# UNITED STATES OF AMERICA v. MAGEE WOMENS RESEARCH INSTITUTE AND FOUNDATION

> District Court, W.D. Pennsylvania · April 24, 2024

URL: https://www.frixlaw.com/law-library/cases/10419685

## Case

- **Court:** District Court, W.D. Pennsylvania
- **Decided:** April 24, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
UNITED STATES OF AMERICA )
)
MICHELLE RUGGERI,
) 2:19-CV-862-NR
individually, )
)
)
Plaintiff,
)
)
v.
)

)
MAGEE-WOMENS RESEARCH )
INSTITUTE AND FOUNDATION; )
UNIVERSITY OF PITTSBURGH; )
)
UNIVERSITY OF PITTSBURGH )
MEDICAL CENTER; and UPMC )
MAGEE-WOMENS HOSPITAL, )
)
)
Defendants. )

OPINION
Relator Michelle Ruggeri brings this action against Defendants
Magee-Womens Research Institute and Foundation (the “Foundation”), the
University of Pittsburgh (the “University”), UPMC, and UPMC Magee-Womens
Hospital (the “Hospital”), alleging substantive violations of and retaliation under the
False Claims Act. Each Defendant has moved to dismiss the Second Amended
Complaint. For the following reasons, the Court will grant the motion of UPMC and
the Hospital (ECF 118) in its entirety; grant the motion of the University (ECF 112)
in part; and deny the motion of the Foundation, with some narrowing of the theories
of liability that may proceed (ECF 115).
BACKGROUND
I. The Foundation receives grant funding from the National Institutes
of Health.
Accepting as true the well-pled allegations in the Second Amended Complaint,
the Foundation is a nonprofit corporation and research institute focused on women’s
health research and education. ECF 90, ¶ 53. Though the Foundation is an
independent entity with its own board of directors, it doesn’t have its own employees.
¶¶ 54-55. Instead, UPMC and Magee-Womens Hospital essentially “lease”
employees to the Foundation and provide office and research space and
administrative services, including payroll, HR, email, and research support. ¶¶
26, 55-56. The Foundation, in turn, reimburses UPMC and the Hospital for providing
the employees, space, and services. ECF 90-2, p. 77; ECF 90-3, p. 86.
At the time of the relevant conduct here, the Foundation received 73% of its
funding from grants awarded by the National Institutes of Health. ECF 90, ¶ 51.
Recipients of NIH grants must abide by certain requirements outlined in the Uniform
Grant Guidance (2 C.F.R. § 200 ) and NIH’s Grants Policy Statement. ECF 90,
¶ 89. As relevant here, NIH grant recipients: (1) must have adequate financial
management and internal controls systems, as stated in 2 C.F.R. § 200.302 and 45
C.F.R. § 75.302 (ECF 90, ¶¶ 93-96); (2) must not mismanage funds by improperly
transferring costs to federal grants ( ¶¶ 99-105); and (3) must report income
generated by a grant-supported activity ( ¶¶ 107-109).
A grant recipient makes representations and certifications to NIH over the
lifecycle of a grant, including that the recipient will comply with NIH guidelines and
that making false or misrepresentative statements to NIH can result in penalties.
¶ 115. As a prerequisite to receiving a disbursement, a recipient must provide NIH
with financial and project performance reports and budgets, including a certification
that the reports are true. ¶¶ 118-133. NIH may adjust its disbursements
depending on the representations in the progress reports. ¶¶ 132-34.
II. Ms. Ruggeri’s employment as the Foundation’s Director of Grants and
Contracts.
In September 2017, the Hospital hired Ms. Ruggeri as the Foundation’s
Director of Grants and Contracts to “revamp” the Foundation’s internal accounting
and compliance systems. ¶¶ 32, 288. Ms. Ruggeri discovered that the Foundation
lacked internal accounting controls and engaged in improper accounting practices
that potentially violated NIH’s Grants Policy Statement. ¶ 35. She undertook
reform measures to bring the Foundation into compliance, including meeting with
executives and directors of the Foundation, the University, and UPMC; halting
improper accounting practices; and attempting to implement a new accounting
system. ¶ 288.
Ms. Ruggeri alleges that her superiors—including Dr. Yoel Sadovsky, the
Executive Director of the Foundation and a board member ( ¶ 63), Michael
Annichine, the CEO of the Foundation and a board member ( ¶ 64), and Sara
Arvay, Senior Director of the Foundation ( ¶ 67)—resisted her efforts. ¶¶ 290-
304. Frustrated with their stonewalling, on April 2, 2018, Ms. Ruggeri drafted an
Assessment of Grant Compliance, shared it with her superiors, and then, going
outside the chain of command, delivered it to Dr. Robert Edwards, a Department
Chair at the University and a member of the Foundation’s board. ¶¶ 38, 306-14.
In this assessment, Ms. Ruggeri “detailed specific failures and applicable regulations
that created potential liability under the False Claims Act and included
recommendations for addressing them.” ¶¶ 315-17. Hours after delivering her
assessment to Dr. Edwards, Mr. Annichine terminated Ms. Ruggeri’s employment.
¶ 319.
III. Ms. Ruggeri alleges three institutional deficiencies that she asserts
amount to FCA violations.
Ms. Ruggeri points to three schemes and certifications that Defendants
committed in violation of the FCA.
First, she alleges that the Foundation failed to maintain an adequate
accounting and financial system. Under Grants Policy Statement § 8.3.1, grant
recipients agree to maintain a financial management system that complies with the
standards and requirements set forth in 2 C.F.R. § 200.302 and 45 C.F.R. § 75.302.
ECF 90, ¶¶ 93-96; Grants Policy Statement § 8.3.1. But Ms. Ruggeri alleges
