Opinion
Case No. 3:18-cv-811-J-32MCR
03-16-2020
UNITED STATES OF AMERICA, Ex rel., JAY GALLO, and GREG QUINN Plaintiffs, v. THOR GUARD, INC., a Florida Profit Corporation, ROBERT DUGAN, an individual, and PETER TOWNSEND, an individual, Defendants.
ORDER
Jay Gallo and Greg Quinn ("Relators") bring this action on behalf of the United States, which elected not to intervene, against Defendants Thor Guard, Inc., Robert Dugan, and Peter Townsend ("Defendants") for a violation of the False Claims Act, 31 U.S.C.A. § 3729, et seq. ("FCA"), and for retaliation against Gallo. (See Doc. 1).
On June 26, 2018, Relators filed their Complaint under seal as a qui tam action pursuant to the FCA. Id. On April 1, 2019, the government filed its Notice of Election to Decline to Intervene, and the Court unsealed the Complaint. (Docs. 11; 12). Currently before the Court is Defendants' Motion to Dismiss. (Doc. 28). The Court received a response from Relators (Doc. 38), reply from Defendants (Doc. 41), and sur-reply from Relators. (Doc. 51).
I. BACKGROUND
A. Parties
Thor Guard is a national company that designs, manufactures, sells, and installs integrated lightning prediction and warning systems ("Products"). (Docs. 1 ¶ 4; 28 at 2). The United States government uses Thor Guard Products in various locations across the country. (Doc. 1 ¶ 10-12). Dugan is Thor Guard's President, and Townsend is Thor Guard's Chief Executive Officer. (Doc. 1 ¶ 21-22).
Thor Guard employed Relator Gallo as a sales representative from July 10, 2008 through April 6, 2018. (Docs. 1 ¶ 33; 28 at 3). Gallo, a resident of St. Johns County, Florida, had a sales territory including parts of north Florida and south Alabama. (Docs. 1 ¶ 24; 28 at 3).
Thor Guard hired Quinn as a consulting meteorologist and territory sales representative in December 2004. (Docs. 1 ¶ 38; 28 at 3). In November 2012, Quinn became Thor Guard's national software sales manager. (Doc. 1 ¶ 39). Quinn is a resident of Maricopa County, Arizona. (Doc. 1 ¶ 26). His territory includes Arizona, Nevada, and New Mexico. (Doc. 28 at 3).
B. Overview of False Claims Allegations
Relators allege that Thor Guard has made the following false claims: that Thor Guard's Products can reasonably predict lightning as it occurs; that Thor Guard matches the lowest price it provides to other customers for the federal government; that Thor Guard's Products comply with government regulations; and that Thor Guard's Products successfully predict lightning with over ninety-five percent accuracy. (Doc. 1 ¶ 5). In reality, Relators allege, Thor Guard's Products rarely work; Thor Guard charges more to the government than to other customers; and Thor Guard's Products fail to meet minimum government requirements. (Doc. 1 ¶ 6).
Relators allege that Thor Guard offers a discount up to fifty percent on its Products but gives the government a discount of only twelve percent. (Doc. 1 ¶¶ 15, 176-77).
Relators describe widespread government use of Thor Guard's Products. (Doc. 1 ¶ 10-12). They allege that Products are used and relied on by the United States Navy, Marines, National Guard, Air Force, NASA, the FBI, and Department of the Treasury, in addition to government contractors such as General Dynamics, Lockheed Martin, Jacobs Technology, Gulfstream Aerospace, and others. (Doc. 1 ¶ 10-11). Thor Guard advertises that its Products are also used at golf courses, parks, schools, universities, and sporting events, as well as for air travel, emergency management, mining, and media. (Doc. 1 ¶ 12). Relators state that faulty Products result in hundreds of millions in losses per year and risk the lives of citizens every day. (Doc. 1 ¶ 14).
