# United States v. Baxter

> District Court, N.D. California · May 8, 2025

URL: https://www.frixlaw.com/law-library/cases/11046907

## Case

- **Court:** District Court, N.D. California
- **Decided:** May 8, 2025
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

1
2
3
4 UNITED STATES DISTRICT COURT
5 NORTHERN DISTRICT OF CALIFORNIA
6
7 UNITED STATES OF AMERICA, Case No. 23-cv-00336-WHO

8 Plaintiffs,
ORDER GRANTING MOTION TO
9 v. DISMISS THE SECOND AMENDED
COMPLAINT
10 KAREN BAXTER, et al.,
Re: Dkt. No. 56
Defendants.
11

12 Plaintiff Relator LLC (“Relator”) is a limited liability company whose members are small
13 business owners and taxpayers, formed with the express purpose of identifying corporations who
14 have needlessly and illegally profited from government guaranteed loans that were available as a
15 result of the COVID-19 pandemic. It filed this lawsuit against Santa Lucia Preserve Company
16 (“SLPC”), SLPC’s Chief Executive Officer and board chair Karen Baxter, SLPC’s former Chief
17 Financial Officer Andrew Simer, and 10 Doe defendants (together “defendants”), alleging that
18 they violated the False Claims Act because SLPC was ineligible for loans under the Paycheck
19 Protection Program (“PPP loans”) in light of its ownership or control of two private clubs.
20 Defendants move to dismiss Relator’s Second Amended Complaint. (“SAC”) [Dkt. No. 55].
21 They establish, centrally, that SLPC does not own either of the private clubs and was not
22 precluded from applying for the loans in question for that reason. Accordingly, and for the
23 additional reasons set forth below, the motion to dismiss is GRANTED.
24 BACKGROUND
25 I. FACTUAL BACKGROUND
26 In March of 2020, Congress signed the Coronavirus Aid, Relief, and Economic Security
27 Act (“the CARES Act”) into law. SAC ¶ 28. As a component of the CARES Act, the Small
1 designed to support small businesses through the challenges brought on by COVID-19. SAC
2 ¶ 28–29. As pertinent here, this included Section 1102 of the CARES Act, which allowed the
3 SBA to guarantee certain loans under the “Paycheck Protection Program.” SAC ¶ 30. An eligible
4 business, including a “self-employed individual, independent contractor, or sole proprietorship
5 with no employees or [an Applicant that] had employees for whom it paid salaries and payroll
6 taxes or paid independent contractors” could apply for, receive, and ultimately qualify for
7 forgiveness for, a loan. (“PPP loan”) SAC ¶¶ 32, 35 (citing SBA Application From 2484).
8 The Application Form required an applicant to make several certifications, including that
9 an applicant for a PPP loan understood the contents of the form, that an applicant was eligible to
10 receive a loan, that the PPP loan would “be used only for business-related purposes,” that the
11 applicant was undergoing economic uncertainty, that the PPP loan would be used “to retain
12 workers and maintain payroll or make mortgage interest [or similar] payments,” and, finally, that
13 the contents of the application were “true and accurate.” SAC ¶¶ 35–41. Importantly, Relator
14 asserts, “private clubs and businesses which limit the number of memberships for reasons other
15 than capacity [were] ineligible to obtain” PPP loans. SAC ¶ 46.
16 Relator alleges that SLPC “is the owner of 2,000 acres of land in Carmel, California” and
17 that it “owns, operates and manages all aspects of use of the Property it owns.” SAC ¶¶ 7, 13.
18 Part of this ownership and management of the Property, Relator asserts, includes managing “who
19 has access and the requirements for access to the Property and the various amenities it offers . . .
20 and employees paid by SLPC manage and operate all aspects of that business and the Property.”
21 SAC ¶ 13. Two establishments on the Property include the Preserve Golf Club and the Ranch
22 Club, which “restrict[] membership for reasons other than capacity.” SAC ¶ 17. Because of
23 SLPC’s decision to limit public access to its Property, and principally due to its management and
24 control of the Preserve Golf Club and the Ranch Club, Relator alleges that SLPC was ineligible to
25 apply for a PPP Loan under the CARES Act.
26 Relator contends that, contrary to the provisions of the CARES Act, SLPC “applied for
27 and received one (1) PPP Loan in excess of $2.1 million.” SAC ¶ 48. According to Relator,
1 dues if necessary,” so SLPC was aware that it was not undergoing economic uncertainty. SAC ¶
2 51. But “[d]efendants signed the loan applications, thereby endorsing” each of the certifications
3 included as a part of the application. SAC ¶¶ 48–50. Relator asserts that defendants “knew the
4 Loan was not necessary” and that they “intentionally made several key statements which were
5 false and intended to deceive” on their loan applications. SAC ¶ 53.
6 As a result, SLPC received the loan, and ultimately applied for and received forgiveness
7 for the loan. SAC ¶ 8. SLPC’s loan was forgiven in full on July 21, 2021. SAC ¶8.
8 In sum, Relator alleges that by filling out the application, and therefore necessarily
9 responding affirmatively to each of the required certifications, SLPC acquired the PPP loan by
10 fraudulent means. SAC ¶¶ 49–54. The SAC asserts one cause of action against SLPC, for
11 violation of the False Claims Act. SAC ¶¶ 60–64; 31 U.S.C. § 3729(a)(1)(A-B). Relator seeks a
12 remedy of treble damages, civil penalties, attorney fees and costs.
13 II. PROCEDURAL BACKGROUND
14 On January 23, 2023, Relator filed suit on behalf of the United States pursuant to the qui
15 tam provisions of the False Claims Act. 31 U.S.C. § 3730(b). On May 23, 2024, Magistrate
16 Judge Sallie Kim filed an Order Regarding the United States’ Notice to Decline Intervention.1 See
17 Dkt. No. 17 (noting that the “United States ha[s] declined to intervene in this action pursuant to
18 the False Claims Act”).
19 Defendants moved to dismiss Relator’s original complaint on September 19, 2024. See
20 Dkt. No. 33. On October 3, 2024, Relator filed a notice of its intent to file a first amended
21 complaint as a matter of course. See Dkt. No. 43. It did so shortly thereafter. See Dkt. No. 44.
22 Defendants moved to dismiss; I granted the motion and permitted Relator leave to amend. See
23 Dkt. No. 54. Relator filed its SAC on January 9, 2025. See Dkt. No. 55. Defendants filed a
24 renewed motion to dismiss, Relator opposed the motion, and defendants filed a reply. Motion to
25 Dismiss (“Mot.”) [Dkt. No. 56], Opposition to the Motion to Dismiss (“Oppo.”) [Dkt. No. 58];
26

