July 2, 2013
UNITED STATES OF AMERICA, ex rel. INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, LOCAL UNION Plaintiffs,
THE FARFIELD COMPANY, Defendant.
LAWRENCE F. STENGEL, District Judge.
In this case, a labor union contends that a contractor failed to pay the appropriate "prevailing wage" to certain union workers on several projects. The labor union filed its Complaint seeking relief on its behalf and on behalf of the Government. Defendant then filed a Motion to Dismiss and Plaintiff replied. For the reasons stated below, I will deny the Defendant's Motion to Dismiss.
Relator/Plaintiff International Brotherhood of Electrical Workers, Local Union No. 98 ("Plaintiff" or "Local 98"), on behalf of the United States of America, alleges that Defendant, The Farfield Company's ("Defendant" or "Farfield") intentional and methodological misclassification of workers violated the Davis-Bacon Act ("DBA"), 40 U.S.C. § 276(a) et seq.,  its contracts with Southeastern Pennsylvania Transportation Authority ("SEPTA") and Delaware River Port Authority Port ("DRPA"), and the False Claims Act ("FCA"), 31 U.S.C. § 3729, et. seq. Id. at ¶ 26.
Farfield is an electrical contractor that performed work on at least five (5) federally funded projects between 2001 and 2009 in the Philadelphia region. Amend. Compl. ¶ 14. Specifically, these projects were the Girard Avenue Infrastructure Renewal Project ("the Girard Project"); the PATCO Egress Lighting Project ("the PATCO Project"); the SEPTA Wayne Junction to Glenside and Signal Project ("the Wayne Junction Project"); and the SEPTA Smart Stations Project I and II ("the Smart Stations Project"). Id . Each of the projects was funded by grants from agencies of the federal government and the Federal Transit Administration ("FTA"). Id . ¶¶ 18-19. The grants included federal regulatory requirements, including the DBA. Id . ¶¶ 20, 21.
The contracts for the projects each required Farfield to pay prevailing wages to its employees pursuant to the Davis-Bacon Act. Id . ¶ 30. Farfield was also contractually required to submit the certified payrolls and an accompanying "Certificate of Compliance" to the SEPTA or the DRPA on a weekly basis, which were then submitted to the FTA. Id . ¶¶ 32, 33.
A. Department of Labor's 2004 Audit of Farfield
In September 2004, the U.S. Department of Labor ("DOL") conducted an audit of the Farfield practices under the DBA, the Fair Labor Standards Act, and the Contract Work Hours and Safety Standards Act. Peirce Aff. ¶ 10. In 2004, Farfield had completed the Girard Project, the PATCO Project, and the Wayne Junction Project. Id . ¶ 12. The audit consisted of a site visit, interviews of Farfield employees, and documents concerning Farfield's classification and payment of employees. Id . ¶ 13.
B. Investigations of Farfield's Bidding and Payment Practices
Local 98 conducted an independent investigation of Farfield's bidding and payment practices on the projects. Plaintiff claims this investigation revealed that Farfield misclassified a significant number of its workers on the projects for the purpose of paying these workers at a lower rate than required. Specifically, Plaintiff claims that in order to gain a bidding advantage, Farfield manipulated the number of workers it planned to assign to each work classification established by the DOL by intentionally allocating workers to the laborer and groundsman classifications although it knew that many of these workers would be performing work properly classified as Electrician's work. Id . ¶¶ 36 c, 36d. This allowed Farfield to underestimate its labor costs and underbid competitors in order to win the public works contracts. Id . ¶¶ 25, 36g. Farfield's course of conduct was devised, authorized and effectuated by Farfield senior level management employees. Id . ¶ 36.
Plaintiff alleges that once Farfield was awarded the contracts, it continued to misclassify workers who performed electrical work and submitted fraudulent certified payrolls to SEPTA and DRPA. Id . ¶ 36 m. For example, Plaintiff alleges that employees classified and paid as laborers performed electrician's work, such as pulling cable, terminating wire, installing switch gears, installing junction boxes, and terminations, installing conduit and performing hot and cold wiring tasks. Id . ¶ 36 v. Plaintiff claims that the certified payrolls often did not reflect the proper wage rates for the actual work performed by Farfield's employees and were prepared and submitted with the intention that the false certifications would be material to the FTA's decision to pay or approve the claims. Id . ¶¶ 36 aa, cc.
II. Procedural History
Local 98 filed its initial Complaint on September 17, 2009. Doc. No. 1. Pursuant to the FCA, Local 98 gave the U.S. Department of Justice ("USDOJ") an opportunity to intervene, which it declined on September 21, 2011. Doc. No. 3. The Complaint was unsealed on October 31, 2011. Doc. No. 4. In response to Defendant's first Motion to Dismiss, Doc. No. 25, Plaintiff filed an Amended Complaint on February 3, 2012. Doc. No. 30. Defendant then filed a Motion to Dismiss the Amended Complaint or in the Alternative for Summary Judgment. Doc. No. 35.
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted examines the legal sufficiency of the complaint. Conley v. Gibson , 355 U.S. 41, 45-46 (1957). The factual allegations must be sufficient to make the claim for relief more than just speculative. Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555 (2007). In determining whether to grant a motion to dismiss, a federal court must construe the complaint liberally, accept all factual allegations in the complaint as true, and draw all reasonable inferences in favor of the plaintiff. Id .; see also D.P. Enters. v. Bucks County Cmty. Coll. , 725 F.2d 943, 944 (3d Cir. 1984).
The Federal Rules of Civil Procedure do not require a plaintiff to plead in detail all of the facts upon which she bases her claim. Conley , 355 U.S. at 47. Rather, the Rules require a "short and plain statement" of the claim that will give the defendant fair notice of the plaintiff's claim and the grounds upon which it rests. Id . The "complaint must allege facts suggestive of [the proscribed] conduct." Twombly , 550 U.S. at 564. Neither "bald assertions" nor "vague and conclusory allegations" are accepted as true. See Morse v. Lower Merion School Dist. , 132 F.3d 902, 906 (3d Cir. 1997); Sterling v. Southeastern Pennsylvania Transp. Auth. , 897 F.Supp. 893 (E.D. Pa. 1995). The claim must contain enough factual matters to suggest the required elements of the claim or to "raise a reasonable expectation that discovery will reveal evidence of" those elements. Phillips v. County of Allegheny , 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly , 550 U.S. at 556).
