DIAZ, Circuit Judge:
Mike Ahumada, as relator, filed this qui tam action on behalf of the United States under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq. In his first amended complaint, Ahumada alleges that his former employer, the National Center for Employment of the Disabled ("NCED"), along with other defendants, defrauded the government through various schemes in connection with contracts pursuant to the Javits-Wagner-O'Day Act, 41 U.S.C. §§ 8501 et seq. Specifically, Ahumada alleges that NCED conspired with its suppliers and an overseeing nonprofit to skirt applicable regulations and overcharge the government.
After NCED and its former CEO settled, the district court dismissed Ahumada's claims against the remaining defendants. It held that the FCA's public-disclosure bar precluded subject-matter jurisdiction and that Ahumada had not stated any viable claims. Ahumada now appeals that dismissal, as well as the district court's denial of his motion for leave to file a second amended complaint. For the reasons that follow, we affirm.
From February to July of 2004, NCED employed Ahumada as a Vice President and General Manager. NCED, a nonprofit corporation, produces a number of products — including military apparel and corrugated boxes — that it sells to agencies of the U.S. government. These sales occur pursuant to contracts under the Javits-Wagner-O'Day Act.
The Javits-Wagner-O'Day Act establishes a government contracting program (the "JWOD program") to promote "employment and training opportunities for persons who are blind or have other severe disabilities." 41 C.F.R. § 51-1.1(a). To that effect, the Act created the Committee for Purchase from People who are Blind or Severely Disabled (the "Committee"), which makes and maintains a "procurement list" of products and services eligible for purchase from "qualified nonprofit agencies." 41 U.S.C. §§ 8502, 8503. If "[a]n entity of the Federal Government intend[s] to procure a product or service on the procurement list," it must do so from such a nonprofit at a market price established by the Committee. Id. § 8504. To qualify for participation in the program, a nonprofit must certify, on an annual basis, that it "employs blind or other severely disabled individuals for at least 75 percent of the hours of direct labor required for the production or provision of the products and services." Id. § 8501(6)(C).
To coordinate the participation of nonprofits, the Committee appointed the National
Beginning in October 2005 — about eight months before Ahumada filed his initial complaint in this case — The Oregonian, a Portland-based newspaper, published a series of articles describing questionable practices within the JWOD program. Among other issues, the articles alleged that NCED was receiving payment on JWOD contracts despite failing to employ the requisite percentage of disabled workers. The articles attributed at least some of the problems in the program to lax oversight by NISH.
The El Paso Times published the first in a similar series of articles that November. Its articles reported that the Committee had begun investigating NCED for its perceived lack of compliance with JWOD labor requirements. The articles further alleged that certain NCED suppliers, including International Paper Co. ("IPC"), Green Bay Packaging, Inc., and Smurfit-Stone Container Corp., helped NCED skirt JWOD regulations by providing NCED with finished products rather than component parts. See 41 C.F.R. § 51-4.4(d) (prohibiting JWOD-participating nonprofits from "subcontract[ing] the entire production process for all or a portion of an order without the Committee's prior approval"). The articles reported that NCED then resold these products to the government under the pretense that they were produced entirely by disabled NCED employees. The allegations reported in the two newspapers were also the subject of a television documentary.
In the wake of this publicity, the FBI launched a criminal investigation that resulted in the indictments of three NCED executives. Bob Jones and Patrick Woods — NCED's former CEO and former Board President — ultimately pleaded guilty to various fraud and embezzlement charges. In 2010, a jury convicted NCED's former COO, Ernie Lopez, of making false statements and conspiracy to defraud the government.
On June 20, 2006, Ahumada filed this qui tam suit under the FCA against NCED, Jones, and one-hundred John Doe defendants in the U.S. District Court for the Eastern District of Virginia. The complaint alleged that, between 1999 and 2006, Jones and NCED engaged in a series of schemes to defraud the government, primarily by receiving payments on JWOD contracts despite failing to comply with JWOD regulations. Ahumada later filed a first amended complaint alleging that NCED: (1) falsely represented its compliance with JWOD's disabled-labor requirements; (2) falsely represented that it produced certain products it sold to the government; and (3) overcharged the government.
The first amended complaint also named several additional defendants, including NISH and four NCED suppliers: IPC, Green Bay, Smurfit, and Weyerhaeuser Co. (collectively, the "supplier defendants"). Ahumada alleged that NISH knew that NCED was not complying with JWOD requirements but continued to assign it contracts to improve NISH's own bottom line. He also alleged that the supplier
Per its statutory mandate, the United States intervened in Ahumada's suit with respect to defendants NCED and Jones. See 31 U.S.C. § 3730(b)(2). Both eventually settled with the government and Ahumada. The United States chose not to intervene with respect to the claims against NISH and the supplier defendants, and those parties moved to dismiss Ahumada's suit.
