Paul A. Cimino v. International Business Machines Corporation

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 9, 2020 Decided July 6, 2021

No. 19-7139

UNITED STATES OF AMERICA, EX REL. PAUL A. CIMINO,

AND

PAUL A. CIMINO,

APPELLANT

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:13-cv-00907)

Tejinder Singh argued the cause for appellant. With him

on the briefs was Daniel H. Woofter.

Amanda L. Mundell argued the cause for amicus curiae the

United States in support of appellant. With her on the brief

were Joseph H. Hunt, Assistant Attorney General, Timothy J.

Shea, United States Attorney, and Charles W. Scarborough,

Attorney.

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Catherine E. Stetson argued the cause for appellee. With

her on the brief were Jonathan L. Diesenhaus and Matthew J.

Higgins.

Steven P. Lehotsky, Tara S. Morrissey, James C. Stansel,

Melissa B. Kimmel, Alan Charles Raul, and Virginia A. Seitz

were on the brief for amici curiae the Chamber of Commerce

of the United States of America and the Pharmaceutical

Research and Manufacturers of America in support of appellee.

Before: SRINIVASAN, Chief Judge, RAO, Circuit Judge,

and GINSBURG, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge RAO.

Concurring opinion filed by Circuit Judge RAO.

RAO, Circuit Judge: This case involves the False Claims

Act (“FCA”) and an alleged fraud perpetrated against the

Internal Revenue Service (“IRS”). According to relator Paul

Cimino, the International Business Machines Corporation

(“IBM”) violated the FCA by (1) using a false audit to

fraudulently induce the IRS to enter into a $265 million license

agreement for software the IRS did not want or need, and (2)

presenting false claims for payment for software that the IRS

never received. The district court dismissed Cimino’s

complaint, finding that he did not adequately plead his

fraudulent inducement and presentment claims.

This appeal requires us to clarify whether causation is an

element of fraudulent inducement under the FCA, and if so,

what standard governs it. In light of Supreme Court precedents

interpreting the FCA to incorporate the common law, we hold

that but-for causation is necessary to establish a fraudulent

inducement claim under the FCA. We hold that Cimino

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plausibly pleaded causation, as well as materiality, and

therefore he may proceed with his fraudulent inducement

claims on remand. We affirm, however, the dismissal of

Cimino’s presentment claims because he failed to plead them

with the requisite particularity.

I.

Since 1863, the False Claims Act has imposed liability for

fraud against the government. Act of Mar. 2, 1863, ch. 67, 12

Stat. 696 (codified as amended at 31 U.S.C. § 3729 et seq.).

Congress enacted the FCA to “stop[] the massive frauds

perpetrated by large contractors during the Civil War.”

Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct.

1989, 1996 (2016) (cleaned up). Congressional investigations

“painted a sordid picture of how the United States had been

billed for nonexistent or worthless goods, charged exorbitant

prices for goods delivered, and generally robbed in purchasing

the necessities of war.” United States v. McNinch, 356 U.S.

595, 599 (1958). A person violates the FCA, among other

ways, if he “knowingly presents, or causes to be presented, a

false or fraudulent claim for payment or approval” by the

government or “knowingly makes, uses, or causes to be made

or used, a false record or statement material to a false or

fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A) & (B). A violator

faces civil penalties up to $10,000 per claim and treble

damages. Id. § 3729(a)(1).

The FCA expands who can prosecute fraud against the

government by allowing private persons to bring a qui tam

action on the government’s behalf. See id. § 3730(b). These so-

called relators “serve as a posse of ad hoc deputies to uncover

and prosecute frauds against the government.” U.S. ex rel.

Grubbs v. Kanneganti, 565 F.3d 180, 184 (5th Cir. 2009)

(cleaned up). The FCA incentivizes relators to come forward

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with knowledge of false claims by sharing between ten and

thirty percent of any money recovered by the government, with

the precise percentage dependent upon the relator’s

contribution to the suit. See 31 U.S.C. § 3730(d).

To commence a qui tam action under the FCA, a relator

files his complaint under seal, providing the government an

opportunity to investigate the claims and determine whether to

intervene. Id. § 3730(b)(2). If the government intervenes, it

assumes “primary responsibility for prosecuting the action,”

but if the government declines, the relator may proceed with

the case on his own. Id. § 3730(c)(1), (c)(3).

This qui tam action began when Paul Cimino filed a

complaint alleging that IBM violated the FCA. As a former

senior sales representative for IBM, Cimino helped sell

software to the IRS. Based on knowledge acquired on the job,

Cimino alleged that IBM fraudulently induced the IRS to enter

a $265 million license agreement for “unwanted, unneeded”

software. J.A. 6 ¶ 1. Because we must accept Cimino’s factual

allegations as true at the motion to dismiss stage, we recite the

facts as he alleges.

Pursuant to a 2007 license agreement, the IRS used IBM’s

software, paying between $23 and $30 million annually. As the

license agreement neared its expiration in 2012, IBM learned

that the IRS was not interested in renewing the agreement

because it was not using all the software purchased from IBM.

For the upcoming tax season, the IRS intended to negotiate an

extension only for the software that it needed.