A. Whether the Alleged False Statement Constitutes a False Claim' under the FCA
Congress enacted the FCA to protect government funds and property from fraudulent claims. Rainwater v. United States , 356 U.S. 590 (1958). Specifically, the FCA imposes liability on any person who "knowingly presents" to the government a "false or fraudulent claim for payment or approval, " United States ex rel. Windsor v. Dyncorp, Inc. , 895 F.Supp. 844, 849-50 (E.D. Va. 1995) (quoting 31 U.S.C. § 3729(a)(1) (Supp. 1995)), or who "knowingly makes... a false record" in order to have "a false or fraudulent claim paid or approved by the government." Id . (quoting 31 U.S.C. § 3729(a)(2)). However, "not every false statement made to a government entity constitutes a false claim' under the Act." Id . (citing United States v. Board of Educ. of City of Union City , 697 F.Supp. 167, 174 (D.N.J. 1988); United States v. Greenberg , 237 F.Supp. 439, 442 (S.D.N.Y. 1965)).
In order to be considered a false claim under the act, the claim must potentially result in "financial loss to the government." United States ex rel. Wilkins v. United Health Group, Inc. , 659 F.3d 295, 306 (3d Cir. 2011) (citing United States v. Neifert-White Co. , 390 U.S. 228, 232 (1968)). Therefore, only "actions which have the purpose and effect of causing the government to pay out money" where it is not due, Union City , 697 F.Supp. at 175 (quoting United States v. Lawson , 522 F.Supp. 746, 750 (D.N.J. 1981)), or actions which intentionally deprive the government of money it is lawfully owed, United States v. Douglas , 626 F.Supp. 621, 627-29 (E.D. Va. 1985), are considered "claims" within the meaning of the FCA. Dyncorp, Inc. , 895 F.Supp. at 849-50. The putative false statement must have the purpose and effect of causing financial loss to the government. United States ex rel. Sanders v. American-Amicable Life Ins. Co. , 545 F.3d 256, 259 (3d Cir. 2008); Garg v. Covanta Holding Corp., 2012 U.S.App. LEXIS 9313, 13-14 (3d Cir. N.J. May 8, 2012); United States v. Douglas , 626 F.Supp. 621, 628 (E.D. Va. 1985) (the term "claims'... should be interpreted so as to reach all types of fraud that result in immediate financial loss to the government"); United States v. Neifert-White Co. , 390 U.S. 228, 232 (1968) (evaluating the legislative history of the FCA and concluding that "the Act was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government"); Smith v. United States , 287 F.2d 299, 304 (5th Cir. 1961) (FCA applies where as a result of a fraudulent statement, "expenses [are] ultimately borne by the United States Treasury"); Peterson v. Weinberger , 508 F.2d 45, 52 (5th Cir. 1975) (finding that the term "claim" is within purview of FCA if it is grounded in fraud which might result in financial loss to government).
In this case, it is not disputed that the contracts for the projects each required Defendant to pay the prevailing wages to its employees pursuant to the DBA. Id. at ¶ 30. Plaintiff alleges that it conducted an independent investigation of Defendant's bidding and payment practices on the projects, which revealed that Defendant "purposefully and systematically misclassified a significant number of its workers on the projects for the purpose of paying these workers at a lower rate than required." Doc. No. 41 at 2. This alleged scheme allowed Defendant to underbid competitors and win the public works contracts. Id. at 25. Defendant then went on to misclassify workers and pay them less, in violation of the DBA, to comply with the low contract price. However, violations of the DBA do not necessarily constitute false claims against the government within the meaning of the FCA.
Defendant contends that the FCA does not apply to the contracts at issue here, because the contracts were not between the Defendant and the United States government, but rather between the Defendant and state transportation agencies for projects that were partially funded by federal grants to the state transportation agencies. In support of its contention, Defendant relies primarily on the Supreme Court's decision in Allison Engine Co. Inc. v. United States ex rel. Sanders , 553 U.S. 662, 128 S.Ct. 2123 (2008), and asserts that the Supreme Court "determined that the FCA did not apply to claims that were not made directly to the federal government, such as the ones at issue here."
A party can be subject to FCA liability even where the government suffers no monetary injury. See Varljen v. Cleveland Gear Co., Inc. , 250 F.3d 426, 429 (6th Cir. 2001)). This is so, for example, where the government discovers that a claim is false before it makes payment, see Rex Trailer Co. v. United States , 350 U.S. 148, 153 n.5, 76 S.Ct. 219, 100 L.Ed. 149 (1956), or where the government in essence passes on the cost of the false claim to a third party, see United States ex rel. Hayes v. CMC Electronics Inc. , 297 F.Supp.2d 734, 737-39 (D.N.J. 2003) (holding that relator stated a claim under FCA where defendant allegedly inflated price of military equipment sold to the federal government, notwithstanding fact that the government subsequently resold the equipment at that inflated price).
Additionally, as discussed above, Hutchins v. Wilentz, Goldman & Spitzer , 253 F.3d 176, 184 (3d Cir. 2001), held that "submission of false claims to the United States government for approval which do not or would not cause financial loss to the government are not within the purview of the False Claims Act." Hutchins could be distinguished from this case because the inflated bills submitted to a bankruptcy court by the law firm would be paid out of the assets of the bankrupt entity and not from the Federal Treasury, hence no claim was made against the government. Id. at 183-84. In this case, even though the government paid less than it would have had it paid the fair market value, the Federal Treasury still paid the amount, which could be considered a "loss." Additionally, although not the exact application discussed in United States ex rel. Hayes v. CMC Electronics Inc. , 297 F.Supp.2d at 737-39, this cost could potentially be seen as "passed on" to a third party - the underpaid workers.