In support of their motions to dismiss, NISH and the supplier defendants advanced two primary arguments. First, they argued that the district court lacked subject-matter jurisdiction pursuant to the FCA's "public-disclosure bar." See 31 U.S.C. § 3730(e)(4)(A) (2006). This provision precludes subject-matter jurisdiction over claims "based upon" publicly disclosed allegations unless the relator is an "original source." Id. Second, they argued that the first amended complaint suffered from various pleading defects. In response, Ahumada moved for leave to file a proposed second amended complaint.
The district court granted the defendants' motions to dismiss. See United States ex rel. Ahumada v. Nat'l Ctr. for Emp't of the Disabled, No. 1:06-cv-713, 2013 WL 2322836 (E.D.Va. May 22, 2013). The court held that the first amended complaint was "devoid of any particularized facts" and therefore failed to plead fraud with the particularity required by Federal Rule of Civil Procedure 9(b). Id. at *3-*4. Specifically, it did not identify the "who, what, when, where and how" of the alleged false claims. Id. at *3 (internal quotation marks omitted). The court also held that the first amended complaint's "general[]" and "conclusory" allegations were insufficient because they adequately alleged neither scienter — "an essential element of any FCA claim" — nor the specific elements of a conspiracy. Id. at *4.
As an alternative basis for dismissal, the court held that the public-disclosure bar deprived it of subject-matter jurisdiction. In the court's view, "[t]he allegations [in the first amended complaint] clearly track the news media stories [which] appear[] to be the basis of [Ahumada's] claim." Id. at *6. Furthermore, the court held that Ahumada had not established that he was an "original source" — so as to avoid the public-disclosure bar — because he failed to demonstrate that he possessed "direct and independent knowledge" of the information underlying the allegations. Id.
Finally, the district court denied Ahumada leave to amend. It explained that the proposed amendments "fail[ed] to cure the deficiencies ... in the [first amended complaint]" and were therefore futile. Id. at *7. Because "[t]he specific details added to the [second amended complaint] [were] all information that c[ould] be found in the public domain," the court determined that the new pleading was "likewise based upon a public disclosure." Id.
Ahumada appealed, and we exercise jurisdiction pursuant to 28 U.S.C. § 1291.
Although Ahumada nominally challenges the district court's order dismissing the first amended complaint, his arguments on appeal center on the sufficiency of the
Generally, we review a district court's denial of a motion for leave to amend for abuse of discretion. See U.S. Airline Pilots Ass'n v. Awappa, LLC, 615 F.3d 312, 320 (4th Cir.2010). But where, as here, the district court denied such a motion on grounds of futility, we employ the same standard that would apply to our review of a motion to dismiss. See Pollard v. Pollard, 325 Fed.Appx. 270, 272 (4th Cir.2009); see also Platten v. HG Bermuda Exempted Ltd., 437 F.3d 118, 132 (1st Cir.2006). Thus, we review de novo the district court's legal conclusion that Ahumada's proposed amendments "fail[ed] to cure the deficiencies ... in the [first amended complaint]": namely, that the complaint failed to state a claim on which relief could be granted and failed to overcome the FCA's public-disclosure bar.
We first consider whether the FCA's public-disclosure bar rendered the second amended complaint futile by precluding subject-matter jurisdiction. We hold that the public-disclosure bar deprived the district court of jurisdiction over the claims against all of the appellees except Weyerhaeuser.
At the time Ahumada filed this action, the FCA's public-disclosure bar provided that "[n]o court shall have jurisdiction over an action under [the FCA] based upon the public disclosure of allegations or transactions ... unless ... the person bringing the action is an original source of the information."
"Under this Court's precedent, a qui tam action is based upon publicly disclosed allegations only if the qui tam plaintiff's allegations were actually derived from the public disclosure itself." United States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 699 (4th Cir.2014) (internal quotation marks omitted). This stands in contrast to the broader tests applied by our sister circuits, which generally consider
We easily conclude that Ahumada's allegations are at least partly based upon public disclosures. Ahumada barely argues otherwise in his opening brief, stating in just a single sentence that his "action is not based upon any public disclosure" because "the only evidence in the record ... is that Ahumada has relied only upon his own personal knowledge." Appellant's Br. at 17. To the contrary, however, the second amended complaint itself plainly relies on public disclosures. It explicitly references reporting from The Oregonian and El Paso Times, and many of Ahumada's allegations "appear to have been lifted almost verbatim from" the various articles.