Faced with the possibility of losing significant revenue,

IBM allegedly devised a scheme to pressure the IRS into

another long-term deal. IBM planned to conduct a “friendly”

audit, anticipating that the IRS was overusing the software and

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therefore would owe a significant amount in compliance

penalties. IBM would then leverage the penalties by offering to

waive them in exchange for a new agreement. IBM retained

Deloitte LLP to perform the audit.

Contrary to IBM’s expectations, Deloitte’s initial audit

showed the IRS was not significantly overusing the licenses

and owed only $500,000 in compliance penalties—a relatively

small amount for a contract of this size. IBM never released

these audit results to the IRS. Instead, IBM worked with

Deloitte to manipulate the results. For example, IBM counted

licenses on discontinued servers as in constant use, even though

they were never used. Deloitte first presented the number of

overused licenses from this manipulated audit to Adam Kravitz

at the IRS. Cimino alleged that “Kravitz rejected the audit

findings because, in his words, ‘IBM cannot substantiate that

the IRS is out of compliance.’” J.A. 27 ¶ 88. IBM then

manipulated the audit again to show an outstanding $292

million in compliance penalties. IBM shared this number with

the IRS, despite the fact that one IBM employee considered the

number “ridiculous,” and another “was ‘not comfortable

representing’ that number to the IRS.” J.A. 28 ¶ 92. In

November 2012, IBM presented another audit to Kravitz

showing the IRS owed at least $91 million in compliance

penalties, but Kravitz again rejected the findings.

Waiting until Kravitz was on vacation in December, IBM

approached IRS officials who were “less knowledgeable about

the audit.” J.A. 34 ¶ 123. Deloitte presented the false audit

showing the IRS was overutilizing the software to several IRS

officials including Kravitz’s boss, Jim McGrane, who served

as the IRS’s Deputy Chief Information Officer and led the

IRS’s software acquisitions. A week later, IBM met with

McGrane and told him that, if the IRS did not enter the new

license agreement, it would owe $91 million and that IBM had

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retained lawyers to collect the penalties. But if the IRS entered

into a new license agreement, IBM promised to waive the

penalties. Chris Schumm, an IBM employee at the meeting,

believed “[d]uring the course of his employment” that “the IRS

was very concerned and ‘scared’ of the false” audit and that the

audit’s “findings were a substantial factor in the IRS’s decision

to renew the [agreement].” J.A. 36 ¶ 127. After learning about

the extent of compliance penalties revealed by Deloitte’s audit,

McGrane approved a new license agreement in which the IRS

agreed to pay IBM $265 million for a period of five years.

Once the new agreement was in place, IBM allegedly did

not make good on its promise to waive the compliance

penalties. IBM instead disguised the compliance penalties as

an $87 million fee for prospective licenses and support, which

“were, upon information and belief, never actually provided to

the IRS.” J.A. 38 ¶ 140. The IRS continued to pay IBM under

the license agreement for the next several years, and it paid

most of the $265 million contract price. In 2015, the IRS

extended the license agreement for another six months at a cost

of over $16 million.

Cimino filed his complaint against IBM under seal in June

2013—about six months after the IRS signed the new license

agreement. Cimino’s amended complaint asserts that IBM

violated the FCA in two ways. First, IBM fraudulently induced

the IRS to enter the agreement by using the false audit and the

false compliance penalties premised upon it. Second, IBM

presented false claims when it charged the IRS for prospective

licenses it never provided. After a four-year investigation, the

government declined to intervene in the case, and Cimino’s

complaint was unsealed. IBM moved to dismiss.

The district court dismissed Cimino’s complaint in full.

With respect to fraudulent inducement, the court held that

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Cimino had to plead but-for causation, meaning that the IRS

would not have entered the agreement but for IBM’s false

audit. According to the court, Cimino failed to do so because

he never alleged that the IRS accepted the false audit’s

findings. The court also held Cimino failed to plausibly plead

the false audit was material to the IRS, because it paid IBM

most of the $265 million license agreement and extended the

agreement for an additional $16 million despite its knowledge

of possible fraud. As for presentment of a false claim, the court

again found it implausible that the IRS “sat by idly in the face

of” IBM’s alleged fraud and paid millions for purportedly

nothing in return. J.A. 419. Alternatively, the court held

Cimino improperly pleaded this claim because he did not assert

that he lacked access to relevant records, as required to plead

“upon information and belief.”

Cimino timely appealed the dismissal of his complaint.

Although it had earlier declined to intervene, the government

filed an amicus brief in support of Cimino.

II.

We begin with Cimino’s claim that IBM fraudulently

induced the IRS to enter into a new license agreement with

IBM. The FCA makes it unlawful to “knowingly present[], or

cause[] to be presented, a false or fraudulent claim for payment

or approval” to the government. 31 U.S.C. § 3729(a)(1)(A).

Under longstanding Supreme Court precedent, a violation of

the FCA occurs when a person fraudulently induces the

government to enter a contract and later submits claims for

payment under that contract. See U.S. ex rel. Marcus v. Hess,

317 U.S. 537 (1943), superseded by statute on other grounds,

Act of Dec. 23, 1943, ch. 377, 57 Stat. 608, 609; see also U.S.

ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d

1321, 1326–27 (D.C. Cir. 2005). Although the text of the FCA

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prohibits only false or fraudulent claims, the Court has placed

a common law gloss on the statute, interpreting it to also

prohibit fraudulent inducement. This means that “each claim

submitted to the Government under a contract which was

procured by fraud” is false “even in the absence of evidence

that the claims were fraudulent in themselves.” Bettis, 393 F.3d

at 1326.

Before assessing whether Cimino properly pleaded

fraudulent inducement, we must first answer the threshold

question of whether causation is required to make out a

fraudulent inducement claim, and if so, the proper standard of

causation to apply. We hold that causation is required for a

fraudulent inducement claim. Our inquiry here focuses on

actual causation, which we determine under a but-for standard.

A.

Cimino argues that causation is not required to make out a

claim for fraudulent inducement under the FCA.1 While this

circuit has not explicitly addressed the requirement of

causation, the nature of the common law tort of fraudulent

inducement as well as the Supreme Court’s decisions

interpreting the FCA make clear that a successful claim for

fraudulent inducement requires demonstrating that a

1

In the proceedings below, Cimino waived his argument that

causation is not required, but preserved his argument regarding the

proper standard for causation. Because we need not determine the

standard for causation if causation is not required, we excuse

Cimino’s waiver and first explain why causation is required for

fraudulent inducement.

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defendant’s fraud caused the government to enter a contract

that later results in a request for payment.2

At common law, causation is an integral part of fraudulent

inducement, which is a species of fraud. “Fraudulent

inducement occurs when a party is induced through fraudulent

misrepresentations to enter a contract.” 37 C.J.S. Fraud § 111

(June 2021 update); cf. 28 WILLISTON ON CONTRACTS § 70:220

(4th ed. July 2020 update). The ordinary meaning of

inducement incorporates a causation requirement. To “induce”

means to “bring about, bring on, produce, cause, give rise to.”

Induce, OXFORD ENGLISH DICTIONARY 888 (2d ed. 1989)

(emphasis added). As the government explains, “fraudulent

inducement has a built-in causation requirement.” Gov’t

Amicus Br. 12. If a fraudster’s misrepresentations do not cause

a party to enter a contract, no fraudulent inducement has

occurred.

The Supreme Court has recognized that in prohibiting

false or fraudulent claims, the FCA in effect incorporated a

common law tort along with its common law requirements. In

general, “the term ‘fraudulent’ [in the FCA] is a paradigmatic

example of a statutory term that incorporates the common-law

2

The First Circuit has explained that a fraudulent inducement claim

under the FCA requires causation. See D’Agostino v. EV3, Inc., 845

F.3d 1, 9 (1st Cir. 2016). Other circuits have implicitly recognized

that the requirements of fraudulent inducement include causation.

See U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370,

376 (4th Cir. 2008) (explaining that fraudulent inducement requires

a “fraudulent course of conduct … that caused the government to

pay out money or to forfeit moneys due (i.e., that involved a

‘claim’)”) (emphasis added) (cleaned up); see also U.S. ex rel.

Longhi v. United States, 575 F.3d 458, 467 (5th Cir. 2009); U.S. ex

rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1174 (9th Cir.

2006).

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meaning of fraud.” Escobar, 136 S. Ct. at 1999; see also id. at

1999 n.2 (explaining that “we presume that Congress retained

all other elements of common-law fraud that are consistent

with the statutory text [when] there are no textual indicia to the

contrary”). More specifically, when the Court recognized a

claim for fraudulent inducement, it explained that contractors

“caused the government to pay claims” under a contract that

was “the result of the fraudulent bidding,” “taint[ing] … every

step thereafter taken.” Hess, 317 U.S. at 543. The contractors’

fraud caused, i.e. induced, the government to enter a contract,

which then resulted in payments of claims.

Consistent with the common law and the Supreme Court’s

interpretation of the FCA, causation is a necessary element of

fraudulent inducement. Because the fraud must be in the

inducement, liability under the FCA for fraudulent inducement

must turn on whether the fraud caused the government to

contract.

Cimino raises several arguments to resist this conclusion.

First, Cimino argues the text of the FCA indicates that the

common law requirement of causation does not apply to

fraudulent inducement claims. He notes the FCA expressly

requires causation when a defendant causes someone else to

violate the FCA. See 31 U.S.C. § 3729(a)(1)(A) & (B). And the

FCA permits treble damages for “the amount of damages

which the Government sustains because of the act of” the

defendant. Id. § 3729(a)(1) (emphasis added). According to

Cimino, these explicit causation requirements preclude a

requirement of causation for fraudulent inducement.