In United States v. Silver , 384 F.Supp. 617 (E.D.N.Y. 1974), aff'd without op., 515 F.2d 505 (2d Cir. 1975), the defendant was accused of cashing checks for his bankrupt company that should have been delivered directly to the bank. Because the defendant ultimately paid the subcontractors on whose behalf the payments were made, the government conceded that the United States had not suffered any actual damages. Id. at 618. The district court nonetheless found that Silver's actions fell within the FCA, noting that "any actions which have the purpose and effect of causing the Government to immediately pay out money are clearly claims' within the purpose of the Act." Id. at 620.
Additionally, FCA actions may be sustained under a theory of "false certification." United States v. Hibbs , 568 F.2d 347 (3d Cir. 1977). In these actions, the false certification of compliance creates liability when certification is a prerequisite to obtaining a government benefit. As in this case in order to qualify for federal construction projects subject to DBA and related acts, contractors must "certify" that each laborer or mechanic has been paid not less than the applicable wage rates. 29 CFR § 5.5(a)(3)(B)(3); United States ex rel. Hopper v. Anton , 91 F.3d 1261, 266 (9th Cir. 1996) (finding that if a contractor submits a false certification pursuant to this requirement he may be liable under the FCA) ( emphasis added ). To recover damages under this theory, the Plaintiff must show that the government has paid a "claim" based on a certificate containing false information "which has resulted in damages sustained by reason of the doing or committing the act." Hibbs , 568 F.2d at 350; United States v. Educ. Mgmt. Corp., 2012 U.S. Dist. LEXIS 67103 (W.D. Pa. May 11, 2012) (stating that "a causal link between a false claim and economic harm must be possible, plausible, and pleaded... a complaint must allege that, at the very least, the Government could have been harmed") (quoting United States v. Merck-Medco Managed Care, L.L.C. , 336 F.Supp.2d 430, 441-42 (E.D. Pa. 2004)). Therefore, I find that Plaintiffs have stated a claim under the FCA and at this stage of the pleadings Plaintiffs have withstood Defendant's motion to dismiss on this ground.
B. Whether the Court Has Subject Matter Jurisdiction Over Plaintiff's Claims
The issue as to whether this Court has jurisdiction over Plaintiff's claims concerns whether the claims' false or fraudulent nature would require the court to decide a matter committed to the discretion of an administrative agency. The DBA requires that government construction contracts contain a provision stating "the minimum wages to be paid to various classes of laborers and mechanics... shall be based on the wages the Secretary of Labor determines to be prevailing" in the locality. Id. at § 3142(a)-(b). This is based on the tasks the workers perform. Tele-Sentry Sec., Inc. v. Secretary of Labor, Case No. 90-0912, 1991 WL 178135, at *4 (D.D.C. Aug. 30, 1991). Therefore, the Secretary of the Department of Labor has exclusive authority to establish minimum wages for particular classifications of laborers and mechanics in particular localities and to define the work that is included within each classification where there is any ambiguity.
The primary jurisdiction doctrine "allows courts to refer a matter to the relevant agency whenever enforcement of the claim requires the resolution of issues which have been placed within the special competence of an administrative body." Charvat v. Echostar Satellite, LLC , 630 F.3d 459, 466 (6th Cir. 2010). Under the doctrine, a court may defer adjudication until the state administrative agency has made a designated determination. Padgett v. Stein 406 F.Supp. 287 , 302 (M.D. Pa. 1975). See also Fieger v. United States Att'y Gen. , 542 F.3d 1111, 1121 (6th Cir. 2008) ("[Under] the doctrine of primary jurisdiction, ... federal courts are to abstain from hearing certain administrative-related matters until the appropriate agency has had the opportunity to interpret unanswered technical and factual issues."). When the doctrine is applicable, court proceedings are stayed in order to give the parties reasonable opportunity to refer the matter to an agency seeking an administrative ruling. United States ex rel. Wall v. Circle C. Constr., L.L.C., 2012 U.S.App. LEXIS 20433, 16-17 (6th Cir. 2012); United States v. Henri , 828 F.2d 526, 528 (9th Cir. 1987) (internal quotations omitted) (reversing dismissal based on deference to agency under primary jurisdiction doctrine and remanding with orders to grant the stay stating a stay is proper when "a court suspends proceedings in order to give preliminary deference to an independent adjudicating body but further judicial proceedings are contemplated.").
Therefore, where it "is impossible to determine whether [defendant] submitted a false claim to the government without first determining whether [defendant] actually misclassified an employee in a given instance....[, ] the responsibility for resolving such disputes rests not with the courts, but with the Department of Labor." DynCorp., Inc. , 895 F.Supp. at 851. However, the DBA does not pre-empt the FCA. Rather, where there is a determination by the Department of Labor concerning a classification, a district court may proceed with a case under the FCA. See United States ex rel. Local Union 217 v. G.E. Chen Constr., Inc. , 954 F.Supp. 195, 197 (N.D. Cal. 1997) (holding that to the extent that the plaintiffs' FCA claims were based on allegations that the defendants misclassified employees, the court lacked jurisdiction to decide those claims, which were within the sole jurisdiction of the DOL; however, the court did have jurisdiction to hear the plaintiffs' additional claim that the defendants submitted false statements and prepared false payroll certifications, because those allegations did not depend on any determination of the proper classification of workers - a DOL responsibility); United States ex rel. Plumbers & Steamfitters Local Union No. 342 v. Dan Caputo Co. , 152 F.3d 1060, 1062 (9th Cir. 1998) (per curiam) (holding in FCA suit regarding contractors' classification of employees for purposes of the DBA, that "deferral to the Department [of Labor] was proper only with respect to the resolution of how particular types of work should be classified but not with respect to whether the Contractors misclassified their employees").