that the Foundation’s system was “outdated and obsolete,” “cumbersome,” and highly
limited in its ability to produce reports, trace expenditures, and budget, such that the
budgets and reports that the Foundation submitted to NIH “could not be accurate.”
¶¶ 98, 167-75. Defendants violated the FCA by fraudulently inducing NIH to
award grants and disburse funds by falsely certifying that the Foundation’s system
was compliant, and by making false certifications to NIH every time an inaccurate
budget or report was submitted. ¶¶ 97-98.
Second, Ms. Ruggeri pleads that Defendants improperly spent federal grant
money on unauthorized costs for unrelated projects in a “spenddown” scheme. Under
the Grants Policy Statement, a grant recipient generally may not transfer costs from
non-federal grant accounts to federal grant accounts, unless the cost was incurred
specifically for that federal award and benefitted the account receiving the federal
award. ¶¶ 101-106; 2 C.F.R. § 200.405(a). Ms. Ruggeri alleges that the
Foundation routinely transferred costs—namely, employee salaries—from unrelated
accounts with a budget deficit to federal award accounts with a budget surplus. ECF
90, ¶¶ 186-247. In other words, the Foundation, with the sign-off of employees of the
University, charged costs to federal grant accounts for work performed on unrelated
projects. Thus, the Foundation and the University submitted factually false claims
to NIH and falsely certified compliance. ¶ 106.
Third, Ms. Ruggeri alleges that the Foundation failed to report “program
income”—that is, income that was directly generated by the grant-supported activity
or earned through the grant—to NIH. ¶ 107. Ms. Ruggeri alleges that the
Foundation received program income in the form of costs saved, but either
underreported or failed to report those funds. ¶¶ 265-73.
IV. Procedural background.
In July 2019, Ms. Ruggeri brought this action on behalf of the United
States against Defendants for substantive violations of the False Claims Act, and
individually for retaliation. ECF 2 (Complaint); ECF 14 (First Amended Complaint).
The government spent more than three years purportedly investigating Ms. Ruggeri’s
allegations before ultimately declining to intervene in the matter. ECF 56. Ms.
Ruggeri decided to go it alone (ECF 60) and filed a Second Amended Complaint
(“SAC”) (ECF 90).
Each Defendant individually moved to dismiss the SAC, but incorporated the
other Defendants’ motions and briefs by reference. ECF 112; ECF 115; ECF 118. The
Foundation focused on Ms. Ruggeri’s failure to state a claim for a substantive FCA
violation (ECF 116), while the University (ECF 113) and UPMC and the Hospital
(ECF 119) focused on FCA retaliation. The Court held oral argument on the motions
on February 28, 2024. ECF 134. The motions are now ready for disposition.
LEGAL STANDARD
Under Federal Rule of Civil Procedure 12(b)(6), a complaint must make “a
short and plain statement of the claim showing that the pleader is entitled to relief,
in order to give the defendant fair notice of what the claim is and the grounds upon
which it rests.” , 809 F.3d 780, 786 (3d Cir. 2016)
(cleaned up). “Thus, to survive a motion to dismiss, a complaint must state a claim
to relief that is plausible on its face by providing facts which permit the court to infer
more than the mere possibility of misconduct.”
, No. 19-855, 2021 WL 3513860, at *3 (W.D. Pa. Aug. 10, 2021)
(Kelly, M.J.) (cleaned up). “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.” , 556 U.S. 662, 678
(2009). But “[w]here a complaint pleads facts that are merely consistent with a
defendant's liability, it stops short of the line between possibility and plausibility of
entitlement to relief.” (cleaned up).
A plaintiff alleging substantive violations of the FCA must meet the
heightened pleading standard in Rule 9(b).
, 579 U.S. 176, 195 n.6. (2016). Rule 9(b) states that “[i]n
alleging fraud or mistake, a party must state with particularity, the circumstances
constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).
To satisfy Rule 9(b) in the context of an FCA violation, the relator must “allege
particular details of a scheme to submit false claims paired with reliable indicia that
lead to a strong inference that claims were actually submitted.”
, 754 F.3d 153, 156 (3d Cir. 2014) (cleaned up). A relator need
not show “representative samples of the alleged fraudulent conduct” at the pleading
stage. at 156-57 (cleaned up). But “an inference of illegality based on facts that
could plausibly have either a legal or illegal explanation would be insufficient to meet
Rule 9(b)’s burden, because a relator must establish a strong inference that false
claims were submitted[,] and the possibility of a legitimate explanation undermines
the strength of the inference of illegality.” , 903 F.3d
78, 92 (3d Cir. 2018) (cleaned up).
By contrast, a claim for FCA retaliation is not subject to Rule 9(b)’s heightened
standard because “the retaliation provisions do not require the plaintiff to have
developed a winning qui tam action; they only require that the plaintiff engage in
acts made in furtherance of an FCA action.”
, No. 15-6547, 2019 WL 6880006, at *19 (D.N.J. Feb. 21, 2019) (cleaned
up). Thus, the pleading standard of Rule 8 governs FCA retaliation claims.
DISCUSSION & ANALYSIS
The FCA “imposes civil liability for making a false or fraudulent ‘claim,’ or a
false record or statement material to such a claim, to obtain payment from the federal
