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 ...