Although the language is somewhat confusing, courts have drawn a distinction between a contractor's misrepresentation of wages and its misclassification of workers. See United States ex rel. Wall v. Circle C. Constr., L.L.C., 2012 U.S.App. LEXIS 20433, *12 (6th Cir. 2012) (citing DynCorp , 895 F.Supp. at 851; 29 C.F.R. §§ 5.5(a)(9), 5.6(a)(3), 5.6(b), 5.11(a)). In Wall, the district court found that:
DynCorp involved a Davis-Bacon Act "complex classification" of the jobs at issue on the FCA claim. Here, the undisputed proof is that all of Phase Tech's employees on this project performed electrical work for which Davis-Bacon Act wages were clearly defined by the contract. There are not any complex Davis-Bacon classification regulation[s] in this action and DynCorp is inapplicable.
Wall, 700 F.Supp.2d at 939.
Plaintiff agrees that the Department of Labor establishes the standards for determining the proper work classifications and the appropriate prevailing minimum wage of the employees within each classification on the public works project. Id. at ¶ 23. However, Plaintiff argues that this case resembles Wall in that its allegations "do not involve a complex classification dispute." Doc. No. 41 at 7. Plaintiff states that where a prevailing wage practice exists and is undisputed, or where the classification of work is not in question, the courts need not defer to the DOL. See U.S. v. Dan Caputo Co. , 152 F.3d 1060 (9th Cir.1998). Defendant argues that this case does in fact involve a dispute over the proper classification of workers under the DBA because much like DynCorp it "is impossible to determine whether [defendant] submitted a false claim to the government without first determining whether [defendant] actually misclassified an employee in a given instance" DynCorp., Inc. , 895 F.Supp. at 851.
In Wall, the court found that DynCorp was inapplicable because "the undisputed proof is that all of defendant's employees on this project performed electrical work for which Davis-Bacon Act wages were clearly defined by the contract." The court went on to state defendant's payroll certifications contained false entries because the electrical workers were not paid prevailing wages. United States ex rel. Wall, 700 F.Supp.2d at 939.
The present facts differ from Wall in that there is no undisputed proof that all of Defendant's employees performed the specific electrical work as defined by the DBA and the contracts. The dispute is, in fact, whether Defendant properly classified its employees for purposes of wage determinations under the DBA. However, these classifications are not complex and were previously defined by the department of labor with regard to the work performed. For example, if an individual relator alleged that he operated a dump truck, that the defendant contractor instead paid him at the lower rate for a forklift operator, the case would be actionable under the FCA, despite the fact that the case involved a labor classification. This is precisely what Plaintiffs allege.
Only when there is not a determination by the Department of Labor may the primary jurisdiction doctrine apply to defer the case to the agency for proper classification. Framlau Corp. v. Dembling , 360 F.Supp. 806, 809 (E.D. Pa. 1973) (the court discussed the fact that the plaintiff's claim was not subject to judicial review because it concerned an interpretation by the Secretary of Labor of his own prevailing wage determination, i.e., what activities constitute the work of a plumber, electrician, etc., and what phases of the construction activities constitute the work of a laborer and was exclusively within the Secretary of Labor's jurisdiction and that the correctness of his determination of wage rates under the Davis-Bacon Act were not subject to judicial review).
This was precisely the case in United States ex rel. Plumbers & Steamfitters Local Union No. 342 v. Dan Caputo Co. , 152 F.3d 1060, 1062 (9th Cir. 1998). The issue in that case was whether the district court should stay the case in order that the DOL could evaluate whether the "steamfitter" classification covered the type of pipe-laying work that plaintiff claimed was performed. This classification was a question of first impression for the DOL. The district court in Dan Caputo issued a short order granting defendants' motion to dismiss the case pending referral to the DOL for a ruling as to whether the "defendants misclassified their employees for the purposes of the Davis-Bacon Act." In a two-page opinion, the Ninth Circuit directed the district court to stay the action until the DOL decided the issue of how particular types of work should be classified. See Dan Caputo , 152 F.3d at 1062.
Although very muddled, the dispute here is simply whether the Defendant misclassified the workers into categories, for which the DOL has previously determined the type of work within each classification. This misclassification allegedly resulted in the underpayment of workers. The parties dispute the appropriate payment for the classifications; however, I find that the alleged falsity of the false statement "is not dependent on interpretation" of classifications and wage determinations. Therefore, jurisdiction is appropriate in the court system.
C. Whether the All Five Contracts at Issue are Actionable Under Section 3729(a)(2) of the FCA
In May 2009, Congress amended the FCA and revised the liability provisions, among other things. The revisions to the liability provision set forth in § 3729(a)(2) became effective "as if enacted on June 7, 2008, and apply to all claims under the [FCA] that are pending on or after that date." Fraud Enforcement and Recovery Act (FERA), S. 386, 111th Cong. § 4(f) (2009) (enacted). Defendant argues that a number of courts have refused to apply the changes to § 3729(a)(2) retroactively on the ground that it would violate the Ex Post Facto Clause of the Constitution. I disagree and I will deny Defendant's motion on the grounds that the § 3729(a)(2) does not apply to the contracts at issue. Additionally, for the reasons set forth below, I find that § 3729(a)(2) of the FCA does not require false claims to be submitted directly to the federal government.
Before FERA, the liability provisions of the FCA were codified at 31 U.S.C. § 3729 (a)(1) through (a)(7). However, this case is concerned with liability under §3729(a)(2). As background, subsection (a)(1) attached liability for anyone who "knowingly present[ed], or cause[d] to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval." This required "presentment" of a claim to the federal government. See United States ex rel. Totten v. Bombardier Corp. , 380 F.3d 488, 492 (D.C. Cir. 2004) (emphasis added). Prior to the adoption of FERA, merely submitting a false claim to a recipient of federal funds, such as a federal contractor or grantee, did not violate subsection (a)(1), even if the contractor or grantee paid the claim using government funds. See id.