Even though his action is partly "based upon" public disclosures, Ahumada may nevertheless avoid the public-disclosure bar if he is an "original source" of the allegations. See 31 U.S.C. § 3730(e)(4)(A) (2006); see also Rockwell Int'l Corp. v. United States, 549 U.S. 457, 467, 127 S.Ct. 1397, 167 L.Ed.2d 190 (2007) (describing original-source status as an "exception" to the public-disclosure bar). To qualify as an original source, a relator must establish that he (1) has "direct and independent knowledge of the information on which the allegations are based"; and (2) "has voluntarily provided the information to the Government before filing [the] action." 31 U.S.C. § 3730(e)(4)(B) (2006).
Considering the second requirement first, we conclude that Ahumada has adequately established that he reported his allegations to the government prior to filing suit. In an affidavit he submitted in response to the defendants' motions to dismiss, Ahumada averred that, "around January 2006," he met with FBI agent Steve Chambers and "told him everything [he] knew about all of the defendants." J.A. 578. Similarly, the second amended complaint itself alleges that, in an April 2006 meeting with Chambers and agent Tom Murray, Ahumada "described in detail the various schemes taking place at NCED
Rather than question the truth of these statements, NISH and the supplier defendants object that they do not "establish that [Ahumada] discussed any allegations against NISH or any specific [supplier defendant] with the FBI."
We think this asks too much. We agree that a relator may not satisfy the original-source exception's reporting requirement through an ambiguous assertion that leaves open to question whether the plaintiff actually reported information relating to any particular claim or concerning any particular defendant. But that is not the case here. Ahumada's affidavit specifically states that he told the FBI "everything [he] knew about all of the defendants." J.A. 578 (emphasis added). Read in conjunction with the second amended complaint's allegations (which of course name the defendants and outline in detail what Ahumada knew), we find nothing ambiguous about this statement. Requiring more would prove needlessly duplicative.
Whether Ahumada has satisfied the original-source exception's "direct and independent knowledge" requirement is a more complicated question.
Under our case law, a "relator's knowledge is `direct' if he acquired it through his own efforts, without an intervening agency, and it is `independent' if the knowledge is not dependent on public disclosure." Grayson v. Adv. Mgmt. Tech., Inc., 221 F.3d 580, 583 (4th Cir. 2000). To establish that his knowledge meets this standard, a relator must "allege specific facts — as opposed to mere conclusions — showing exactly how and when" he obtained it. See United States ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162 (10th Cir.1999). "A mere assertion of [direct and independent] knowledge, without adequate basis in fact and unsupported by competent proof," will not establish jurisdiction. Id. at 1163.
In applying these standards, we note that the original-source exception "does not permit ... claim smuggling." Rockwell Int'l, 549 U.S. at 476, 127 S.Ct. 1397. In other words, the fact that "a relator is an original source with respect to some claim" does not confer "jurisdiction in gross" over all of his claims. Id. (emphasis added). For this reason, we separately address the source of Ahumada's knowledge with respect to his claims against each defendant.
In his second amended complaint, Ahumada alleges that NISH facilitated NCED's fraud by ignoring NCED's lack of compliance with JWOD regulations. According to the complaint, NISH representatives
Even assuming these allegations are true, Ahumada has not established that they are based on his direct and independent knowledge. Ahumada worked at NCED for only six months in 2004, so it is far from clear how he gained direct knowledge of the NISH visits in 1999, 2002, and 2005. Ahumada has offered no explanation for how he learned of these events. But nearly all of the information appears in public disclosures. Indeed, the second amended complaint itself explicitly cites testimony from the Lopez trial for at least one of its allegations against NISH.
Accordingly, without any other explanation from Ahumada, we conclude that his knowledge necessarily derives from public disclosures or some other "intervening agency." Grayson, 221 F.3d at 583. The allegations against NISH therefore do not avoid the public-disclosure bar.
So too with the claims against Green Bay. The substance of Ahumada's allegation against Green Bay is that it produced "complete and nearly complete" products for NCED in violation of NCED's obligation to produce such products itself. See J.A. 257. According to the second amended complaint, Green Bay was aware that NCED's governments contracts "required direct labor" by disabled employees, yet it sold NCED the finished products anyway. See id. at 256-57.
As Ahumada forthrightly acknowledges, however, NCED did not place orders with Green Bay until "after [Ahumada was] terminated from employment by NCED." Id. (emphasis added). To support his allegation that Green Bay provided NCED with finished products, Ahumada cites publicly disclosed testimony from the Lopez trial. See id. at 257 ("Jose Rosales, Sales Representative for Green Bay, testified at the criminal trial of Ernie Lopez that commencing in February 2006, NCED ordered a million postal sleeves from Green Bay."). Accordingly, we conclude that Ahumada is not an original source with respect to the claims against Green Bay.
