holding that “Relators here have failed to allege how Defendants’ alleged omission of the subcontractors’ identities induced the government to initially enter into the contract”
How later courts described this case
- holding that “Relators here have failed to allege how Defendants’ alleged omission of the subcontractors’ identities induced the government to initially enter into the contract”
- “While an implied certification theory of FCA liability rests on allegations that a ‘contractor withheld information about its noncompliance with material, contractual requirements’ ... Relators here have not identified any relevant contractual requirements pertinent to Defendants.”
- claims failed under Rule 9(b) when “[rjelators [did] not allege when the purported misrepresentations were made, who made the misrepresentation, and whether [defendants] were 1 involved.”
Written by the judges who cited it.
The opinion
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
)
UNITED STATES OF AMERICA, )
ex rel. KEAVENEY, et al. )
)
Plaintiffs, )
)
)
v. ) Civil Action No. 13-855 (EGS)
)
SRA INTERNATIONAL, INC., )
et al. )
)
)
Defendants. )
______________________________)
MEMORANDUM OPINION
Qui Tam Relators Kevin Keaveney and Margot Brennan
(collectively “Relators”) allege violations of the False Claims
Act (“FCA”), 31 U.S.C. § 3729-3733, against Defendants SRA
International, Systems Research and Applications Corporation
(collectively “SRA”) and Triton Services (collectively
“Defendants”). Am. Compl., ECF No. 32 at 71-79. Relators allege
that, to secure a Department of Defense (“DOD”) contract,
Defendants made numerous false statements to the government. Id.
Defendants SRA and Triton move to dismiss Relators’ Complaint
for failure to state a claim under Federal Rule of Civil
Procedure 12(b)(6) and for failure to plead with particularity
1
as required under Federal Rule of Civil Procedure 9(b). SRA Mot.
Dismiss, ECF No. 35; Triton Mot. Dismiss, ECF No. 38. Upon
review of Defendants’ motions, the responses and replies
thereto, and for the reasons discussed below, Defendants’
Motions to Dismiss are GRANTED in part and DENIED in part.
I. BACKGROUND
A. Procedural History
On June 7, 2013, Relators filed their Complaint, Compl.,
ECF No. 1, and on February 23, 2015, the United States filed a
Notice of Election to Decline Intervention. ECF No. 14.
Defendants were served with the Amended Complaint on August 19,
2015, and on October 16, 2015, Defendants filed the two motions
to dismiss pursuant to Rules 12(b)(6) and 9(b) that are now
before this Court. SRA Mot. Dismiss, ECF No. 35; Triton Mot.
Dismiss, ECF No. 38.
In the Amended Complaint, Relators allege that Defendants
engaged in a wide array of conduct that ultimately led to the
submission of false claims to the government, including that
Defendants: (1) made misrepresentations and concealed key
information from their proposals to fraudulently induce the
government to enter into the contract (Count I); (2) charged
excessive pass-through fees for subcontractor labor (Count II);
(3) made misrepresentations in monthly status reports and other
2
submissions to the government (Counts III and IV); (4) inflated
invoices and charged the government for services that were never
rendered (Count V); and (5) implemented a kickback scheme
wherein Defendants shared the proceeds of their allegedly
fraudulent conduct amongst themselves (Count VI). Am. Compl.,
ECF No. 32 ¶¶ 121-150.
B. Relationship Between the Parties
Relator Kevin Keaveney is the President of K2 Global
Solutions, Inc. (“K2GS”), a defense contracting company that
supplies a variety of services to federal entities, including
strategic planning, risk analysis, predictive modeling, defense
readiness systems and data analysis. Id. ¶ 4. Mr. Keaveney has
extensive experience in the national security sector and has
developed a range of products and strategic management systems
that have been widely adopted by the United States military. Id.
¶¶ 12-16. These products include, inter alia, the Army Reserve
Expeditionary Force (“AREF”), a doctrinal and strategic
management system used by the Army Reserve, and an automated
version of AREF known as the Army Reserve Pool Based Sourcing
(“ARPBS”). Id. ¶¶ 12-14. Relator Margot Brennan is an officer of
K2GS. Id. ¶ 5.
Defendant Systems Research and Applications Corporation is
a wholly-owned subsidiary of Defendant SRA International, Inc.
3
and serves as SRA’s primary contract vehicle with the U.S.
government. Id. ¶ 6. In 2007, SRA entered into a joint venture
named “Project Galaxy” with Defendant Triton Services, Inc.
(“Triton”), a subcontractor. Id. ¶ 8. To perform the contract,
Triton engaged various second-tier subcontractors, including
K2GS, Tiber Creek Consulting, Inc. (“Tiber Creek”), Concurrent
Technologies Corporation (“CTC”), and an individual named Jim
Song.
From June to October 2005, Mr. Keaveney worked as a
contractor for the DOD reporting to Joseph Angello, the Director
of the Office of the Undersecretary of Defense, Personnel and
Readiness, Readiness, Programming and Assessments. Id. ¶ 15. In
February 2007, after Mr. Keaveney’s contract expired, Mr.
Angello requested Mr. Keaveney’s assistance to continue the
ARPBS and other military projects Mr. Keaveney had developed.
Because Mr. Angello required Mr. Keaveney to procure his own
contract vehicle, Mr. Keaveney approached Triton, a pre-approved
subcontractor for various Department of Defense prime
contractors. Id. ¶ 18. Triton’s Chief Executive Officer, Larry
Stack, informed Mr. Keaveney that Triton would use one of its
existing prime contracting relationships, ultimately its
relationship with SRA, to obtain the requisite contract vehicle.
Id. ¶ 18.
4
C. Defendants’ Contracts with the U.S. Department of
Defense
In 2003, the Department of Defense awarded Galaxy
Scientific Corporation (“Galaxy”), a future subsidiary of SRA, a
contract to provide analytic services and software. Id. ¶ 19.
Galaxy teamed with Triton in early 2007 to become the prime
contractor for an additional contract anticipated to be let in
May 2007. Id. In March 2007, Mr. Angello met with Triton, Mr.
Keaveney and another DOD representative to discuss the
anticipated contract. Id. ¶ 20. At this meeting, the
participants discussed Mr. Keaveney’s future role, the structure
of the prospective contract, limits on Triton’s pass-through
rates, and the roles of second-tier subcontractors. Id.
On June 13, 2007, Triton and SRA submitted a proposal,
called a Task Execution Plan (“TEP” or “task proposal”), to the
DOD outlining their anticipated work on the contract. Id. ¶ 23.
The TEP highlighted Mr. Keaveney’s role as “Technical Team
Leader” and detailed the six discrete tasks to be performed. Id.
Defendants’ proposal was ultimately successful and SRA and
Triton secured the task order. Id. ¶ 24. On May 6, 2008,
Defendants submitted a “follow-on” TEP to the DOD to request
additional funds for the second half of the contract’s base year
and the following two option years. Id. ¶ 35. The 2008 TEP was
largely similar to the 2007 TEP. Id. To keep the government
5
apprised of their progress under the contract, Defendants
submitted Monthly Status Reports (“MSRs”). Id. ¶ 59. In late
2008, Defendants removed Mr. Keaveney, K2GS and Tiber Creek from
the contract and replaced them with Triton employees. Id. ¶¶ 39-
42; 138.
II. STANDARD OF REVIEW
A. Federal Rule of Civil Procedure 12(b)(6)
A motion to dismiss under Rule 12(b)(6) tests the legal
sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235,
242 (D.C. Cir. 2002). The pleading must contain a “short and
plain statement of the claim showing that the pleader is
entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 677-78
(2009). The pleading standard does not require detailed factual
allegations, but should be “more than an unadorned, the-
defendant-unlawfully-harmed-me accusation.” Id. at 678. Naked
assertions without factual enhancements or formulaic recitations
of the elements of a cause of action will not suffice. Id.
Rather, to survive a motion to dismiss, a complaint “must
contain sufficient factual matter . . . to ‘state a claim to
relief that is plausible on its face.’” Id. Plausibility entails
that the plaintiff has pled factual content that is not merely
consistent with liability but allows the Court to draw a
reasonable inference that the defendant is liable for the
alleged misconduct. Id.
6
In considering a 12(b)(6) motion, the Court should
liberally view the complaint in the plaintiff’s favor, accepting
all factual allegations as true, and giving the plaintiff the
benefit of all inferences that can be drawn therefrom. Redding
v. Edwards, 569 F. Supp. 2d 129, 131 (D.D.C. 2008) (citing Kowal
v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994)).