government.”
, 5 F.4th 315, 324 (3d Cir. 2021) (citing 31 U.S.C. § 3729(a)(1)(A)-(G),
(b)(2)). As relevant here, the FCA makes it unlawful for a defendant to:
• Knowingly present, or cause to be presented, a false or fraudulent claim for
payment or approval;
• Knowingly make, use, or cause to be made or used, a false record or
statement material to a false or fraudulent claim;
• Conspire to commit a violation;
• Knowingly make, use, or cause to be made or used, a false record or
statement material to an obligation to pay or transmit money or property
to the Government, or knowingly conceal or decrease an obligation to pay
or transmit money.
31 U.S.C. § 3729(a)(1)(A)-(C), (G). Ms. Ruggeri alleges that the three
institutional deficiencies—inadequate accounting system, spenddown scheme, and
failure to report program income—violated these four FCA provisions.
I. The Court will dismiss UPMC and Magee-Womens Hospital.
At the outset, the Court will grant UPMC and the Hospital’s motion. The only
basis of liability for these Defendants—respondeat superior—fails. ECF 90, ¶¶ 341,
348. Though UPMC and the Hospital technically employed the key players in this
case, including Dr. Sadovsky, Mr. Annichine, Ms. Arvay, and Ms. Ruggeri herself, the
SAC only pleads that these employees acted for the benefit of the Foundation, not
UPMC and the Hospital. ECF 90, ¶¶ 52, 56, 63-69.
“[T]he Third Circuit, following Supreme Court guidance, employs traditional
common law theories of the employment relationship when considering the proper
parties in FCA retaliation claims.” , No. 18-
1626, 2019 WL 1359740, at *4 (E.D. Pa. Mar. 25, 2019). So to impute the actions and
knowledge of the employees to UPMC and the Hospital, Ms. Ruggeri must establish
that each employee was acting “(1) in the course of his employment and (2) for the
benefit of the corporation.” , 614 F. Supp. 40, 44 (E.D. Pa.
1984); , 256 F. Supp. 3d 563, 584 (W.D. Pa. 2017) (Conti,
J.) (“It is well established that traditional vicarious liability rules ordinarily make
principals or employers vicariously liable for acts of their agents or employees in the
scope of their authority or employment.” (cleaned up)).
But each allegation of wrongdoing shows that at all relevant times the
employees were acting for the benefit of the Foundation, so they never acted on behalf
of UPMC or the Hospital. , ECF 90, ¶¶ 63-69 (explaining various roles and duties
at the Foundation), 156 (alleging Dr. Sadovsky, Mr. Annichine, and Ms. Arvay
directed activities at the Foundation), 174 (explaining deficiencies in the
Foundation’s accounting system), 176 (detailing Mr. Annichine’s refusal to
implement new accounting software as CEO of the Foundation), 232 (alleging
conversations between University PIs and “Magee Foundation’s Grants team” to
carry out improper cost transfers). The SAC specifically pleads that the Foundation
“remains legally responsible for the actions of its staff[,]” further supporting that the
employees were acting for the Foundation, not the other Defendants. ¶ 332.
The Foundation’s IRS Form 990s, which the SAC incorporates, confirm that
the relevant individuals, while employed ( ., paid) by UPMC, were essentially
loaned out to the Foundation. As such, they acted “in support of the mission” of the
Foundation, and the Foundation was financially responsible for these employees’
salaries based on the work that they performed for the Foundation:
All individuals who work in support of the mission of [the Foundation]
are employed either by the University of Pittsburgh or [UPMC]. [The
Foundation] is billed by each organization for the cost of salary and
fringe benefits corresponding to the effort these individuals expend in
support of the [Foundation’s] mission. [The Foundation] records such
costs as compensation on its financial statements. Payroll taxes are filed
by the employer organizations.
ECF 90-2, p. 77; ECF 90-3, p. 86. The Forms also provide that the Foundation
reimbursed the University and UPMC for 100% of the salaries of both Dr. Sadovsky
(as Executive Director) and Mr. Annichine (as CEO). ECF 90-2, p. 82; ECF 90-3, p.
79. Dr. Sadovsky split his time evenly between medical research and fulfilling “his
Executive Director responsibilities[,]” and Mr. Annichine spent “100%” of his time
“supporting the mission of [the Foundation][.]” These descriptions reflect the
picture created by the SAC—that the employees worked for the benefit of the
Foundation.
To establish liability under the FCA, Ms. Ruggeri must allege that UPMC and
the Hospital “had [a] role” in the false claims scheme, not a mere association with the
Foundation. , 708 F. Supp. 2d 505, 523-24 (E.D.
Pa. 2010) (emails showing employees of parent company “were involved in
determining what technical documentation to supply to the government” could not
support theory that parent company “had any role” in false claims scheme). Since
the SAC fails to allege with specificity any action taken for the benefit of UPMC and
the Hospital, the employees’ actions and knowledge cannot be imputed to those
employers. Thus, there is no basis to hold UPMC and the Hospital liable. The Court
will grant their motion to dismiss.
II. Substantive violations of the False Claims Act.
“A False Claims Act violation includes four elements: falsity, causation,
knowledge, and materiality.” , 855
F.3d 481, 487 (3d Cir. 2017). Defendants argue that the SAC fails to establish falsity
under the pleading standard of Rule 9(b) and materiality as outlined by the Supreme
Court in .