C. Product Development Allegations
Since 1996, Thor Guard has manufactured and sold various lightning prediction systems. (Doc. 1 ¶ 64-67). The purpose of lightning prediction technology is to predict a lightning strike before it occurs. (Doc. 1 ¶ 50). Thor Guard's Products have allowed the company to set itself apart from competitors and garner substantial profits. (Doc. 1 ¶ 55). Thor Guard claims that its Products work with over ninety-five percent accuracy. (Doc. 1 ¶ 54).
Relators explain that lightning prediction products should not be confused with lightning detection technology products, which alert customers to a lightning strike after it has occurred. (Doc. 1 ¶ 43-44).
Currently, the company sells its L75 and L125 models, but various models are in use. (Doc. 1 ¶ 68). Current Products include a static electricity sensor, processor (computer), lightning prediction software, and a triaxial cable. (Doc. 1 ¶ 69). The sensor reads the atmospheric voltage, the cable transmits the voltage to the computer, and using that information, the software predicts lightning with an algorithm. (Doc. 1 ¶ 70-73). In late 2010 or early 2011, Relators allege that operability declined when Thor Guard began manufacturing new lightning prediction systems with PVC sensors made of plastic instead of metal. (Doc. 1 ¶ 80-83). In 2011, Dugan sent an internal email stating that all sensors used in Thor Guard's lightning prediction systems going forward would be PVC sensors. (Doc. 1 ¶ 84). These smaller plastic PVCs adversely affected the sensor's voltage reading accuracy. (Doc. 1 ¶ 86-87). Thor Guard, meanwhile, continued to use old software for metal sensors and told customers, including the government, its software still worked accurately. (Doc. 1 ¶ 89).
Relators have been informed that Dugan and Townsend may have a financial interest in the company that made the PVC sensors. (Doc. 1 ¶ 85).
Relators claim that the sensor's plate was no longer directly exposed to the atmosphere and the smaller surface area of the plate changed the electrostatic signal of the sensor. (Doc. 1 ¶ 87).
After the switch, customers reported errors, such as systems stating "All Clear" when a storm was present or "Red Alert" when no storm was present. (Doc. 1 ¶ 91). In response, Thor Guard made twenty-four revisions to its software from summer 2011 to March 2012, but those changes only magnified the errors and made systems unusable. (Doc. 1 ¶ 94). During an April 2012 conference call, Townsend acknowledged that Thor Guard had a "major problem" and conceded that the PVC sensor did not work, that the software was flawed, and that the company must go back to using metal sensors. (Doc. 1 ¶ 98-99). Dugan also admitted to issues with the PVC sensors. (Doc. 1 ¶ 100). In July 2012, Thor Guard sent a letter to some customers falsely blaming the Products' problems on a cable issue. (Doc. 1 ¶ 101). Thor Guard did not inform the government that its Products were effectively inoperable due to PVC sensors and defective software and instead stated that problems were due to a cable issue. (Doc. 1 ¶ 102). Some customers still have defective software from 2012 and 2013. (Doc. 1 ¶ 104). Thor Guard was unable to find software that worked, and despite switching back to metal sensors, problems persisted. (Doc. 1 ¶ 107-09).
Thor Guard began selling Products with a newly designed sensor called the ASA sensor in the summer of 2014. (Doc. 1 ¶ 112). Thor Guard did not inform customers, including the government, of the need to update software and did not maintain a way to track which customers had which Products and software. (Doc. 1 ¶ 115). Complaints from customers and sales representatives increased. (Doc. 1 ¶ 117). Problems continued even after Thor Guard tried to change the plate material, carbon content, size of the plate, and ground wires. (Doc. 1 ¶ 122). In one instance, lightning hit a customer's building, and Products did not alert until 20 minutes later. (Doc. 1 ¶ 127). Nonetheless, Thor Guard issued a 2017 newsletter to its representatives saying the company had identified issues and was resolving them. (Doc. 1 ¶ 129-30).