27
1 Although it is not a party to the action, the United States remains the real party in interest. The
1 Reply in Support of the Motion to Dismiss (“Repl.”) [Dkt. No. 59]. After granting plaintiff’s
2 motion to continue the hearing, I held a hearing on the instant motion on May 7, 2025. Dkt. Nos.
3 60, 61.
4 LEGAL STANDARD
5 I. Rule 12(b)(6)
6 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint
7 if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to
8 dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its
9 face.” See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible
10 when the plaintiff pleads facts that “allow the court to draw the reasonable inference that the
11 defendant is liable for the misconduct alleged.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
12 (citation omitted). There must be “more than a sheer possibility that a defendant has acted
13 unlawfully.” Id. While courts do not require “heightened fact pleading of specifics,” a plaintiff
14 must allege facts sufficient to “raise a right to relief above the speculative level.” See Twombly,
15 550 U.S. at 555, 570.
16 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the
17 Court accepts the plaintiff’s allegations as true and draws all reasonable inferences in favor of the
18 plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court
19 is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of
20 fact, or unreasonable inferences.” See In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.
21 2008).
22 If the court dismisses the complaint, it “should grant leave to amend even if no request to
23 amend the pleading was made, unless it determines that the pleading could not possibly be cured
24 by the allegation of other facts.” See Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). In
25 making this determination, the court should consider factors such as “the presence or absence of
26 undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous
27 amendments, undue prejudice to the opposing party and futility of the proposed amendment.” See
1 II. Rule 9(b)
2 “Because they involve allegations of fraud, qui tam actions under the FCA must meet not
3 only the requirement of Rule 8, but also the particularity requirements of Rule 9.” United States
4 ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011). Federal Rule of Civil
5 Procedure 9(b) imposes a heightened pleading standard where a complaint alleges fraud or
6 mistake. Under FRCP 9(b), to state a claim for fraud, a party must plead with “particularity the
7 circumstances constituting the fraud,” and the allegations must “be specific enough to give
8 defendants notice of the particular misconduct . . . so that they can defend against the charge and
9 not just deny that they have done anything wrong.” See Kearns v. Ford Motor Co., 567 F.3d
10 1120, 1124 (9th Cir.2009) (citation omitted). “Averments of fraud must be accompanied by the
11 who, what, when, where, and how of the misconduct charged.” Vess v. Ciba-Geigy Corp., 317
12 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). “In addition, the plaintiff must set forth what
13 is false or misleading about a statement, and why it is false.” Ebeid ex rel. U.S. v. Lungwitz, 616
14 F.3d 993, 998 (9th Cir. 2010) (citation omitted) (cleaned up).
15 DISCUSSION2
16 I. Public Disclosure Bar
17 Defendants first argue that Relator’s complaint is barred by the public disclosure bar. Mot.
18 11–16. The False Claims Act provides that there are several circumstances under which “[t]he
19 court shall dismiss an action or claim . . . unless opposed by the Government.” 31 U.S.C.
20 § 3730(e)(4)(A). As relevant here, I must dismiss the action:

21
if substantially the same allegations or transactions as alleged in the action or claim were
22

23
2 Defendants request judicial notice of publicly accessible documents from websites belonging to
the United States Government, SLPC, California Secretary of State, and PACER. See Request for
24
Judicial Notice (“RJN”) [Dkt. No. 57]. Relator has not opposed the request. I may take judicial
notice only of facts not subject to reasonable dispute if they are “generally known” or “can be
25
accurately and readily determined from sources whose accuracy cannot reasonably be questioned.”
Fed. R. Evid. 201(b)(2). As such, I take judicial notice of the existence of these websites and
26
indisputable facts included within, but not of the truth of defendants’ associated substantive
arguments concerning those documents. See Herrington v. Johnson & Johnson Consumer Cos.,
27
Inc., No. C 09-1597 CW, 2010 WL 3448531, at *1 (N.D. Cal. Sept. 1, 2010) (taking judicial
publicly disclosed—
1
(i) in a Federal criminal, civil, or administrative hearing in which the
2 Government or agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal
3 report, hearing, audit, or investigation; or
(iii) from the news media,
4 unless the action is brought by the Attorney General or the person bringing the action is an
original source of the information.
5

6 Id. And, pursuant to the statute, an “original source” is:
7 an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has
voluntarily disclosed to the Government the information on which allegations or
8 transactions in a claim are based, or (2) [sic] who has knowledge that is independent of and
materially adds to the publicly disclosed allegations or transactions, and who has
9
voluntarily provided the information to the Government before filing an action under this
10 section.