Cimino’s negative implication argument cannot carry the

day. To begin with, claims for fraudulent inducement rest not

on the text of the FCA, but on the recognition that the statute

encompasses this common law claim, along with its common

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law requirements, which include causation. Similarly, the

negative implication canon “may have less force where the

exclusion is a common law rule.” Norman Singer & Shambie

Singer, 2B SUTHERLAND STATUTORY CONSTRUCTION § 50:5

(7th ed. Nov. 2020 update). Under the presumption against

change in common law, “[a] statute will be construed to alter

the common law only when that disposition is clear.” Antonin

Scalia & Bryan A. Garner, READING LAW 318 (2012)

(emphasis omitted). When Congress has abrogated the

common law in the FCA, it has done so clearly. See 31 U.S.C.

§ 3729(b)(1)(B) (altering the common law scienter

requirement); Escobar, 136 S. Ct. at 1999 n.2. When

interpreting the FCA, the Supreme Court has imposed common

law requirements even when the statute does not explicitly

require them. See Escobar, 136 S. Ct. at 2002 (requiring

materiality under 31 U.S.C. § 3729(a)(1)(A), although that

provision makes no mention of it, and other provisions

explicitly require materiality, such as § 3729(a)(1)(B)).

Nothing in the text or structure of the FCA is inconsistent with

applying the common law requirement of causation for

fraudulent inducement.

Second, Cimino contends that causation is not required

because the nexus between a defendant’s fraud and the

government’s payment decision is covered by the element of

materiality, which suffices in lieu of causation. Although

related, materiality and causation are not the same. The FCA

defines materiality as “having a natural tendency to influence,

or be capable of influencing, the payment or receipt of money

or property.” 31 U.S.C. § 3729(b)(4). Causation here refers to

whether fraud in fact caused the government to enter into a

contract. To be sure, both materiality and causation require

considering the effect of a defendant’s fraud on the

government’s decision to enter a contract. But a statement

could be material—that is, capable of influencing the

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government’s decision to enter a contract—without causing the

government to do so. See D’Agostino v. EV3, Inc., 845 F.3d 1,

7–8 (1st Cir. 2016); see also U.S. ex rel. Petratos v. Genentech

Inc., 855 F.3d 481, 491 (3d Cir. 2017) (rejecting the conflation

of materiality and causation in the FCA). Fraudulent

inducement requires materiality and causation, separate

elements that we cannot conflate.

Cimino finally resorts to the FCA’s broader purpose of

redressing fraud. He argues that, if causation is required, a

contractor may lie to the government to obtain a contract but

dodge liability if his lie does not cause the government to enter

the contract. He maintains it would be “more consistent with

the FCA’s broad remedial purpose to hold those defendants

accountable.” Cimino Br. 35. The FCA, however, is not “an

all-purpose antifraud statute.” Allison Engine Co. v. U.S. ex rel.

Sanders, 553 U.S. 662, 672 (2008). Even putting aside the

difficulty of determining which statutes are remedial (all

statutes seek to remedy some problem), the FCA does not make

actionable every misrepresentation to the government. Nor can

generalized purposes surmised from the FCA overcome the

conclusion, drawn from the common law and our precedents,

that a fraudulent inducement claim under the FCA requires a

showing of causation.

B.

Next we turn to the proper standard for causation and

explain that Cimino was required to plead actual causation

under a but-for standard. Accordingly, we reject Cimino’s

argument that he needed to plead only proximate cause under

the substantial factor test.

Like other torts, fraud requires both actual and proximate

cause, and as already explained, fraudulent inducement under

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the FCA incorporates the common law causation requirement.

Actual and proximate cause, however, are often confused.

Actual cause, also called cause-in-fact or factual cause,

concerns whether a defendant’s conduct resulted in the

plaintiff’s harm. It refers to the ordinary understanding of

causation, which asks for “proof that the defendant’s conduct

did in fact cause the plaintiff’s injury.” Univ. of Tex. Sw. Med.

Ctr. v. Nassar, 570 U.S. 338, 346 (2013). Proximate cause, also

called legal cause, concerns whether a defendant should be held

legally liable for the conduct that caused the plaintiff’s harm.

Only some factual causes are legally cognizable. CSX Transp.,

Inc. v. McBride, 564 U.S. 685, 701 (2011). Although a

defendant’s conduct may have actually caused the plaintiff’s

harm, he is liable only if his actions are also the legal, i.e.

proximate, cause of the plaintiff’s harm.

To make out a claim under the FCA, Cimino must first

plead actual cause because it is a well-established principle that

actual cause precedes any analysis of proximate cause. Dan B.

Dobbs, et al., DOBBS’ LAW OF TORTS § 198 (2d ed. June 2020

update). Such factual or actual cause has traditionally been

governed by the but-for test: “The traditional way to prove that

one event was a factual cause of another is to show that the

latter would not have occurred ‘but for’ the former.” Paroline

v. United States, 572 U.S. 434, 449–50 (2014). As the Supreme

Court has instructed, “[t]his ancient and simple ‘but for’

common law causation test … supplies the ‘default’ or

‘background’ rule against which Congress is normally

presumed to have legislated when creating its own new causes

of action.” Comcast Corp. v. Nat’l Ass’n of African Am.-Owned

Media, 140 S. Ct. 1009, 1014 (2020). We have applied a but-

for test when assessing whether a defendant’s fraud caused the

government damages under the FCA. See U.S. ex rel. Schwedt

v. Plan. Rsch. Corp., 59 F.3d 196, 200 (D.C. Cir. 1995).