Subsection (a)(2) applied to anyone using "a false record or statement to get a false or fraudulent claim paid or approved by the Government." Unlike subsection (a)(1), (a)(2) does not contain a "presentment" requirement, but the court still had to find that the false record or statement was meant to induce payment by the government. See Allison Engine Co. v. United States ex rel. Sanders , 128 S.Ct. 2123, 2129-30 (2008). "Intent" meant that there must be some evidence of a claimant's intent to receive payment from the government, regardless of whether the federal grantee used federal funds to pay the claim. Id . The difference is between "getting a false claim paid by the Government" and "getting a false claim paid using government funds.'" Id. at 2128. Pre FERA, "a defendant must intend that the Government itself pay the claim." Id.
FERA expands the grounds for liability under the FCA, by "clarifying" that the FCA covers false claims for government money or property: (1) whether or not the claim was presented to a government employee or official; (2) whether or not the government has custody of the money or property; and (3) whether or not the person or entity specifically intended to defraud the government.
However, even before FERA, subcontractors faced liability for false claims submitted to prime contractors when those claims were passed on to the government or caused the prime contractor to submit a false claim to the government. In Totten, defendants submitted claims to Amtrak, a recipient of government subsidies, not a government contractor. See United States ex rel. Totten v. Bombardier Corp. , 380 F.3d 488, 492 (D.C. Cir. 2004). In Allison Engine, the Court was concerned with subsections (a)(2) and (a)(3) because they lacked a presentment requirement and could, therefore, be construed to encompass fraud directed solely at private parties. Id. at 2130. To guard against such a result, the Supreme Court interpreted these subsections to require proof that the defendant intended its conduct to affect the government's payment decision. Id . ("If a subcontractor or another defendant makes a false statement to a private entity and does not intend the Government to rely on that false statement as a condition of payment, the statement is not made with the purpose of inducing payment of a false claim by the Government."). Although Allison Engine opted to assert claims under subsection (a)(2), the relators could have alleged liability under subsection (a)(1) even if the defendant presented no false statements or claims directly to the government by alleging that the false statements that the defendant allegedly made to the prime contractor caused "claim" includes any request or demand presented to the United States or "made to a contractor, grantee, or other recipient" if "the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest" and the United States provides or reimburses any portion of the money or property the prime contractor to submit false claims to the government. Allison Engine , 128 S.Ct. 2123, 2129 n.1 (holding that there may be liability where the claim "was originally made to' a contractor, grantee, or other recipient of federal and then forwarded to the Government."). Therefore, I find that the FCA does apply to the contracts at issue in this case and I will deny the Defendant's motion to dismiss on that ground.
D. 31 U.S.C. §3730(e)(3) - (e)(4) Jurisdiction Bar
A qui tam plaintiff bears the burden of establishing subject matter jurisdiction by a preponderance of the evidence. See, e.g., United States ex rel. Biddle v. Bd. of Trustees of the Leland Stanford Jr. University , 161 F.3d 533, 540 (9th Cir. 1998), cert. denied, 526 U.S. 1066 (1999). To defend a motion to dismiss, a plaintiff must make a prima facie showing of jurisdictional facts. Lake v. Lake , 817 F.2d 1416, 1420 (9th Cir. 1986). The FCA eliminates a court's subject matter jurisdiction in certain circumstances. 31 U.S.C. §3730(e)(3) may preclude an action under the FCA where the suit "is based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party." 31 U.S.C. §3730(e)(3). See, e.g., Costner v. Urs Consultants , 153 F.3d 667, 676 (8th Cir. 1998); S. Prawer & Co. , 24 F.3d at 327-28; United States ex rel. Alexander v. Dyncorp, Inc. , 924 F.Supp. 292, 302 (D.D.C. 1996); Hyatt v. Northrop Corp. , 1989 U.S. Dist. LEXIS 18941, *2, No. 87-6892-KN (C.D. Cal. Dec. 27, 1989). This section will typically bar only a qui tam action based upon allegations or transactions pleaded by the government...." Costner , 153 F.3d at 676. Additionally, 31 U.S.C. § 3730(e)(4) prohibits an action based upon the public disclosure of allegations or transactions in a "criminal, civil, or administrative or Government Accounting Office report, hearing, audit, or investigations, or from the news media." Id . The exception to this occurs if the action is brought by the attorney general or the person bringing suit is an "original source." Id.
"The [False Claim] Act's jurisdictional scheme is designed to promote private citizen involvement in exposing fraud against the government, while at the same time prevent parasitic suits by opportunistic late-comers who add nothing to the exposure of the fraud." Costner v. URS Consultants, Inc. , 153 F.3d at 675-76 (quoting United States ex rel. Rabushka v. Crane Co. , 40 F.3d 1509, 1511 (8th Cir. 1994), cert. denied, 515 U.S. 1142 (1995)).
Defendant argues that the action is barred under subsection (e)(3) because of the 2004 audit. There is no Third Circuit case that elaborates on what constitutes an administrative civil money penalty proceeding for purposes of subsection (e)(3). Plaintiff notes that subsection (e)(4) separately identifies an "administrative hearing" and an "audit":
(4)(A) The court shall dismiss an action or claim under this section...if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed -
(i) in a Federal criminal, civil or administrative hearing in which the Government or its agent is a party;
(ii)... other Federal report, hearing, audit or investigation; or Plaintiff asserts that this "identifies an administrative hearing' as distinct and apart from an audit.'"
