Opinion
No. 1:15-cv-00689-JAM-SAB
02-05-2016
SIERRA VIEW LOCAL HEALTH CARE DISTRICT, Plaintiff, v. INFLUENCE HEALTH, INC., Defendant.
ORDER DENYING DEFENDANT'S MOTION TO DISMISS AND MOTION TO STRIKE
Plaintiff Sierra View Local Health Care District ("Plaintiff") has amended its California False Claims Act ("CFCA") cause of action in an attempt to comply with the heightened pleading standard required for fraud claims. Plaintiff's First Amended Complaint ("FAC") now includes three CFCA claims (Doc. #26). Defendant Influence Health, Inc. ("Defendant") moves to dismiss Plaintiff's CFCA claims (Doc. #29) and to strike portions of Plaintiff's FAC (Doc. #30). Plaintiff opposes both motions (Docs. ## 35, 36). For the reasons discussed below, the Court finds that Plaintiff has clarified its CFCA claims and has properly alleged facts sufficient to put Defendant on notice of the allegations against it. Accordingly, the Court DENIES Defendant's motion to dismiss Plaintiff's sixth, seventh, and eighth causes of action. The Court also DENIES Defendant's motion to strike.
I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
On February 26, 2010, Plaintiff entered into a Software License Agreement ("License Agreement") to purchase software modules from Defendant. FAC ¶ 5. The parties amended the License Agreement with Add-on Order #1, Change-order #1, and Change-order #2. Id. The parties also entered into a Software Maintenance Agreement ("Maintenance Agreement"). Id.
In April 2011, Defendant submitted notices of completion for the software modules to Plaintiff's project manager. Id. ¶ 7. Plaintiff alleges that at least five of the modules were not complete at the time Defendant submitted the notices of completion. Id. ¶ 10. Four of the modules were allegedly never completed. Id. Plaintiff alleges that in May 2011, Defendant began wrongfully billing Plaintiff maintenance fees for modules that were not complete. Id. ¶ 11.
Three years after Plaintiff started paying the maintenance fees, Plaintiff discovered that only four of the twelve modules it purchased from Defendant were actually functioning. Id. ¶ 17. In September 2014, Plaintiff verbally and in writing requested a reduction in maintenance fees, but Defendant refused. Id. ¶ 18. Plaintiff then stopped paying the maintenance fees. Id.
In January 2015, Plaintiff's counsel demanded a refund of maintenance fees in writing and notified Defendant of Plaintiff's claim that Defendant had violated the False Claims Act. Id. ¶ 19.
On April 9, 2015, Plaintiff filed suit against Defendant (Doc #1). Defendant moved to dismiss each cause of action (Doc. #5). The Court granted in part and denied in part Defendant's motion to dismiss. The Court dismissed Plaintiff's CFCA claim with leave to amend. Plaintiff then filed its FAC, which includes four separate claims for breach of contract, one claim for unjust enrichment, and three claims for violation of the CFCA. FAC at 1. Defendant moved to dismiss Plaintiff's sixth, seventh, and eighth causes of action for violation of the CFCA. Mot. to Dismiss at 1.
II. OPINION
A. Legal standard for pleading a CFCA claim
An entity violates the CFCA when it "knowingly presents or causes to be presented a false record or statement material to a false or fraudulent claim." Cal. Gov't Code § 12651(a)(1). "Knowingly" includes having "actual knowledge" of the information, acting with "deliberate ignorance of the truth or falsity of the information," or acting with "reckless disregard for the truth or falsity of the information." Id. § 12650(b)(3). "Proof of specific intent to defraud is not required." Id. "Claim" means "any request or demand, whether under contract or otherwise, for money, property, or services." Id. § 12650(b)(1).