14

Indeed, actual cause is practically synonymous with but-for

cause.

Therefore, to plead fraudulent inducement, Cimino had to

allege actual cause under the but-for test.3 Here that means he

would have to provide sufficient facts for the court to draw a

reasonable inference that IBM’s false audit caused the IRS to

enter the license agreement.

Cimino urges us to adopt a different approach. He argues

that he need not plead facts to allege actual cause at all, so long

as he pleads facts plausibly demonstrating proximate cause,

which he maintains should be analyzed under the substantial

factor test. And Cimino contends that his complaint satisfies

this test because, even if other factors also influenced the IRS’s

decision to enter the agreement, he alleged that IBM’s false

audit was a substantial factor in that decision. But Cimino

cannot simply skip over a showing of actual cause and rely only

on proximate cause. Irrespective of whether Cimino properly

pleaded proximate cause, he was also required to plead actual

cause under the but-for standard.

Resorting again to “the policies animating the FCA,”

Cimino argues that we should interpret this remedial statute

broadly by pulling within its orbit any fraudulent actions that

were a substantial factor in the government’s decision—not

just those that were a but-for cause. Cimino Br. 39. Liberal

3

Cimino also gestures to the fact that but-for causation fails when

there are multiple sufficient causes, and that the substantial factor test

is applied “[w]hen each of two or more causes would be sufficient,

standing alone, to cause the plaintiff’s harm.” DOBBS’ LAW OF

TORTS § 189. Cimino, however, fails to identify what the additional

sufficient cause of the IRS’s harm might be, so that exception has no

bearing on this case.

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construction of remedial statutes “needlessly invites judicial

lawmaking,” an invitation we decline. Scalia & Garner,

READING LAW 364. Remedial statutes, like any other, should

be interpreted to include all they fairly contain, not more and

not less.

Cimino has presented no compelling reason to deviate

from the ordinary common law rule. Therefore, he must allege

but-for causation as a necessary element of a claim for

fraudulent inducement under the FCA.

III.

We next consider the dismissal of Cimino’s fraudulent

inducement and presentment claims under the FCA, which we

review de novo. Winder v. Erste, 566 F.3d 209, 213 (D.C. Cir.

2009). A complaint survives a motion to dismiss if it

“contain[s] sufficient factual matter, accepted as true, to ‘state

a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570 (2007)). To qualify as plausible, the pleaded

facts must “allow[] the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.” Id.

“[B]ecause the False Claims Act is self-evidently an anti-

fraud statute,” a complaint filed under it must also meet the

heightened pleading standard of Federal Rule of Civil

Procedure 9(b). U.S. ex rel. Totten v. Bombardier Corp., 286

F.3d 542, 551–52 (D.C. Cir. 2002). When alleging fraud, a

relator “must state with particularity the circumstances

constituting fraud or mistake,” although “[m]alice, intent,

knowledge, and other conditions of a person’s mind may be

alleged generally.” FED. R. CIV. P. 9(b). Therefore, a relator

must plead his FCA claim with both plausibility and

particularity. We hold that Cimino satisfied these standards

16

with respect to both causation and materiality for fraudulent

inducement, but failed to plead with particularity his

presentment claims.

A.

To make out a claim for fraudulent inducement under the

FCA, a plaintiff must plead both causation and materiality.

We conclude that Cimino adequately pleaded but-for

causation because he alleged facts that plausibly demonstrate

the IRS would not have entered the agreement but for IBM’s

fraudulent conduct. Cimino asserted that “the IRS would not

have entered into the License had it known that [IBM’s]

representations were false,” J.A. 37 ¶ 131, and supported this

conclusion with factual allegations. Cf. Iqbal, 556 U.S. at 679

(explaining that “[w]hile legal conclusions can provide the

framework of a complaint, they must be supported by factual

allegations”). He also alleged that, before the renewal

negotiations began, the IRS wanted to reduce its software

spending. The IRS thought it was underutilizing its IBM

licenses and was not interested in renewing the entire license

agreement.

Next, Cimino outlined the scheme that IBM concocted to

induce the IRS to renew the license agreement. Cimino asserted

that IBM devised a false audit showing the IRS was

overutilizing its licenses and would owe significant compliance

penalties—contrary to the IRS’s expectations. IBM then

presented this audit to several IRS officials, including

McGrane. Although Cimino did not explicitly allege that

McGrane, or any IRS official, accepted the audit, he came

close; he alleged that IBM’s “false representations [of

compliance penalties] were relied upon by the IRS when it

agreed to enter into the License.” J.A. 37 ¶ 131. Moreover,

17

Cimino described the pivotal meeting at which IBM used the

false audit to induce the IRS to enter the agreement. A week

after the presentation of the audit, IBM told McGrane that it

would waive the $91 million in compliance penalties if the IRS

entered into the license agreement, but otherwise would seek

to collect the penalties. McGrane signed off on the license

agreement. One IBM employee present at this meeting thought

the IRS was “very concerned” and “scared” of the audit.4 A few

weeks later, the IRS executed a new $265 million license

agreement, despite previously seeking to reduce its software

spending with IBM.