Plaintiff also rely on United States ex rel. Johnson v. Shell Oil Co. , 26 F.Supp.2d 923 (E.D. Tex. 1998). In that case, the Minerals Management Service audited defendant oil company's royalties practices resulting in a demand for underpayment of $3, 393, 796.69. The court found that this did not constitute "civil money penalty proceedings" that would bar qui tam suit pursuant to 31 U.S.C. § 3730(e)(3) against the defendant for fraudulent underpayment of royalties, where payment demands did not assert knowing underpayment of royalties and did not seek civil monetary penalties, and no notice of noncompliance or penalty notices for underpayment of royalties were issued by Minerals Management Service. Id. at 928. The court went on to discuss that the orders to pay owed royalties did not assert that the defendant knowingly underpaid royalties and did not seek civil monetary penalties. Id . CFR § 241.51(a)(c) indicates that a civil penalty proceeding can be initiated by a "notice of noncompliance." Id . See also United States ex rel. McDermott v. Genentech, Inc. , 2006 U.S. Dist. LEXIS 90586, *20 (D. Me. Dec. 14, 2006) (finding that section 3730(e)(3) "speaks only of a civil suit' or an administrative civil money penalty proceeding' and did not include an ongoing government investigation).
In United States ex rel. Found. for Fair Contr., Ltd. v. G&M E. Contr., Inc. , 259 F.Supp.2d 329, 331-34 (D.N.J. 2003) the United States Department of Labor conducted an investigation of alleged violations of the DBA by the defendants which began before the plaintiff/relator filed its qui tam action. Id . Approximately one year after the court action was filed, the Department concluded its investigation and the defendants paid back wages found by the Department to be due. Id. at 334, 337. The court held that "to allow plaintiffs qui tam suit to proceed, even though it is based on the same facts underlying the DOL investigation, would provide for a second recovery by another entity despite the resolution of the government's investigation into the very same transactions, in contravention of the statutory purpose."
Defendants rely solely on Foundation for Fair Contracting, Ltd. , 259 F.Supp.2d 329 (D.N.J. 2003) to support the conclusion that the audit constitutes "an administrative civil money penalty proceeding in which the Government is already a party." In that case, the investigation by the DOL was based on the exact same complaints as the qui tam action - inaccurate reporting of the same employee hours, inaccurate reporting of employee numbers, and wage misclassifications. Id. at 337-38. Furthermore, in Foundation, the DOL had already recovered money for the violations.
In United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v. Pilot Life Ins. Co., 1991 U.S. Dist. LEXIS 14483 (M.D. N.C. June 6, 1991) the court took on the statutory context of section 3730(e). Finding the legislative history unhelpful, the court held that the fact that Congress used the words "litigation, " "suit, " and "proceeding" in addressing the rights and awards to qui tam plaintiffs in sections 3730(c) & (d), shows that "when Congress wished to cover an area broadly, it knew how to do so." Id. at *24-25. See also, United States v. Smith , 760 F.Supp. 72, 74 (E.D. Pa. 1991) (finding that based on the number of limitation provided by Congress, it may be assumed that Congress enacted appropriate limitations for the FCA and that courts do their duty by construing the statute so as to recognize Congress' purpose to increase citizen involvement in FCA cases).
Whether the audit can be considered a civil money penalty, there is still the issue of similarity in allegations. It is the burden of the movant, Defendant, to show that the allegations or transactions which form the basis of the FCA suit are the same as those which are "the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party." To determine whether the a qui tam action is "based upon transactions or allegations which are the subject of another... proceeding in which the government is a party, ... a court should look first to whether the two cases can properly be viewed as having the qualities of a host/parasite relationship." United States ex rel. S. Prawer & Co. v. Fleet Bank of Maine , 24 F.3d 320, 327 (1st Cir. 1994) (internal quotes omitted). Such a relationship exists when "the qui tam case is receiving support, advantage, or the like from the host case (in which the government is a party) without giving any useful or proper return to the government (or at least having the potential to do so)." Id. at 327-28.
The Plaintiff argues that Defendant has not alleged that the DOL auditors reviewed the work history and classifications of the individuals Plaintiff identified in the Amended Complaint, the scheme to intentionally misclassify workers, or for that matter, any of the misclassifications at issue. Defendant argues that the audit included visiting Defendant's local project office, interviewing employees, and reviewing documents. The investigator specifically questioned why employees were listed as "Laborers" and requested clarification about their Class determinations. Defendant maintains that the only violation found was that Defendant had paid four employees performing carpenter work for the Labor Day holiday at the shop rate instead of at the project rate, for a total amount due of less than $812. (Doc. 45 at 3; Kleimo Aff. ¶¶ 12-15).
In United States ex rel. McDermott v. Genentech, Inc. , 2006 U.S. Dist. LEXIS 90586, *19 (D. Me. Dec. 14, 2006) defendant argued that the action was "plainly based upon the allegations or transactions that are the subject of the ongoing Government investigation" because the government investigation focused on the same issues as those in the case, specifically whether defendant improperly promoted a prescription drug for off-label uses including rheumatoid arthritis. Id . In support of this assertion, defendant cited the subpoena served by the USDOJ, requiring defendant to produce any documents related to the marketing or promotion of the prescription drug. Id . The court discussed that it was "impossible to tell from the subpoena, which [wa]s written in extremely broad terms, whether the issue in the qui tam action was the "focus" of the investigation in furtherance of which the subpoena was apparently served. Id . Therefore, the court found that there was not sufficient identity between the basis of the qui tam action and the subject of the other suit or proceeding to bar the qui tam action. Moreover, the court held that there was nothing but defendant's speculation to suggest that the government would obtain redress through its investigation for the wrongs alleged by the plaintiff. Id. at 22.
In United States ex rel. S. Prawer, the court determined that § 3730(e)(3) did not apply to a qui tam claim that involved a transaction already being litigated by the government. Id. at 328. In the "host" case, the government did not pursue a fraud claim. Id . In the qui tam case, the relator did. Id . Similarly, in United States ex rel. Herndon v. Appalachian Reg'l Cmty. Head Start, Inc., 2009 U.S. Dist. LEXIS 7411 (W.D. Va. Feb. 3, 2009), Health and Human Services did not impose a "penalty" on defendant for fraud. Rather, it sought payment for what it classified as disallowed costs or unauthorized expenditures. In his complaint, the relator alleged that one of the defendant's directors fraudulently made expenditures with knowledge that the expenditures violated federally funded program regulations. The court found that the investigation and the qui tam claim did not share a "host/parasite relationship." Id. at *6-7. Accordingly, § 3730(e)(3) did not bar the relator's qui tam claim. Id.