A. Federal Rule of Civil Procedure 9(b)
Rule 9(b) requires that when alleging fraud, “the
circumstances constituting fraud or mistake... be stated with
particularity.” Fed. R. Civ. P. 9(b). Complaints brought under
the False Claims Act are subject to Rule 9(b)’s heightened
pleading requirements. See U.S. ex rel. Totten v. Bombardier,
286 F.3d 542, 551-52(D.C. Cir. 2002)(“Every circuit to consider
the issue has held that, because the False Claims Act is self-
evidently an anti-fraud statute, complaints brought under it
must comply with Rule 9(b).”). That said, a plaintiff “need not
allege the existence of a request for payment with
particularity...Rule 9(b) requires particularity only with
respect to the circumstances constituting fraud[.]” U.S. ex rel.
Folliard v. CDW Tech. Servs., Inc., 722 F. Supp. 2d 20, 27
(D.D.C. 2010) (emphasis in original).
To meet this threshold, plaintiffs must “state the time,
place and content of the false misrepresentations, the fact
7
misrepresented and what was retained or given up as a
consequence of the fraud.” U.S. ex rel. Williams v. Martin-Baker
Aircraft Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004) (internal
citations omitted). Pleaders must also identify the individuals
allegedly involved in the fraud. Id. The particularity
requirement discourages nuisance suits, safeguards defendants
from frivolous accusations, and guarantees that defendants
receive sufficient information to allow them to prepare a
response. U.S. ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385
(D.C. Cir. 1981).
Courts “must not rigidly apply the requirements of Rule
9(b), but rather should analyze the Rule on a case by case
basis.” U.S. ex rel. Head v. Kane Co., 798 F. Supp. 2d 186, 193
(D.D.C. 2011). Courts should “hesitate to dismiss a complaint
under Rule 9(b) if the court is satisfied (1) that the defendant
has been made aware of the particular circumstances for which
she will have to prepare a defense at trial, and (2) that
plaintiff has substantial prediscovery evidence of those facts.”
U.S. ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F.
Supp. 2d 28, 34 (D.D.C. 2003). A complaint “can pass muster
under the Rule 12(b)(6) threshold yet fail to comply with the
strictures of Rule 9(b).” Anderson v. USAA Cas. Ins. Co., 221
F.R.D. 250, 252 n.3 (D.D.C. 2004). Thus Courts consider first
whether the relator has pled the relevant claim, and then turn
8
to whether the relator has “pled the circumstances of the fraud
with particularity.” Folliard, 722 F. Supp. 2d at 28.
B. False Claims Act
The FCA, 31 U.S.C. §§ 3729–3733, imposes a civil penalty
and treble damages on any individual who “knowingly presents, or
causes to be presented, to an officer or employee of the United
States Government...a false or fraudulent claim for payment or
approval” or “a false record or statement to get a false or
fraudulent claim paid or approved by the Government.” 31 U.S.C.
§ 3729(a). 1 The FCA defines “claims” to include “any request or
demand, whether under a contract or otherwise, for money or
property[.]” 31 U.S.C. § 3729(c). Under the statute, a private
party, commonly called a “relator,” is empowered to bring a qui
tam action on behalf of the government. The Government may elect
to intervene in qui tam actions, but where it declines to do so
(as in this case), the Relators may proceed and, if successful,
collect a large portion of any recovery. Martin v. Arc of Dist.
of Columbia, 541 F. Supp. 2d 77, 81 (D.D.C. 2008) (citing U.S.
1 On May 20, 2009, Congress amended the FCA in the Fraud Enforcement and
Recovery Act of 2009 (“FERA”). The 2009 amendment, among other things,
slightly alters the language in the presentment provision. According to
Congress, the amendment took “effect on the date of enactment of th[e] Act
and shall apply to conduct on or after the date of enactment[.]” P.L. 111-21,
§ 4 at 1625. Since the alleged conduct in this action occurred before May
2009, the provision as amended by FERA does not apply here. See United States
v. Toyobo Co., 811 F. Supp. 2d 37, 45 n.2 (D.D.C. 2011). All references in
this opinion to § 3729(a) are to the pre-amendment version of the statute.
9
ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251,
1254 (D.C. Cir. 2004)). False Claims may take a variety of
forms, including: (1) presentment claims; (2) fraudulent
inducement claims; and (3) false certification claims. Head, 798
F. Supp. 2d at 195. A subcontractor may be liable under the
statute “even when it did not itself present any false claims to
the government if it engaged in a fraudulent scheme that induced
the government to pay claims submitted by the contractor.”
Toyobo, 811 F. Supp. 2d at 45.
III. ANALYSIS
Defendants make several arguments in support of their
Motions to Dismiss: (1) Relators’ Amended Complaint is barred by
the statute of limitations; (2) Relators’ Amended Complaint
failed to comply with FCA pre-filing requirements; (3) Relators
fail to state a claim for fraudulent inducement; (4) Relators
fail to state a presentment claim for various phantom expenses,
pass-through fees and purported kickback scheme; and (5)
Relators fail to state a material false statement claim. Each
argument will be addressed in turn.
A. Relators claims in the Amended Complaint relate back
to original complaint and thus are not barred by the
statute of limitations.
Defendants first argue that the claims alleged in Relators’
Amended Complaint are barred by the FCA’s six year statute of
limitations because the Relators’ Amended Complaint “advances
10
several new alleged false claims or false statements, i.e.
theories of liability, that are not encompassed within the
original Complaint.” SRA Mot. Dismiss, ECF No. 35 at 8(citing to
a purported eleven alleged new claims); Triton Mot. Dismiss, ECF
No. 38 at 7-8. Relators maintain that the six Counts in the
Amended Complaint “relate back to the original complaint, since
the legal claims and the basic factual allegations are
substantively identical to the original complaint . . . .”
Relators’ Opp’n, ECF No. 42 at 41.
The FCA precludes civil actions filed “more than 6 years after
the date on which the violation . . . is committed.” 31 U.S.C. §
3731(b)(1). The alleged violations in this case occurred between
June 2007 and November 2008, while the Amended Complaint was
filed more than six years later on August 19, 2015. See Am.
Compl., ECF No. 32. However, under Rule 15(c)(1)(B), “an
amendment to a pleading relates back to the date of the original
pleading when . . . the amendment asserts a claim or defense
that arose out of the conduct, transaction or occurrence set out
– or attempted to be set out – in the original pleading.” Fed.
R. Civ. P. 15(c)(1)(B). The Court of Appeals for the District of
Columbia Circuit (“Court of Appeals”) has held that, in making
the determination of whether an amendment relates back to the
date of the original complaint, courts should consider whether
the allegations in the amended complaint relate to the same
11
contract at issue in the original complaint. U.S. ex rel. Miller
v. Bill Harbert Int’l Constr., Inc., 608 F.3d 871, 882, 908
(D.C. Cir. 2010) (per curiam) (holding that amended claims
related to two distinct contracts were not “fairly
encompass[ed]” by the claims in original complaint, which were
based on a third contract, were “unique and no two involved the
same ‘conduct, transaction[], or occurrence.’”); see also J.B.
Helmer, False Claims Act: Whistleblower Litigation at 618 (6th
ed. 2012) (noting that a relator must often rush to file the
initial complaint and that amendment provides the “opportunity
to craft the allegations of the complaint more carefully” and
should be construed to relate back under Rule 15 as long as the
amended allegations “arise out of the conduct or occurrences set
forth or attempted to be set forth in the initial complaint.”).
A review of the Amended Complaint confirms that the same six
counts pled in the Amended Complaint are also pled in the
original complaint. See Comparison of Amended Complaint against
Original Complaint, ECF No. 35-3. Moreover, the changes reflect
Relators’ effort to enhance the level of factual detail. See id.
Relying on Miller, Defendants argue that the mere fact Relators’
complaints concern the same underlying contract is insufficient
to invoke the relation back doctrine. SRA Mot. Dismiss, ECF No.
35 at 9. However, Defendants’ argument is not persuasive. In
Miller, the Court of Appeals considered whether claims based on
12
two separate contracts properly related back to the claims
initially pled that arose from a third contract. 608 F.3d at
882. The Court of Appeals noted that the three contracts at
issue were “similar only in that each was funded” by the same
source and concerned work related to sewer systems, ultimately
concluding that the “differences among [the contracts] are
significant.” Id. at 881. By contrast, both the amended and
original complaints here clearly address the same underlying
contract and arise out of the same conduct. See SRA Mot.