A. Allegations about the Foundation’s inadequate accounting
system.
Ms. Ruggeri alleges that the Foundation fraudulently induced NIH to award
grants and disburse funds by falsely certifying that the Foundation’s accounting
systems complied with the Grants Policy Statement and federal regulations. She
therefore sets forth two theories of FCA liability: fraudulent inducement, and false
certification (both express and implied).1 Ms. Ruggeri has sufficiently pled particular
details about the Foundation’s financial system to survive the motion-to-dismiss
stage under both theories of liability.
As alleged in the SAC, the Foundation committed itself to complying with the
Grants Policy Statement and incorporated federal laws and regulations, including 45
C.F.R. § 75.302, when it accepted NIH funds. ECF 90, ¶ 93. Those provisions state
that an award recipient’s financial system must be “sufficient to permit the
preparation of reports required by general and program-specific terms and
conditions; and the tracing of funds to a level of expenditures adequate to establish

1 “To prevail on a fraudulent inducement claim under the False Claims Act, a plaintiff
must show that (1) there was a knowingly false or fraudulent statement; (2) that the
statement was material; and (3) that it caused the government to pay out money or
to forfeit moneys due ( , a ‘claim’).” , 593 F. App’x at 143. “Under the
‘express false certification’ theory, an entity is liable under the FCA for falsely
certifying that it is in compliance with regulations which are prerequisites to
Government payment in connection with the claim for payment of federal funds.”
, 29 F. Supp. 3d 553, 561 (W.D. Pa. 2014)
(Hornak, C.J.) (cleaned up). Under an implied false certification theory, liability
“attaches when a claimant seeks and makes a claim for payment from the
Government without disclosing that it violated regulations that affected its eligibility
for payment.” at 562 (cleaned up).
that such funds have been used according to the Federal statutes, regulations, and
the terms and condition of the federal award.”
But the Foundation’s financial system couldn’t do that—it couldn’t trace
budget expenditures, couldn’t produce accurate monthly reports, and couldn’t be used
to verify that account funds were being properly spent. ¶¶ 93, 161-76. Ms.
Ruggeri alleges that, by signing and presenting grant applications and post-award
reports to NIH to receive disbursements, despite knowing that its accounting system
was non-compliant, the Foundation both induced NIH to disburse funds that it
otherwise wouldn’t have and made false certifications of compliance. ¶¶ 116-34.
Those details provide “reliable indicia that lead to a strong inference” that the
Foundation submitted false claims to NIH. , 754 F.3d at 156 (cleaned up).
The Foundation argues that the SAC fails to allege that its accounting system
or budgets violated any federal regulations. ECF 116, pp. 6-7. But the SAC pleads
that a grant recipient’s “failure to establish adequate control systems constitutes a
material violation of the award.” ECF 90, ¶ 95.
The well-pled facts explain that the Foundation repeatedly certified in its grant
applications and reports that its system was sufficient ( ¶¶ 113-31) even though its
system was anything but ( ¶¶ 161-76). That’s enough to plead falsity under the
relevant pleading standard. , No. 11-1987, 2013
WL 3052882, at *5 (N.D. Cal. June 17, 2013) (denying motion to dismiss where
“Plaintiff alleges that each application for an NIH grant requires that the applicant
affirm its compliance with various financial management system requirements and
that in response to the Financial Questionnaire, [Defendant] expressly affirmed the
existence of financial systems it did not have in place” (cleaned up)).2
B. Allegations about the spenddown scheme.
Next, Ms. Ruggeri alleges that Defendants are liable for making factually false
claims to NIH via the Foundation’s “spenddown” scheme by improperly transferring
costs to federal grant accounts. A claim is factually false “when the claimant
misrepresents what goods or services that it provided to the Government.”
, 500 F. Supp. 3d 345, 358 (E.D. Pa. 2020)
(cleaned up).
The SAC adequately alleges that the Foundation misrepresented how it spent
federal dollars by detailing the Foundation’s practice of overspending on accounts and
transferring those excessive costs (often employee “effort,” ., salary) to federal
accounts that did not accrue them. ECF 90, ¶¶ 189, 201, 204, 217-64. That process
violated both Grants Policy Statement § 7.5, which states that cost transfers to
federal awards “solely to cover cost overruns are not allowable,” and federal
regulations requiring that any salaries paid by federal awards “be based on records
that accurately reflect the work performed.” ¶¶ 103-05, 218, 224; ECF 124, p. 16
(citing 45 C.F.R. § 75.430(h)(i)(1)). It also means that the Foundation billed the
federal accounts for “effort” that was not actually performed for those accounts. That
is a “factually false” claim.
The Foundation argues that Ms. Ruggeri hasn’t pointed to any specific cost
transfers that were improper under the policy statement or federal regulations ( ,

