DAVID A. FABER, Senior District Judge.
This matter is before the court on defendants' motions to dismiss relators' amended complaint pursuant to Federal Rule of Civil Procedure 9(b). (Doc. Nos. 38, 42). For the reasons that follow, the court
The instant dispute centers on the construction of a federal prison in McDowell County, West Virginia. Defendant Clark Construction Group, LLC (hereinafter "Clark") acted as the general contractor for the construction of Federal Corrections Institute McDowell ("FCI McDowell"). (Doc. No. 34 at ¶ 13). Defendant Elliott Contracting, Inc. (hereinafter "Elliott") acted as a subcontractor for Clark, handling plumbing and HVAC installation services during the prison's construction. (Doc. No. 34 at ¶ 14). Relators Oren Lambert, James Day, Jonathan Miller, Michael Spencer, and Lance Lambert all worked for defendant Elliott in various capacities.
On May 26, 2006, the Federal Bureau of Prisons ("BOP") awarded the FCI McDowell construction contract to Clark, Contract No. DJB-X00-039 (hereinafter "the contract"). (Doc. No. 34 at ¶ 13). The contract provided for over $232 million in payments to Clark during construction of the facility.
Further, the contract mandated that Clark and all subcontractors comply with the Davis-Bacon Act. (Doc. No. 34 at ¶ 21). This required both Clark and all subcontractors to pay their workers the prevailing wage for his or her craft—a wage rate determined by the Department of Labor.
Relators' first claim alleges violations of the Buy American Act and Trade Agreements Act. Defendant Elliott hired Relator Michael Spencer in September 2007 as an Operating Engineer IV on the project. (Doc. No. 34 at ¶ 37). Soon thereafter, Elliott Project Manager Eddie McCoy gave Spencer another job: to obscure the origin of plumbing parts from non-Designated Countries. (Doc. No. 34 at ¶ 38). McCoy directed Spencer to remove country of origin markings from plumbing parts that Elliott employees later installed in the prison. (Doc. No. 34 at ¶¶ 38, 41). McCoy told Spencer that this was part of Spencer's job and that Spencer would lose his position unless he obeyed. (Doc. No. 34 at ¶ 38).
Spencer complied with McCoy's direction and used a grinding machine to remove country of origin stamps from plumbing parts, usually "Made in China" or "Made in Vietnam" stamps.
Further, Spencer alleges that Elliott took considerable steps to conceal his work. When federal officials inspected the construction site, McCoy or another Elliott employee locked Spencer in a storage unit to hide the grinding operation. (Doc. No. 34 at ¶ 39). When he wanted to be let out, Spencer had to bang on the walls of the storage unit.
When Clark employees inspected Elliott's work, they discovered Elliott's use of plumbing parts originating from non-Designated Countries. (Doc. No. 34 at ¶ 43). After the discovery, Clark inspectors directed Elliott to remove those non-compliant plumbing parts that Elliott had already installed.
Relators' second claim alleges violations of the Davis-Bacon Act. Relators Oren Lambert, Jonathan Miller, Lance Lambert, and James Day contend that they worked as plumbers on the FCI McDowell project. (Doc. No. 34 at ¶¶ 55-68). While they acknowledge that they each performed some work on the project that was unrelated to plumbing, they all contend that this non-plumbing work was de minimis.
Further, relators allege geographic discrimination by Elliott. Employees who hailed from Kentucky worked as general laborers, but received plumbers' wages, while those workers, relators included, who were from West Virginia received only general laborers' wages despite working as plumbers. (Doc. No. 34 at ¶ 73). Again, relators implicate Elliott Project Manager Eddie McCoy and contend that he as well as Elliott's managing executives knew of the labor misclassification, but did nothing to correct it. (Doc. No. 34 at ¶ 74).
According to relators, Clark knew of the misclassification, as well. (Doc. No. 34 at ¶ 75). In or around October 2007, Clark employees acknowledged that relators and others were doing plumbing work, but receiving only general laborers' wages.