When we take these factual allegations together, they

permit us to “draw the reasonable inference” from Cimino’s

complaint that but for IBM’s false audit, the IRS would not

have entered the agreement. Iqbal, 556 U.S. at 678; see also

Owens v. BNP Paribas, S.A., 897 F.3d 266, 272 (D.C. Cir.

2018) (explaining that we should “draw all reasonable

inferences in favor of the plaintiffs”). Cimino raises more than

just general concerns of the IRS about the audit. His factual

allegations “nudge[]” his theory that IBM’s false audit caused

the IRS to enter the agreement “across the line from

conceivable to plausible.” Twombly, 550 U.S. at 570.

The district court doubted that IBM could obtain the new

license agreement from the IRS by approaching McGrane

when Kravitz, who had twice rejected the audit, was on

vacation. But that disbelief did not merit dismissal in light of

4

After highlighting the IRS’s fear of the audit, Cimino alleged that

the audit’s findings were a “substantial factor” in the IRS’s decision

to renew the license agreement. J.A. 36 ¶ 127. The district court ruled

that this allegation of the incorrect legal standard was “by itself

fatal.” J.A. 415. We need not assume, however, the truth of Cimino’s

legal conclusions. Iqbal, 556 U.S. at 680. Instead, we focus on the

facts he pleaded.

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Cimino’s allegations. “[O]f course, a well-pleaded complaint

may proceed even if it strikes a savvy judge that actual proof

of the facts alleged is improbable.” Id. at 556.

On the facts alleged at the pleading stage, along with the

reasonable inferences drawn from those allegations in

Cimino’s favor, we find Cimino plausibly alleged that, but for

IBM’s false audit, the IRS would not have entered into the

license agreement. Whether Cimino can prove those

allegations remains to be seen.

We also conclude that Cimino plausibly pleaded

materiality for fraudulent inducement under the FCA.

Materiality means a defendant’s fraud has “a natural tendency

to influence” or was “capable of influencing” the government’s

payment decision. 31 U.S.C. § 3729(b)(4). For a claim of

fraudulent inducement, a defendant’s fraud is material if it was

capable of influencing the government’s decision to enter into

a contract.

Cimino plausibly pleaded materiality, with largely the

same facts that supported his allegations of causation. Cimino

maintained that, prior to the audit, the IRS thought it was

underutilizing IBM’s software and did not want to renew the

agreement. In order to maintain the valuable agreement, IBM

presented a false audit showing that the IRS was overutilizing

the software and represented that the IRS would owe

compliance penalties if it did not renew the agreement. The

false audit was thus capable of influencing the IRS’s decision

to renew the agreement.

IBM focuses on the fact that the IRS continued to pay for

the licenses and extended the license agreement despite its

19

purported knowledge of Cimino’s allegations of fraud.5 To be

sure, in the context of the presentment of false claims, “if the

Government pays a particular claim in full despite its actual

knowledge [of the fraud], that is very strong evidence” of

immateriality. Escobar, 136 S. Ct. at 2003. We have also

observed that continued payment of claims the government

knows might be fraudulent suggests the fraud was not material

to the government. See U.S. ex rel. McBride v. Halliburton Co.,

848 F.3d 1027, 1034 (D.C. Cir. 2017).

The question here, however, is whether Cimino plausibly

pleaded materiality for his fraudulent inducement claims. He

did so. The district court’s dismissal boils down to a disbelief

that the IRS would pay IBM millions of dollars after learning

that it had been hoodwinked. But Federal Rule of Civil

Procedure 12(b)(6) requires us to accept Cimino’s factual

allegations as true, and those allegations plausibly plead that

IBM’s false audit was material to the IRS’s decision to renew

the license agreement. It is plausible that, had the IRS known

IBM’s audit was false, it would not have renewed the

agreement. It is also plausible that the IRS could have later

learned of IBM’s fraud and continued to pay for the licenses

for any number of reasons that do not render IBM’s fraud

immaterial. For example, the IRS may have felt obligated to

pay until it received a legal determination that it was relieved

of the agreement’s terms. “Rule 12(b)(6) does not

countenance dismissals based on a judge’s disbelief of a

5

It is not clear that the IRS’s knowledge of IBM’s alleged fraud was

properly before the district court, as Cimino did not allege that

knowledge in his complaint. See Trudeau v. FTC, 456 F.3d 178, 183

(D.C. Cir. 2006). IBM suggests we could take judicial notice of this

fact. Because it does not change our conclusion, we assume without

deciding that the district court properly considered the IRS’s

knowledge of IBM’s alleged fraud.

20

complaint’s factual allegations.” Twombly, 550 U.S. at 556

(cleaned up). At a later stage in the litigation, evidence of the

IRS’s continued payment under the license agreement might be

used to demonstrate that IBM’s false audit was not material to

the IRS. See McBride, 848 F.3d at 1034. But the resolution of

these questions is for another day.6

We hold that Cimino plausibly pleaded causation and

materiality and therefore reverse the district court’s dismissal

of his fraudulent inducement claims.