11 Id. at (e)(4)(B). To determine whether a False Claims Act claim is barred under this provision,
12 then, I must follow a two-pronged approach. First, I must determine whether “the same
13
allegations or transactions” alleged were “publicly disclosed” through a channel specified in the
14
FCA statute. Id. at (e)(4)(A). And, if I determine that the same allegations or transactions were so
15
publicly disclosed, I must then address whether an “original source” brought the action. Id. at
16
(e)(4)(B). If I conclude that “the same allegations or transactions” were not “publicly disclosed”
17
18 through any of the channels specified in the FCA, I need not address the second prong of the
19 inquiry.
20 i. Whether There has Been a Qualifying “Public Disclosure”
21
In order to qualify as a “public disclosure” under the provisions of the False Claims Act,
22
three things must be true: “(1) the disclosure at issue occurred through one of the channels
23
specified in the statute; (2) the disclosure was public; and (3) the relator’s action is based upon the
24
25 allegations or transactions publicly disclosed.” Malhotra v. Steinberg, 770 F.3d 854, 858 (9th Cir.
26 2014) (internal quotation marks and citations omitted). Parties dispute whether the disclosures
27 here, publicly available information on PandemicOversight.gov, fall under the definitions of
however, that the information on the website qualifies as either, because Relator’s “action is [not]
1
2 based upon the allegations or transactions publicly disclosed,” SLPC’s argument fails on this
3 point. Id.
4 “Courts have interpreted ‘allegation’ to refer to a direct claim of fraud, and ‘transaction’ to
5
refer to facts from which fraud can be inferred.” U.S. ex rel. Mateski v. Raytheon Co., 816 F.3d
6
565, 571 (9th Cir. 2016) (citing U.S. ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 235–36
7
(3d Cir. 2013) (“An allegation of fraud is an explicit accusation of wrongdoing. A transaction
8
warranting an inference of fraud is one that is composed of a misrepresented state of facts plus the
9
10 actual state of facts.”). Defendants assert that because the website contains information including
11 that “Defendants’ lender was Wells Fargo, the loan amount and approval date for each entity, the
12 number of jobs reported, the primary purposed of the loan, and its forgiveness status,” these facts
13
arise to what is required to demonstrate public allegations or transactions of fraud sufficient to fall
14
within the scope of the public disclosure bar. Mot. 12. They do not.
15
Because “the publicly disclosed information does not contain an explicit accusation of
16
wrongdoing,” I cannot conclude that there is an allegation of fraud present on the
17
18 PandemicOversite.gov website. Mateski, 816 F.3d at 571. Defendants’ arguments about whether
19 the information can be described as a “transaction” fails too. “In order to invoke the jurisdictional
20 bar, a defendant must show that the transaction . . . is one in which a set of misrepresented facts
21
has been submitted to the government.” Id. Defendants do not contend that the facts available on
22
the website are misrepresented in any way. The court in Mateski held that to infer fraud, the
23
“fundamental elements of fraud,” namely, “a misrepresented state of facts and a true state of facts”
24
25 must be present. Silbersher v. Valeant Pharmaceuticals Int’l, Inc., 89 F.4th 1154, 1168 (9th Cir.
26 2024) (citing Mateski, 816 F.3d at 571.). Defendants note that “the publicly disclosed facts need
27 not be identical with, but only substantially similar to, the relator’s allegations.” Mot. 13 (citing
available on PandemicOversight.gov “provides no information from which the true state of facts
1
2 can be inferred.” United States ex rel. Relator LLC v. iLink Empl’s Co., No. 22-CV-01004-RGK,
3 2024 WL 3892980 (Klausner, J,). Indeed, “the information disseminated was so innocuous that
4 there was no public disclosure of a transaction or allegation of fraud in the first instance, as
5
required under the FCA.” Mark ex rel. United States v. Shamir USA, Inc., No. 20-56280, 2022
6
WL 327475 (9th Cir. Feb. 3, 2022); but see United States ex rel. Relator, LLC v. Kootstra, No. 22-
7
CV-00924-TLN, 2024 WL 3666470 at *3–*5 (E.D. Cal. Aug. 6, 2024) (concluding the opposite).
8
Despite the uncontested fact that Relator’s complaint is factually wrapped up in the
9
10 information publicly available on PandemicOversight.gov, I conclude that this information alone
11 simply does not disclose any allegation or transaction of fraud. Relator’s False Claims Act claim
12 is not barred by the public disclosure bar, and I need not determine whether Relator is an “original
13
source” of the information at issue. Accordingly, I decline to grant defendants motion on that
14
basis.
15
16 II. Failure to State a Claim
17 To adequately bring an action pursuant to the False Claims Act, Relator must allege: “(1) a
18 false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material,
19 causing (4) the government to pay out money or forfeit moneys due.” Lungwitz, 616 F.3d at 997
20 (citation omitted). Defendants assert that Relator’s complaint fails to adequately allege the first
21 two elements. Mot. 16–20. I agree. Keeping in mind the heightened pleading requirements for