Relators also allege unpaid overtime in connection with their responsibilities at FCI McDowell. (Doc. No. 34 at ¶ 81). Elliott required each project worker, including relators, to work sixteen hours on several weekends.
Finally, relators contend that Elliott hired undocumented workers from Mexico and countries in Central America to work as project workers on the FCI McDowell project. (Doc. No. 34 at ¶ 45). According to relators, an Elliott foreman, Juan Perez, recruited these undocumented workers, two of whom went by the names "Ricardo" and "Maynor." (Doc. No. 34 at ¶ 45-6). In return for getting the job, Perez demanded a $100 up-front payment from each undocumented worker. (Doc. No. 34 at ¶ 47). Perez kept some of the money for himself; the rest went to his supervisors at Elliott, who were aware of the kickback scheme. (Doc. No. 34 at ¶ 48).
At the end of each week, Elliott required all undocumented workers to hand over their paychecks to be cashed. (Doc. No. 34 at ¶ 50). An Elliott employee then took the paychecks, usually 25 to 30 checks, to a local grocery store for cashing.
Relators implicate Clark in the kickback scheme, as well. According to relators, Clark purported to perform a background check for every individual who worked on the FCI McDowell project. (Doc. No. 34 at ¶ 53). However, Clark did not perform background checks on these undocumented workers.
On January 22, 2013, relators filed a
On May 23, 2014, relators filed an amended complaint. (Doc. No. 34). In the amended complaint, relators allege a single count related to violations of the False Claims Act ("FCA"). In this count, relators allege that defendants violated the FCA in a number of ways: (1) illegally employing illegal aliens in violation of 8 U.S.C. § 1324(a)(3)(a) and Executive Order 12989; (2) violating the Buy American and Trade Agreements Acts and thereby knowingly certifying false claims for payment to the Government; (3) violating the Davis-Bacon Act by failing to pay workers the prevailing wage and thereby knowingly presenting and certifying false claims; (4) violating the Copeland and Davis-Bacon Acts by extorting kickbacks from undocumented workers and thereby knowingly presenting and certifying false claims for payment; and (5) conspiring to violate the FCA.
On June 9, 2014, Clark filed a motion to dismiss the amended complaint, (Doc. No. 38), and Elliott filed a motion to dismiss the amended complaint on June 25, 2014. (Doc. No. 42). The motions are now ripe for review.
Fundamentally, a 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted tests whether a plaintiff's complaint satisfies Rule 8(a)'s liberal pleading requirements. Rule 8(a) of the Federal Rules of Civil Procedure requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2) (2014). In deciding a motion to dismiss, the court may consider the complaint, its attachments, and documents "attached to the motion to dismiss, so long as they are integral to the complaint and authentic."
Further, to survive a motion to dismiss, a complaint must contain factual allegations sufficient to provide the defendant with "notice of what the . . . claim is and the grounds upon which it rests."
In the instant case, the heightened pleading standards of Rule 9 apply to relators' complaint because relators allege fraud pursuant to the False Claims Act. The Federal Rules of Civil Procedure express a degree of skepticism toward claims of fraud. Under Rule 9(b), "special matters" such as fraud must be "stated with particularity." "[T]he circumstances required to be pled with particularity under Rule 9(b) are 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."
Relators allege that defendants violated the False Claims Act under three theories: (1) presentation of false claims under 31 U.S.C. § 3729(a)(1)(A); (2) making or using a false record or statement to cause a claim to be paid (commonly referred to as a "false certification claim") under 31 U.S.C. § 3729(a)(1)(B); and (3) conspiracy under 31 U.S.C. § 3729(a)(1)(C). "The test for False Claims liability . . . is (1) whether there was a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the Government to pay out money or to forfeit moneys due (i.e., that involved a `claim')."
Relators claim that defendant Elliott violated the Buy American and Trade Agreements Acts by knowingly using plumbing parts from non-Designated Countries and falsely certifying that they did not use such parts, thereby violating the False Claims Act. Generally, false certification arises where (1) "a Government contract or program required compliance with certain conditions as a prerequisite to a Government benefit, payment or program;" (2) "the defendant failed to comply with those conditions;" and (3) "the defendant falsely certified that it had complied with the conditions in order to induce the Government benefit."
