The district court granted in part and denied in part a motion to dismiss claims alleging the defendants defrauded the government by conspiring to award subcontracts intended for small businesses to a subcontractor they knew did not qualify. The court found the relator sufficiently pled the scheme through which the defendants disguised the eligibility of the purported small business and submitted claims for payment to the government. However, the court found the relator inappropriately grouped a number of affiliated businesses as defendants without describing the role each played in the scheme individually. In contrast, the relator specifically identified the conduct of several individually named defendants, which the court imputed to their company, as they were owners, managers, and operators of the firm. The court declined to consider whether the Anti-Kickback Act would serve as a predicate for the relator’s claims. Finally, the relator alleged the defendants’ invoices were tainted by a bribe paid by the subcontractor to a prime to ensure a flow of subcontracts. While the court noted that AKA violations could serve as a basis for an FCA claim in a healthcare context, it found no authority or precedent for the relator’s theory of liability.
RRSA (Commercial Division) LLC and its co-defendants moved to dismiss a qui tam complaint alleging they violated the Anti-Kickback Act and the False Claims Act.
Claiming to be an original source of the allegations, relator Tina Haight alleged that the defendants violated the False Claims Act by falsely certifying that RRSA was a small business, conspiring with the prime contractor to obtain small business subcontracts, and paying a kickback.
According to the relator, Roofing and Restoration Services of America LLC is a large, national roofing company with some $80 million in private sector sales in 2010 and 2011. Although RRSA and its affiliates were not eligible to obtain small business contract set-asides, they formed RRSA Commercial and claimed that it qualified as small under the relevant NAICS code. The relator maintained that RRSA Commercial was not a small business under SBA rules because it shares common ownership, common management, and identity of interests with the RRSA affiliated defendants, which the defendants did not dispute. Further, they share the same place of business, email domain name, and phone number.
The relator asserted that this arrangement gave RRSA Commercial an advantage over its small business competitors, because it could leverage the resources of its affiliates and more easily obtain surety bonds, as well as obtain those bonds at a high value.
The relator alleged the defendants falsely certified RRSA Commercial’s small business status in SAM and repeatedly falsely certified its status annually thereafter. The relator asserted this fraud was openly discussed internally and that defendants Jon Seymore and Corey Sanchez suggested that even if the government uncovered their misrepresentations, RRSA would no longer need the small business classification to obtain government contracts.
After RRSA was registered in SAM, the prime contractor defendants began awarding the company small business subcontracts, even though the prime was aware that RRSA was not an eligible small business. Some of the primes claimed credit for subcontracting with a small business for these awards. The relator also alleged that RSSA and one of the primes agreed that the prime would guarantee award to RRSA provided its bid was within a designated range, and that the RRSA defendants paid a bribe to prime contractor project managers to ensure they awarded subcontracts to RRSA.
Because the prime contractor defendant was required to have a small business subcontracting plan and small business award goals, the relator alleged its certifications about its compliance were rendered false when it made subcontract awards to RRSA. The relator asserted these certifications were also made on the prime’s invoices for services they claimed were performed by small businesses. In addition to invoice payment, the prime contractors earned bonuses for subcontracting to small businesses.
The defendants moved to dismiss, arguing the relator had not satisfied the particularity standard.
First, the court held the relator had inappropriately grouped together multiple defendants in connection with some of the claims. The court found the allegations against Roofing & Restoration Services of America LLC; Haight Construction Management Services Inc.; Andrew’s Roofing & Restoration Inc.; RRSA Commercial Roofing Inc.; and Turco Construction Inc. were insufficiently pleaded, as the relator did not plead the role of each in the alleged scheme, but merely referred to them as the RRSA Affiliated Defendants.”
While the relators defined Haight as the parent company, she did not allege specific wrongdoing against each defendant individually. Therefore, the court dismissed the claims against these defendants. The court also dismissed claims against an individually named defendant, finding the relator described her role in the business organization but did not attribute to her any wrongdoing.
The court also declined to consider the Anti-Kickback Act allegations. The relator argued that a violation of the AKA—the alleged bribe from the RRSA defendants to a prime contractor—is a proper predicate to an FCA claim. However, while this is true in a healthcare context, the court found no authority or precedent saying an AKA violation otherwise provides the basis for a False Claims Act complaint.
However, taking the relator’s allegations as true, the court found she had sufficiently pleaded the scienter and materiality elements for Corey Sanchez, Jon Seymore, and Ronald Nichols. Further, the court concluded that scienter may be imputed to RRSA Commercial because the relator had pleaded sufficient facts alleging that Sanchez, Seymore, and Nichols were owners, officers, managers, or agents of RRSA Commercial, acting within the scope of their authority, for the purpose of benefitting RRSA Commercial, which is undisputed by the parties.
The court also found that the relator had sufficiently pleaded that Sanchez, Seymore, Nichols, and RRSA Commercial had caused the submission of false claims as a subcontractor, and therefore sufficiently stated a presentment claim under each theory of liability. The court also found in favor of the relator on her false records claim and conspiracy claim.
However, the court dismissed the count alleging reverse false claims, finding it merely recited the elements of the counts of direct false claims.
Next, the defendants argued the complaint failed to plead fraud with particularity, noting the relator had not identified any claims the defendants submitted to the government. However, the court found the relator has sufficiently established the who, what, when, where, and how of the fraud, and strongly suggested that false claims had been submitted.
Finally, Nichols moved to dismiss all claims arising more than six years before the relator filed her complaint on July 6, 2016. The court found that none of the specifically alleged wrongdoing occurred prior to 2011, and therefore the claims all fell within the six-year statute of limitations.
The court dismissed a number of claims, but gave the relator leave to amend to cure the group pleading deficiencies.