2 The Foundation also argues that the Grants Policy Statement allows it to re-budget
and provides it with budget flexibility, depending on several factors. ECF 116, p. 7.
The allegations in the SAC concerning the accounting system, though, clearly plead
that the discrepancies with the budgets were a product of inadequate controls, not
allowable re-budgeting considerations. ECF 90, ¶¶ 91-98, 161-75. Discovery may
bear out a different story, but the Court is constrained to accept as true the
allegations in the SAC at this stage.
from non-federal accounts to unrelated federal accounts). ECF 116, pp. 8-12; ECF
136, 12:1-15:7. Not so.
Ms. Ruggeri describes a federal account ledger evidencing thousands of dollars
in improper cost transfers. ECF 90, ¶¶ 250-64; ECF 136, 44:1-45:8 (describing
transfer of employee salary into federal grant account where employee purportedly
did not work on that federal account). She also alleges that NIH audited the
Foundation and found repeat cost-transfer violations, resulting in NIH forbidding the
Foundation from transferring costs to federal accounts without prior approval. ECF
90, ¶¶ 43-44. Those specific, well-pled allegations, coupled with the allegation that
NIH grants made up about 73% of the Foundation’s funding, create reliable indicia
that these spenddown cost transfers from non-federal accounts to federal accounts
were widespread and improper. This claim survives against the Foundation.
This theory of liability may also proceed against the University. According to
the SAC, University employees, known as Principal Investigators (or “PIs”),
contributed to the spenddown scheme by misrepresenting employee “effort” spent on
federal accounts. ¶¶ 27, 355. These PIs were responsible for signing and
submitting Personnel Activity Reports (“PARs”), which reflect the work performed by
each employee on a given NIH grant account. ¶ 105. The SAC alleges with
specificity that PIs routinely modified the amount of “effort” employees worked on the
federal accounts to accommodate the cost transfers. ¶¶ 106, 186-264. The PIs
then submitted the PARs to an internal University system and were approved by the
University, resulting in overpayment on the federal accounts. ¶¶ 27, 106, 240-46.
Thus, as alleged, the University misrepresented the services it provided on the
federal grant accounts.
C. Allegations about failure to report program income.
Unlike the first two institutional deficiencies, Ms. Ruggeri’s claim about the
Foundation’s failure to report program income does not survive the pleading
standard. She alleges that Defendants failed to book program income as accounts
receivable to avoid restrictions on, and the potential return of, unspent grant funds.
¶¶ 265-69. She thus charges Defendants with making “reverse false claims,”
where a person or company wrongfully retains money it should have paid to the
government. ¶ 273;
, 839 F.3d 242, 247 (3d Cir. 2016) (citing 31 U.S.C. § 3729(a)(1)(G)).
This theory of liability comes up short for at least three reasons.
First, saved costs are not the same as “program income,” which is defined in
Policy Statement § 8.3.2 as “gross income that was directly generated by the grant-
supported activity or earned as a result of the award.” ECF 124, p. 15 (quoting Grants
Policy Statement § 8.3.2) (cleaned up). Ms. Ruggeri argues that this definition is
“broad enough” to encompass costs saved, but the Policy Statement reflects that
“program income” refers to funds generated by sales, charges, fees, and royalties
through the federal account. Grants Policy Statement § 8.3.2; ECF 90, ¶ 107; ECF
124, p. 15.
Second, even if costs saved do qualify as program income, the theory still fails
because Ms. Ruggeri doesn’t allege “particular details of a scheme to submit false
claims paired with reliable indicia that lead to a strong inference that claims were
actually submitted.” , 754 F.3d at 156 (cleaned up). She points to just one
vague email in which a Foundation employee states that the Foundation isn’t “doing
the [accounts receivable] reclass [journal entry] for milestone based invoices,” but
that doesn’t provide sufficient information under the pleading standard to show a
knowingly false scheme to avoid reporting program income. ECF 90, ¶¶ 271-72.
Third, as Ms. Ruggeri concedes, a grant recipient does not always have to
return excess funds to NIH. ¶ 108. But for a reverse false claim theory to apply,
“there must be a clear obligation or liability to the Government, which cannot be
premised on a future discretionary act.”
, 660 F. Supp. 3d 381, 407 (E.D. Pa. 2023). Since Ms. Ruggeri
can only allege that NIH “would likely have required [the Foundation] to return
program income[,]” but not that a clear obligation to return that income existed, her
reverse false claim theory fails. ECF 90, ¶ 111.
D. Materiality.
Defendants argue that even if Ms. Ruggeri states plausible theories of liability,
she fails to plead materiality. The Court disagrees.
An FCA violation is actionable only if the misrepresentation is “material to the
Government’s payment decision.” , 579 U.S. at 192. “This requirement helps
ensure that the False Claims Act does not become an all-purpose antifraud statute or
a vehicle for punishing garden-variety breaches of contract.” , 855 F.3d at
489 (cleaned up).
The FCA defines “material” as “having a natural tendency to influence, or be
capable of influencing, the payment or receipt of money or property.” 31 U.S.C. §
3729(b)(4). This standard is “demanding.” , 579 U.S. at 194. “A
misrepresentation cannot be deemed material merely because the Government
designates compliance with a particular statutory, regulatory, or contractual
requirement as a condition of payment. Nor is it sufficient for a finding of materiality
that the Government would have the option to decline to pay if it knew of the
defendant’s noncompliance.”
That said, it is relevant for purposes of materiality if the government deems
compliance as a condition of payment, if the defendant knew that the government
doesn’t pay in similar cases of non-compliance, and if the government’s behavior is
influenced by any such violations. , 579 U.S. at 194-95.
Here, considering these factors that the Supreme Court has deemed to be
relevant as to materiality, Ms. Ruggeri has met her burden at the motion-to-dismiss
stage.
First, aspects of the scheme detailed in the SAC concern compliance
requirements that NIH considered as conditions for receiving award disbursements—
and thus such violations can “meet the FCA [materiality] standard.” , 2013
WL 3052882, at *7; , 579 U.S. at 190-91. Indeed, the Grants Policy Statement
says that failure to have adequate controls is a “material violation” of the award. ECF
90, ¶¶ 95, 275 (quoting Grants Policy Statement § 8.3.1).
Second, the SAC also pleads that the Foundation knew that in other similar
cases of non-compliance, the government refused to pay or took adverse action. In
fact, Ms. Ruggeri alleges that she was hired to “revamp” the Foundation’s grant
department “due to concerns regarding internal controls and regulatory compliance”
following the initiation of a government investigation into the Foundation’s practices.
ECF 90, ¶¶ 32, 147. The SAC also pleads that the government has pursued actions
against NIH grant recipients for similar schemes to the one alleged here. For
example, and as pled in the SAC, the government intervened in a relator’s FCA action
against Columbia University where its financial reporting system did not have a
suitable means for verifying the accuracy of reporting costs for time and effort, such
that Columbia University overcharged grant accounts for work that was not actually
performed.3 , 579 U.S. at 195 (“evidence that the defendant knows that