These requirements must also be met in light of Rule 9(b)'s heightened pleading standard for fraud.
In this case, defendants argue that relators' amended complaint fails Rule 9(b)'s particularity standard because the amended complaint does not contain sufficient factual information regarding relators' claim that defendants violated the Buy American and Trade Agreements Acts. Specifically, defendants argue that Rule 9(b) requires relators to plead
The court first addresses whether the amended complaint satisfies Rule 9(b) regarding relators' claim that Elliott installed non-compliant plumbing parts in FCI McDowell. The most instructive case on this issue comes from the United States Court of Appeals for the Seventh Circuit. In
In his complaint, Lusby alleged that Rolls-Royce defrauded the Government regarding the quality of the T56 engine.
The court finds that relators' amended complaint does not satisfy Rule 9(b) because it does not allege fraudulent conduct with necessary specificity. Relators consistently tout their status as "insiders" who worked as plumbers on the FCI McDowell project. With such inside information, relators should be able to allege violations of the Buy American and Trade Agreements Acts with more specificity than merely to cite non-compliant "plumbing parts." Relators allege that one of their number, Michael Spencer, himself removed the country of origin stamps from plumbing parts. If so, then he should be able to enumerate the
As it stands, relators' amended complaint does not allow defendants to respond adequately to the allegations. There are many rationales behind Rule 9(b), including "providing notice to a defendant of its alleged misconduct, . . . [and] eliminating fraud actions in which all the facts are learned after discovery."
Relators also contend that defendant Clark deliberately turned a blind eye to Elliott's use of non-compliant parts, but this too fails the particularity standard of Rule 9(b). Relators allege that Clark inspectors discovered Elliott's use of Chinese and Vietnamese parts and ordered Elliott to replace the non-compliant parts. Thereafter, Clark "discontinued" its inspections for the remainder of the project, "deliberately turning a blind eye to Elliott's use of the parts from China, Vietnam, and other non-Designated Countries."
These allegations fail the newspaper lead test because the amended complaint fails to provide the who, the what, the when, the where, and the how as required by Rule 9(b). The amended complaint does not identify which Clark representative "discontinued" inspections, when he or she chose to do so, or that the inspections were even a regular occurrence. Relators have not indicated that Clark treated Elliott differently from any other subcontractor or that a decision to discontinue inspections arose out of Elliott's use of parts from non-Designated Countries. Without such supporting facts, relators are unable to nudge their amended complaint from conceivable to plausible. As a result, the court dismisses relators' false certification claim against defendant Clark related to violations of the Buy American and Trade Agreements Acts for this reason, as well.
Relators claim that defendant Elliott intentionally misclassified their work in violation of the Davis-Bacon Act, falsely certified that all workers received the appropriate wage, and presented these claims for payment to the Government in their weekly payroll reports. As defendant Clark signed off on these reports, relators claim that this action violated the Davis-Bacon Act and, as a result, Clark also presented and certified false claims to the Government.
In their motions to dismiss, defendants claim that this court does not have jurisdiction over relators' misclassification claim. Instead, defendants assert that the Department of Labor has primary jurisdiction over relators' misclassification claim. For their part, relators contend that this court, and not the Department of Labor, has jurisdiction.
The terms of the FCI McDowell construction contract required Clark and all subcontractors, including Elliott, to comply with the Davis-Bacon Act, 40 U.S.C. § 3141
Further, compliance with the Davis-Bacon Act required Clark and all subcontractors to maintain payroll records listing "the name, address, and social security number of each such worker, his or her correct classification, hourly rates of wages paid. . ., daily and weekly number of hours worked, deductions made and actual wages paid." 29 C.F.R. § 5.5(a)(3)(i). Both Clark and its subcontractors were required to submit the records on a weekly basis, as well as certifying the payroll information's accuracy and that workers were not paid "less than the applicable wage rates . . . for the classification of work performed." 29 C.F.R. § 5.5(a)(3)(ii)(B). False certification can lead to liability under the False Claims Act. 29 C.F.R. § 5.5(a)(3)(ii)(D).