Relators allege that upon information and belief, Dugan and Townsend had a financial interest in the company that manufactured and sold ASA sensors to Thor Guard. (Doc. 1 ¶ 111).
Relators allege that since 2011, Thor Guard has covered up that its Products do not function as advertised and has suppressed complaints by sales representatives and customers. (Doc. 1 ¶ 131). Thor Guard has not recalled its Products, which Relators allege would cost millions because all Products would need to be repaired or replaced. (Doc. 1 ¶ 133).
D. Ongoing Problems and Defendants' Knowledge
Relators allege various issues with Thor Guard's current Products, including: failure to warn of lightning within two miles as advertised; showing false "All Clear" signs; showing false "Red Alert" signs; warning of a lightning strike but not in the advertised period of eight to twenty minutes in advance; lack of quality control to test the Products' reliability; and a dysfunctional sensor test. (Doc. 1 ¶¶ 135-48).
On May 23, 2012, Gallo sent an email to Metromedia, Thor Guard's majority shareholder, to inform Metromedia of issues with the Products. (Docs. 1 ¶ 151, 1-12). On June 15, 2012, he sent a letter to an employee at Thor Guard, copying Dugan and expressing concerns with the company's failure to inform the government of Products' problems. (Doc. 1 ¶ 152, 1-13). Five years later, on July 28, 2017, Gallo emailed Dugan with concerns about legal exposure related to the faulty Products. (Doc. 1 ¶ 153). Thor Guard received customer complaints, and Relators allege that in response, the company drafted a waiver to limit its liability by claiming that certain sites had "beta versions" of Products, but it never provided the waiver to its customers. (Docs. 1 ¶¶ 155, 1-16 at 3).
On September 14, 2017, Gallo sent a letter ("Jimerson Letter") to Metromedia. (Doc. 1-17). In the letter, Gallo explained that Products were not safe following years of fraud and safety risks, and he informed Metromedia that he had obtained counsel. Id. Metromedia conducted an internal investigation and later sold Thor Guard to Townsend. (Doc. 1 ¶¶ 23, 163). Townsend and Dugan directed Thor Guard's operation at all times material to the events in the Complaint, were consistently aware of issues with the Products, and fraudulently suppressed those issues. (Doc. 1 ¶ 159-60).
Relators state that government invoices label the product as a "Lightning Prediction System," and that in itself is a false claim. (Doc. 1 ¶¶ 164-66). While Thor Guard claimed its Products were ninety-five percent accurate, Quinn conducted a study that suggested a failure rate of over eighty percent. (Doc. 1 ¶¶ 167-70). Additionally, Relators allege various violations of minimum federal requirements for lightning warning systems. (Doc. 1 ¶¶ 172-75).
Specifically, Relators allege that the L125 model was not tested by a third party as required by the Consumer Product Safety Improvement Act and that the Products do not comply with National Institute of Standards and Technology standards, yet Thor Guard claims that its Products comply with federal regulations. (Doc. 1 ¶¶ 172-75).
E. Retaliation Against Relator Gallo
Relators allege that Thor Guard's retaliation against Gallo began in March 2012 after he first voiced concerns with the Products and became worse as he continued to express those concerns. (Doc. 1 ¶ 185). According to Relators, Thor Guard's employees were threatened and told that they would be fired if they communicated with Gallo or failed to provide information about him. (Doc. 1 ¶ 189). Gallo was removed from distribution lists and directories and barred from attending a large professional trade show. (Doc. 1 ¶¶ 187-88). Dugan made comments that Gallo and anyone on his side would be fired, in addition to sending a company-wide email requesting negative information about Gallo. (Doc. 1 ¶ 190-91). Gallo indicated he would not continue selling faulty Products and furthering Thor Guard's misrepresentations. (Doc. 1 ¶ 193). In 2017, he was cut off from communication, client referrals, and opportunities. (Doc. 1 ¶ 193). On April 6, 2018, he was terminated. (Doc. 1 ¶ 196).