Dismiss, ECF No. 35 at 9 (conceding that “the connection to the
subject task order” is a “commonality” between Relators’
complaints). Further, Defendants’ argument that the Amended
Complaint advances several new “theoretical” bases of liability
is inaccurate in light of the fact that the six counts provided
in the original complaint remain the same. See id.; Am. Compl.,
¶ 121-150. The Court finds that Relators’ Amended Complaint
“expand[s] upon or clarif[ies] facts previously alleged” and
thus properly relates back to the original complaint. United
States v. Hicks, 283 F.3d 380, 388 (D.C. Cir. 2002)(citing 6A
CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE §
1504, at 84 (2d ed. 1990)). Because the Amended Complaint
relates back to the original complaint, it was timely filed
under Rule 15.
13
B. Relators Amended Complaint complies with FCA pre-
filing procedures.
Defendants also argue that the Amended Complaint should be
dismissed for failure to comply with 31 U.S.C. § 3730(b)(2),
which requires all FCA complaints to be filed under seal. SRA
Mot. Dismiss, ECF No. 35 at 9; Triton Mot. Dismiss, ECF No. 38
at 7-8. Relators respond that the statutory requirement to file
the Complaint under seal applies only to the original complaint,
not the Amended Complaint. Relators’ Opp’n, ECF No. 42 at 42.
Section 3730(b)(2) of the False Claims Act requires:
A copy of the complaint and written disclosure
of substantially all material evidence and
information the person possesses shall be
served on the Government pursuant to Rule
4(d)(4) of the Federal Rules of Civil
Procedure. The complaint shall be filed in
camera, shall remain under seal for at least
60 days, and shall not be served on the
defendant until the court so orders. The
Government may elect to intervene and proceed
with the action within 60 days after it
receives both the complaint and the material
evidence and information.
31 U.S.C. § 3730(b)(2) (emphasis added). The purpose of the
sealing requirement is “designed to provide the government with
an opportunity to ensure that a qui tam action [does] not
inadvertently ‘tip off’ a defendant who was already the subject
of a ‘sensitive’ criminal investigation.” Helmer, False Claims
Act: Whistleblower Litigation at 619.
14
Here, Relators properly filed the original complaint under
seal. Compl., ECF No. 1. After the Court granted four extensions
of time for the government to decide whether to intervene, it
declined to do so. See Notice of Election to Decline
Intervention, ECF No. 14. After the government declined to
intervene, the original complaint was unsealed. See Order to
Unseal Complaint, ECF No. 15. In its order to unseal the
original complaint, the Court also ordered that “[a]ll other
matters occurring in this action...be filed publicly”. Id. Under
these circumstances, the purpose of the sealing requirement was
met. The cases cited by Defendants are inapposite because they
involve situations where the original complaint was not filed
under seal. See, e.g., Taitz v. Obama, 707 F. Supp. 2d 1, 4
(D.D.C. 2010) (motion to dismiss FCA claims granted for failure
to file original complaint under seal); Segelstrom v. Citibank,
76 F. Supp. 3d 1, 14 (D.D.C. 2014) (same). Further, because the
Court granted Relators leave to amend the original complaint
after it had been unsealed, it would be unnecessary for the
Amended Complaint to be filed under seal. See also U.S. ex rel.
Ubl v. IIF Data Solutions, No. 06-cv-0641, 2009 WL 1254704, at
*4 (E.D. Va. May 5, 2009) (“In general, where the court already
has unsealed the case and granted the relator leave to amend the
complaint, the policy arguments supporting dismissal for failure
15
to comply with the filing and service requirements no longer
hold.”).
C. Relators’ Fraudulent Inducement Claims
Fraudulent inducement actions arise out of “claim[s]
submitted to the Government under a contract which was procured
by fraud[.]” U.S. ex rel. Bettis v. Odebrecht Contractors of
Cal., Inc., 393 F.3d 1321, 1326 (D.C. Cir. 2005). Contrary to
presentment claims which rest on false demands for payment,
“fraudulent inducement and false certification claims do not
depend on the existence of such explicitly false payment
requests.” Head, 798 F. Supp. 2d at 196. Instead, fraudulent
inducement claims simply require an initial false representation
to the government. See Bettis, 393 F.3d at 1328.
To state a claim for fraudulent inducement, a plaintiff may
allege that the defendant “made an initial misrepresentation
about its capability to perform the contract in order to induce
the government to enter into the contract[,] and...this original
misrepresentation tainted every subsequent claim made in
relation to the contract[.]” U.S. ex rel. Schwedt v. Planning
Research Corp., 59 F.3d 196, 199 (D.C. Cir. 1995). Allegations
that the government would not have entered into the contract
absent a defendant’s false statements may also state a claim for
fraudulent inducement under the FCA. United States v. Honeywell
Int'l Inc., 798 F. Supp. 2d 12, 22 (D.D.C. 2011).
16
Relators raise fraudulent inducement claims in Counts I and
IV of the Amended Complaint. In Count I, Relators allege that
Defendants engaged in a “bait and switch” in an effort to induce
the government to enter into the contract. In particular,
Relators allege that Defendants omitted key information from
task proposals– i.e., the “bait” — only to later “substitute[]
their own unqualified personnel to complete the remaining tasks
under the contract” – i.e., the “switch”. Am. Compl., ECF No. 32
¶ 2. Although a bait and switch is not a cognizable cause of
action for purposes of the FCA, it is “well established that
prong (a)(1)(B) of section 3729”, under which Relators bring
their bait and switch claims, “encompasses a cause of action
based on a theory of fraudulent inducement.” United States ex
rel. Tran v. Computer Scis. Corp., 53 F. Supp. 3d 104, 117
(D.D.C. 2014). In Count IV(a), 2 Relators allege that Defendants
knowingly concealed Triton’s insolvency in order to influence
the government’s decision to award the contract to Defendants.
Am. Compl., ECF No. 32 ¶ 139. Defendants contend, among other
things, that Relators do not adequately allege a
misrepresentation in the task proposals and fail to identify
disclosure requirements regarding Triton’s financial status. SRA
2 Count IV of the Amended Complaint, in effect, alleges claims for fraudulent
inducement (pertaining to the disclosure of Triton’s insolvency) and material
misrepresentation (relating to APRBS projections). For clarity, the Court has
separated the claims into Count IV(a) and IV(b) respectively.
17
Mot. Dismiss, ECF No. 35 at 10-16, 42-43; Triton Mot. Dismiss,
ECF No. 38 at 10-13, 29. Defendants challenge Relators’
allegations for failing to state a claim under Rule 12(b)(6) and
for failure to plead with the requisite level of particularity
under Rule 9(b). SRA Mot. Dismiss, ECF No. 35 at 10-20; Triton
Reply, ECF No. 43 at 1-3. For the reasons stated below, Counts I
and IV(a) will be DISMISSED.
1. Task Execution Proposals (Count I)
In Count I, Relators contend that Defendants’ task
proposals “falsely stated or implied that [SRA and Triton] were
the only two contractors attached to the subject contract, that
Keaveney and K2GS’s credentials were their own, and that
Keaveney was a Triton employee” which “enabled [SRA and Triton]
to procure the subject contract[.]” Am. Compl., ECF No. 32 ¶ 26.
To support their allegations, Relators provide a number of
details explaining how Defendants fraudulently induced the
government to enter into the contract. Most relevant to their
claim for fraudulent inducement, Relators allege, inter alia,
that Defendants: (1) attempted to pass off Relators experience
as their own in the 2007 and 2008 TEPs, even though Mr. Keaveney
was an independent subcontractor; and (2) failed to notify the
government that they were using subcontractors. 3 Id. ¶ 122.
3 In Count I, Relators also allege that Defendants failed to notify the
government when they terminated Mr. Keaveney and K2GS and deliberately failed
18
Relators allege that in order to initially secure the
contract, Defendants intentionally omitted from their 2007
proposal the identities of the subcontractors who were slated to
complete “the vast majority of the work” yet “cit[ed] all their
credentials.” Id. ¶ 24. Defendants also allegedly
“misrepresented Keaveney as a Triton employee” to “take credit
for, and control of, the entire contract[.]” Id. According to
Relators, Defendants employed such tactics in order to “falsely
represent themselves...as the ‘only’ subject matter experts” so
that Defendants could qualify as the government’s “single
source” provider and obtain exclusive rights to future contracts
within the same specialized field. Id. ¶ 26(g). To substantiate
their allegations, Relators point to specific provisions of the
2007 proposal which seemingly attribute Relators’ relevant
subject-matter expertise to “Team Galaxy”, the group name for
SRA and Triton, rather than to Mr. Keaveney himself. Id. ¶ 30
(listing authored books on the contract’s subject matter as
examples of “Team Galaxy’s Extensive Experience”); ¶ 31
(alleging that the experience cited in pages 5-20 of the
proposal “was devoted entirely to Keaveney’s experience, with
two minor exceptions”). Relators allege that Defendants made
to submit subcontractor projections after the contract’s base year. See Am.