The doctrine of primary jurisdiction allows a district court to refer a determinative issue to an administrative agency when the issue is "within the special competence of [that] administrative agency."
In support of their argument that this court should refer the dispute to the Department of Labor, defendants rely on
Conversely, relators argue that the court should not refer the case to the Department of Labor, relying on
Having reviewed these decisions, the court concludes that
Additionally, a critical fact in
Furthermore, after reviewing the case law on misclassification and primary jurisdiction, the court finds the regulation dispositive. As noted in
Additionally, the court has considered a four-factor test employed by a number of courts to determine whether agency referral is appropriate.
The court finds that the four-factor test weighs in favor of referral to the Department of Labor. The consideration of appropriate labor classifications does not fall within the typical purview or conventional experience of judges. Consideration of this issue is suited particularly for the Department of Labor, as the agency itself creates the classifications. Further, "the structure of the Davis-Bacon Act and its implementing regulations suggests that the principal avenue of enforcement under the statutory scheme is administrative."
After a court has determined that an agency should exercise primary jurisdiction over a claim, the court must determine further whether to stay the proceedings or dismiss the claim without prejudice.
The court finds that relators would be unfairly disadvantaged if the court dismissed their misclassification claim without prejudice instead of staying the case. A plaintiff seeking relief under the False Claims Act must file his or her claim fewer than six years after the alleged violation took place. 31 U.S.C. § 3731(b)(1) (2012). Relators' claims for misclassification date back to August 2007. (Doc. No. 34 at ¶¶ 65, 68). If the court dismissed their misclassification claim, the statute of limitations would prevent relators from re-filing. Consequently, the court elects to stay the action pending the Department of Labor's determination regarding relators' misclassification claim.
Relators further allege that defendant Elliott violated the Davis-Bacon Act by requiring certain employees to work overtime without pay. The court finds that the amended complaint fails to allege this fraudulent conduct with necessary particularity.
Relators' amended complaint contains scant information regarding their unpaid overtime claim. The amended complaint contains no information regarding which Elliott supervisor told relators and/or other employees that overtime was a condition of work on the FCI McDowell job, nor does it give even estimated dates for when relators worked overtime at an Elliott supervisor's residence. Furthermore, none of relators' allegations regarding overtime tie Clark to any wrongdoing. For these reasons, the court finds that relators' claim related to unpaid overtime fails Rule 9(b)'s particularity requirements and is dismissed.
Finally, relators allege that defendant Elliot extorted kickbacks from undocumented workers in exchange for jobs as Project Workers on the FCI McDowell project. Relators contend that Clark knew of these kickbacks and that both companies falsely certified their weekly payroll reports, thereby violating the False Claims Act when they presented to the Government these claims for payment.
The FCI McDowell construction contract required compliance with both the Copeland Act and the Davis-Bacon Act. The Copeland Act imposes criminal liability on any person who:
18 U.S.C. § 874 (2012). Under the Davis-Bacon Act, contractors and subcontractors must pay workers the prevailing wage for his or her craft without any unauthorized deductions. 18 U.S.C. § 3141,
As described above, false certification arises where (1) "a Government contract or program required compliance with certain conditions as a prerequisite to a Government benefit, payment or program;" (2) "the defendant failed to comply with those conditions;" and (3) "the defendant falsely certified that it had complied with the conditions in order to induce the Government benefit."
A relator who makes claims under Rule 9(b) must include in his or her complaint "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."
The Fourth Circuit has acknowledged that many relators face practical challenges to meet the heightened Rule 9(b) standard when alleging false presentment, as most do not have independent access to records demonstrating false claims.