Claims brought under the CFCA must meet the heightened pleading standards of Federal Rule of Civil Procedure 9(b). California ex rel. Mueller v. Walgreen Corp., 175 F.R.D. 638, 639 (N.D. Cal. 1997). "Under Rule 9(b), the circumstances constituting fraud or mistake shall be stated with particularity, but intent may be averred generally." United States v. Sequel Contractors, Inc., 402 F. Supp. 2d 1142, 1147 (C.D. Cal. 2005) (citing Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)) (internal quotation marks omitted). The pleader must also "state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation." Schreiber, 806 F.2d at 1401. Allegations under the CFCA must be specific enough "to give defendants notice of the particular misconduct so that they can defend against the charge." Cnty. of Santa Clara v. Astra U.S., Inc., 428 F. Supp. 2d 1029, 1036 (N.D. Cal. 2006).
B. Analysis
Defendant argues that each of Plaintiff's three CFCA claims are "beset by the same two maladies": first, Plaintiff has failed to plead its CFCA claims with the specificity required for fraud claims in federal court; and second, Plaintiff's CFCA claims are "wholly duplicative" of Plaintiff's breach of contract claims. Mot. to Dismiss at 4.
1. Plaintiff's Claims Meet the Specificity Requirement
As to Defendant's first argument, i.e. that Plaintiff has failed to allege the "who, what, where, and when" of the purported fraud, Plaintiff responds by specifically identifying the "who, what, where, and when" for each of its CFCA claims. Opp. at 6-8. Regarding "who," Plaintiff argues that alleging that Influence Health, Inc. committed the fraud is sufficient. Id. at 6. Plaintiff argues that "[s]ince this is a corporate fraud claim . . . the individual employees of the Defendants [sic] need not be alleged." Id. Plaintiff cites to Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987) for this proposition. Id. In Wool, however, the Plaintiff identified three individual officers who were involved in the alleged fraud.
Plaintiff has not alleged the names or job titles of any of Defendant's employees who may be involved in the alleged fraud. However, at least one California appellate court has held that a plaintiff stated a claim under the False Claims Act even though the plaintiff did not allege the names or titles of the employees engaged in the alleged fraud. Wells v. One2One Learning Found., 2009 WL 426216, at *8 (Cal. Ct. App. Feb. 20, 2009). The Wells court stated that "the purpose of the particularity requirement is to allow the defendant to understand fully the nature of the charge made." Id. (internal quotation marks omitted). The court in Wells held that the plaintiff had satisfied that purpose, even without alleging specific names of employees who engaged in the alleged fraud. Id. Here, therefore, Plaintiff's CFCA claims cannot be dismissed solely because Plaintiff has not yet identified which individual employees engaged in the alleged fraud.
Plaintiff also outlines the "what," "when," and "where" for each of its claims. Opp. at 6-8. For Plaintiff's sixth cause of action, Plaintiff explains that the parties modified the contract and "expressly agreed that no maintenance fees would be invoiced for the sleep lab." FAC ¶ 70. Plaintiff then alleges that beginning on May 1, 2011 (the "when"), Defendant began charging Plaintiff monthly maintenance fees. Id. As to the "where" Plaintiff argues that "[t]he complaint makes it clear that the false claims were presented to Sierra View . . . located in Tulare County, California." Opp. at 6. The Court agrees; such allegations are sufficient to put Defendant on notice of "where" the alleged fraud occurred.
As to the "what" in Plaintiff's seventh cause of action, Plaintiff alleges that "each invoice for maintenance fees submitted by Defendant . . . includes a demand for payment of maintenance fees for the four modules . . . which Defendant never completed." FAC ¶ 88. Plaintiff alleges that the maintenance fees paid on incomplete modules totals $81,000. Id. ¶ 90. For Plaintiff's eighth cause of action, Plaintiff alleges that Defendant charged Plaintiff maintenance fees on the modules before Plaintiff accepted the modules. Id. ¶¶ 96, 97. These allegations explain "what" the alleged fraud is and allow the Defendant to fully understand the charges against it.