I find this case to be distinguishable from Foundation. Like the government in United States ex rel. S. Prawer, and Health and Human Services in Herndon v. Appalachian Reg'l Cmty. Head Start, Inc., the government did not impose a "penalty" on defendants for fraud. Rather, it sought payment for underpayment of holiday wages not properly paid to employees. Because Plaintiff's qui tam action alleges fraud, allowing the suit to proceed would not provide for a "second recovery" in contravention of the statutory purpose of subsection (e)(3). Although some of the underlying facts are similar to the DOL investigation, the Defendant has not paid any penalty with regard to the misclassification or fraud that Plaintiff has alleged violates the DBA.
Further, with regard to the "host/parasitic" relationship between the investigation and the qui tam action articulated in Prawer, I find that the Relator has sufficiently shown that the allegations made in this action were not derived from that proceeding. See Prawer , 24 F.3d at 328. See also United States ex rel. Stone v. AmWest Sav. Ass'n , 999 F.Supp. 852, 853 (N.D. Tex. 1997) ("If the qui tam action receives support from the earlier case without giving the government any useful return (other than the potential for monetary recovery), the basis and the subject of the lawsuits are the same"). As the definition for "civil money penalty" remains completely ambiguous, it is possible that the DOL investigation in this case might qualify as an "administrative civil money penalty proceeding, " under 31 U.S.C.A. § 3730(e)(3).
There is no indication that Plaintiff's qui tam case is receiving support or advantage from the investigation. The Amended Complaint does not rely on the same facts and evidence included in the DOL's investigation. See Prawer , 24 F.3d at 328 ("because this case is seeking to remedy fraud that the government has not yet attempted to remedy, it is, as a threshold matter, wholly unlike the one the drafters of § 3730(e)(3)... had in mind...."). The requests made by the investigator were broad requests that returned no determination either way on the basis of classification of workers. Thus, Plaintiff cannot rely on anything derived from the investigation. Further, the purpose of Section 3730(e)(3) is to prohibit "piggybacking" by private parties where an investigation was conducted and disclosed either by the government or other public sources. The jurisdictional bar is in place in order to (1) encourage private citizens with first-hand knowledge to expose fraud and (2) to avoid civil actions by opportunists who do not seriously contribute to the disclosure of the fraud." United States ex rel. Precision Co. v. Koch Indus., Inc. , 971 F.2d 548, 552 (10th Cir. 1992). Here, I find that the first goal is met and the second goal is simply not at issue; therefore, I will deny Defendant's motion based on Section 3730(e)(3)'s jurisdictional bar.
E. 12(b)(6) Standard of Review
Except in certain specified cases, a plaintiff's complaint need only satisfy the "simplified pleading standard" of Rule 8(a), Swierkiewicz v. Sorema N.A. , 534 U.S. 506, 513, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Nevertheless, "Rule 8(a)(2) still requires a showing, ' rather than a blanket assertion, of entitlement to relief." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 n.3 (2007); Ashcroft v. Iqbal , 129 S.Ct. 1937, 1949 (2009).
To state a claim under the FCA, a plaintiff must show that there was (1) a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that caused the government to pay out money or to forfeit moneys due (i.e. that involved a claim'). To succeed on a § 3729(a)(2) claim, a plaintiff must prove that a defendant made a false record or statement and that it was used to get a false or fraudulent claim paid or approved by the government. Thus, a plaintiff must prove a prima facie case of a § 3729(a)(1) violation in addition to proving that a defendant made and used a false record. In other words, comparing the two sections indicates that a plaintiff can bring a claim under the FCA even without evidence that a claimant for Government funds made an express false statement in order to obtain those funds. United States ex rel. Wilkins v. United Health Group, Inc. , 659 F.3d 295, 306-307 (3d Cir. N.J. 2011); United States ex rel. Oliver v. Parsons Corp. , 498 F.Supp.2d 1260, 1278 n.20 (C.D.Cal. 2006).
Because Plaintiff alleges that Defendant engaged in fraud, the claims are subject to the heightened pleading standard under Fed.R.Civ.P. 9(b). Rule 9(b) states that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Defendant argues Plaintiff has failed to meet the heightened requirement specifically with regard to the date range provided in the Amended Complaint, which it claims was changed to "evade the Allison Engine issues." Defendant argues that Plaintiff should be required to submit the dates for the claims on each project, the names and alleged misclassification and proper classification of any employees at issue and the date on which the worked was performed. I disagree.
The purpose of Rule 9(b) is to provide the defendant with sufficient notice of the basis for the plaintiff's claim, protect the defendant against frivolous suits, eliminate fraud actions where all of the facts are learned only after discovery, and safeguard the defendant's reputation. Seville Industrial Machinery Corp. v. Southmost Machinery Corp. , 742 F.2d 786, 791 (3d Cir. 1984), cert. denied, 469 U.S. 1211 (1985). Additionally, the Third Circuit has stated that "[d]espite Rule 9(b)'s stringent requirements... courts should be "sensitive" to the fact that application of the Rule prior to discovery "may permit sophisticated defrauders to successfully conceal the details of their fraud."" In re Burlington Coat Factory Secs. Litig. , 114 F.3d 1410, 1418 (3d Cir. 1997) (citing Shapiro v. UJB Fin. Corp. , 964 F.2d 272, 284 (3d Cir. 1992) (internal citation omitted)).