Compl., ECF No. 32 ¶ 122. Since both of these alleged failures would have
occurred after performance on the contract began, it is not clear how these
allegations are relevant to Relators’ claim that Defendants fraudulently
induced the government to initially enter into the contract.
19
similar misrepresentations in their 2008 task proposal. Id. ¶
35. Relators also allege that the government would not have
entered into the contract absent Defendants’ false statements.
Id. ¶ 124(alleging that Defendants used misrepresentations “in
order to obtain the contract”); ¶ 24 (alleging that Defendants’
citation of the subcontractors’ credentials in the 2007 TEP was
“critical to securing the subject contract”); ¶ 26(c) (alleging
that Defendants’ false statements “enabled Defendants to procure
the subject contract, as well as any and all related and future
contracts and task orders”); ¶ 125 (alleging that the statements
regarding Mr. Keaveney’s role in Defendants’ TEPs and MSRs
“would have had a natural tendency to influence DoD’s funding
decisions, and thus were material”).
Defendants argue that Relators’ fraudulent inducement
claims fail for a number of reasons, including because: (1) Mr.
Keaveney and K2GS’s participation was clearly disclosed in the
proposals; and (2) Relators rely on FAR clauses requiring
subcontractor disclosure that were not in existence during the
performance of the contract. SRA Mot. Dismiss, ECF No. 35 at 11-
18; Triton Mot. Dismiss, ECF No. 38 at 11-18. Triton separately
argues that Relators have also impermissibly grouped Triton (the
subcontractor) together with SRA (the prime contractor) and
failed to allege that Triton’s actions meet the requirements for
subcontractor liability under the FCA. Triton Mot. Dismiss, ECF
20
No. 38 at 10. Relators do not, as Defendants point out, directly
respond to Defendants’ arguments but instead offer excerpts from
cases addressing the implied certification theory for FCA
claims. 4 See Relators’ Opp’n, ECF No. 42 at 18-20; SRA Reply, ECF
No. 44 at 6 (“There is a glaring silence on these points in
Plaintiffs’ Opposition”).
The Court finds that Relators’ fraudulent inducement claims
fail for a number of reasons. First, Relators have failed to
adequately plead the misrepresentation component of a fraudulent
inducement claim. See Schwedt, 59 F.3d at 199 (reasoning that
“an initial misrepresentation about [the defendant’s] capability
to perform the contract” is an element of a fraudulent
inducement claim). Relators’ claim that Defendants concealed the
existence of Relators in the task proposals is directly
contradicted by the proposals themselves, which Relators
attached to their Amended Complaint. ECF No. 32-2. 5 As
highlighted by Defendants, Mr. Keaveney is “featured prominently
4 The Court finds Relators’ recitation of implied certification cases to be
inapposite for the purposes of their fraudulent inducement claims. While an
implied certification theory of FCA liability rests on allegations that a
“contractor withheld information about its noncompliance with material
contractual requirements” – see Toyobo, 811 F. Supp. 2d at 45 - Relators here
have not identified any relevant contractual requirements pertinent to
Defendants. Further, implied certification cases generally concern an
analysis of whether a “claim” is legally false, see id., but the task
proposals at the center of Relators’ fraudulent inducement allegations are
not “claims” for purposes of the FCA because they are not a “request or
demand...for money or property[.]” 31 U.S.C. § 3729(c).
5 In determining whether a complaint fails to state a claim, courts “may
consider...documents either attached to or incorporated in the complaint[.]”
E.E.O.C. v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir.
1997).
21
in the proposal.” SRA Mot. Dismiss, ECF No. 35 at 14. In the
2007 proposal, for example, Defendants note that “Technical Team
Leader, Kevin Keaveney” will serve “as the primary point of
contact for execution.” Task Execution Plan, ECF No. 32-2 at 32.
The proposals further note that “Keaveney, adds the value to
[Defendants’] approach” and laud Mr. Keaveney’s “forward
thinking” as an attribute that will “shape[]...[Keaveney’s]
performance of these tasks[.]” Id. at 58. Indeed, the proposals
are replete with descriptions of the tasks that “Technical Team
Leader”, meaning Mr. Keaveney, will perform. See, e.g., id. at
32 (“provide project oversight to both Project Lead and the
Program Manager”); 35 (“use his SSTR experience to evaluate DoD
progress”); 36 (“use [his] network of SSTR Subject Matter
Experts (SMEs) to identify and evaluate each new task”), 39
(“create and present a SSTR briefing to the DoD”). Even the
Amended Complaint acknowledges that “the TEP set forth
Keaveney’s role as the Technical Team Leader and Client
Interface on all six discrete tasks...[and] also included all of
Keaveney’s qualifications and specialized knowledge[.]” Am.
Compl., ECF No. 32 ¶ 23. Relators allege that Defendants co-
opted Mr. Keaveney’s subject matter expertise and passed it off
as their own, but have appended to their complaint proposals
which provide detailed information of Mr. Keaveney’s
qualifications and expertise. In light of the extensive
22
references to Mr. Keaveney’s expertise and anticipated
involvement in the 2007 and 2008 proposals, the Court finds
Relators’ claims that Defendants made misrepresentations to the
government by taking credit for Mr. Keaveney’s experience in the
proposals to be implausible. See Iqbal, 556 U.S. at 677-78.
Second, Relators repeatedly state, in conclusory fashion,
that Defendants impermissibly characterized Mr. Keaveney as a
Triton employee in the 2007 and 2008 task proposals. See, e.g.,
Am. Compl., ECF No. 32 ¶¶ 2, 24, 26(g), 35, 46, 57, 122.
Relators, however, do not cite specific provisions in the
proposals that support their claim. See generally id. SRA
correctly notes that the term “employee” appears but once in the
2007 proposal and does not refer to Mr. Keaveney as an employee.
SRA Mot. Dismiss, ECF No. 35 at 13; Task Execution Plan, ECF No.
32-2 at 54. Relators fail to allege any other facts that might
support their claim that Defendants impermissibly held Mr.
Keaveney out as an official employee. See generally Am. Compl.,
ECF No. 32. To the extent that Relators’ argument is that, by
not explicitly referring to Mr. Keaveney as an independent
subcontractor in the task proposals, Defendants implied that Mr.
Keaveney was a Triton employee, Relators have failed to allege
how this distinction fraudulently induced the government to
enter into the contract. See Honeywell, 798 F. Supp. 2d at 22
(reasoning that allegations that the government would not have
23
entered into the contract absent a defendant’s false statements
state a claim for fraudulent inducement under the FCA). As a
result, the Court does not find Relators’ claim that Defendants
fraudulently held out Mr. Keaveney as a Triton employee in order
to induce the government to enter into the contract to be
plausible. See Iqbal, 556 U.S. at 677-78.
Third, Relators have failed to allege how Defendants’
alleged failure to notify the government of the existence of the
subcontractors induced the government to enter into the
contract. Relators, citing Federal Acquisition Regulations
(“FAR”) 52.215-22 and 52.215-23.2, argue that subcontractor
disclosure was required. 6 See Am. Compl., ECF No. 32 ¶ 27.
Defendants argue that these provisions were not enacted until
2009, subsequent to the execution of the underlying contract in
2003 and do not apply retroactively. SRA Mot. Dismiss, ECF No.
35 at 15; see also 48 C.F.R. § 1.108(d)(“FAR changes apply to
solicitations issued on or after the effective date of the
change.”). Setting aside the issue of applicability of these FAR
provisions, Relators here have failed to allege how Defendants’
alleged omission of the subcontractors’ identities induced the
government to initially enter into the contract. See Honeywell,
798 F. Supp. 2d at 22 (reasoning that allegations that the
6 FAR 52.215-22 (48 C.F.R. § 52.215-22) and FAR 52.215-23.2 (48 C.F.R. §
52.215-23) govern disclosure and notification requirements for subcontractor
labor.
24
government would not have entered into the contract absent a
defendant’s false statements state a claim for fraudulent
inducement). Absent such allegations, Relators’ claims cannot
survive.
For all of these reasons, the Court finds that the Amended
Complaint does not state a FCA claim for fraudulent inducement
in Count I pursuant to Rule 12(b)(6). Because Relators have
failed to state a claim for fraudulent inducement under Rule
12(b)(6), the Court does not need to reach whether they pled the
circumstances of the fraud with the particularity required by
Rule 9(b). Folliard, 722 F. Supp. 2d at 28. Further, since the
Court concludes that Relators have failed to state a fraudulent
inducement claim, there is no need to resolve Triton’s
contention that Relators inappropriately grouped Triton with
SRA. Accordingly, Count I is hereby DISMISSED as to both
Defendants.