Overall, Plaintiff's FAC provides more factual detail about the alleged misconduct than Plaintiff's original complaint. Though Defendant argues that the allegations in Plaintiff's FAC are just as insufficient as its allegations in the original complaint, the Court disagrees. Plaintiff has provided Defendant notice of what it believes constitutes fraud in violation of the CFCA. Defendant has sufficient information to conduct its own investigation and discovery to mount a defense to the CFCA claims. Dismissal on this ground is therefore not warranted. //
2. Plaintiff's CFCA claims are not duplicative
Defendant next argues that Plaintiff's CFCA claims should be dismissed because they are duplicative of Plaintiff's breach of contract claims. Mot.to Dismiss at 6. Plaintiff responds to this argument by citing to three cases in which the plaintiff brought both a FCA or CFCA claim and a breach of contract claim. Opp. at 3-4. Defendant argues that each of the cases that Plaintiff cites to is irrelevant. Reply at 4.
One of the cases is, indeed, irrelevant. In United States v. Sequel Contractors, Inc., the plaintiff brought a breach of contract claim and a claim for violation of the CFCA. 402 F. Supp. 2d 1142, 1146 (C.D. Cal. 2005). The court, however, did not address whether plaintiff could bring both of those causes of action based on the same facts. The other two cases, however, are relevant to the "duplication" issue. In San Francisco Unified Sch. Dist. ex rel. Contreras v. Laidlaw Transit, Inc., the court addressed the issue of whether "a request for payment under a contract . . . can form the basis for a CFCA claim." 182 Cal. App. 4th 438, 448 (2010), as modified on denial of reh'g (Mar. 25, 2010). The Laidlaw court held that a request for payment under a contract where the company requesting payment had not complied with an aspect of the contract can serve as a basis for a CFCA claim. Id. at 453. In Stacy & Witbeck, Inc. v. City & Cty. of S.F., the court specifically stated that contract claims are not "expressly excluded from the application of the FCA." 47 Cal. App. 4th 1, 9 (1996). While these cases do not explicitly state that a plaintiff can bring both a breach of contract claim and a CFCA claim, they do indicate that a CFCA claim can arise from an alleged failure to comply with a contract.
Additionally, the "scienter" or "knowledge" requirement of the CFCA distinguishes CFCA claims from breach of contract claims. See United States ex rel. Morsell v. Symantec Corp., 2015 WL 5449795, at *9 (D.D.C. Sept. 10, 2015) ("The knowledge requirement helps 'ensure that ordinary breaches of contract are not converted into FCA liability.'") (citing United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1271 (D.C. Cir. 2010)). The difference between Plaintiff's breach of contract claims and its CFCA claims is the inclusion of the "knowledge" element with the CFCA claims. Regarding Plaintiff's breach of contract claims, Plaintiff alleges that Defendant charged fees on modules in violation of the contract. Compl. at 9-15. Regarding its CFCA claims, however, Plaintiff alleges that Defendant billed Plaintiff for modules that Defendant knew were never completed. Id. at 18-27. Plaintiff's allegations regarding Defendant's knowledge of the status of the modules distinguishes Plaintiff's breach of contract claims from its CFCA claims. The Court finds, therefore that Plaintiff's contract and CFCA claims are not duplicative and this action will proceed on all the causes of action in the FAC.
C. Defendant's Motion to Strike
Defendant argues that the Court must strike Plaintiff's references to treble damages and civil penalties in its FAC because seeking such remedies is "in derogation of the specific language of the governing contract." Notice of Mot. to Strike at 1. Defendant argues that a clause in the License Agreement prohibits either party from recovering treble damages or penalties. Mot. to Strike at 2. The Court, however, has not determined that the License Agreement is enforceable. Determining whether the limitation of remedies clause in the License Agreement is enforceable would require the Court to interpret the contract, which is inappropriate at this stage in the litigation. Gardner v. RSM & A Foreclosure Servs., LLC, 2013 WL 1129392, at *3 (E.D. Cal. Mar. 18, 2013)("[I]t is inappropriate at the motion to dismiss stage for [the] Court to interpret the parties' contract and evaluate the viability of [the] [p]laintiff's claims based on the terms of the contract."). Defendant's motion to strike is denied.
III. ORDER
For the reasons set forth above, the Court DENIES Defendant's motion to dismiss and motion to strike. Defendant shall file its Answer to the FAC within twenty days of the date of this Order.
IT IS SO ORDERED. Dated: February 5, 2016
/s/ _________
JOHN A. MENDEZ,
UNITED STATES DISTRICT JUDGE