3 ECF 90, ¶ 279 (citing Press Release, Department of Justice, Manhattan U.S.
Attorney Settles Civil Fraud Claims Against Columbia University and Affiliated
Public Health Program for Submitting False Claims in Connection with Aids and Hiv
(sic) Treatment-Related Grants (Oct. 28, 2014), https://www.justice.gov/usao-
sdny/pr/manhattan-us-attorney-settles-civil-fraud-claims-against-columbia-
the Government consistently refuses to pay claims in the mine run of cases based on
noncompliance” may establish materiality). If the Foundation and University didn’t
independently know about these other cases, the SAC alleges that Ms. Ruggeri, at
least at one point in time, told them. ECF 90, ¶¶ 38, 308-09, 332.
Third, perhaps the strongest evidence of materiality is the government’s
response after NIH learned of the Foundation’s compliance issues, including the mis-
allocation of costs. As pled in the SAC, during the government’s investigation into
Ms. Ruggeri’s allegations, NIH reviewed eight federal grants, which reflected 589 cost
transfers between them all. ECF 90, ¶ 284. NIH randomly sampled ten of those
transfers, and found each one violated NIH regulations and requirements. As a
result, “NIH forbade [the] Foundation from using cost transfers without prior written
consent.” ¶ 285. Moreover, NIH substantially reduced its awards to the
Foundation after Ms. Ruggeri’s allegations surfaced, underscoring that these
infractions were material. ¶ 286; , 579 U.S. at 195 (it is “very strong
evidence” that a requirement is not material “if the Government pays a particular
claim in full despite its actual knowledge that certain requirements were violated”).
As the Foundation argues, the relevant inquiry is “what [] NIH did, or did not
do, vis-à-vis the Foundation once it learned of” Ms. Ruggeri’s allegations. ECF 116,
p. 18. And as pled in the SAC, NIH altered how it awards, manages, and disburses
grant funds to the Foundation in a material way, suggesting that the false
representations here “go[] to the very essence of the bargain” between the Foundation