Relators filed their qui tam Complaint less than three months after Gallo's termination. (Doc. 1). The Complaint was unsealed when the United States declined to intervene, and Relators have decided to proceed with the suit. (Docs. 1; 19).
Defendants contend that the Complaint should be dismissed as "a quintessential shotgun pleading since it incorporates every antecedent allegation by reference into each subsequent claim for relief." (Doc. 28 at 23). The Court disagrees. The Complaint contains only two counts: violation of the FCA, incorporating allegations 1 through 184, and retaliation, incorporating allegations 1 through 196. (Doc. 1 ¶¶ 197, 207). Relators explain that the allegations for Count I are important context for the retaliation claim. (Doc. 38 at 20). "A complaint is a shotgun pleading when it is virtually impossible to know which allegations of fact are intended to support which claim(s) for relief." Pittman v. State Farm Fire & Cas. Co., 662 F. App'x 873, 878 (11th Cir. 2016) (quotation omitted). Relators' Complaint does not suffer from this fatal defect. Therefore, the Court declines to dismiss the Complaint as a shotgun pleading.
Defendants argue that the Complaint should be dismissed because Relators failed to serve Defendants within the time limit for service under Federal Rule of Civil Procedure 4(m). (Doc. 28 at 28). Rule 4(m) states that "[i]f a defendant is not served within 90 days after the complaint is filed, the court—on motion or on its own after notice to the plaintiff—must dismiss the action without prejudice against that defendant or order that service be made within a specified time." The Court, however, may extend the service deadline for good cause. See In re Dyer, 330 B.R. 271, 275 (Bankr. M.D. Fla. 2005). Here, the Complaint was unsealed on April 1, 2019, and Relators were ordered to serve Defendants. (Doc. 12). Relators' deadline to serve Defendants was July 1, 2019. On that date, Relators filed a Notice of Intention to Proceed stating that Townsend was served on June 21, 2019, and service on the other Defendants was "expected within the next few weeks." (Doc. 19). Relators aver that they spent time with the government to understand its decision not to intervene before proceeding and that defense counsel refused to accept or waive service. (Docs. 51 at 5; 38 at 23). Ultimately, Thor Guard was served on July 12, 2019, and Dugan was served on August 7, 2019. The Court finds that Relators have shown good cause for delay and that Defendants have suffered no prejudice. Further, "[e]ven in the absence of good cause, a district court has the discretion to extend the time for service of process." Lepone-Dempsey v. Carroll Cty. Comm'rs, 476 F.3d 1277, 1281 (11th Cir. 2007). Thus, the Court will not dismiss the Complaint for failure to timely serve Defendants.
II. LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint and assumes all well-pled facts as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint must include a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). If a complaint contains mere "labels and conclusions or a formulaic recitation of the elements of a cause of action," it will not survive a motion to dismiss. Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007). A plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft, 556 U.S. at 679 (2008) (citation omitted). In determining whether to grant a motion to dismiss, the Court must construe all reasonable inferences in favor of the plaintiff. Id.
Allegations of fraud are subject to a heightened pleading standard. Fed. R. Civ. P. 9(b). An FCA complaint must "state with particularly the circumstances constituting fraud." Fed. R. Civ. P. 9(b); see United States ex rel. Clausen v. Lab Corp. of Am., 290 F.3d 1301, 1310 (11th Cir. 2002). In fraud cases, to satisfy the "particularity" standard, the Eleventh Circuit generally requires that a complaint include "some indicia of reliability" by identifying: (1) the precise statements, documents, or misrepresentations made; (2) the time and place of and persons responsible for the statement; (3) the content and manner in which the statements misled the plaintiff; and (4) what the defendant gains by the alleged fraud. W. Coast Roofing & Waterproofing, Inc. v. Johns Manville, Inc., 287 F. App'x 81, 86 (11th Cir. 2008) (citations omitted); United States ex rel. Chase v. HPC Healthcare, Inc., 723 F. App'x 783, 789 (11th Cir. 2018) (internal citations omitted); United States v. Cross Garden Care Ctr., LLC, No. 8:16-CV-961-T-27AEP, 2019 WL 6493972, at *3 (M.D. Fla. Dec. 3, 2019). In FCA cases, Rule 9(b) does not permit a relator to simply "describe a private scheme in detail but then to allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted, or should have been submitted to the Government." Clausen, 290 F.3d at 1311 (citation omitted). Instead, a relator must provide "some indicia of reliability . . . in the complaint to support the allegation of an actual false claim for payment being made to the Government." Id.
