The opinion
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
EUGENE DIVISION
MARTIN G. CHILDS, Case No. 6:20-cv-01610-MK
Plaintiff, OPINION AND ORDER1
Re: DEFENDANTS’ Fed. R.
Civ. P. 12(b)(6) MOTIONS
vs.
SERVICE EMPLOYEES
INTERNALTION UNION (SEIU); and
SEIU LOCAL 503, OPEU,
Defendants.
_______________________________________
KASUBHAI, United States Magistrate Judge:
1 The parties consent to jurisdiction by a U.S. Magistrate Judge. ECF No. 71.
Plaintiff Martin G. Childs asserts a single cause of action against Defendants SEIU
International and Defendant SEIU Local 503 for alleged violation of 31 U.S.C. § 3729(a)(1)(A),
a provision of the False Claims Act. Pl.’s Third Amended Complaint ¶¶ 24–27, ECF No. 49
(“TAC”). Before the Court are Defendants’ 12(b)(6) Motions to Dismiss Plaintiff’s Third
Amended Complaint, with Prejudice. ECF Nos. 58, 60. Plaintiff opposes the Motions and moves
in the alternative for leave to amend his Third Amended Complaint. Pl.’s Resp. 12–13, ECF No.
66. For the reasons set forth below, Defendants’ Motions to Dismiss with prejudice are
GRANTED; Plaintiff’s Motion for leave to amend is DENIED.
BACKGROUND
For the purposes of this Opinion, the following allegations in Plaintiff’s Third Amended
Complaint are taken as true.
Defendant SEIU International is an international union headquartered in Washington,
D.C. TAC ¶4. From September 2009 to June 2019, Plaintiff worked as the Finance Director for
Co-Defendant SEIU Local 503, OPEU (Local 503), an Oregon-based local union affiliated with
SEIU International. Id. at ¶5. Plaintiff alleges that at the direction of SEIU International, Local
503 devised a scheme to defraud the government of Medicaid funding:
First, the Defendant2 lobbied for the passage of SB 1534 in
Oregon, requiring mandatory training for Homecare workers.
Then, a Training [T]rust3 was established which contracted with
the Defendant to operate a call center. The Defendant controlled
both the call center and the [T]rust and so was able to award itself
the contract to provide call center work for the Training Trust.
2 The Complaint repeatedly refers to “Defendant” without specifying between Defendant SEIU International and
Defendant Local 503. Because the Court finds that Plaintiff has failed to allege a cause of action under the False
Claims Act for any Defendant, the Court refers to Defendants collectively, as well.
3 The Third Amended Complaint refers to several trusts with inconsistent designations. See TAC ¶¶8-9, 11, 13-14.
Having thoroughly examined the specific allegations in the Third Amended Complaint, solely for the purposes of
clarity to the reader of this Opinion, the Court refers to these trusts in a consolidated manner.
Pl.’s Resp 5. The trust agreement required trust management and oversight to “be shared equally
amongst five union trustees and five trustees representing the state of Oregon[.]” TAC ¶11. The
purpose of the Trust was “for the exclusive benefit of the plan participants and their
dependents[.]” Id. Trust assets were expressly prohibited from being “used to benefit either SEIU
Local 503, OPEU or the state of Oregon.” Id. Despite these express provisions, Plaintiff alleges
that all ten trustees were affiliated with Local 503 and that the Trust improperly provided Local
503 with money to purchase a building and to operate a call center. TAC ¶8, 11.
Plaintiff asserts that because the Trust received Medicaid funding, Local 503’s use of
trust funds in violation of the Trust’s agreement defrauded the government. Id. at ¶16, 19.
Plaintiff further alleges that Local 503 then hid its wrongdoing by filing false or misleading LM-
2 disclosures, a type of financial report filed with the U.S. Department of Labor.4 Id. at ¶12. The
LM-2 disclosures reflected billing invoiced to the Trust but did not reveal that Medicaid was the
source of the Trust’s funding. Id.; Pl.’s Resp 4-5.
Plaintiff brings a qui tam action under the False Claims Act, 31 U.S.C. § 3729. TAC ¶26.
He alleges that Defendants set-up and improperly used trusts for profit, defrauding the
government of $41,784,736. TAC ¶27. Plaintiff seeks, inter alia, 30% of treble the damages
owed to the government. Id. at ¶26–27.