In contrast to Green Bay, IPC "was already making containers for NCED" at the time Ahumada began working there. Id. at 258. According to the second amended complaint, these containers came from IPC's San Antonio plant, rather than its El Paso plant, because the general manager of the El Paso plant "refused to go along with the illegal scheme of manufacturing boxes that were supposed to be made by disabled individuals." Id. Thus, Ahumada asserts, IPC "unquestionably knew that NCED was participating in the JWOD program ... and that NCED was not meeting the JWOD requirement." Id.
To be sure, this allegation comes closer than the previous ones to establishing Ahumada's direct and independent knowledge. But it nevertheless falls short of the mark. To support his assertion that IPC "unquestionably knew" of NCED's wrongdoing — the scienter element of the FCA
Ahumada also alleges that IPC submitted to NCED eleven invoices for "226,701 complete GSA boxes" in September and October of 2004, after Ahumada informed an IPC representative of NCED's fraudulent conduct. J.A. 258. These boxes, Ahumada alleges, "were stamped with NCED's [box manufacturing certificate], falsely making it appear that the boxe[s] were manufactured by NCED in compliance with the JWOD ... labor requirements." Id. But Ahumada offers no basis on which he could have known such detailed information directly. In fact, because the invoices Ahumada cites were issued after he left NCED in July 2004, this information almost certainly derives from public disclosures or some other intervening agency. Cf. Rockwell Int'l, 549 U.S. at 475, 127 S.Ct. 1397 (concluding that the relator did not possess direct and independent knowledge "[b]ecause [he] was no longer employed by [the defendant]" at the time the alleged fraud occurred). Likely confirming as much, the same page of the second amended complaint explicitly cites testimony from the Lopez trial.
In sum, because Ahumada has not established that his allegations against IPC are based on his direct and independent knowledge, he does not qualify as an original source.
Ahumada's allegations against Smurfit are much like those against Green Bay: Ahumada alleges that Smurfit began filling "large orders for complete or nearly complete containers" only "[a]fter [Ahumada] was terminated by NCED." J.A. 260 (emphasis added). Paragraph 145 of the second amended complaint does further allege that, after Ahumada was terminated, he informed Smurfit representatives of NCED's illegal conduct. But it again provides no explanation for how Ahumada directly knew that Smurfit "continued to make complete containers" for NCED. See id. Moreover, the next paragraph of the complaint again cites testimony from the Lopez trial, strongly suggesting that this public disclosure was in fact the source of Ahumada's knowledge. Ahumada is therefore not an original source with respect to the Smurfit allegations either.
Ahumada's primary allegation against Weyerhaeuser is that, during the time that Ahumada worked at NCED, it "provided NCED with raw sheets as well as complete or nearly complete boxes." Id. at 261. According to the second amended complaint, Ahumada met with Steve Cartmill, a Weyerhaeuser sales manager, "on many occasions during this period" and took him on tours of the NCED facility. Id. On these tours, Cartmill allegedly saw that NCED failed to employ a sufficient number of disabled workers. The complaint further alleges that Cartmill told Ahumada that Weyerhaeuser was issuing artificially inflated invoices to NCED and later providing rebates, and that NCED had requested Weyerhaeuser
Thus, in contrast to many of the allegations against the other defendants, Ahumada learned the facts underlying the Weyerhaeuser allegations directly through the course of his employment with NCED. See United States ex rel. Barajas v. Northrop Corp., 5 F.3d 407, 411 (9th Cir.1993) (finding that the relator's knowledge "was direct and independent because he acquired it during the course of his employment"). To be sure, the information Ahumada alleges he learned from Cartmill might in some sense be characterized as secondhand. But Cartmill was an employee of Weyerhaeuser itself, not an "intervening agency" or "third party." See Grayson, 221 F.3d at 583 (emphasis added); see also N.Y. Med. Coll., 252 F.3d at 121. And, as further support for his original-source status, Ahumada alleges that he independently confirmed what Cartmill told him about Weyerhaeuser's billing practices through his own inquiry with NCED's Controller.
Because Ahumada's knowledge derived from an admission the defendant made to him during the course of Ahumada's employment — an admission Ahumada then confirmed "through his own efforts" — we believe it is sufficiently direct to satisfy the original-source exception.