III. DISCUSSION
A. Violation of False Claims Act (Count I)
The Court must first determine whether Relators have stated a valid claim for violation under the FCA. The FCA imposes civil liability on anyone who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval," 31 U.S.C. § 3729(a)(1)(A); or "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim," 31 U.S.C. § 3729(a)(1)(B).
1. Presentment Theory
To state a claim under 31 U.S.C. § 3729(a)(1)(A), Relators must plead three elements: (1) a false or fraudulent claim; (2) which was presented, or caused to be presented by Defendants to the United States for payment or approval; (3) with the knowledge that the claim was false. United States v. KForce Gov't Sols., Inc., No. 8:13-cv-1517-T-36TBM, 2014 WL 5823460, at *7 (M.D. Fla. Nov. 10, 2014) (citation omitted). "[T]he statute attaches liability not to the underlying fraudulent activity or to the government's wrongful payment, but to the 'claim for payment.'" Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785 (4th Cir. 1999). Liability "arises from the submission of a fraudulent claim to the government, not the disregard of government regulations or failure to maintain proper internal policies." Clausen, 290 F.3d at 1309.
Thus, Relators "must allege the actual presentment of a claim . . . with particularly, meaning particular facts about the 'who,' 'what,' 'where,' 'when,' and 'how' of fraudulent submissions to the government." United States ex rel. Patel v. GE Healthcare, Inc., No. 8:14-CV-120-T-33TGW, 2017 WL 4310263, at *5 (M.D. Fla. Sept. 28, 2017) (quotation and citation omitted); see also United States ex rel. Matheny v. Medco Health Sols., Inc., 671 F. 3d 1217, 1225 (11th Cir. 2012) ("[A] relator must identify the particular document and statement alleged to be false, who made or used it, when the statement was made, how the statement was false, and what the defendants obtained as a result.").
Relators' allegations are sufficient with regard to whether Defendants presented a false or fraudulent claim to the government. Relators attach sample invoices to their Complaint as Exhibit S, some of which include contract numbers, pricing information, and a description of the contracted product as "Thor Guard L75B Lightning Prediction System." (Doc. 1-19). Relators allege these "[i]nvoices sent to the Federal government state that the Faulty Products are lightning prediction systems." (Docs. 1 ¶ 165-66). Claims for payment are the crux of a § 3729(a)(1)(A) violation, and Relators have provided adequate indicia of reliability to support the allegation that false claims were presented for payment to the government.
See A1 Procurement, LLC v. Hendry Corp., No. 11-23582-CIV, 2012 WL 6214546, at *8 (S.D. Fla. Dec. 13, 2012) (denying motion to dismiss when relator provided "a reliable indication that claims were actually submitted"); cf. Clausen, 290 F. 3d at 1302 (granting motion to dismiss when relator could not provide billing information to support the allegation that false claims were submitted for payment).
Defendants claim Exhibit S documents are not invoices, but Defendants fail to state what the documents are and do not deny that the documents reflect payments from various government entities to Thor Guard. (Doc. 28 at 13). The Court assumes all well-plead facts are true and makes reasonable inferences in favor of the plaintiff, so the Court will view Exhibit S as invoices.