2. Triton’s Solvency (Count IV(a))
In further support of their fraudulent inducement claim,
Relators allege that Defendants made false statements to the
government by “knowingly concealing Triton’s insolvency and
numerous outstanding debts and creditors” and by “assert[ing]
that Triton was fully qualified to perform on the contract[.]”
Am. Compl., ECF No. 32 ¶ 139. According to Relators, this
misrepresentation “le[d] the government to award the contract to
25
Defendants[.]” Id. Relators cite a provision in the TEPs touting
Defendants’ collective “financial stability” as direct evidence
of the misrepresentation. Id. ¶¶ 112-114. Relators seem to
suggest that Defendants had a duty to report Triton’s financial
condition under (1) the Department of Defense National
Industrial Security Program Operating Manual (“DSS NISPOM”), and
(2) a provision in the subcontract between Triton and K2GS. Id.
¶ 111-12.
Assuming Relators’ claims regarding Triton’s financial
status to be true, the analysis turns on whether the alleged
omission of Triton’s insolvency constitutes a
“misrepresentation” for purposes of a fraudulent inducement
claim. The Court finds that Relators have not adequately alleged
a misrepresentation here. Rather than allege that the contract
between the government and Defendants required the disclosure of
subcontractors’ financial status, Relators conclusively state
that disclosure was “required by DSS NISSPOM”. Am. Compl., ECF
No. 32 ¶ 112. Relators do not explain why DSS NISSPOM requires
the disclosure of subcontractors’ financial status, and, as
highlighted by SRA, DSS NISSPOM is seemingly limited to
classified contracts and inapplicable here. SRA Mot. Dismiss,
ECF No. 35 at 42-43. Relators’ allegation amounts to a legal
conclusion that the Court need not accept as true. Kowal v. MCI
Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994) (“Nor must
26
the court accept legal conclusions cast in the form of factual
allegations” at the motion-to-dismiss stage). Furthermore,
Relators fail to explain how an alleged violation of a provision
in the contract between the first and second-tier subcontractors
(i.e., Triton and K2GS) concerning disclosure forms the basis of
a misrepresentation (allegedly made by SRA and Triton to the
government) for purposes of a fraudulent inducement claim.
Relators provide a single example of an affirmative
misrepresentation allegedly made by the Defendants concerning
Triton’s solvency. According to Relators, a provision in
Defendants’ task proposal stating that the “team was carefully
brought together to provide the corporate size, proven technical
capabilities, and financial stability required for the program
duration and the breadth and depth of skills for qualified
staffing” evidences a misrepresentation. Am. Compl., ECF No. 32
¶ 144 (emphasis added). The Court is not persuaded that this
broad statement in Defendants’ joint task proposal is synonymous
with an express misrepresentation of Triton’s solvency. In any
event, Relators also fail to explain how this statement induced
the government to enter into the contract. See Schwedt, 59 F.3d
at 199 (reasoning that to state a fraudulent inducement claim, a
plaintiff must plead that the defendant’s initial
misrepresentation was made to induce the government to enter
into the contract).
27
Because Defendants have failed to adequately allege that
Defendants made a misrepresentation concerning Triton’s
insolvency under Rule 12(b)(6), Count IV(a) is DISMISSED. 7 Since
Relators’ claims do not pass muster under Rule 12(b)(6), a Rule
9(b) particularity analysis is unnecessary. See Folliard, 722 F.
Supp. 2d at 28.
D. Relators’ Presentment Claims
To survive a motion to dismiss on a presentment claim, a
plaintiff must allege that “(1) the defendant submitted a claim
to the government, (2) the claim was false, and (3) the
defendant knew the claim was false.” Folliard, 722 F. Supp. 2d
at 26. Under the FCA, a claim may be considered false if it is
either factually or legally false. United States v. Sci.
Applications Int’l Corp., 555 F. Supp. 2d 40, 49 (D.D.C. 2008).
“A claim can be factually false if it invoices for services that
were not rendered or incorrectly describes goods or services
provided.” Toyobo, 811 F. Supp. 2d at 45 (internal quotations
omitted). By contrast, a claim may be legally false if it
falsely certifies “compliance with a particular statute,
regulation, or contractual terms, where compliance is a
prerequisite for payment.” Id. Such certification may be express
or implied. Id. For the reasons provided below, the Court finds
7 As explained infra, Count IV(b) will also be dismissed for failure to state
a claim for material false misrepresentation.
28
that certain of Relators’ claims survive Defendants’ motions to
dismiss, while others warrant dismissal.
1. Overtime Pay and Other Claims (Count V)
Relators allege that Defendants: (1) submitted false
invoices to the government which falsely represented the amount
of overtime worked by various subcontractors; (2) submitted
false invoices for travel expenses allegedly incurred by
Defendants but in fact incurred by K2GS and other
subcontractors; and (3) submitted false invoices for direct
labor charges allegedly incurred by Defendants but that in fact
were incurred by K2GS and other subcontractors. Am. Compl., ECF
No. 32 ¶¶ 143-44. Defendants challenge Relators’ allegations for
failing to state a claim under Rule 12(b)(6) and for failure to
plead with the requisite level of particularity under Rule 9(b).
SRA Mot. Dismiss, ECF No. 35 at 28-31; Triton Mot. Dismiss, ECF
No. 38 at 32-36.
(a) Overtime Expenses
Relators claim that Defendants billed the government for
inflated overtime hours that two individuals——Mr. Song, an
independent subcontractor and Ms. Baker, 8 a Triton employee——did
8 Relators do not provide identifying information for Ms. Baker. The Amended
Complaint does not offer Ms. Baker’s first name and refers to her only as “a
salaried Triton employee.” Am. Compl., ECF No. 32 ¶ 143.
29
not perform. Am. Compl., ECF No. 32 ¶ 65. According to Relators,
over a five-month period of time, Defendants allegedly billed
the government for “92.2 percent over and above what Mr. Song
actually invoiced.” Id. ¶ 66. Defendants “simultaneously billed
the government for unauthorized, unperformed overtime or
inflated hours” for Ms. Baker “from November 14, 2007 through
March 31, 2008.” Id. ¶ 65. While Relators state that they only
have access to invoices during this time period, they suspect
that Defendants also “billed the government for fictitious
overtime, inflated hours, or fictitious employees during the
remaining months” of the two-year contract. Id. ¶ 66.
Defendants argue that Relators have pled a breach of
contract claim, rather than a false claim pursuant to the FCA.
SRA Mot. Dismiss, ECF No. 35 at 28; Triton Mot. Dismiss, ECF No.
38 at 32. While it is axiomatic that qui tam plaintiffs have no
standing to bring breach of contract claims under the FCA, see
U.S. ex rel. Bender v. N. Am. Telecomms., Inc., 750 F. Supp. 2d
1, 10 (D.D.C. 2010), aff'd, 499 F. App'x 44 (D.C. Cir. 2013),
Relators’ claims do not sound exclusively in contract. Rather
than argue that certain labor was performed yet improperly
categorized as “overtime”, Relators allege that Defendants
presented false invoices containing plainly fictitious or
artificially inflated labor. Am. Compl., ECF No. 32 ¶¶ 65-66.
Such allegations fall squarely within the ambit of the FCA. See
30
Head, 798 F. Supp. 2d at 197 n.13 (“Relator's allegation that
the Government was billed for employee work that was not
performed...are, in fact, paradigmatic FCA claims.”).
Defendants’ reliance on Bender for the proposition that the
submission of unauthorized overtime bills present a breach of
contract dispute, see SRA Mot. Dismiss, ECF No. 28-29, is
misplaced because in that case, the defendants allegedly billed
the government for labor that was actually performed but did not
qualify for “overtime status” under the terms of the underlying
contract. See Bender, 750 F. Supp. 2d at 10. By contrast,
Relators here allege that Defendants fraudulently billed the
government for labor the subcontractors never worked. Am.
Compl., ECF No. 32 ¶ 65.
Defendants further contend that Relators’ allegations are
not plausible because a reading of the Amended Complaint
“supports a more obvious explanation”, namely that “Triton’s
invoices include total hours by labor category, not by
individual.” SRA Mot. Dismiss, ECF No. 35 at 29 (emphasis in
original); see also Triton Mot. Dismiss, ECF No. 38 at 32. In
other words, Defendants assert that Mr. Song and Ms. Baker may
have been billed under the same “Engineer Systems, Senior” labor
category on Triton’s invoices and thus the hours billed
represent a combined total of the hours worked by both
individuals. SRA Mot. Dismiss, ECF No. 35 at 29-30. Discovery
31
may yet reveal which interpretation of Triton’s invoices is
correct, however; at this stage, Relators have adequately
alleged a discrepancy between the overtime hours purportedly
worked by the subcontractors and the hours ultimately invoiced
by Triton to support a plausible basis for their claims.
