Cluttered Pleading Scuttles Qui Tam Complaint Alleging Defendants Sold Junk Goods to Government; United States District Court for the Middle District of Florida, No. 3:18-cv-811-J-32MCR, U.S. ex rel. Jay Gallo and Greg Quinn v. Thor Guard Inc. et al.

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The district court granted a motion to dismiss a qui tam case alleging the defendant falsely asserted that its products were capable of performing as stated to the government. The court found that while the relators had sufficiently pled both presentment and false certification theories, it had comingled the allegations into one count, and therefore gave them the opportunity to refile. The court also granted the motion to dismiss a claim of unlawful retaliation, as the relator had not stated when certain retaliatory actions had been taken and therefore had not fully connected his protected activity to the alleged conduct. However, the court gave the relator the opportunity to amend his complaint.

Jay Gallo and Greg Quinn filed a qui tam complaint alleging that Thor Guard Inc. violated the False Claims Act in connection with sales of its lightning prediction and warning systems to the United States and unlawfully retaliated against Gallo for his protected conduct. The defendants moved to dismiss.

Gallo was employed by Thor Guard as a sales representative and Quinn was hired as a consulting meteorologist and sales representative. Together, they alleged that Thor Guard made the following false claims: that their products can reasonably predict lightning as it occurs; that Thor Guard matches the lowest price it provides to other customers for the federal government; that Thor Guard’s products comply with government regulations; and that Thor Guard’s products successfully predict lightning with over ninety-five percent accuracy. According to the relators, in fact Thor Guard’s products rarely work; Thor Guard charges more to the government than to other customers; and Thor Guard’s products fail to meet minimum government requirements.

The relators alleged that Thor Guard used outdated software for upgraded products and told customers, including the government, that its software still worked accurately, despite reports of errors. Efforts to correct the issues seemingly magnified the issues and made systems unusable, the relators argued. They also alleged that management was aware of major issues, but blamed the problems on other areas, such as external cables. When Thor Guard took steps to address the problem, it did not inform customers of the need to update software and did not maintain a way to track which customers had which products and software.

The relators alleged that since 2011, Thor Guard has covered up that its products do not function as advertised and has suppressed complaints by sales representatives and customers. The company also drafted a waiver to limit its liability by claiming that certain sites had “beta versions” of its products, but it never provided the waiver to its customers. They also asserted that government invoices label the product as a “lightning detection system,” which is in itself a false claim. While Thor Guard maintained its products were 95 percent accurate, the relators alleged they actually failed 80 percent of the time. Additionally, the relators alleged various violations of minimum federal requirements for lightning warning systems.

According to Gallo, Thor Guard began retaliating against him in March 2012 after he first voiced concerns with the products and heightened their conduct as he continued to express those concerns. According to the relators, Thor Guard’s employees were threatened and told that they would be fired if they communicated with Gallo or failed to provide information about him. Gallo was removed from distribution lists and directories and barred from attending a large professional trade show. Management said anyone “on Gallo’s side” would be fired and sent a company-wide email requesting negative information about Gallo. When Gallo said he would not continue selling faulty products, he was cut off from communication, client referrals, and opportunities. On April 6, 2018, he was terminated. Three months later, the relators filed their qui tam action. The United States declined to intervene and the defendants filed this motion to dismiss.

First, the defendants moved to dismiss under a presentment theory. However, the court found the allegations sufficient with regard to whether the defendants presented a false or fraudulent claim to the government. The relators provided sample invoices, some of which include contract numbers, pricing information, and a description of the product as a “lightning prediction system,” which the relators alleged was patently false. The court found the relators  provided detailed allegations about changes to products over a multi-year period that resulted in serious concerns from employees, executives, and customers that the products were dysfunctional. They also alleged with particularity that the company had knowledge the Products were inoperable and tried to cover it up. Taking the allegations as true, the court found the relators had alleged facts sufficient to infer that the defendants knew their products were essentially inoperable and billed the government despite that knowledge, satisfying the standard for an FCA violation under a presentment theory.

The defendants also moved to dismiss under a false certification theory. The court found the relators had sufficiently alleged that claims for payment were actually submitted to the government. Regarding noncompliance with regulations, the relators alleged that Thor Guard had to go through the General Services Administration process to sell products to the government, and under that process, sellers must meet certain standards before contracting, including third party testing that Thor Guard failed to do. The relators also asserted that the products did not meet the Federal Lightning Capability Requirement for accuracy in detection. Therefore, the relators argued that Thor Guard falsely claimed its products complied with GSA requirements, as well as federal rules and regulations. However, the court found the relators failed to allege what specific false certifications the defendants made.

The court also found the defendants also rightly argued that government knowledge could disprove materiality. However, the defendants’ only support was the government’s decision not to intervene, which the court did not consider conclusive.

The court noted that the relators intermixed their theories of presentment and false certification in count I and directed them to replead their allegations. If the relators proceed under both theories, they should separate the presentment allegations and the false certification allegations into separate counts, incorporating only those paragraphs relevant to that theory.

The defendants also moved to dismiss the claim of retaliation. Gallo alleged that he engaged in “protected activity” with the following actions: his 2012 email to Thor Guard’s owners, raising concerns about faulty products; his 2012 letter to Thor Guard in which he stated, “I think that under federal regulations, Thor Guard has an obligation to notify the federal government that there is a significant problem with the systems, and the resultant potentially catastrophic safety issues”; his 2017 email to management with concerns about legal exposure; and his 2017 seven-page letter in which he said that he had retained counsel and outlined what he perceived as a fraudulent scheme. Though only the 2012 letter explicitly mentions the government, the court found that, taken together, these actions support a reasonable conclusion that the employer could have feared being reported to the government for fraud or sued in a qui tam action by the employee.

However, the court found it more difficult to conclude whether Gallo had alleged the protected activity was causally related to the purported retaliation. Gallo failed to allege when he was removed from sales directories, when he was barred from attending a trade show, and when employees were threatened. He was fired on April 6, 2018, seven months after sending his final letter, and nearly six years after his first reports. The court dismissed Gallo’s retaliation claim without prejudice to allow him to replead and attempt to sharpen his allegations of causation, if he has a good faith basis to do so.