Relators allege that "all of the products are faulty and each time one of them is sold, one is maintained, or one is serviced by Thor Guard, Defendants furthers [sic] the false claims, which started on or before 2010 and has continued regularly." (Doc. 38 at 9) (emphasis in original). Relators' theory is that because all Products were inoperable, all invoices to the government for the Products are false. The Court will not address whether that is a viable theory at this stage. The Court finds that Relators have attached specific invoices that allow them to proceed, at minimum, under a theory of presentment of false claims.
A defendant violates the FCA only by knowingly asking the government to pay amounts it does not owe and not by merely disregarding government regulations or by following improper internal policies. United States v. Kindred Healthcare, No. 8:16-CV-2076-T-27CPT, 2019 WL 4345782, at *2 (M.D. Fla. Sept. 12, 2019). Relators have provided detailed allegations about changes to Products over a multi-year period that resulted in serious concerns from employees, executives, and customers that the Products were dysfunctional. (Doc. 1 ¶¶ 80-133). They have also alleged with particularity that Townsend had knowledge the Products were inoperable and tried to cover it up (Doc. 1 ¶ 98-99, 1-16 at 3) and that Dugan admitted to issues with the PVC sensors saying "there are gremlins on the boards," indicated to Gallo that all sensors installed prior to 2015 should be replaced, and stated in an email "we will kill someone" if issues were not resolved (Docs. 1 ¶¶ 101, 121, 124, 125; 1-8). Taking the allegations as true, the Court finds that Relators have alleged facts sufficient to infer that Defendants knew their Products were essentially inoperable and billed the government despite that knowledge. Relators have sufficiently alleged an FCA violation under a presentment theory.
Sales of defective products alongside proof that a party knowingly or with deliberate ignorance charged the government for worthless goods may support FCA liability. See, e.g., United Health Services, Inc., v U.S., 136 S. Ct. 1989 (2016); United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262 (5th Cir. 2010); United States ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 303-04 (6th Cir. 1998).
2. False Certification
Because Defendants move to dismiss under a false certification theory as well, the Court will briefly discuss that theory as it applies to Relators' allegations. Under an "express false certification" theory, an entity is liable when it falsely certifies that it has complied with government regulations that are pre-requisites to payment. See U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011). Under an "implied false certification" theory, an entity is liable when the claimant makes seeks payment from the government without disclosing that it violated regulations that affected its eligibility for payment. Id. The Supreme Court has recognized implied certification as a viable theory under the FCA. Universal Health Serv. v. United States ex rel. Escobar, 136 S. Ct. 1995 (2016). The Court reasoned that "when a defendant submits a claim, it impliedly certifies compliance with all conditions of payment[,] [b]ut if that claim fails to disclose the defendant's violation of a material statutory, regulatory, or contractual requirement . . . the defendant has made a misrepresentation that renders the claim 'false or fraudulent' under the [FCA]." Id. at 1995.
In Urquilla-Diaz v Kaplan Univ., 780 F.3d 1039, 1052 (11th Cir. 2015), the Eleventh Circuit discussed the elements of a false certification claim under § 3729(a):
A plaintiff must show that (1) the defendant made a false record or statement for the purpose of getting a false claim paid or approved by the government; and (2) the defendant's false record or statement caused the government to actually pay a false claim, either to the defendant itself, or to a third party.
Additionally, our caselaw is clear: the submission of a false claim is the sine qua non of a False Claims Act violation. And while § 3729(a)(2) does not require the false claim's actual presentment to the government for payment, it also does not impose liability for false statements unless they actually cause the government to pay amounts it does not owe. So to prevail on a claim under this subsection, the relator must prove that the government actually paid a false claim. For this reason, to satisfy Rule 9(b)'s heightened-pleading requirements, the relator has to allege with particularity that the defendant's false statements ultimately led the government to pay amounts it did not owe.