4 Plaintiff’s Response does not oppose Defendant SEIU International’s description of LM-2 reports as:
annual financial reports that unions are required by the Labor-Management
Reporting and Disclosure Act to file with the Department of Labor’s Office of
Labor Management Standards (“OLMS”). See 29 U.S.C. §431, §439-40; 29
C.F.R. §403.3. They provide OLMS (and the public) with information about
union financial activity for the “preceding fiscal year.” 29 C.F.R. §403.3(b).
Def. SEIU International’s Mot. 7, ECF No. 58. A copy of the LM-2 form is available on the
OLMS’ website at:
https://www.dol.gov/sites/dolgov/files/OLMS/regs/compliance/GPEA_Forms/forms/lm2_form_fa
csimile_2022.pdf.
PROCEDURAL HISTORY
On January 15, 2021, Plaintiff filed a qui tam action against SEIU International for
violation of the False Claims Act, 31 U.S.C. § 3729.5 Pl.’s First Amended Compl. ECF No. 10.
The government declined to pursue Plaintiff’s claim. ECF No. 16. After SEIU International
advised Plaintiff’s counsel that it would move to dismiss the First Amended Complaint for
failure to state a claim, the Court granted Plaintiff leave to amend the Complaint for a second
time. ECF No. 28. SEIU International moved to dismiss Plaintiff’s Second Amended Complaint
for failure to state a claim on July 5, 2022. ECF No. 30. The Court held a hearing on that motion
and subsequently dismissed Plaintiff’s Second Amended Complaint, without prejudice, for
failure to state a claim. ECF No. 42. Plaintiff filed his Third Amended Complaint on January 21,
2023, adding SEIU Local 503 as an additional defendant. TAC ¶2. SEIU International filed its
Motion to Dismiss Plaintiff’s Third Amended Complaint for Failure to State a Claim on July 26,
2023. ECF No. 58. SEIU Local 503 filed its Motion to Dismiss for Failure to State a Claim on
August 14, 2023, adopting the arguments set out by SEIU International’s Motion. Def. Local 503
Mot. 4, ECF No. 60. On September 13, 2023, Plaintiff filed a single Response to Defendants’
Motion to Dismiss. Pl.’s Resp. ECF No. 66.
LEGAL STANDARD
A motion to dismiss for failure to state a claim may be granted only when there is no
cognizable legal theory to support the claim or when the complaint lacks sufficient factual
allegations to state a facially plausible claim for relief. Los Angeles Lakers, Inc. v. Fed. Ins.
5 “The FCA authorizes a private person, known as a relator, to bring a qui tam civil action ‘for a violation of section
3729 for the person and for the United States Government . . . in the name of the Government.’” Stoner v. Santa
Clara Cnty. Office of Educ., 502 F.3d 1116, 1120 (9th Cir. 2007) (quoting 31 U.S.C. § 3730(b)(1)).
Comp., 869 F.3d 795, 800 (9th Cir. 2017). In evaluating the sufficiency of a complaint’s factual
allegations, the court must accept as true all well-pleaded material facts alleged in the complaint
and construe them in the light most favorable to the non-moving party. Id. To be entitled to a
presumption of truth, allegations in a complaint “may not simply recite the elements of a cause
of action, but must contain sufficient allegations of underlying facts to give fair notice and to
enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th
Cir. 2011). All reasonable inferences from the factual allegations must be drawn in favor of the
plaintiff. Los Angeles Lakers, 869 F.3d at 800. The court need not, however, credit the plaintiff’s
legal conclusions that are couched as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678–79
(2009).
A complaint must contain sufficient factual allegations to “plausibly suggest an
entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the
expense of discovery and continued litigation.” Starr, 652 F.3d at 1216. “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “The plausibility standard is not akin to a
probability requirement, but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Id.
A claim brought under the False Claims Act must not only be plausible, but also pled
with particularity under Fed. R. Civ. P. 9(b). Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201,
1208 (9th Cir. 2019). Under Rule 9(b), “[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). A plaintiff
“alleging fraud must set forth more than the neutral facts necessary to identify the transaction.”
Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (internal quotation marks and
citation omitted). The pleadings in a False Claims Act case “must identify ‘the who, what, when,
where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the
purportedly fraudulent] statement, and why it is false.’” Cafasso, U.S. ex rel. v. Gen. Dynamics
C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) (quoting Ebeid ex rel. U.S. v. Lungwitz, 616
F.3d 993, 998 (9th Cir. 2010)).
