi-monthly time sheets when no evidence shows that they were. ECF No. 109 at 7.
Once again, there is a dispute of material fact as to the interpretation of the NIH accounting regulations. Siebert cites no text from the regulations themselves requiring timesheets, and it is not clear that they require timesheets. The Newman audit, however, concluded that GSN's accounting was deficient for failing to keep timesheets. ECF No. 109-28 (Newman Audit) at 8.
Factually, while it is undisputed that GSN's employees did not keep task-based timesheets, there is also evidence that GSN hired individual employees to work solely on specified grant projects, such that any time spent by an individual employee could only relate to one grant, and GSN maintained other records relating to the time spent by employees on grant-related work. ECF No. 119 at 8-9. Thus, there is a dispute of material fact that is not subject to resolution on the instant motion for summary judgment.
Under the FCA, a "material" statement is one that has "a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4). Siebert argues that the language of the 2008 questionnaire, and the verification statements GSN submitted to the NIH, as well as the testimony of Michelle Bulls, all demonstrate that GSN's certifications were material. GSN provides no contrary evidence on the issue of materiality, but instead contends the Court should not summarily decide this issue because: (1) Bulls' testimony should be excluded, (2) materiality is generally a question of fact for the jury, and (3) the language in the regulations and questionnaire, verifications, and Grants Policy Statement are ambiguous as to materiality. ECF No. 119 at 18-25. None of GSN's arguments on this issue is persuasive.
As previously noted, Bulls' testimony is admissible. Moreover, the Court finds that the regulations are not ambiguous.
In Hendow, the Ninth Circuit held that in FCA cases where funding is "explicitly conditioned" on compliance with certain requirements, the materiality standard is met. 461 F.3d 1166. In that case, certification came in three forms. Id. at 1175. First, the relevant statute provided that the program participation agreement "shall condition" eligibility "upon compliance" with a statutory incentive-compensation ban. Id. Further, under applicable regulations, a program could participate "only if' a program participation agreement is entered into, and such agreements "condition[]the initial and continued participation of an eligible institution upon compliance" with statutory requirements, including the ban. Id. The agreement itself also provided that compliance with the ban was a "prerequisite" to the institution's initial or continued participation in the program. Id. at 1175-76. Thus, the Court found, the conditional statements in the statute, regulation, and agreement "demonstrate that compliance with the [ban] is a necessary condition of continued eligibility and participation" in the program. Id. at 1176.
As in Hendow, the Grants Policy Statement, as discussed more fully in section IV.A.3., stated that compliance with the accounting regulations was "essential" to grant funding, and that grant funds would not be awarded without such a certification. GSN's certification of compliance was material because, by incorporating the Grants Policy Statement, the verifications GSN provided to NIH in conjunction with its applications for grant funds explicitly conditioned awards on compliance with 45 C.F.R. Part 74. The Court finds that GSN's allegedly false statements to the NIH were material to the NIH's decision to award GSN all three grants.
In support of its allegations that GSN, and Rabinowitz in particular
As to whether GSN acted in deliberate ignorance and/or reckless disregard of the truth or falsity of its certifications of compliance with 45 C.F.R. Part 74, Siebert points to Mackby and Anton as indicating that individuals or institutions receiving funds from the government act in reckless disregard of restrictions on that funding if they fail to inform themselves of those restrictions. ECF No. 109 at 18-19. GSN counters that the fact that it "disclosed complete and accurate information about
The Court finds that Siebert has established as a matter of law that GSN acted at least with reckless disregard as to the truth or falsity of its statements of compliance with 45 C.F.R. Part 74 in the period following August 2010.
The fact that GSN submitted its accounting information to Armanino for an audit, despite knowing that the information could be disclosed to the government, does not negate the fact that GSN acted in reckless disregard of the requirements of 45 C.F.R. Part 74. It only tends to prove that either: (1) GSN employees did not have actual knowledge of their failure to comply with those regulations, or (2) GSN employees did not attempt to cover up potential violations by falsifying documents or withholding information from the auditor.
In sum, the Court finds that Siebert has carried its burden to prove the scienter element of an FCA violation for the post-August-2010 period.
Because the Court finds that there is a dispute of material fact as to the issue of falsity at all relevant times, the Court does not address the issue of damages.
For the foregoing reasons, GSN's Motion for Partial Summary Judgment is DENIED, and Siebert's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART, as set forth above.