university-
and#:~:text=Columbia%20also%20agreed%20to%20pay,HIV%20projects%20around
%20the%20world); ¶ 278 (citing Press Release, Department of Justice,
Harvard University Agrees to Pay Over $1.3 Million to Resolve Allegations of
Overcharging NIH Grants (Apr. 27, 2020), https://www.justice.gov/usao-
ma/pr/harvard-university-agrees-pay-over-13-million-resolve-allegations-
overcharging-nih-grants).
and NIH, and affected NIH’s payment decision. , 855 F.3d at 489 (cleaned
up). Thus, Ms. Ruggeri has satisfied the materiality prong at the pleading stage.
E. Conspiracy.
A conspiracy to violate the FCA is a violation of the FCA itself. 31 U.S.C. §
3729(a)(1)(C). To state a claim for FCA conspiracy, a relator “must describe the
general composition of the conspiracy, its broad objectives, and the general roles in
the conspiracy.” , 660 F. Supp. 3d at 405-06. Specifically, Ms.
Ruggeri “must allege (1) a conspiracy to get a false or fraudulent claim allowed or
paid; and (2) an act in furtherance of the conspiracy.” at 406 (cleaned up).
The SAC establishes that a conspiracy to violate the FCA existed between the
Foundation and the University. As detailed above, University PIs and Foundation
employees manipulated employee “effort” on federal grant accounts to accommodate
improper cost transfers. In her allegations, Ms. Ruggeri quotes several emails
between and among Foundation employees and PIs establishing that the Foundation
routinely initiated cost transfers to cover deficits in other accounts. ECF 90, ¶¶ 227-
246. Based on these interactions, “[t]he Court can infer the existence of an
agreement” between the University and the Foundation.
, 596 F. Supp. 3d 522, 541 (E.D. Pa. 2022)(cleaned up). And based
on the exhaustive details of account ledgers showing the transfers, including the
results of the NIH audit that allegedly revealed a consistent improper practice, the
SAC likewise establishes the steps taken in furtherance of the conspiracy. ECF 90,
¶¶ 42-43, 248-264; , 660 F. Supp. 3d at 406. The conspiracy
claim therefore survives as to the Foundation and the University.
III. Retaliation under the False Claims Act.
In her second cause of action, Ms. Ruggeri alleges that Defendants terminated
her employment in retaliation for her efforts to stop the purported FCA violations.
To state such a claim, she must plead that (1) she engaged in protected conduct and
(2) she was discriminated against because of her protected conduct.
, 55 F.4th 188, 194 (3d Cir. 2022).4 The Court
concludes that Ms. Ruggeri has met her burden as to the Foundation, but not the
University.
A. Ms. Ruggeri engaged in protected activity when she delivered
her report to a non-officer board member.
The FCA “protect[s] lawful acts in furtherance of either an action under the
FCA or other efforts to stop 1 or more violations of’ the Act.” , 55 F.4th at
195 (cleaned up). Protected activity “includes investigation for, initiating of,
testimony for, or assistance in a False Claims Act suit, which can include internal
reporting and investigation of an employer’s false or fraudulent claims.”
, 668 F. Supp. 3d 368, 373 (E.D. Pa. Apr. 6,
2023) (cleaned up).
But it isn’t enough for the employee to investigate mere non-compliance—she
must specifically investigate FCA fraud. (“An employee’s investigation of nothing
more than his employer’s non-compliance with federal or state regulations does not
constitute protected conduct.” (cleaned up)). Additionally, if a relator’s job entailed
duties related to compliance, like Ms. Ruggeri’s, her acts must have exceeded her job
responsibilities to receive FCA protection, such as by “act[ing] outside of [her] chain
of command or [her] job duties.” , 55 F.4th at 195. This inquiry is “fact
intensive.”
Ms. Ruggeri engaged in protected activity on April 2, 2018, when she prepared
her Assessment of Grant Compliance, shared it with her superiors, and then hand-

4 She must also show that the underlying FCA claim that she was addressing was at
least “viable.” , 857 F.3d 497, 508 (3d
Cir. 2017); at 508 n.56. Because the Court has already concluded that the SAC
adequately alleges FCA violations by the Foundation and the University, Ms. Ruggeri
has satisfied this prong.
delivered it to Dr. Edwards, who was a Foundation board member. ECF 90, ¶¶ 314-
18. In taking this action, importantly, Ms. Ruggeri stepped outside the chain of
command: she went past her supervisors, taking her report directly to a board
member, Dr. Edwards. ¶¶ 305-314; , 111 F. Supp. 3d 9,
20 (D.D.C. 2015) (plaintiff in finance division went outside chain of command when
he reported concerns of FCA violations to COO and head of another department);
, 677 F.3d 1228, 1239-40 (D.C. Cir. 2012) (employee
stepped outside chain of command when she raised FCA allegations with her boss’s
supervisor).5 By sharing a report with Dr. Edwards directly, Ms. Ruggeri engaged in
activity beyond her normal compliance duties.
Further, the report went beyond describing mere non-compliance and
specifically outlined FCA liability. For example, the report detailed that two
universities were fined for failing to comply with NIH guidelines in the same manner
as the Foundation. ECF 90-1, p. 2. It also warned, “It should be clearly understood
that the federal government has no interest in [the Foundation’s] best interests. [The
government’s] sole focus is the appropriate use of federal monies according to the
statute.” at 6-7; ECF 90, ¶¶ 315-16.6 Given this content, the report from

5 Ms. Ruggeri described Dr. Edwards as “effectively next up in the chain of
command[.]” ECF 90, ¶ 39. But because making reports to board members directly
was “outside of [Ms. Ruggeri’s] ordinary reporting structure[,]” the Court views this
action as stepping outside the chain of command. , No. 19-
1235, 2019 WL 6530990, at *6 (E.D. Pa. Dec. 4, 2019).

6 To be clear, the other asserted reporting activities outlined in the SAC do not
constitute protected activity. First, they addressed compliance issues, not fraud.
, ECF 90, ¶¶ 157 (Ms. Ruggeri was hired “to bring Magee Foundation into
compliance with federal regulations.”), 288 (describing specific efforts to achieve
compliance). Second, as alleged, Ms. Ruggeri’s efforts mirrored, rather than
exceeded, the scope of her job duties. ECF 90-6, pp. 8-9 (describing Ms. Ruggeri’s job
responsibilities).
Ms. Ruggeri to Dr. Edwards constitutes protected activity for purposes of bringing a
FCA retaliation claim.

