Summary
finding Rule 9(b) satisfied where complaint claiming violations of the FCA and California FCA did not list any specific transactions, but gave examples of false statements in seventy claims spanning a seven year period, and explaining that "[t]he Court does not find it necessary to plead facts regarding each of the 70 transactions in the Complaint"
Summary of this case from United States v. Sequel Contractors, Inc.Opinion
Case No. SA CV 00-1216-GLT (ANx).
September 13, 2004
ORDER ON DEFENDANTS' MOTION TO DISMISS
Defendants' motion to dismiss is GRANTED in part and DENIED in part.
I. BACKGROUND
Plaintiff is a former employee of Defendant Burke Engineering Co., a California corporation that sells heating, air conditioning, and refrigeration controls to government entities and other purchasers. Plaintiff believes since 1993 Burke Engineering has sold various items to government employees for their personal use, but has claimed payment for the items from government entities.
After Burke Engineering fired Plaintiff, he brought this lawsuit for damages and civil penalties under the federal, California, and Nevada False Claims Acts.
Plaintiff alleges three counts of substantive violations of those Acts ( 31 U.S.C. § 3729, Cal. Gov. Code § 12651, Nev. Rev. Stat. § 357.040) and three counts of conspiracy to violate the Acts ( 31 U.S.C. §§ 3729(a)(3) and 3732(b), Cal. Gov. Code § 12651(a)(3), Nev. Rev. Stat. § 357.040(c)). Plaintiff also brings three counts of employment discrimination under the Acts ( 31 U.S.C. § 3730(h), Cal. Gov. Code § 12653, Nev. Rev. Stat. § 357.240.2), alleging harassment and termination due to his lawful acts in furtherance of an action under the False Claims Acts. Plaintiff requests injunctive relief against Defendants to prevent them from disposing of personal and real property to avoid liability in this lawsuit.
Plaintiff brings suit for himself, as "relator" under the Acts, and for several government entities, all of which declined to intervene in the action.
Defendants Burke Engineering Co., Michael Burke, Kelly Burke, and Craig Burke move to dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 9(b), and to dismiss the employment discrimination claims against the individual Defendants.
Defendant Timothy Burke joined the motion.
II. DISCUSSION
A. Subject Matter JurisdictionDefendants assert this Court does not have subject matter jurisdiction over the California and Nevada claims. Defendants' Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction may be made on the basis the Complaint fails to allege grounds for federal subject matter jurisdiction. Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003). The plaintiff, as the party seeking to invoke the jurisdiction of the federal court, bears the burden of establishing subject matter jurisdiction.Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1472 (9th Cir. 1996).
Section 3732(b) of the federal False Claims Act confers jurisdiction in this Court "over any action brought under the laws of any State for the recovery of funds paid by a State or local government if the action arises from the same transaction or occurrence" as an action brought under the federal Act. 31 U.S.C. § 3732(b) (2003).
Defendants state Plaintiff has not alleged a single transaction or occurrence involving both the federal government and California or Nevada state entities. Plaintiff argues the phrase "transaction or occurrence" includes his allegations of an overall scheme of false claims used by Defendants.
Plaintiff pleads facts alleging an overall scheme of false claims used to defraud the federal government, the states, and their political subdivisions. The Court is satisfied the common scheme involving federal and state government entities is sufficient at this early pleading stage. The issue can be raised again later if discovery does not disclose common transactions or occurrences. Defendants' motion to dismiss the state claims for lack of subject matter jurisdiction is denied.
B. Motion to Dismiss Under Rule 12(b)(6)
The function of a Rule 12(b)(6) motion is to test the legal sufficiency of the claims stated in the complaint. The Court construes the complaint in the light most favorable to the plaintiff and accepts all well-pleaded factual allegations as true. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Courts must assume all general allegations "embrace whatever specific facts might be necessary to support them." Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). "However, the court is not required to accept legal conclusions cast in the form of factual allegations if those conclusions cannot reasonably be drawn from the facts alleged." Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994).
A Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). Thus, the question is whether the facts alleged, if true, would entitle the plaintiff to any form of relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995).