To summarize, we hold that the public-disclosure bar deprives the district court of jurisdiction over Ahumada's claims against NISH, Green Bay, IPC, and Smurfit. With respect to those defendants, the district court correctly determined that Ahumada's proposed amendments to his first amended complaint were futile. Because the public-disclosure bar does not preclude jurisdiction over the claims against Weyerhaeuser, however, we must also consider the separate question of whether those claims were adequately pleaded.
As relevant here,
31 U.S.C. § 3729(a) (2006).
In alleging these elements, the complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). But allegations of fraud must also meet the more stringent "particularity" requirement of Federal Rule of Civil Procedure 9(b). To satisfy Rule 9(b), "an FCA plaintiff must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir.2008) (internal quotation marks omitted). More precisely, the complaint must allege "the who, what, when, where and how of the alleged fraud." Id. (internal quotation marks omitted). Requiring such particularized pleading, we have explained, "prevent[s] frivolous suits, ... eliminat[es] fraud actions in which all the facts are learned
Applying those standards here, we conclude that Ahumada has failed to plead viable FCA claims against Weyerhaeuser.
Ahumada essentially alleges that Weyerhaeuser participated in two separate schemes to defraud the government.
With respect to the production allegation, we fail to see how Weyerhaeuser selling complete boxes to NCED, without more, constitutes a "fraudulent course of conduct." See Rostholder, 745 F.3d at 700. There is nothing inherently fraudulent about producing a particular product and selling it to a customer. And while it is true that applicable JWOD regulations prohibited NCED from "subcontract[ing] the entire production process for ... an order without the Committee's prior approval," see 41 C.F.R. § 51-4.4(d), we have held that the FCA cannot "be used as a regulatory-compliance mechanism in the absence of ... fraudulent conduct directed at the federal government," Rostholder, 745 F.3d at 702-03.
Ahumada's second amended complaint contains no specific allegation that NCED ever falsely represented to the government that it produced the boxes Weyerhaeuser provided. Although Ahumada does allege that an NCED representative "asked" a Weyerhaeuser customer service manager "to bill NCED for raw sheets instead of the completed boxes," Ahumada does not further allege that Weyerhaeuser actually complied with that request. See J.A. 261-62. Nor does Ahumada allege that Weyerhaeuser, specifically, falsely stamped products it produced with NCED's box manufacturing certificate. Thus, in the absence of any other well-pleaded fraudulent course of conduct or false statement, the production allegation does not state a viable claim for a violation of the FCA.
Ahumada's allegation regarding the rebate scheme fares no better. This allegation (which comprises just a single sentence in the second amended complaint) is utterly devoid of specifics. Among other deficiencies, it offers no information regarding who at Weyerhaeuser was involved in the scheme, what Weyerhaeuser gained from participating, or when the scheme took place. Nor does the complaint offer even a general description of the rebates themselves — for example, an estimation of how many rebates Weyerhaeuser issued or in what amounts. Without
Finally, we reject Ahumada's argument that he adequately pleaded a claim for conspiracy to defraud the government. See 31 U.S.C. § 3729(a)(3) (2006). To state a claim for conspiracy under the FCA, a relator must do more than simply show that the alleged conspirators agreed to make a false record or statement; the relator must also show "that the conspirators had the purpose of `getting' the false record or statement to bring about the Government's payment of a false or fraudulent claim." Allison Engine, 553 U.S. at 672-73, 128 S.Ct. 2123.
Neither the production allegation nor the rebate allegation establishes a claim for an FCA conspiracy. In neither case does Ahumada adequately allege that Weyerhaeuser acted with the purpose of defrauding the government.
In sum, we hold that Ahumada's second amended complaint fails to adequately plead any FCA claim against Weyerhaeuser. In conjunction with our previous determination that the district court lacked subject-matter jurisdiction over the claims against the other appellees, we agree with the district court that Ahumada's attempt to amend his pleading was futile. The district court therefore did not err in denying Ahumada leave to amend and dismissing his action.
For the reasons given, we affirm the district court's judgment.
AFFIRMED.
That said, the changes to § 3729(a)(2), specifically, apply to "all claims under the False Claims Act ... pending on or after [June 7, 2008]." See id. § 4(f)(1). And a circuit split has arisen over whether "claims ... pending," in this context, refers to underlying claims for payment from the government or the legal claims presented in the action itself. See, e.g., Sanders v. Allison Engine Co., 703 F.3d 930, 940 (6th Cir.2012), cert. denied, ___ U.S. ___, 133 S.Ct. 2855, 186 L.Ed.2d 925 (2013) (collecting cases on both sides of the split). We need not address that issue here, however, because the changes to the text do not affect our analysis of the adequacy of Ahumada's allegations.