DISCUSSION
I. Plaintiff Fails to Allege a “Claim” Within the Meaning of the False Claims Act
A defendant is liable under the False Claims Act when it “knowingly presents, or causes
to be presented, a false or fraudulent claim for payment or approval;” 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)(A)-(B). The False Claims Act “attaches liability, not to
underlying fraudulent activity, but to the claim for payment.” U.S. ex rel. Hopper v. Anton, 91
F.3d 1261, 1265–66 (9th Cir. 1996) (quotation marks and citation omitted).
“It seems to be a fairly obvious notion that a False Claims Act suit ought to require a
false claim.” Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir.
2011) (quoting United States ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995, 997 (9th
Cir. 2002)).6 Under the False Claims Act, a “claim” means a request or demand for money or
property that is “presented to an officer, employee, or agent of the United States [ ] or . . . made
to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the
6 See also U.S. ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1173 (9th Cir.2006) (“[F]or a false statement or
course of action to be actionable . . . , it is necessary that it involve an actual claim[.]”); U.S. ex rel. Hopper, 91 F.3d
at 1265 (“The FCA . . . requires a false claim.” (quoting the district court)).
Government's behalf or to advance a Government program or interest[.]” 31 U.S.C. §
3729(b)(2)(A). In other words, “[a] claim within the meaning of the False Claims Act is a
demand upon the Government for the payment of money or transfer of property.” United States
v. Howell, 318 F.2d 162, 164 (9th Cir. 1963). To survive a motion to dismiss, the complaint must
detail why the claim was false or misleading and provide the “who, what, when, where, and
how” the claim was made on the Government. Ebeid ex rel. U.S. 616 F.3d at 998.
Plaintiff has not alleged a “claim” within the meaning of the False Claims Act. The only
specific statements to the Government identified in Plaintiff’s Third Amended Complaint are
Defendants’ filing of LM-2 disclosures. TAC ¶¶20-23. However, by Plaintiff’s own definition,
LM-2 disclosures are “a type of financial report” that “is filed with the U.S. Dept. of Labor.”
TAC ¶12. Plaintiff’s response does not oppose Defendant SEIU International’s description of
LM-2 disclosures as merely a report to the Government about the union’s financial activity for
the preceding fiscal year. Def. SEIU International’s Mot. 7. Because Plaintiff fails to make any
plausible, much less particularized, allegation connecting the filings of LM-2 reports with
Defendants’ receipt of government funding, after three amendments, the Complaint is still
missing an allegation that Defendants made a “claim” on the Government for payment.
Plaintiff asserts that his Complaint alleges an “implied false certification theory” as the
basis for Defendants’ liability. Pl.’s Resp. 10. Under the “implied false certification theory”,
“liability can attach when the defendant submits a claim for payment that makes specific
representations about the goods or services provided, but knowingly fails to disclose the
defendant's noncompliance with a statutory, regulatory, or contractual requirement.” Universal
Health Servs., Inc. v. United States, 579 U.S. 176, 181 (2016). For the theory to apply, the
defendant’s certification of regulatory compliance must be a prerequisite to the government
funding the claim. U.S. ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1172 (9th Cir. 2006).
For example, in Universal Health Servs., Inc. v. United States, 579 U.S. 176 (2016), the
plaintiff alleged that the defendant “submitted reimbursement claims [to the Government] that
made representations about the specific services provided by specific types of professionals, but
that failed to disclose serious violations of regulations pertaining to staff qualifications and
licensing requirements for th[o]se services.” Universal Health Servs., Inc., 579 U.S. at 184–85.
Because the Government allegedly “would not have reimbursed the claims had it known that it
was billed for mental health services that were performed by unlicensed and unsupervised
staff[,]” the plaintiff’s complaint sufficiently alleged a violation of the False Claims Act under an
implied false certification theory. Id. at 185.
In his Response to the Motions to Dismiss, Plaintiff asserts that the implied false
certification alleged in the Complaint:
is that Local 503, acting on behalf of its parent organization
[(SEIU International)], certified to the Government that the
benefits obtained [from the Trust] would be used for the purpose
authorized by statute and that there would be State trusteeship over
the [T]rust that administered the benefits. Instead, the money was
used to enrich Local 503 at the expense of the State and the
Federal Government.