Relators, then, have alleged all of the required elements of a
presentment claim: that Triton submitted a claim, the invoice
was false, and that Triton knew the claim was false. Am. Compl.,
ECF No. 32 ¶¶ 65-67 (describing “Triton’s fraud”), 143;
Folliard, 722 F. Supp. at 26. Moreover, the Court finds that by
identifying specific time periods during which the alleged fraud
occurred and describing specific invoices containing the alleged
misrepresentations, Relators have pled their allegations with
sufficient particularity. Williams, 389 F.3d at 1256 (reasoning
that pleaders must state the time, place, and content of the
false misrepresentations to meet Rule 9(b)’s particularity
requirement). Accordingly, Defendant Triton’s motion to dismiss
Relators’ claims pertaining to overtime charges is DENIED.
Defendant SRA argues that Relators have failed to state a
claim against SRA because Relators have not alleged that SRA, as
opposed to Triton (the subcontractor), had knowledge that the
claims were false. SRA Mot. Dismiss, ECF No. 35 at 40. The Court
agrees. Relators admit that their allegations are derived from a
comparison “of invoices prepared by the subcontractors...and
32
Triton’s available invoices.” Am. Compl., ECF No. 32 ¶ 65. It
logically follows that any purported inflation or fraudulent
overbilling would have occurred at the subcontractor level, in
other words, by Triton. At no point do Relators allege any
improper actions taken by SRA with regard to billing for
overtime charges. See, e.g., id. ¶ 67 (characterizing the
overbilling scheme as “Triton’s fraud”). To survive a motion to
dismiss, Relators must allege that SRA was aware of the claims’
falsity or acted in “deliberate ignorance or reckless disregard
of the truth[.]” Folliard, 722 F. Supp. 2d at 33. Because
Relators have failed to do so here, their claims against SRA
concerning false overtime charges are hereby DISMISSED.
(b) Travel Expenses
Relators allege that Defendants “knowingly billed the
government for business trips that were not taken
by...authorized contractors.” Am. Compl., ECF No. 32 ¶ 86.
Relators claim that Defendants themselves were not authorized to
charge for travel expenses because, under the June 2007 TEPs,
only certain subcontractors (K2GS, Jim Song and Tiber Creek)
were authorized to make such charges. Id. SRA argues that: (1)
Relators fail to allege that SRA submitted a claim for travel
that SRA knew or should have known to be false as required to
state a presentment claim; (2) a contractor’s proposal for
33
travel under a time and materials contract, such as the one at
issue here, “is merely an estimate of the charges likely to be
incurred[;]” and (3) an allegation that any travel taken was
“unauthorized” presents a breach of contract claim which is not
actionable under the FCA. SRA Mot. Dismiss, ECF No. 35 at 35.
Triton likewise argues that Relators: (1) fail to assert that
Triton, as the subcontractor, caused SRA to submit the
purportedly fraudulent claims; (2) impermissibly assume that
travel cost estimates were actually invoiced; and (3) fail to
allege with particularity any false claim made by either
Defendant. Triton Mot. Dismiss, ECF No. 38 at 35. In response,
Relators do not address Defendants’ arguments, instead summarily
alleging that Defendants “billed the government for travel for
time periods in which none of the second-tier subcontractors had
done any travel” and “falsely claimed to the government that all
the travel funds for K2GS had been expended[.]” Relators’ Opp’n,
ECF No. 42 at 10. In its Reply, SRA highlights Relators’ failure
to respond to Defendants’ arguments. SRA Reply, ECF No. 44 at 7-
8 (“Plaintiffs have not responded how, even if true, these
allegations rise above a standard breach of contract claim); id.
(“Plaintiffs further fail to respond to SRA’s claim that the
Complaint never alleges it was ever aware of billed but untaken
travel by subcontractors[.]”); id. at 8 (“The Opposition
provides no response.”).
34
Considering Relators’ claims against SRA and Triton, the
Court finds that Relators have not met their burden under either
Rule 12(b)(6) or Rule 9(b). Even assuming that the alleged
invoicing of travel presents an FCA claim rather than a breach
of contract dispute, Relators have not alleged that either SRA
or Triton had knowledge that the invoices they allegedly
submitted were false. See Am. Compl., ECF No. 32 ¶¶ 86-87;
Folliard, 722 F. Supp. 2d at 26 (identifying knowledge as an
element of an FCA presentment claim). As such, Relators’ claims
fail to state a claim under Rule 12(b)(6).
Even if Relators’ claims could be construed as stating a
claim under Rule 12(b)(6), their claim that Defendants
misrepresented to the government that travel funds pertaining to
K2GS had been expended would fail under Rule 9(b). Am. Compl.,
ECF No. 32 ¶ 87. Relators do not allege when the purported
misrepresentations were made, who made the misrepresentation,
and whether Triton or SRA, or both, were involved. See Williams,
389 F.3d at 1256 (reasoning that Rule 9(b) requires to “state
the time, place and content of the false misrepresentations, the
fact misrepresented” and those allegedly involved in the fraud).
As pointed out by SRA, Relators “have not identified a single
instance in which SRA [or Triton] billed the government for the
difference between the travel ceiling and K2GS’s incurred travel
costs.” SRA Mot. Dismiss, ECF No. 35 at 36. Accordingly,
35
Relators’ claims pertaining to unauthorized travel are hereby
DISMISSED.
(c) Direct Labor Charges
Relators also make a number of claims regarding Defendants’
alleged misrepresentation of direct labor charges submitted to
the government. Am. Compl., ECF No. 32 ¶¶ 68-76, 144.
Specifically, Relators allege that Defendants “falsely claimed
[direct] labor as ‘materials’ or other non-labor support,
instead of as labor, or [that Defendants] claimed it as their
own direct labor.” Id. ¶ 144. Relators further allege that
Defendants failed to sufficiently describe direct labor charges
on their invoices, which “made it impossible for the government
to determine the tasks for which SRA actually provided direct
labor.” Id. ¶¶ 72-76. SRA counters that the task proposal, which
expressly included direct labor charge estimates, authorized SRA
to charge for direct labor under the contract. SRA Mot. Dismiss,
ECF No. 35 at 31-32. According to SRA, SRA “cannot be ‘illegally
charging’ the government when it is providing the very services
it proposed.” Id. Triton contends that “direct labor” is a term
of art in government contracts that distinguishes between direct
and indirect costs, and does not necessarily mean that the
invoicing contractor was the entity that performed the labor.
Triton Mot. Dismiss, ECF No. 38 at 33. Likewise, Triton argues,
36
the task proposals explicitly identified to the government that
subcontractor labor costs would be invoiced to the government as
direct costs. Id. Finally, both Defendants argue that Relators
fail to provide any contractual, regulatory or statutory
authority imposing obligations on a prime or subcontractor to
provide a minimum level of detail on invoices. SRA Mot. Dismiss,
ECF No. 35 at 32; Triton Mot. Dismiss, ECF No. 38 at 33.
Relators do not respond to Defendants’ arguments. See generally
Relators’ Opp’n, ECF No. 42 at 23-28; see also SRA Reply, ECF
No. 44 at 7 (“Plaintiffs similarly fail to respond how SRA’s
billing for work it was proposed to perform on a direct labor
basis amounts to a false claim.”)
The Court finds that Relators fail to state a claim against
SRA under the FCA because Relators fail to explain how the
supposed sparsity of detail in SRA’s invoices constitutes a
false claim. In light of Defendants’ assertion that the task
proposals specifically identified and authorized the charging of
subcontractor labor as a direct cost, a claim Relators do not
rebut, see generally Relators’ Opp’n, ECF No. 42 at 23-28,
Relators do not explain how SRA’s alleged billing in accordance
with the proposal amounts to a misrepresentation for purposes of
the FCA. See Toyobo, 811 F. Supp. 2d at 45 (defining falsity to
include “invoic[ing] for services that were not rendered”). The
Court recognizes that a plaintiff may also demonstrate falsity
37
by alleging that a claim “falsely certifies compliance with a
particular statute, regulation or contractual terms, where
compliance is a prerequisite for payment.” Id. However, as
Defendants have pointed out, Relators have not identified any
contractual, statutory or regulatory authority that require the
level of detail Relators contend was necessary. Because Relators
have not adequately alleged falsity under the FCA, the
allegations against SRA regarding direct labor charges are
hereby DISMISSED under Rule 12(b)(6). As such, the Court need
not reach the question of particularity under Rule 9(b).