I find that Plaintiff adequately alleges the "who, what, when, where, and how" of a Section 3729(a)(2) claim. In re Rockefeller Cntr., 311 F.3d at 217. Plaintiff establishes the "what" and "how" elements of fraud by alleging that Defendant "submitted fraudulent certified payrolls and Certificates of Compliance with the intention that the false documents be material to the government's decision to pay or approve its false claims." (Amend. Compl. at ¶ 40). Schmidt v. Zimmer, Inc. , 386 F.3d 235, 242 (3d Cir. 2004). The Amended Complaint also specifically alleges that Defendant knew that the claims would be ultimately be paid by the government. Id . ¶ 36cc. The Amended Complaint provides specific examples of this conduct. (See, e.g., id. ¶¶ 36c, 36d, 36g, 36k, 36n, and 36p). Although Plaintiff does not provide many specific dates in the Amended Complaint, the "when" is adequately alleged the FCA violations occurred. These violations occurred from 2001 to 2009. Id . ¶ 41; see United States ex rel. Hunt v. Merck-Medco Managed Care, L.L.C. , 336 F.Supp.2d 430, 437 (E.D. Pa. 2004) (denying motion to dismiss on Rule 9(b) grounds and finding that although "[t]he scope of the complained-of conduct is vast, and occurred over a long period of time, " the complaints specified the "general time frame" over which the fraudulent conduct allegedly occurred). Plaintiff alleges the "where" by identifying that the fraud took place during specific government projects including Wayne Junction, Smart Station, PATCO, and Girard Project. Relator alleges the "who" of the FCA violation. Plaintiff alleges that officers and senior level management employees, including Dennis Pierce, Joseph McGee, Scott Anton, Christopher Derr, and John Kleimo. Moreover, Plaintiff states the names of some of the specific workers they identified as being misclassified and the projects for which the individuals were employed. Id . ¶¶ 36cc - i-ix, 36gg).
Such allegations are sufficient to withstand a motion to dismiss on grounds of failure to plead with particularity. See Gibbons v. Kvaerner Phila. Shipyard, Inc., No. 05-685 , 2006 U.S. Dist. LEXIS 5172, 2006 WL 328362, at *6-7 (E.D. Pa. Feb. 10, 2006) (denying motion to dismiss because plaintiff sufficiently pleaded the "essential factual background" to support her FCA claim); see also United States v. Torkelsen, No. 06-5674, 2007 U.S. Dist. LEXIS 88955, 2007 WL 4245736, at *7 (E.D. Pa. Dec. 3, 2007) (denying motion to dismiss because plaintiff alleged complex scheme and when complaint was read in light most favorable to plaintiff, fraud could be reasonably inferred); United States ex rel. Drescher v. Highmark, Inc. , 305 F.Supp.2d 451, 461 (E.D. Pa. 2004) (denying motion to dismiss because of "the potential existence of sets of facts under which [defendant] may, in fact, be liable under the FCA"); United States ex rel. Givler v. Smith , 775 F.Supp. 172, 181-82 (E.D. Pa. 1991) (denying motion to dismiss because in the complaint, relator identified the fraudulent acts and the party allegedly defrauded).
Moreover, the Third Circuit has not directly addressed how Rule 9(b) interacts with the elements of claims under Section 3729(a). Cf. Wilkins , 659 F.3d at 308 ("[T]o our knowledge we never have held that a plaintiff must identify a specific claim for payment at the pleading stage of the case to state a claim for relief."). The Third Circuit held in United States ex rel. Quinn v. Omnicare , 382 F.3d 432, 440 (3d Cir. 2004), that an FCA action requires the identification of at least one specific claim, and that a relator's theory that false claims "must have been" submitted could not survive summary judgment. The Quinn court stated that an FCA relator must come to court with a "claim in hand." Id . However, Quinn was decided at the summary judgment stage following factual discovery. See Wilkins , 659 F.3d at 308 (noting that Quinn was decided on a summary judgment motion). Courts have distinguished Quinn, noting that the decision upheld a grant of summary judgment, as opposed to a motion to dismiss, and included criticisms of Clausen. See, e.g., United States ex rel. Singh v. Bradford Reg'l Med. Ctr., No. 04-186 , 2006 U.S. Dist. LEXIS 65268, 2006 WL 2642518, at *7 (W.D. Pa. Sept. 13, 2006); United States ex rel. Landsberg v. Levinson, No. 03-1429, 2008 U.S. Dist. LEXIS 42794, 2008 WL 2246308, at *1 (W.D. Pa. May 29, 2008). For example, in Singh, the court held that requiring the pleading of particularized evidence of a false claim contravenes the Third Circuit's "flexible" interpretation of Rule 9(b) and "would effectively negate the Third Circuit's instruction that Plaintiffs are free to use alternative means of injecting precision and some measure of substantiation into their allegations of fraud.'" 2006 U.S. Dist. LEXIS 65268, 2006 WL 2642518, at *7 (citing Seville , 742 F.2d at 791).
I find that the factual averments in the Plaintiff's Amended Complaint have sufficiently placed Defendant in a position to answer and defend against the alleged claims. Relator alleges that Defendant fraudulently "submitted certified payrolls and Certificates of Compliance" intending to induce the government to pay the false claims for certain projects between Defendant and the government. Amend. Compl. ¶ 40. This allegation, along with the names and dates provided, is a sufficient description of the scheme. See United States ex rel. Derwood v. Genentech, Inc. , 720 F.Supp.2d 671, 680 (E.D. Pa. 2010) (finding allegation of scheme, supported by details, sufficiently informed defendant of the "precise misconduct" charged); Singh, 2006 U.S. Dist. LEXIS 65268, 2006 WL 2642518, at *7 (finding that it was unnecessary for relator to provide a single claim example because "[t]he addition of specific identifying information of each claim adds little to complete the description of the scheme since the fraudulent conduct at issue does not rely on any specific claim"); see also Merck-Medco , 336 F.Supp.2d at 439 (noting that plaintiffs could not be expected to allege every single false statement that was created as a result of the alleged scheme and holding that plaintiffs' description of defendant's system of creating false records and statements sufficient). The Amended Complaint sufficiently alerts Defendants of the alleged wrongdoing. Therefore, Relator has properly alleged Defendant's involvement in a scheme to defraud the Government. Accordingly, Relator's Section 3729(a)(2) claim against Defendant will not be dismissed.
For the reasons discussed above, I will deny Defendant's motion to dismiss.
An appropriate Order follows.