Pl.’s Resp. 11. However, a thorough examination of the Third Amended Complaint leaves the
Court searching for Defendants’ alleged certification of a claim to the Government. Unlike
Universal Health Servs., Inc., where the defendant allegedly submitted reimbursement claims for
specific services provided by specific types of professionals that falsely certified regulatory
compliance, here, Plaintiff merely alleges that the Trust distributed Medicaid funds to
Defendants for expenses that violated the terms of the Trusts’ agreements. Pl.’s TAC ¶19; see
Pl.’s Resp. 5. Plaintiff’s allegations cannot be construed as triggering False Claims Act liability
under an implied false certification theory. Moreover, because trusts are distinct legal entities,
general allegations of the Trusts’ improper distribution of Medicaid funds do not amount to
allegations of Defendants’ violation of the False Claims Act.7 For example, Plaintiff’s allegation
that “the trust’s tax report” improperly listed an “expenditure” as an “investment”, does not
amount to an allegation of Defendants’ wrongdoing. TAC ¶11.
The Complaint fails to detail a single claim made upon the Government. Plaintiff’s
allegation that Defendants were “in breach of its fiduciary duties under the Trust agreement by
spending trust funds for purposes that were not authorized by the agreement” does not provide
any detail of who, what, when, where, or how Defendants made a demand for payment from the
government. TAC ¶19. Descriptions of Defendants’ LM-2 disclosures do not satisfy the
requirement that a cause of action under the False Claims Act obviously requires an allegation of
a false claim. Because Plaintiff’s allegations fall far short of pleading with the particularity
necessary to allege a claim under the False Claims Act, Defendants’ Motions to Dismiss are
granted.
II. Further Amendment of Plaintiff’s Complaint Would Be Futile
As an alternative to dismissal with prejudice, Plaintiff asks the Court for leave to amend
the Third Amended Complaint. Pl.’s Resp. 12. Fed. R. Civ. P. 15(a)(2) provides that the “court
should freely give leave [to amend a pleading] when justice so requires.” A district court,
however, may, within its discretion, deny a motion to amend “due to undue delay, bad faith or
dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments
7 See N. Carolina Dep't of Revenue v. The Kimberley Rice Kaestner 1992 Fam. Tr., 139 S. Ct. 2213, 2218 (2019)
(trusts are separate legal entities for federal income tax purposes).
previously allowed, undue prejudice to the opposing party by virtue of allowance of the
amendment, [and] futility of the amendment.” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d
981, 1007 (9th Cir. 2009) (alteration in original) (quoting Leadsinger, Inc. v. BMG Music Pub.,
512 F.3d 522, 532 (9th Cir. 2008)). “The district court's discretion to deny leave to amend is
particularly broad where plaintiff has previously amended the complaint.” In re Vantive Corp.
Securities Litigation, 283 F.3d 1079, 1097–98 (9th Cir. 2002) (quotation omitted).
The Court has considered the Zucco factors and finds that leave to amend would be futile.
Plaintiff’s Second Amended Complaint was dismissed for failure to allege facts showing the
necessary elements of a False Claims Act claim. Minutes of Proceeding, ECF No. 42 (adopting
Defendant SEIU International’s “well-reasoned motion”). By adding Defendant Local 503,
Plaintiff’s Third Amended Complaint only responds to one of the deficiencies in the Second
Amended Complaint. However, Plaintiff’s Third Amended Complaint again fails to allege that
Defendants submitted a claim within the meaning of the False Claims Act. As described above,
the allegations fall far short of pleading with the particularity required under Fed. R. Civ. P. 9(b).
Plaintiff asserts that a fourth amendment to the Complaint would allow him to “streamline and
clarify” the allegations to allege that “[t]he key false certification is actually in [the] Trust
Agreement stating that the board of trustees will be split between State and Union membership.”
Pl.’s Resp. 13. However, the Court has already allowed Plaintiff ample opportunity to
“streamline and clarify” his Complaint. Having concluded that an allegation of a trusts’ violation
of its trust agreement does not impose liability on Defendants under the False Claims Act, leave
for further amendment would be futile. Plaintiff’s Third Amended Complaint is dismissed with
prejudice.
ORDER
For the reasons explained above, Defendants’ Motions to Dismiss (ECF Nos. 58, 60) are
GRANTED. Third Amended Complaint (ECF No. 49) is DISMISSED, with prejudice.
DATED this 21st day of November 2023.
s/ Mustafa T. Kasubhai
MUSTAFA T. KASUBHAI (He / Him)
United States Magistrate Judge