Folliard, 722 F. Supp. 2d at 28.
Relators’ claims against Triton must also be DISMISSED
because, in addition to the pleading defects already identified,
the Amended Complaint fails to allege Triton’s role in the
alleged scheme to misrepresent direct labor charges submitted to
the government. Relators only detail misrepresentations and
omissions allegedly made by SRA, and, in conclusory fashion,
insist that the scheme was conducted “in collusion with Triton.”
See Am. Compl, ¶¶ 68-74. Such vague and conclusory allegations
are not sufficient to state a claim under Rule 12(b)(6). Iqbal,
556 U.S. at 678 (reasoning that “naked assertions devoid of
further factual enhancement” are insufficient to state a claim
for relief).
38
2. Excessive Pass-Through Fees (Count II)
In Count II, Relators allege that Triton routinely charged
the government excessive pass-through fees for work performed by
its subcontractors. Am. Compl., ECF No. 32 ¶ 51. Relators allege
that Triton agreed with Mr. Angello, a DOD representative, “to
limit [Triton’s] pass-through fee[s] to 0.95 percent” of its
subcontractors’ invoices, but that Triton actually charged the
government 9.95 percent in pass-through fees for K2GS, “6.35
percent in pass-through fees for Mr. Song, 3.89 percent to 6.73
percent in pass-through fees for Tiber Creek, and 4.71 percent
in pass-through fees for subcontractor travel.” Id. ¶¶ 20(3),
51-52. Relators further allege that by not disclosing the
identity of the subcontractors in Defendants’ TEPs and MSRs,
Triton concealed the inflated pass-through fees and SRA charged
pass-through fees “on 100 percent of all subcontractor labor,
rather than just Triton’s work product alone.” Id. ¶ 52. As a
result, Relators allege that both Triton and SRA “ma[de] a false
claim on each of its invoices, and in virtually every entry on
its invoices in which it sought reimbursement for work performed
by [the subcontractors].” Id. ¶ 53.
SRA and Triton argue that the FAR provisions cited by
Relators that seemingly limit excessive pass-through charges are
inapplicable because: (1) the provisions were not enacted at the
39
time the contract was executed in 2003; (2) even if the FAR
provisions had been enacted, they would not apply to Triton
because Triton’s intended subcontracting did not exceed the pre-
defined threshold; and (3) the alleged agreement with Mr.
Angello is unenforceable. SRA Mot. Dismiss, ECF No. 35 at 21-24;
Triton Mot. Dismiss, ECF No. 38 at 18-21. Triton further
contends that Relators’ allegations based “upon information and
belief” fail Rule 9(b)’s particularity requirement and that any
obligations concerning pass-through fees “apply only to SRA as
the entity with contractual privity with the government.” Triton
Mot. Dismiss, ECF No. 38 at 18-19. Without responding to any of
Defendants’ other arguments, Relators reply that Congress
expressly stipulated that the FAR regulations proscribing
excessive pass-through fees would become effective three months
before the 2007 task order in this case was let to Mr. Keaveney.
Relators’ Opp’n, ECF No. 42 at 29-30.
Here, the Court finds that Relators have not stated a claim
under Rule 12(b)(6). To state a presentment claim, Relators must
allege, inter alia, that the claims submitted by Defendants were
false. Folliard, 722 F. Supp. 2d at 26. Relators base their
falsity allegations on FAR provisions that Relators readily
concede weren’t promulgated until October 2009, after
performance on the task orders had been completed. See Relators’
Opp’n, ECF No. 42 at 29. In an effort to surmount this obstacle,
40
Relators argue that Congress put DOD contractors on notice in
October 2006——eight months before Relators joined the task
order——that the DOD would at some future point in time issue
regulations concerning excessive pass-through fees that would
apply to DOD contracts “awarded on or after May 1, 2007”. Id. at
30. Ultimately, the regulations were not issued until October
2009. Id.
As highlighted by SRA and conceded by Relators, the
underlying contract at issue in this case was awarded in 2003,
four years before the effective date of the regulations
governing pass-through fees that Relators contend should apply.
See Am. Compl., ECF No. 32 ¶ 19 (“In 2003, the DoD awarded
Galaxy Scientific Corporation (“Galaxy”) the DoD contract
DAAB07-03-D-B011...to provide analytic services and software.”);
SRA Reply, ECF No. 44 at 9. Not only does the Amended Complaint
allege that DOD awarded contract DAAB07-03-D-B011 to Defendants
in 2003, but the 2007 and 2008 task proposals also clearly list
the same contract number as the applicable one. See 2007 and
2008 Task Execution Proposals, ECF No. 32-2 at 24, 60
(identifying the applicable contract number as DAAB07-03-D-
B011); Am. Compl., ECF No. 32 ¶ 19. It stands to reason that
Defendants could not have violated a law that did not exist at
the time the contract was awarded. Therefore, the Court finds
that Relators have failed to state a claim pursuant to Rule
41
12(b)(6) because Relators’ claim that the pass-through fees
submitted by Defendants were false is based on a DOD regulation
that did not exist at the time the underlying contract was
awarded. Because the regulation did not exist, the Court is
unable to infer that the Defendants violated the FCA. 9 See Iqbal,
556 U.S. at 678 (“[T]he tenet that a court must accept as true
all of the allegations contained in a complaint is inapplicable
to legal conclusions.”). 10 Accordingly, Count II of the Amended
Complaint is hereby DISMISSED.
3. Kickback Payments (Count VI)
As best the Court can discern, Relators attempt to allege a
kickback scheme. See generally Am. Compl., ECF No. 32 97-106.
According to Relators, Defendants “misallocat[ed] funds so that
charges actually incurred by a [second-tier] subcontractor...
were instead recorded as charges incurred by Triton.” Id. ¶ 148.
9 Relators’ argument that the charged pass-through fees violated the alleged
oral agreement between Mr. Angello and Triton, see Am. Compl., ECF No. 32 ¶
51, presents a breach-of-contract dispute over which Relators have no
standing. Bender, 750 F. Supp. 2d at 10. Nonetheless, even assuming that were
not the case, Relators have failed to allege that SRA was a party to that
agreement, was aware of its existence, or that the oral agreement was
incorporated into the ultimate contract between Defendants and the
government. In the absence of these allegations, Relators cannot demonstrate
falsity as required to state a claim under the FCA. Folliard, 722 F. Supp. 2d
at 26.
10 The Court can also dismiss Relators’ pass-through claims for failing to
respond to any of Defendants’ arguments for why, even if the FAR provisions
were enacted prior to the underlying contract, they do not apply to the
instant case. Stephenson v. Cox, 223 F. Supp. 2d 119, 121 (D.D.C.
2002)(“[W]hen a plaintiff files a response to a motion to dismiss but fails
to address certain arguments made by the defendant, the court may treat those
arguments as conceded, even when the result is dismissal of the entire
case.”).
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SRA then presented those charges to the government and once
paid, Defendants “ke[pt] the funds through a kick-back scheme
among themselves[.]” Id. Relators allege that Defendants, among
other things, used a “particular coding system” in its invoices
which “mea[nt] nothing to the government” to “give the
appearance that all the labor had been performed by Triton”
rather than by the second-tier subcontractors. Id. ¶ 97.
Defendants argue that Relators: (1) have not alleged how the
supposed kickback scheme resulted in the submission of false
claims or statements; and (2) fail to adequately plead a
violation under the Anti-Kickback Act. SRA Mot. Dismiss, ECF No.
35 at 40-41; Triton Mot. Dismiss, ECF No. 38 at 36-38. Relators
make no attempt to respond to Defendants’ arguments. See
generally Relators’ Opp’n, ECF No. 42 (making no mention of
Relators’ kickback allegations).
As an initial matter, this Court may dismiss Relators’
kickback claim because Relators fail to respond to Defendants’
arguments. “[W]hen a plaintiff files a response to a motion to
dismiss but fails to address certain arguments made by the
defendant, the court may treat those arguments as conceded, even
when the result is dismissal of the entire case.” Stephenson v.
