FCA Case Alleging Fraudulent Small Business Subcontracting Scheme, Anti-Trafficking Statute Violations Survives Multiple Motions to Dismiss; U.S. District Court for the District of Maryland No. 8:15-cv-01806-PX, U.S. ex rel. Elgasim Mohamed Fadlalla et al. v. DynCorp International LLC et al.

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A Maryland District Court denied multiple motions by a group of defendants—including DynCorp International—to dismiss a qui tam case alleging the defendants lied about small business subcontracting arrangements and violated the Trafficking Victims Protection Reauthorization Act. While the behavior of Global Linguist Solutions was the subject of a hearing by the Commission on Wartime Contracting and a public lawsuit, the court held that the relators had independent knowledge of the sham subcontract arrangements and had informed the government of the fraud prior to filing their lawsuit. The court also held that the complaint was not barred by the statute of limitations, because the scheme required GLS to repeatedly mislead the government regarding its subcontract relationships in order to receive payment and win new contracts. Thus, while the contract was awarded outside the statute of limitations, the conduct extended into the covered period.

The court also declined to dismiss complaints against several small businesses, finding that they willingly participated in a scheme whereby they purported to be the employers of GLS’ linguists, when in fact the employees’ status did not change, and where their ongoing participation was key to GLS continuing to receive payments. The court did dismiss complaints involving AECOM, a part owner of GLS, finding the company’s ownership was not sufficient to attach liability, but declined to dismiss the case against DynCorp, the other part owner, because DynCorp employees were involved in the day-to-day management of GLS and the contract.

The court also rejected the defendants’ argument that the forced labor provisions of the TVPRA do not apply extraterritorially, explaining that the defendants were not Kuwaiti nationals, but were working overseas as government contractors, and therefore could be held liable for offenses committed abroad.

The case:

Multiple defendants—including TigerSwan Inc., AECOM National Security Programs, Inc., KMS Solutions LLC, DynCorp International LLC, Global Linguist Solutions LLC, Thomas/Wright Inc., and Shee Atika Languages LLC—moved to dismiss a qui tam lawsuit as barred by the public disclosure bar and statute of limitations. Several defendants also moved to have themselves removed as defendants, arguing they were not involved in the alleged fraud.

The relators’ claims arose out of the performance of two contracts for linguist services awarded to Global Linguist Solutions LLC. The relators are 29 U.S. citizens who worked for GLS under one or both of the contracts as linguists, translators, and interpreters.

The relators alleged that GLS engaged in a subcontractor fraud scheme involving its teaming agreements with KMS, Shee Atika, Thomas/Wright, TigerSwan, and Invizion Inc. GLS’ contracts required it to subcontract a certain percentage of the overall contract value to small businesses, but the relators alleged the small business defendants acted as GLS affiliates and were not bona fide independents mall businesses. In effect, GLS performed the work will giving the appearance it had subcontracted work to small businesses.

In support of its allegations, the relators noted that they were required to sign employment contracts that made it appear they worked for one of the small businesses, when in fact they interacted only with GLS managers. GLS oversaw the recruitment and hiring process, paid for training, coordinated background investigations and medical testing, determined where the relators were deployed, and managed the relators’ transportation to Kuwait. When these “transfers” occurred, GLS often told relators that nothing about their employment would change, except they would now be paid by the new subcontractor. According to the relators, the small business team members never knew which of the relators were on their payrolls at any given time. In addition to submitting false claims asserting to its compliance with its small business subcontracting plan, GLS also relied on its subcontracting performance to win a follow-on contract.

The relators also alleged GLS circumvented Kuwaiti labor and immigration law. For example, local law requires foreign nationals to obtain a Resident Visa to work in Kuwait, and states that businesses owned by foreign nationals cannot serve as employers. To circumvent these requirements, GLS subcontracted with Alshora International General Trading and Contracting Company, a Kuwaiti owned business, for Alshora to obtain Resident Visas for GLS employees in exchange for a “sponsorship fee.”