B. The Foundation was on notice of Ms. Ruggeri’s protected
activity and retaliated against her because of it.
To show that she was discriminated against “because of” protected conduct,
Ms. Ruggeri must allege that “(1) [her] employer had knowledge [she] was engaged
in protected conduct; and (2) that [her] employer’s retaliation was motivated, at least
in part, by the employee’s engaging in protected conduct.”
, 253 F.3d 176, 186 (3d Cir. 2001) (cleaned up). She must plead
facts “that plausibly showed [Defendant] was on notice [she] tried to stop
[Defendant’s] alleged FCA violations.” , 55 F.4th at 195.
Ms. Ruggeri has done so with respect to the actions she took on April 2, 2018.
In an April 2, 2018, email to Ms. Arvay, Dr. Sadovsky, and Mr. Annichine, Ms.
Ruggeri put her superiors on notice that the Foundation’s issues were not merely
compliance-based, but fraudulent. The email highlighted the difference between
“grant compliance” and the “need[] to pass the scrutiny” of a federal audit, and
warned that “the government is . . . only concerned with the correct spending of the
federal dollars and that this spending meets statutory requirements.” ECF 90, ¶ 309.
In the same email, she attached her assessment, in which she stressed that
institutions have been “fined” for similar issues. ECF 90, ¶¶ 37-38; ECF 90-1, p. 2.
That establishes knowledge.
The Foundation terminated Ms. Ruggeri’s employment hours after she
reported to Dr. Edwards. ECF 90, ¶ 319. The temporal proximity of these events—
Ms. Ruggeri’s putting her superiors on notice about potential FCA liability, escalating
her concerns beyond the chain of command to Dr. Edwards, and the termination of
her employment, all on the same day—suggests that the termination of her
employment was motivated by her protected activity.
, No. 20-6117, 2024 WL 219395, at *13 (E.D. Pa. Jan. 18, 2024) (“A
plaintiff may establish a causal connection through the unusually suggestive
temporal proximity of the adverse action to the protected activity[.]” (cleaned up)).
It also doesn’t matter that the Foundation didn’t directly employ Ms. Ruggeri.
The text of the FCA protects individuals from retaliation “ lawful acts
done by the employee[.]” 31 U.S.C. § 3730 (emphasis added). In interpreting the
phrase “because of” in this context, the Third Circuit held that “retaliation claims
under the FCA require proof of ‘but-for’ causation.” ,
879 F.3d 71, 78 (3d Cir. 2018). Thus, it’s enough for the SAC to show that the
Foundation was responsible for the retaliatory action even if it didn’t pay Ms.
Ruggeri’s salary. , 55 F.4th at 197 (cause of action for retaliation existed
where defendant contractor instructed its subcontractor to terminate plaintiff’s
employment following FCA allegations).
The foregoing is enough to plead FCA retaliation as to the Foundation, but not
against the other Defendants. There are no allegations that UPMC, the Hospital, or
the University had knowledge of the protected activity or engaged in the retaliatory
conduct, including in making the decision to terminate Ms. Ruggeri. ECF 90, ¶¶ 63-
69, 71 (alleging Dr. Edwards’s involvement with the Foundation was limited to his
role “[a]s a member of the Magee Foundation board”), 322 (alleging that the
Foundation “remains legally responsible for the actions of its staff”), 365-66 (pleading
that University’s involvement in retaliatory conduct against Ms. Ruggeri was limited
to Dr. Edwards’s “direct[ing] Relator’s termination” after receiving her report);
Section I, above. The multiple hats that different individuals wore at other times
isn’t enough to impute knowledge of Ms. Ruggeri’s report to UPMC, the Hospital, and
the University. , 568 F.3d 100,
106-07 (3d Cir. 2009) (“[N]ot all facts known by an agent are imputed to the
principal[,]” rather the agent’s knowledge is imputed to the principal where the
knowledge falls within the scope of the agent’s duties to the principal and if that
knowledge is “important to the function the employee is employed to perform.”).
For these reasons, the retaliation claim, while viable against the Foundation,
must be dismissed as to the other Defendants.7
CONCLUSION
In sum, the Court finds that Ms. Ruggeri has stated a claim for substantive
FCA violations against the Foundation and the University, and a claim for FCA
retaliation against the Foundation. Thus, for the reasons above, the Court will grant
UPMC and the Hospital’s motion to dismiss (ECF 118) and will grant the University’s
motion to dismiss (ECF 112) as to Count 2 only. The Court will deny the Foundation’s
motion (ECF 115), but as noted above, any FCA claims predicated on the “program
income” fraud may not proceed and are effectively dismissed.
Additionally, as Ms. Ruggeri has amended her complaint twice since
commencing this action almost five years ago, the Court finds that amendment would
be inequitable.
, No. 19-132, 2020 WL 3316780, at *13 (W.D. Pa. June 18, 2020) (Ranjan, J.)
(inequity would result by giving plaintiff a “third bite of the apple” (citation omitted)),
, 849 F. App’x 36 (3d Cir. 2021). It would also be futile because the SAC
establishes that the individual employees were at all relevant times working for the
benefit of the Foundation (or, in the case of the PIs in Count 1, the University).
Amendment cannot transform the nature of that work to extend liability to the other
Defendants on the dismissed claims. (inability to “cure” deficiency “through

7 To the extent Ms. Ruggeri argues that UPMC and the Hospital are liable for
retaliation because the UPMC Director of Human Resources joined Mr. Annichine in
the room to terminate her employment (ECF 90, ¶¶ 40, 340), that argument fails
because the SAC doesn’t allege that the Director of Human Resources had any
knowledge about Ms. Ruggeri’s protected activity and any involvement in making the
decision to terminate her employment.
additional factual development” made amendment futile). So these dismissals are
with prejudice. An appropriate order follows.

DATED: April 24, 2024 BY THE COURT:
/s/
United States District Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10419685. Public record. Not legal advice.