22 fraud pursuant to Fed. R. Civ. P. 9(b), see supra, Legal Standard Part II, I address both elements.
23 i. Failure to Allege Fraud
24 In my December 10, 2024, Order granting defendants second motion to dismiss, I held that
25 “[n]o facts have been plausibly alleged to indicate that [SLPC] owns the private clubs at issue.”
26 December 10, 2024 Minute Order [Dkt. No. 54]. In its SAC, Relator now asserts that, rather than
27 being the owner of the clubs, SLPC owns the property upon which those clubs sit, and that SLPC
1 use and who can access its Property.” SAC ¶¶ 6–22. Relator alleges that because “[t]he Property
2 is a closed private community, the members of which consist of very wealthy individuals who
3 fund SLPC’s business through payment of dues required to stay members,” SLPC (and broadly,
4 “the defendants”) were ineligible for a PPP loan and so, applying for a PPP amounted to
5 fraudulent activity. SAC ¶ 21.
6 Defendants established that SLPC does not own the clubs at issue or the land on which
7 they sit. See RJN Exhs. 5–8 (Property tax and assessment information demonstrating that The
8 Preserve Gold Club and The Ranch Club are the owners of the land upon which they operate).
9 Relator argues that “Defendants make great noise about the SAC’s assertion that SLPC owned the
10 land on which the Clubs operate . . . . But Defendants miss, and rarely address, the fact that SLPC
11 also managed and operated the Clubs, irretrievably intertwining their operations from SLPC
12 itself.” Oppo. 15. Relator misses the point. Without clearly alleging facts that tend to show that
13 any of the defendants own the clubs that were themselves possibly precluded from applying for
14 PPP loans, Relator cannot show that any defendant in this case would be liable for fraud under the
15 FCA. As defendants point out and further explained in the hearing on this motion, that “some of
16 [SLPC’s] clients [are] allegedly exclusively clubs” does not create an inference that SLPC itself is
17 an exclusive club. Relator has not named any of the clubs as a defendant in this case, nor has it
18 claimed that any club applied for a PPP loan. Without doing so, Relator cannot properly state a
19 claim for which relief can be granted.
20 Finally, I note that the majority of Relator’s SAC continues to be rife with conclusory
21 allegations. This runs afoul of my previous Order dismissing Relator’s first amended complaint
22 and Rule 9(b)’s requirements that Relator “must allege the who, what, when, where, and how of
23 the misconduct charged, including what is false or misleading about a statement, and why it is
24 false.” United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016) (cleaned
25 up). For example, throughout the SAC Relator makes allegations such as:
26 • “When they applied, Defendants knew the loan was not necessary, including to support
27 their ongoing operation of the clubs and amenities available to them, whose members who
1 • “Defendants intentionally made materially false statements with respect to the Eligibility
2 Certification, Use of Proceeds Certification, Economic Necessity Certification, Worker
3 Retention and Payroll Certification, and No False Statements Certification.” SAC ¶ 48.
4 • “On their loan applications, Defendants intentionally made several key statements which
5 were false and intended to deceive.” SAC ¶ 53.
6 • “Defendants violated the FCA by ‘knowingly’ submitting and/or causing the submission of
7 false claims for payment to lenders authorized by the SBA . . . .” SAC ¶ 57.
8 Relator does not precede or follow these conclusory allegations with any particular facts that are
9 sufficient to meet the requirements pursuant to Rule 9(b). Although Relator is correct that Rule
10 9(b) “may be relaxed as to matters within the opposing party’s knowledge . . . in cases of
11 corporate fraud,” in those cases, “the particularity requirement may be satisfied if the allegations
12 are accompanied by a statement of the facts on which the belief is founded.” Kayport Package
13 Express, Inc., 885 F.2d at 540. No such statement of the facts appears among the conclusory
14 allegations pleaded in Relator’s SAC.
15 ii. Failure to Allege Scienter
16 Although I hold that Relator has failed to allege fraud, a required element of an adequate
17 FCA claim, I also conclude that Relator has failed to allege scienter. To adequately plead scienter
18 in a False Claims Act complaint, Relator must plead facts that demonstrate that defendants acted
19 “with knowledge of the falsity and with intent to deceive.” U.S. ex rel. Hendow v. Univ. Phoenix,
20 461 F.3d 1166, 1172 (9th Cir. 2006) (citing Hagood v. Sonoma Cnty. Water Agency, 81 F.3d
21 1465, 1478 (9th Cir. 1996). Unlike the “circumstances constituting fraud,” intent and knowledge
22 “may be alleged generally.” Fed. R. Civ. P. 9(b). Generally, however, does not mean that Relator
23 can rely on conclusory statements. Relator, in opposition to the motion, correctly states that the
24 False Claims Act defines an individual sufficiently liable for scienter to include when that person
25 has (1) actual knowledge of the information; (2) acts in deliberate ignorance of the truth; or (3)