In this case, relators' amended complaint does not satisfy Rule 9(b) because it fails to plead presentment with the necessary particularity. The amended complaint describes certain elements of the alleged kickback scheme with considerable particularity. Relators go into great detail in their allegations of a kickback scheme, including who allegedly solicited undocumented workers and the required payments, but fail to plead any evidence demonstrating that defendants actually presented a claim for payment.
Relators' amended complaint presumes that defendants did indeed present a claim to the Government for payment because they should have or must have presented a claim. However, relators provide no information regarding "details concerning the dates of the claims, the content of the forms or bills submitted, their identification numbers, the amount of money charged to the Government, the particular goods or services for which the Government was billed, the individuals involved in the billing."
Notably, the amended complaint itself demonstrates relators' cognizance of the detailed requirements for pleading presentment under Rule 9(b). To support their argument that defendants paid relators insufficient wages, the amended complaint includes considerable documentation regarding their allegation. For each pay period, the amended complaint lists each relator's check number, dates worked, hours paid, rate of pay, and gross pay. (Doc. No. 34 at ¶¶ 57, 65, and 68). However, for their claim regarding violations of the Copeland and Davis-Bacon Acts, the amended complaint fails to provide any documentation at all, let alone the documentation proffered for their misclassification claim. Consequently, relators' claim regarding alleged violations of the Copeland and Davis-Bacon Acts is dismissed.
Furthermore, even if relators' amended complaint pled presentment with the necessary particularity, the court nevertheless would dismiss relators' claim for failure to plead the kickback scheme with necessary particularity. In order to allege a kickback scheme, relators must plead information related to both sides of the equation: extorters and victims. Relators contend that the kickback scheme created a false representation—that Clark and Elliott falsely certified that they had not induced any worker to give up part of his entitled compensation when the companies presented demands for payment to the Government. Absent information regarding these workers' identities, relators fail to satisfy Rule 9(b) because they neglect to describe the contents of defendants' false representations.
The amended complaint alleges that Elliot extorted kickbacks from undocumented workers "who were citizens of Mexico and countries in Central America," but provides little further information. Relators contend that these workers included two "who went by the names of Ricardo and Maynor." But this is all of the information that relators provide about the alleged victims. Relators would have to rely on discovery to obtain information concerning their claim, and, as described above, this is precisely what Rule 9(b) seeks to prevent. Accordingly, relators' claim related to violations of the Copeland and Davis-Bacon Acts is dismissed.
In the amended complaint, relators claim that Elliott and Clark violated 8 U.S.C. § 1324(a)(3)(A) and Executive Order 12,989 when Elliott employed undocumented workers on the FCI McDowell project. (Doc. No. 34 at ¶ 36). However, as defendants point out, neither the statute nor the Executive Order creates a private right of action.
Near the end of their amended complaint, relators include a claim that defendants conspired to defraud the Government. (Doc. No. 34 at ¶¶ 101-01). To plead a conspiracy under the False Claims Act, a relator "must allege with particularity facts (1) to support the formation of an unlawful agreement between the conspirators to get a false claim paid, and (2) at least one overt act in furtherance of the conspiracy."
In their amended complaint, relators fail to plead with particularity facts that support an unlawful agreement between Clark and Elliot to submit false claims for payment. Relators fail to plead any facts that relate at all to an unlawful agreement between defendants. Relators allege that the two companies knew of the other's FCA violations, but fail to plead the defendants agreed to make use of a false record or statement to induce the Government to pay a claim. Accordingly, the court dismisses relators' claim related to conspiracy under the False Claims Act.
In their memorandum in opposition to defendants' motions to dismiss, relators request leave to amend their amended complaint. (Doc. No. 45 at 34). The court denies without prejudice leave to amend the amended complaint at this juncture. However, plaintiffs may file a motion to amend their amended complaint along with a proposed amended complaint, at which time the court will consider their motion.
For the reasons cited herein, the court
Furthermore, defendants' motions to dismiss relators' original complaint are hereby
The Clerk is directed to send copies of this Memorandum Opinion and Order to counsel of record.
IT IS SO ORDERED.