At this time, the relators were asked to sign documents stating they were employed by Alshora, and open bank accounts in Kuwait, which Alshora used to deposit payments purportedly from Alshora, but which originated with GLS. GLS also held the relators’ passports for weeks or months at a time and without explanation, thus preventing them from leaving the military bases to which they were assigned.

Further, when the relationship between GLS and Alshora ended, GLS failed to have the relators’ sponsored work visas canceled, which would have required the linguists to return to the United States. Alshora then reported to the Kuwaiti government that the relators had abandoned their worksites, which is a criminal offense under Kuwaiti law. The relators also alleged GLS never obtained visas for other linguists working in Kuwait, but allowed them to work under tourist visas. Alshora also reported these employees. Kuwaiti authorities ordered that all the relators must stop work immediately and warned that the relators faced arrest if they tried to leave the country.

In April 2013, GLS required the relators to execute powers of attorney with the false promise of being issued new visas. GLS instead used the POAs to file civil complaints in the relators’ names against Alshora for unpaid wages and without the relators’ knowledge or consent. Alshora then issued counterclaims against the relators seeking damages for the frivolous filing. GLS also coerced the relators into signing false confessions with the promise that they would be allowed to leave Kuwait. However, unbeknownst to the relators, the “confessions” resulted in their immediate expulsion from Kuwait and they were banned from reentering any member nation of the Gulf Cooperation Council. Any Relators who refused to sign confessions were detained for months before finally being released.

In its complaint, the relators alleged multiple violations of the False Claims Act by GLS and its teaming partners, as well as AECOM and DynCorp, who are joint owners of GLS. The relators also brought one count under the Trafficking Victims Protection Reauthorization Act concerning their treatment and work conditions in Kuwait.

Multiple Motions to Dismiss

In these proceedings, the defendants challenged the complaint on jurisdiction and sufficiency grounds. First, TigerSwan and Shee Atika argued that the district court lacked jurisdiction because they conducted no business in Maryland and that their business did not meet the “minimum contacts” standard required to grant jurisdiction. However, the court explained that the FCA authorizes nationwide service of process, and therefore the “national contacts” standard applied. The court found that both defendants had sufficient national contacts to grant jurisdiction. The court also rejected the defendants’ argument that holding proceedings in Maryland would create an undue burden, as their businesses are headquartered elsewhere, explaining that inconvenience rises to a constitutional concern only under highly unusual cases.

Public Disclosure Bar

Next, AECOM, DynCorp, GLS, KMS, Shee Atika, and Thomas/Wright argued that the relators’ FCA claims were foreclosed by the public disclosure bar. The defendants argued that the allegations were first aired before a hearing of the Commission on Wartime Contracting in 2009 and in news reports of Shee Atika’s lawsuit against GLS in 2013. In response, the relators argued the disclosures were not material because they did not disclose the fraud or its critical elements.

The court found that because the first of GLS’ two contracts had a performance period of 2007 to 2012, the relators’ claims straddle both versions of the public disclosure bar: the one in effect prior to March 2010, and the one that came into effect after that date. However, the court explained that neither standard requires that a public disclosure match specifically to the allegations made by a qui tam relator in order for the bar to apply. The standard would be satisfied when the disclosure put the government on notice of a potential fraud.

The court held the CWC hearing met this standard, as GLS admitted that each of its linguists were GLS employees, regardless of which company managed their payroll. The court noted that commissioners and other testifying witnesses explicitly questioned the propriety and efficiency of paying subcontractors for seemingly playing such a small role. Therefore, the government was on notice of the potential fraud. The court also found that news coverage of Shee Atika’s lawsuit made sufficiently similar allegations of wrongdoing regarding the subcontract relationships, which should have put the government on notice of the potential fraud.

Having found the CWC hearing and surrounding publicity sufficient to constitute public disclosures under both versions of the FCA, the court next considered whether the relators could nonetheless proceed as original sources of the same information. Under either version of the statute, and to escape the public disclosure bar, the relators must demonstrate that they voluntarily provided the information to the government before they filed the FCA action. The court found the relators made this showing.

