IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ALASKA
UNITED STATES OF AMERICA, ex rel. BEN FERRIS,
) ) ) Plaintiff, ) ) vs. ) ) AFOGNAK NATIVE CORPORATION ) and ALUTIIQ, LLC, ) ) Defendants. ) __________________________________________)
No. 3:15-cv-0150-HRH
ORDER Motion for Leave to File a Motion for Judgment on the Pleadings Defendants move for leave to file a motion for judgment on the pleadings.1 This motion is opposed.2 Oral argument was not requested and is not deemed necessary. Background On May 30, 2013, relator Ben Ferris commenced this action by filing a complaint under seal in the Northern District of Alabama, in which relator asserted claims against defendants Afognak Native Corporation and Alutiiq, LLC under the False Claims Act
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Docket No. 189.
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Docket No. 193. -1-
(FCA). On June 21, 2013, relator filed an amended complaint.3 After the United States declined to intervene in this action, relator’s amended complaint was unsealed on April 3, 2014.4 Relator was employed by Alutiiq from March 2008 through March 2014. While employed by Alutiiq, relator came to believe that Alutiiq subsidiaries were misrepresenting their small business status when applying for government contracts through the Small Business Administration’s 8(a) Business Development Program. Relator believes that defendants’ operating structure violates the rules governing the 8(a) program because defendants’ subsidiaries are not separate business entities but rather exist only on paper, lack real employees, and have only “placeholder” managers. Relator alleges “that Afognak was misrepresenting and falsely certifying that 8(a) business entities were bidding on and performing the awarded government contracts because these entities did not actually exist as separate business entities.”5 Relator alleges that defendants’ misrepresentations “had the potential to influence the payment decisions of the federal government.”6
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Docket No. 6.
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Docket No. 15.
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Relator Ben Ferris’s First Amended Complaint [etc.] at 14-15, ¶ 39, Docket No. 6.
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Id. at 35, ¶ 102 & 37, ¶ 107. -2-
On September 30, 2014, defendants moved to dismiss relator’s first amended complaint.7 Defendants argued that relator’s claims were not plausible because defendants’ businesses were qualified to participate in the 8(a) program and because none of the misrepresentations that defendants were alleged to have made regarding their contract performance were plausible.8 Defendants also argued that relator had failed to plead his claims with the required particularity.9 The Alabama court summarily denied defendants’ motion to dismiss but ordered relator to replead his conspiracy claim.10 Instead of repleading his conspiracy claim, relator voluntarily dismissed that claim.11 On January 30, 2015, defendants answered relator’s first amended complaint.12 After this case was transferred to this district, the court entered a scheduling and planning order.13 Fact discovery is scheduled to close on May 29, 2017 and expert
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Docket No. 31.
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SEALED Amended Memorandum of Law in Support of Defendants’ Motion to Dismiss [etc.] at 17-30, Docket No. 39. 9
Id. at 31-43.
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Docket No. 48.
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Docket No. 52.
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Docket No. 53.
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Docket No. 135. -3-
discovery is scheduled to close on August 25, 2017.14 The deadline for dispositive motions is September 26, 2017.15 Defendants now move for leave to file a motion for judgment on the pleadings.16 Discussion Local Rule 12.1 provides: Unless otherwise ordered by the court, motions for judgment on the pleadings must be filed not later than 60 days after the later date – (1) the last pleading allowed is filed, or (2) the moving party is served with an amended pleading. More than 60 days have passed since the last pleading was filed and more than 60 days have passed since defendants were served with an amended pleading. Thus, defendants need leave of the court in order to file a motion for judgment on the pleadings. There is no dispute that defendants’ motion for judgment on the pleadings would be timely under Federal Rule of Civil Procedure 12(c). Rule 12(c) provides that “[a]fter the pleadings are closed--but early enough not to delay trial--a party may move for judgment
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Id. at 5.
15
Id. at 7.