Here, Diaz argues that he adequately pleaded a False Claims Act violation under a false certification theory. To do so under this theory, he had to allege facts that, if true, would show (1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due. After all, mere regulatory violations do not give rise to a viable FCA action; instead, it is the false certification of compliance which creates liability when certification is a prerequisite to obtaining a government benefit. Thus, the relevant certification of compliance must be both a prerequisite to obtaining a government benefit, and a sine qua non of
receipt of government funding. (citations and quotations omitted) (emphasis in original).
The Eleventh Circuit refers to 31 U.S.C. § 3729(a)(2) in its discussion of false certification, which is a provision about reduced damages under the current version of the FCA. See 31 U.S.C. § 3729(a)(2). The Court presumes that the Eleventh Circuit may have relied upon an older version of the FCA, prior to amendments in 2009. Regardless of the provision(s) it relied upon, the appellate court has articulated the requirements for a false certification claim under the FCA.
Relators have sufficiently alleged that claims for payment were actually submitted to the government. (Doc. 1-19). Regarding noncompliance with regulations, Relators allege, for example, that: Thor Guard had to go through the General Services Administration process to sell Products to the government, and under that process, sellers must meet certain standards before contracting, including third party testing that Thor Guard failed to do (Doc. 1 ¶ 171); and that the Products did not meet the Federal Lightning Capability Requirement for accuracy in detection (Doc. 1 ¶ 172). Relators then generally allege that "Thor Guard still falsely claims its products are in compliance with GSA requirements, as well as all federal rules and regulations." (Doc. 1 ¶ 175). However, Relators fail to allege what specific false certifications Defendants made. If Relators wish to allege a viable false certification claim, they must cure this pleading defect.
Relators also allege that Thor Guard purports to offer the government its lowest price when it actually offers lower prices to other customers. (Doc. 1 ¶ 176). Relators do not create an inference that this pricing was material to the government's payment decision and rely only on a quote to one other customer to substantiate the claim. (Doc. 1-21). Relators have not sufficiently alleged that language or statements used in marketing and advertising constitute a certification on which the government relied in deciding to contract with Thor Guard, which is necessary under a false certification theory.
Defendants also rightly argue that "government knowledge may disprove materiality." Doc. 28 at 20; United State ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081, 1092 n.10 (11th Cir. 2018). However, to prove knowledge, Defendants point to the government's decision not to intervene after a nine-month investigation into this matter. (Doc. 28 at 20). The Court doubts that would prove government knowledge within the meaning of the FCA, but in any event, will not consider it at this stage because it falls outside the four corners of the Complaint.
While the Court has addressed the two distinct theories of FCA liability, presentment and false certification, Relators have intermixed their allegations as to both theories in Count I. Relators do not differentiate between the statutory provisions, § 3729(a)(1)(A) and § 3729(a)(1)(B), and allege facts pertaining to both presentment of a false claim and false certification. (See Doc. 1).
Relators must re-plead to clarify their allegations. Relators must choose whether to proceed under a presentment theory, a false certification theory, or both (assuming they have a legal basis to do so). If Relators proceed under both theories, they should separate the presentment allegations and the false certification allegations into separate counts, incorporating only those paragraphs relevant to that theory.
B. Retaliation Under 31 U.S.C. § 3730(h) (Count II)
Since filing the Complaint, Gallo said in the Response in Opposition to Defendants' Motion to Dismiss that he "agrees to dismiss Count II against Dugan and Townsend without prejudice." (Doc. 38 at 22). Thus, the Court analyzes this claim as against Defendant Thor Guard alone. Relators' amended complaint should reflect this concession.
To state a valid claim of retaliation under the FCA, Gallo must allege: (1) that he was engaged in a protected activity prior to the purported retaliation; and (2) that the protected activity was causally related to the purported retaliation. 31 U.S.C. § 3730(h). The FCA defines protected activity as lawful acts done by the employee in furtherance of an action under the FCA or other efforts to stop one or more violations of the FCA. Chase, 723 F. App'x at 791-92. "To show retaliation, the plaintiff must establish a causal connection between the retaliation and the protected activity," meaning retaliation was because of protected activity. Id.