26 acts in reckless disregard of the truth. Oppo. 19; 31 U.S.C. § 3729(b)(1)(A). But to adequately
27 plead any one of the meanings of scienter, “[a] complaint therefore must set out sufficient factual
1 ex rel. Anita Silingo v. WellPoint, Inc., 904 F.3d 667, 679—680 (9th Cir. 2018). Relator again
2 fails to allege such facts here.
3 For example, Relator contends that “Defendants violated the FCA by ‘knowingly’
4 submitting . . . false claims for payment to lenders” and that “Defendants made knowingly false
5 statements and certifications in their PPP applications.” SAC ¶¶ 57–58. These conclusory
6 statements do not demonstrate scienter. Although it includes an informational section providing
7 background on the CARES Act and the Paycheck Protection Program, at no point does Relator
8 allege facts that tend to show that any one of the defendants had “knowledge and an intent to
9 deceive.” U.S. ex rel. Hendow, 461 F.3d at 1172. As I have explained, the complaint includes
10 many examples of conclusory allegations. These are insufficient to state a claim for scienter, as
11 Relator is required to do.
12 ***
13 I previously held that “[a]ny second amended complaint must contain sufficient facts to
14 state a False Claims Act claim.” December 10, 2024 Minute Order [Dkt. No. 54]. Relator has
15 again failed to meet its burden to adequately allege fraud and to sufficiently allege scienter. I
16 therefore GRANT defendants’ motion to dismiss for failure to state a claim pursuant to the FCA.
17 III. Individual Defendants
18 Defendants finally argue that Relator has alleged only conclusory allegations concerning
19 Baxter and Simer’s participation and engagement with any alleged fraud. Mot. 20–21. I agree.
20 In its complaint, Relator names Baxter as SLPC’s CEO and Simer as SLPC’s CFO “at all
21 relevant times herein.”3 SAC ¶¶ 9–10. The SAC alleges that Baxter was “chair of its board that
22 approved the subject loan application” and that because Simer was CFO, he “necessarily would
23 have been aware of the loan and directed its application.” SAC ¶¶ 9–10. The complaint mentions
24 the individual defendants only once more—to state that:
25
26
3 This is contested by defendants. Mot. 20, n.4 (“Simer has not worked for any Santa Lucia entity
27
for years and did not sign or have any involvement in any of the PPP application material on
SLPC, the CEO, and the CFO – who were well aware of the business and legal
1
requirements – had actual knowledge of the requirements and that SLPC did not satisfy
2 them or acted with deliberate ignorance or reckless disregard of the truth or falsity of the
claim. This is confirmed by the fact that, as set out above, SLPC was required to certify
3 that it knew and understood all applicable regulations, that it complied with them and was
eligible under them, and that it knew that false statements could lead to civil and criminal
4 penalties. They either knew they were ineligible or misrepresented that they had properly
researched the regulations but had not.
5
SAC ¶ 54. At all other points throughout the complaint, Relator refers to “Defendants” generally,
6
without alleging any additional facts concerning the individual defendants.
7
Relator contends in opposition that because Baxter was “a sophisticated business operator”
8
as CEO of SLPC and that because she was “approving the loan applications, she ‘had reasonable
9
grounds to believe material facts existed that were misstated or omitted, but nonetheless failed to .
10
. . disclos[e] such facts.’” Oppo. 20 citing Burgess v. Premier Corp., 727 F.2d 826, 832 (9th Cir.
11
1984).4 However, Relator fails to address the next paragraph in Burgess, which clarifies that an
12
individual in a directing role “is not automatically liable as a controlling person. There must be
13
some showing of actual participation in the corporation’s operation or some influence before the
14
consequences of control may be imposed.” Burgess, 727 F.2d at 832. There has been no such
15
showing here. Relator has failed to allege facts that would allow me to even “draw [any]
16
reasonable inference” concerning Baxter’s involvement in applying for the PPP loan, let alone
17
facts to support any level of scienter, as is required. See Iqbal, 556 U.S. at 678.
18
For those reasons, I also GRANT defendants’ motion concerning the individual
19
defendants.
20
IV. Leave to Amend
21
Relator requests leave to amend—and therefore the opportunity to submit a Third
22
Amended Complaint. Oppo. 21. Leave to amend should not be granted when there is a “repeated
23
failure to cure deficiencies by previous amendments.” Kayport Package Express, 885 F.2d at 538.
24
So here. Relator has now had three opportunities to adequately plead its FCA claim, only for its
25
amendments to be futile. I will not allow it a fourth. I therefore DENY Relator’s request for leave
26
to amend.
27
1 CONCLUSION
2 For the foregoing reasons, | GRANT defendants’ motion to dismiss the Second Amended
3 Complaint WITH PREJUDICE. Judgment shall enter in accordance with this Order.
4
5 IT IS SO ORDERED.
6 Dated: May 8, 2025

8
William H. Orrick
9 United States District Judge
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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11046907. Public record. Not legal advice.