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Defendants’ motion for judgment on the pleadings was prematurely docketed at Docket No. 192. As explained in the court’s order of September 7, 2016 at Docket No. 195 and the order from chambers at Docket No. 198, proceedings on the motion for judgment on the pleadings have been stayed pending resolution of the instant motion. -4-
on the pleadings.” Here, no trial date has been set and the close of discovery and the dispositive motion deadline are both almost one year away. Allowing defendants to file a motion for judgment on the pleadings at this point would not cause any unnecessary delay. Defendants also argue that it would be appropriate to allow them to file a motion for judgment on the pleadings because of an intervening change in law. On June 16, 2016, the Supreme Court issued its decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1995 (2016), in which the Court considered whether there could be liability under the False Claims Act based on “a theory ... commonly referred to as ‘implied false certification.’” According to this theory, when a defendant submits a claim, it impliedly certifies compliance with all conditions of payment. But if that claim fails to disclose the defendant’s violation of a material statutory, regulatory, or contractual requirement, so the theory goes, the defendant has made a misrepresentation that renders the claim “false or fraudulent” under § 3729(a)(1)(A). Id. The Court held “that, at least in certain circumstances, the implied false certification theory can be a basis for liability.” Id. Specifically, the Court found that liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory, or contractual requirement. In these circumstances, liability may
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attach if the omission renders those representations misleading. Id. The Court also held “that False Claims Act liability for failing to disclose violations of legal requirements does not turn upon whether those requirements were expressly designated as conditions of payment.” Id. at 1996. The Court explained that “[w]hat matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.” Id. In other words, “a misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the False Claims Act.” Id. at 2002 (emphasis added). The Court then “clarif[ied] how that materiality requirement should be enforced.” Id. The Court rejected the argument “that any statutory, regulatory, or contractual violation is material so long as the defendant knows that the Government would be entitled to refuse payment were it aware of the violation.” Id. at 2004. The Court explained that “[a] misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the
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Government would have the option to decline to pay if it knew of the defendant’s noncompliance.” Id. at 2003. The Court further explained that proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material. Id. at 2003-04. Defendants contend that Escobar established a new standard for pleading the materiality element of a claim under the FCA and thus defendants argue that it would be appropriate to allow them to file a motion for judgment on the pleadings, in which they challenge relator’s materiality allegations. Defendants contend that relator’s materiality allegations do not meet the new Escobar standard because relator claims that defendants’ misrepresentations are material because, but for the alleged misrepresentations, defendants’ subsidiaries would not have been eligible to participate in the 8(a) program. Defendants argue that this “eligibility” theory of materiality, the only one defendants contend relator has alleged, is not plausible because relator has not plead any facts showing that defendants’ subsidiaries were not eligible for the 8(a) program. Defendants continue -7-
to insist, as they did in their earlier motion to dismiss, that they did not violate the 8(a) program’s size limits and thus they contend that relator’s allegations to the contrary are not sufficient to meet the materiality requirements of Escobar. Defendants’ primary contention in the motion for judgment on the pleadings that defendants have filed is that they have not violated the eligibility requirements for the 8(a) program. While this is not an inappropriate contention for defendants to make in response to relator’s FCA claims, it has little, if anything, to do with the materiality element of a FCA claim and what Escobar had to say about materiality. Although Escobar does not establish a new pleading standard, Escobar does represent a change in the law as to the materiality element of a FCA claim. “The Escobar Court rejected a theory of materiality that any statutory, regulatory, or contractual violation is material just because it can result in the government’s decision not to pay a claim.” Knudsen v. Sprint Communications Co., Case Nos. C13-04476 CRB; C13-4465 CRB; C13-4542 CRB, 2016 WL 4548924, at *13 (N.D. Cal. Sept. 1, 2016). Thus, post-Escobar, is it not sufficient for a relator to simply allege that a violation of a statutory requirement is material because that violation may influence the government’s decision to pay a claim. The relator must allege some facts that show that the government actually does not pay claims if they involve the statutory violations in question. Here, all relator alleges in his amended complaint is that defendants’ eligibility misrepresentations had the “potential”
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to influence the government’s payment decisions. Under Escobar, such vague allegations as to materiality are probably not sufficient. Had defendants advanced such an argument in their motion for judgment on the pleadings, the court would have given them leave to file said motion. But, that is not the argument defendants have made. Rather, defendants continue to argue that they did not make any misrepresentations because they were in fact eligible to participate in the 8(a) program. Conclusion Based on the foregoing, defendants’ motion for leave to file an out-of-time motion for judgment on the pleadings17 is denied. Defendants’ motion for judgment on the pleadings that was prematurely filed at Docket No. 192 is stricken. In light of Escobar, there is a good possibility that relator has not adequately pleaded the materiality requirement of his FCA claims. Therefore, relator is ordered to file a second amended complaint on or before October 28, 2016. If after reviewing relator’s second amended complaint, defendants believe that relator’s materiality allegations are inadequate, they may file a motion for judgment on the pleadings as long as they comply with the time limits provided in Local Rule 12.1. DATED at Anchorage, Alaska, this 28th day of September, 2016. /s/ H. Russel Holland United States District Judge 17
Docket No. 189. -9-