Plaintiff alleges Defendants engaged in a practice over seven years of submitting false claims for payment to government entities for items that were actually provided to government employees for their personal use. If true, these facts state a claim under the federal, California, and Nevada False Claims Acts, which prohibit knowingly presenting a false claim for payment to the government, 31 U.S.C. § 3129(a)(1), using a false record to get a false claim paid by the government, § 3129(a)(2), and other related actions, see §§ 3129(a)(5), (a)(7). See also Cal. Gov. Code § 12651, Nev. Rev. Stat. § 357.040. Defendants' motion to dismiss is denied.
C. Pleading with Particularity Under Rule 9(b)
Complaints filed under the False Claims Acts must meet the pleading requirements of Rule 9(b). See Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001). Rule 9(b) provides: "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9. The purpose of Rule 9(b) is to ensure "allegations of fraud are specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985).
In the Ninth Circuit, "[a] pleading is sufficient under [R]ule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare an adequate answer from the allegations. While statements of the time, place and nature of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud are insufficient." Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989) (internal citations omitted).
The Ninth Circuit has relaxed the pleading rule "with respect to matters within the opposing party's knowledge," since "plaintiffs can not be expected to have personal knowledge of the relevant facts." Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (citing Wool v. Tandem Computers Inc., 818 F.2d 1433, 1439 (9th Cir. 1987); Moore, 885 F.2d at 540). However,Neubronner stressed: "this exception does not nullify Rule 9(b); a plaintiff who makes allegations on information and belief must state the factual basis for the belief." Id.
Here, Plaintiff has met the pleading requirements of Rule 9(b). Plaintiff specifies two systems under which Defendants allegedly engaged in fraudulent activity, the manual "Stock Changeover" system and the computerized "Apples to Oranges" system. Plaintiff provides examples of items that allegedly were given to government employees and how Defendants billed those items to government purchase orders. For example, Plaintiff states laptop computers were billed as compressors, and truck consoles were billed as air conditioning parts. Plaintiff also states in 1998 Defendant Timothy Burke trained Burke Engineering's Long Beach store and seven other stores about the "Apples to Oranges" system.
Plaintiff does not list any specific transactions, although he states he has information on 70 false claims, which he downloaded from Burke Engineering's computer system. The Court does not find it necessary to plead facts regarding each of the 70 transactions in the Complaint. Plaintiff's Complaint is not based on these 70 transactions, but on the alleged overall scheme used by Defendants over seven years. Plaintiff alleges the total number of transactions, most of which are unknown to him, is in the tens of thousands. These transactions would be information within Defendants' knowledge. See Neubronner, 6 F.3d at 672.
Plaintiff has pled sufficient facts to put Defendants on notice of the time and nature of the alleged fraudulent scheme. Defendants can adequately prepare an answer to the Complaint.See Moore, 885 F.2d at 540. Defendants' motion is denied.
D. Employment Discrimination
Defendants argue the employment discrimination claims against the individual Defendants should be dismissed because the False Claims Acts speak to discrimination by employers, not individual supervisors. The Court agrees.
The False Claims Acts refer only to an "employer." Here, Plaintiff's employer was Burke Engineering Co. Although Plaintiff states Burke Engineering Co. is a family company directed by the individual Defendants for their personal benefit, it is an entity incorporated in California. Cases interpreting the Acts have found only companies, not supervisors, to be liable. See, e.g., United States ex. rel. McVey v. Bd. of Regents, 165 F. Supp. 2d 1052, 1056 (N.D. Cal. 2001).
Counts 3, 6, and 9 are dismissed as to the individual Defendants, with leave to amend. It is possible an acceptable amendment can be alleged.
E. Injunctive Relief
Count 10 requests injunctive relief to prevent Defendants from concealing and disposing of personal and real property in an effort to evade payment of an eventual judgment. This is a request for a remedy rather than a cause of action. Count 10 is DISMISSED. Any appropriate motion for pre-trial protective relief may be brought, or any appropriate request for post-trial relief may be asserted at the appropriate time.
III. DISPOSITION
Defendants' motion to dismiss is GRANTED in part, with leave to amend, and DENIED in part.
IV. NOTICE REQUIREMENT TO GOVERNMENT AGENCIES
The Court reminds the parties that an earlier Court order requires the parties to serve each involved government entity with all pleadings, motions, and supporting memoranda to provide the entities with notice and an opportunity to be heard.