B.

In addition to fraudulent inducement, Cimino claimed that

IBM presented false claims to the IRS when it billed the IRS

for $87 million in compliance penalties disguised as new

licenses and technical support. That is, Cimino alleged that

IBM billed the government for services IBM did not in fact

provide.

We agree with the district court that Cimino did not

adequately plead the presentment of false claims. To satisfy the

particularity demanded by Rule 9(b) for a presentment claim, a

relator must plead details about the presentment, including

when the false claims were presented and who presented those

claims. See U.S. ex rel. Williams v. Martin-Baker Aircraft Co.,

389 F.3d 1251, 1257 (D.C. Cir. 2004). Although a relator may

plead allegations upon “information and belief,” he may do so

only when “the necessary information lies within the

defendant’s control,” and the allegations are “accompanied by

6

The Chamber of Commerce and Pharmaceutical Research and

Manufacturers of America as amici suggest that finding materiality

here will open the floodgates to meritless FCA suits. But we are not

resolving the merits of whether the fraud alleged here is material and

hold only that Cimino plausibly pleaded materiality.

21

a statement of the facts upon which the allegations are based.”

Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1279 n.3 (D.C.

Cir. 1994).

Cimino failed to plead with particularity IBM’s

presentment of false claims because he alleged only that IBM

billed the IRS about $87 million for licenses that “were, upon

information and belief, never actually provided to the IRS.”

J.A. 38 ¶ 140. He neither pinpointed when the false claims were

presented other than sometime during the agreement’s five

years, nor identified who presented the false claims other than

“IBM.” See Williams, 389 F.3d at 1257 (rejecting as

insufficient allegations that false claims were presented during

an “open-ended time span” by “management”). Moreover,

Cimino’s allegation upon information and belief was

impermissible because he failed to identify what necessary

information lies within IBM’s control or to flesh out any facts

upon which his allegation that IBM never provided the

software was based. See Kowal, 16 F.3d at 1279 n.3. We hold

that Cimino fell short of plausibly alleging that IBM presented

false claims to the IRS.

***

For the foregoing reasons, we affirm the dismissal of

Cimino’s presentment claims and reverse the dismissal of

Cimino’s fraudulent inducement claims and remand for further

proceedings.

So ordered.

RAO, Circuit Judge, concurring: The panel opinion

correctly applies our precedents to the issues raised by the

parties. I write separately to question whether the False Claims

Act (“FCA”) creates a cause of action for fraudulent

inducement.

The text of the FCA does not readily suggest liability for

fraudulent inducement as a separate cause of action. The FCA

imposes liability for fraudulent claims, but it says nothing

about fraudulently induced contracts. See United States v.

Bornstein, 423 U.S. 303, 311 (1976) (“The language of the

statute focuses on false claims, not on contracts.”). As relevant

here, a person violates the FCA if he “knowingly presents, or

causes to be presented, a false or fraudulent claim for payment

or approval,” 31 U.S.C. § 3729(a)(1)(A), or when he

“knowingly makes, uses, or causes to be made or used, a false

record or statement material to a false or fraudulent claim,” id.

§ 3729(a)(1)(B). Both provisions require a false claim, which

is defined as “any request or demand, whether under a contract

or otherwise, for money or property.” Id. § 3729(b)(2). The

plain meaning of the FCA requires a request for payment that

is false or fraudulent.

As one commentator has posited, “[b]ecause the statute is

keyed to the presentation of fraudulent ‘claims,’” the text of the

FCA “says nothing about, and thus does not impose liability

for, non-fraudulent and non-false claims submitted under

fraudulently induced contracts.” C. Kevin Marshall,

Fraudulent-Inducement Actions & the FCA’s Statute of

Limitations, 62 GOV’T CONTRACTOR 19 ¶ 133, May 13, 2020.

If Congress had wanted to create liability for fraudulent

inducement, it easily could have employed more expansive

language. See, e.g., Major Fraud Act of 1988, Pub. L. No. 100-

700, 102 Stat. 4631 (codified as amended at 18 U.S.C. § 1031)

(criminalizing “[m]ajor fraud against the United States” by

imposing liability for a scheme “to obtain money or property

2

by means of false or fraudulent pretenses, representations, or

promises”).

With little discussion of the statutory text, our cases have

suggested that fraudulent inducement under the FCA is a

separate cause of action. Liability for fraudulently induced

contracts may exist even though the claims made pursuant to

the contract are genuine. As we have explained, “every claim

submitted under a fraudulently induced contract constitutes a

‘false claim’ within the meaning of the Act (i.e., is

automatically tainted), even without proof that the claims were

fraudulent in themselves.” U.S. ex rel. Bettis v. Odebrecht

Contractors of Cal., Inc., 393 F.3d 1321, 1323 (D.C. Cir.

2005). This result does not naturally follow from the text of the

FCA, which repeatedly refers to a “false or fraudulent claim”

and makes no mention of creating liability for bona fide claims

arising from a contract induced by fraud.