"[T]o state a claim for retaliation the plaintiff need not allege with particularity the fraud that the plaintiff purportedly reported to the defendant." United States ex rel. Ashmore v. 1st Fin., Inc., No. 8:16-CV-1387-T-23JSS, 2018 WL 310032, at *2 (M.D. Fla. Jan. 5, 2018); see also United States ex rel. Sanchez v. Lymphatx, Inc., 596 F.3d 1300, 1304 (11th Cir. 2010).
To show protected activity, Gallo need not allege filing his FCA suit before retaliation or referencing the FCA in his communications to his employer. United States v. Miami Cancer Inst., No. 17-24051-CIV, 2019 WL 1993513, at *5 (S.D. Fla. May 6, 2019), appeal dismissed, No. 19-12153-DD, 2019 WL 6487517 (11th Cir. Sept. 6, 2019). The FCA "prohibits retaliation against an employee who put [his] employer on notice of possible FCA litigation by making internal reports that alert the employer to fraudulent or illegal conduct." Id. (citation omitted). However, "mere reporting of wrongdoing to supervisors, without alleging that the wrongdoing constitutes fraud on the government, does not qualify as protected conduct." United States ex rel. Sanchez v. Lymphatx, Inc., 596 F.3d 1300, 1304 (11th Cir. 2010).
Gallo alleges that he engaged in "protected activity" with the following actions: his 2012 email to Metromedia, raising concerns about faulty Products (Doc. 1-12); his 2012 letter to Thor Guard in which he stated, "I think that under federal regulations, Thor Guard has an obligation to notify the Federal Government that there is a significant problem with the systems, and the resultant potentially catastrophic safety issues" (Doc. 1-13); his 2017 email to Dugan with concerns about legal exposure (Doc. 1-14); and his 2017 seven-page Jimerson Letter in which he said that he had retained counsel and outlined what he perceived as a fraudulent scheme (Doc. 1-17). Though only the 2012 letter explicitly mentions the government, taken together, these actions "support a reasonable conclusion that the employer could have feared being reported to the government for fraud or sued in a qui tam action by the employee." 31 U.S.C. § 3730(h).
Whether Gallo has alleged the protected activity was causally related to the purported retaliation is a more difficult question. Gallo fails to allege when he was removed from sales directories, when he was barred from attending a trade show, and when employees were threatened. He was fired on April 6, 2018, seven months after sending the Jimerson Letter, and nearly six years after his first reports. Cf. United States ex rel. Heesch v. Diagnostic Physicians Grp., P.C., No. CIV.A. 11-0364-KD-B, 2014 WL 4812386, at *6 (S.D. Ala. Aug. 5, 2014) ("In some instances, a prima facie case can be made on temporal proximity alone if the adverse action suffered by the employee is 'very close' in time to the protected activity"). The best course is to dismiss Gallo's retaliation claim without prejudice to allow him to replead and attempt to sharpen his allegations of causation, if he has a good faith basis to do so.
Accordingly, it is hereby
ORDERED:
1. Defendants Thor Guard Inc., Robert Dugan, and Peter Townsend's Motion to Dismiss (Doc. 28) is GRANTED. The Complaint (Doc. 1) is DISMISSED without prejudice.
2. Not later than April 17, 2020, Relators shall file an Amended Complaint.
3. Not later than May 8, 2020, Defendants shall answer the Amended Complaint.
4. The stay of discovery (Doc. 58) is LIFTED and discovery may proceed.
5. Not later than May 8, 2020, the parties will file a revised Case Management and Scheduling Order.
The Court will not rule out Defendants filing another motion to dismiss, but only if Defendants, in good faith, have a basis to do so in light of the Court's rulings herein.
DONE AND ORDERED in Jacksonville, Florida the 16th day of March, 2020.
/s/_________
TIMOTHY J. CORRIGAN
United States District Judge tnm
Copies: Counsel of record