Cox, 223 F. Supp. 2d 119, 121 (D.D.C. 2002). In any event,
Relators’ kickback claim also fails under Rule 12(b)(6). As
stated supra, to state a presentment claim, a plaintiff must
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allege that the defendant submitted a claim, the claim was
false, and the defendant knew the claim was false. Folliard, 722
F. Supp. 2d at 26. While the Amended Complaint broadly alleges
the existence of a kickback scheme, at no point do Relators
identify any underlying false claims for payment that were
allegedly submitted by Defendants. See generally Am. Compl., ECF
No. 32 ¶¶ 97-106. Moreover, Relators fail to demonstrate how the
coding system allegedly implemented by Defendants rendered any
invoices “false” for purposes of the FCA. Rather than allege
that the Relators “incorrectly describe[d] goods or services
provided”, see Toyobo, 811 F. Supp. 2d at 45, Relators concede
that the coding was logically consistent. See Am. Compl., ECF
No. 32 ¶ 97 (alleging that Defendants used “K2GS” for K2 Global
Solutions and “TC” for Tiber Creek). The Amended Complaint
therefore fails to “contain[] sufficient factual matter” from
which the Court could “draw the reasonable inference” that
Defendants violated the FCA. Iqbal, 556 U.S. at 678.
Accordingly, Count VI is hereby DISMISSED.
A. Relators’ Material False Statement Claims
In addition to their presentment claims, Relators allege
that Defendants submitted false statements to the government in
furtherance of their false claims scheme and in violation of 31
U.S.C § 3729(a)(1)(B). To state a material false statement claim
under the FCA, “a plaintiff must allege that (1) the defendant
44
made or used a ‘record or statement;’ (2) the record or
statement was false; (3) the defendant knew it was false; and
(4) the record or statement was ‘material’ to a false or
fraudulent claim.” U.S. ex rel. Hood v. Satory Global, Inc., 946
F. Supp. 2d 69, 85 (D.D.C. 2013); see also U.S. ex rel. Ervin &
Assocs., Inc. v. Hamilton Sec. Grp., Inc., 370 F. Supp. 2d 18,
36 (D.D.C. 2005) (“The great weight of case law holds that the
materiality of a false record or statement is an element of
False Claims Act liability.”). “Material” means “having a
natural tendency to influence, or be capable of influencing, the
payment or receipt of money or property.” Tran, 53 F. Supp. 3d
at 123. As explained below, the Court finds that Count III
states a claim for relief but DISMISSES Count IV(b).
1. Monthly Status Reports (Count III)
In Count III, Relators allege that Defendants routinely
created false MSRs in order to obscure their fraudulent scheme.
Am. Compl., ECF No. 32 ¶ 134. Defendants did so “to ensure that
their MSRs were consistent with their TEPs and invoices,...pass
government audit,...and to procure all related and subsequent
contract proposals.” Id. Specifically, Relators allege that
Defendants: (1) failed to disclose the actual status for task
orders; (2) mislabeled expenditures as direct costs; (3) failed
to identify and disclose labor costs, rates, and hours for its
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subcontractors; (4) declined to identify certain direct costs in
its schedules; and (5) failed to identify the total small
business participation on the contract. Id. ¶ 134.
Defendants point to a select few of the alleged false
statements, asserting that they are not, in fact, false. See,
e.g., SRA Mot. Dismiss, ECF No. 35 at 25; Triton Mot. Dismiss,
ECF No. 38 at 23-24. Defendants also argue that the MSRs do not
qualify as “claims” under the FCA and therefore liability cannot
attach for any alleged inaccuracies contained therein. SRA
Reply, ECF No. 44 at 7; Triton Mot. Dismiss, ECF No. 38 at 27.
Relators do not respond to Defendants’ arguments. See Relators’
Opp’n, ECF No. 42 at 18-23.
Here, Count III survives Defendants’ challenges because the
Amended Complaint alleges each element of a material false
statement claim with particularity that Defendants made false
statements to the government in the form of its MSR submissions.
Relators append to the Amended Complaint specific MSRs submitted
by Defendants in June and July 2008 and identify a litany of
purported misrepresentations and omissions made by Defendants,
including, inter alia, “removing newly identified risks and
other critical remarks[,]...continuing to bill the government
for tasks after they were completed[,]...billing the government
for employees on tasks for which they performed no
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work[,]...replacing subcontractor names with those of
Defendants’ employees[, and]... routinely falsifying and/or
omitting K2GS contributions, disclaimers, risks and
authorship[.]” Am. Compl., ECF No. 32 ¶ 60. Relators further
allege that Defendants, to avoid detection, knowingly created
the false MSRs to mirror the fraudulent task proposals and
inflated invoices. Id. ¶59. Relators also allege that the
misrepresentations were material. Id. ¶ 60. Thus, Relators have
alleged each element of their material misrepresentation claim
and satisfied the requirements of Rule 12(b)(6). Moreover, the
Court considers Relators’ citation to specific invoices and
detailed recitation of the alleged misrepresentations in
Defendants’ MSRs sufficient to meet their burden under Rule 9(b)
to allege their claims with particularity.
Defendants’ arguments to the contrary are not persuasive.
First, Defendant’s assertion that the information contained in
the status reports are not truly false, presents a question of
fact more appropriately resolved after discovery closes. Such
“factual issues will not be resolved at the motion to dismiss
stage of the litigation, where the plaintiff's factual
allegations are accepted as true.” Toyobo, 811 F. Supp. 2d at
48. Further, Defendants’ argument that MSRs are not “claims” for
purpose of the FCA is misplaced. While the MSRs are, as their
name suggests, “status reports” and not claims on the public
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fisc, the FCA clearly provides for liability for the submission
of false statements material to a false or fraudulent claim.
Ervin, 370 F. Supp. 2d at 36 (discussing the elements of a
material false statements claim).
The Court finds that Relators have sufficiently alleged
that the false statements in the MSRs were material to the
claims submitted by Defendants under the contract. Am. Compl.,
ECF No. 32 ¶ 60. As such, Relators’ allegations state a material
false statement claim under Rule 12(b)(6). Further, the Court
finds that by identifying specific MSRs and describing, in
detail, the misrepresentations contained therein, Relators have
pled their allegations with sufficient particularity. Williams,
389 F.3d at 1256 (reasoning that plaintiffs must plead the time,
place, and content of the false misrepresentations to satisfy
Rule 9(b)’s particularity requirement). Defendants’ motions to
dismiss with regard to Count III of the Amended Complaint are
hereby DENIED.
2. ARPBS Projections (Count IV(b))
In Count IV(b), Relators allege that Defendants’ ARPBS
projections to the government “falsely stated the identity of
the personnel who were to work on the contract.” Am. Compl., ECF
No. 32 ¶ 138. According to Relators, Defendants “initially
identif[ied] Triton employees as [subcontractor] employees” and
48
then “subsequently remov[ed] the subcontractors (other than
Triton), and list[ed] unqualified Triton employees in their
place[.]” Id. Relators allege that “all prime contracts have a
provision regarding ‘Personnel and Performance’” which mandates,
inter alia, that subcontractors notify prime contractors of any
need to substitute personnel. Id. ¶ 110. Defendants argue that
Relators have not alleged how the alleged omission of the
subcontractor employees was material to the government’s
decision to make payments under the contract. SRA Mot. Dismiss,
ECF No. 35 at 42; Triton Mot. Dismiss, ECF No. 38 at 30.
Relators do not directly respond to Defendants arguments but
rather restate allegations from Amended Complaint that
Defendants “misled DOD through removing information about the
identity and work of the subcontractors.” Relators’ Opp’n, ECF
No. 42 at 6.
The Court finds that Relators fail to state a material
false statement claim relating to the ARPBS projections for two
reasons: First, Relators concede that the replacement of
personnel presents a breach of contract dispute, over which
Relators have no standing. See Am. Compl., ECF No. 32 ¶ 110
(“Defendants’ ‘bait-and-switch’ scheme regarding the ‘Personnel
and Performance’ provision created an irreparable, material
breach with the prime contract, as well as all subcontractors”);
Bender, 750 F. Supp. 2d at 10. However, even assuming Relators
49
did allege a false claim, they——as Defendants highlight——have
failed to allege that the removal of subcontractor names from
the ARPBS projections was material to the government’s decision
to pay. See Ervin, 370 F. Supp. 2d at 36 (recognizing that the
materiality of a false record or statement is an element of
False Claims Act liability). As a result, Count IV(b) is hereby
DISMISSED under Rule 12(b)(6). Because the Court has determined
that Relators have failed to state a claim under Rule 12(b)(6),
further analysis for particularity under Rule 9(b) is
unnecessary.
IV. CONCLUSION
For the foregoing reasons, Defendants’ Motions to Dismiss
are GRANTED in part and DENIED in part. Count III against both
Defendants shall proceed. Count V’s claim pertaining to alleged
overtime charges shall also proceed but only against Triton. All
remaining claims are DISMISSED. An appropriate Order accompanies
this Memorandum Opinion, filed this same day.
SO ORDERED.
Emmet G. Sullivan
United States District Court
November 29, 2016.
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