We located the origin of a fraudulent inducement cause of

action under the FCA in a 1943 Supreme Court decision, U.S.

ex rel. Marcus v. Hess, 317 U.S. 537 (1943), superseded by

statute on other grounds, Act of Dec. 23, 1943, ch. 377, 57 Stat.

608, 609. See Bettis, 393 F.3d at 1326. The Court in Hess,

however, does not explicitly discuss fraudulent inducement or

state that such a cause of action exists under the FCA separate

from the presentation of false claims. Instead, the Court

determined that contractors who induced the government to

contract under collusive bids could be subject to liability under

the FCA. Hess, 317 U.S. at 543. Without any citation, the Court

concluded “[t]his fraud did not spend itself with the execution

of the contract,” and so “[i]ts taint entered into every swollen

estimate which was the basic cause of payment” by the

government. Id. The Court focused on the supposed

congressional intent of “reach[ing] any person who knowingly

assisted in causing the government to pay claims which were

3

grounded in fraud,” and relied on statements in the legislative

history that the FCA’s purpose was to protect “against those

who would ‘cheat the United States.’” Id. at 544 (cleaned up).

Despite the discussion of these sweeping purposes, Hess

could be understood to involve actual false claims within the

plain meaning of the FCA because the inflated prices appeared

on the claims themselves. See Brief for Petitioner at 10, 12–13,

Hess, 317 U.S. 537 (No. 173), 1942 WL 54207; Brief for

Respondent at 9–11, Hess, 317 U.S. 537 (No. 173), 1942 WL

54208. In any event, Hess is hardly a model of clarity regarding

the existence of a fraudulent inducement cause of action.

In following Hess, however, we, as well as other courts,

have read that decision as recognizing a cause of action for

fraudulent inducement under the FCA, without proof that

claims are false or fraudulent. See Bettis, 393 F.3d at 1326–27

(recognizing fraudulent inducement under the FCA but holding

no fraudulent inducement occurred); see also, e.g., U.S. ex rel.

Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1173 (9th Cir.

2006); Harrison v. Westinghouse Savannah River Co., 176

F.3d 776, 787 (4th Cir. 1999). Yet these decisions do not set

forth a textual basis for fraudulent inducement under the FCA.

And while we have recognized that a fraudulent inducement

claim may exist under the FCA, no case in this circuit has found

such liability. See Bettis, 393 F.3d at 1327; U.S. ex rel. Schwedt

v. Plan. Rsch. Corp., 59 F.3d 196, 199 (D.C. Cir. 1995).

Although we are bound by the holdings of the Supreme Court

and prior panels of this court, it is unclear whether the cases

cited above definitively establish a separate cause of action for

fraudulent inducement under the FCA, one that is unconnected

to the presentation of a false or fraudulent claim.

Furthermore, reconsideration of a fraudulent inducement

cause of action may be warranted because it exists in some

4

tension with recent Supreme Court decisions. When

interpreting the FCA, the Court has focused on the specific

language of the statute. See Cochise Consultancy, Inc. v. U.S.

ex rel. Hunt, 139 S. Ct. 1507, 1512–14 (2019); Universal

Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989,

2001–02 (2016). Indeed, the Court has explicitly disclaimed

reliance on the FCA’s purpose and warned against “threat[s] to

transform the FCA into an all-purpose antifraud statute.”

Allison Engine Co. v. U.S. ex rel. Sanders, 553 U.S. 662, 672

(2008); accord Escobar, 136 S. Ct. at 2003. Fraudulent

inducement may be one of those threats that has gone

unnoticed.

Finally, I note that the creation of causes of action under

the FCA may pose particular separation of powers problems.

In other contexts, the Supreme Court has trimmed or eliminated

judge-made causes of action that lacked a basis in statute,

recognizing “the tension between [courts inferring causes of

action or remedies] and the Constitution’s separation of

legislative and judicial power.” Hernandez v. Mesa, 140 S. Ct.

735, 741 (2020); see also Alexander v. Sandoval, 532 U.S. 275,

287 (2001) (“Raising up causes of action where a statute has

not created them may be a proper function for common-law

courts, but not for federal tribunals.”) (cleaned up). In addition,

the FCA expands who can prosecute false claims against the

government through the qui tam procedure. Others have raised

serious constitutional questions about placing the execution of

the laws in private hands because it contravenes Article II’s

vesting of all executive power in the President. See Riley v. St.

Luke’s Episcopal Hosp., 252 F.3d 749, 760–63 (5th Cir. 2001)

(en banc) (Smith, J., dissenting); Constitutionality of the Qui

Tam Provisions of the False Claims Act, 13 Op. O.L.C. 207,

211, 1989 WL 595854 (1989) (explaining that the Framers put

“the power to execute the law … in hands that are both

independent of the legislature and politically accountable to the

5

people”). Fraudulent inducement under the FCA thus may

reflect a judicial expansion of a statutory cause of action

layered on top of congressional expansion of prosecution

outside the executive branch.

The plain meaning of the FCA, the Supreme Court’s recent

FCA decisions, and the lack of clarity in the precedents

recognizing fraudulent inducement are all reasons for

reconsidering, in an appropriate case, whether fraudulent

inducement is a separate cause of action under the FCA.