The relators argued they were original sources of the information to the government, which they provided three months before filing this action. The relators also showed they had direct and independent knowledge of the information underlying the allegations. The court noted the relators had been forced to sign contracts with a series of different subcontractors and that GLS assured them the conditions of their employment had not changed. The relators never interacted with the subcontractors. The court found that none of the relators’ direct experience with GLS hinged on the public disclosures, and allowed the claims to proceed.

Next, the court turned to the FCA claims based on GLS’ alleged violations of the TVPRA and Kuwaiti law. Similar to the subcontracting scheme, although certain disclosures fall within the statute, the court held the relators may proceed because they qualified as original sources of the FCA-related evidence.

Particularity

Next, the defendants challenged the sufficiency of the claims, arguing that the relators failed to satisfy the heightened pleading standard applicable to claims sounding in fraud. However, the court disagreed, finding the relators amended complaint satisfied the particularity standard with regard to counts I and II.

Beginning with the subcontracting-based claims, the court found the relators adequately alleged each of the four elements to satisfy an FCA claim. The court found the relators sufficiently alleged the defendants made objectively false claims regarding its small business subcontracting by creating sham employment arrangements for the relators. Further, the relators alleged that GLS provided false testimony before the CWC hearing with the objective of sustaining the fraud. In addition, without this false claim, the government would likely not have awarded GLS the second contract, and therefore the false statements were material to the defendants’ ability to continue to do business with and obtain funds from the government. The court also found the relators plausibly alleged the defendants made their false claims knowingly, as the complaint detailed the lengths to which GLS went to create and maintain the sham employment arrangement.

The defendants again argued the government was aware of the alleged wrongdoing but took no action, but the court found that false statements made by GLS during the CWC hearing had served to obfuscate the situation. The court found it implausible to conclude that the government knew about the subcontracting fraud after the CWC hearing.

The defendants argued that the relators had failed to plead the specifics of the submission of any false claim, but the court found the defendants attempted to set the bar too high. The court found that the complaint, read as a whole, easily allowed the inference that GLS would have submitted false claims to the government. First and most obviously, the complaint set out the sham subcontracting arrangement designed to ensure that GLS was awarded Contracts 1 and 2. Second, the complaint detailed the ongoing nature of the contractual relationship between GLS and the government to provide linguistic services in exchange for getting paid on the contracts. The court held that it could plausibly infer that GLS had to continue making false claims to receive payment.

Implied Certification Theory

Next, the court considered the defendants’ motion to dismiss claims based on in implied certification theory. The complained alleged that GLS submitted claims to the government for reimbursement of Alshora’s services, presented as valid “sponsorship” fees, when in fact Alshora was used as a front to make it appear that linguists were employed with a Kuwaiti based company so as to circumvent Kuwaiti labor and immigration laws. The complaint also alleged that GLS violated the TVPRA’s forced labor provision by confiscating the relators’ passports and abusing the Kuwaiti legal process.

The court denied the motion, finding the contract was obtained and performed against the backdrop of the government’s “zero tolerance policy regarding trafficking in persons.” Accordingly, the court found it reasonable to infer that GLS had to impliedly certify compliance with the TVPRA to obtain the contracts and receive payment. The court found the complaint alleged numerous violations of the act in relation to GLS’ relationship with Alshora. The court also held the complaint sufficiently alleged that GLS impliedly certified compliance with the National Industrial Security Program Operations Manual, which required GLS to certify that no foreign business had the power to direct or decide matters affecting the management or operations of that company in a manner which could adversely affect the performance of classified contracts. The court reasoned that GLS knowingly ceded power and control to Alshora to dodge Kuwaiti labor and employment law while also certifying to the government the opposite. When GLS’ relationship with Alshora deteriorated, Alshora was able to halt the essential national security work of the linguists by reporting the relators to Kuwaiti authorities, who then issued a “stop-work” order.

Reverse False Claims Theory Fails

In Count III, the relators asserted a reverse false claims theory, arguing that GLS had made false statements to avoid a material obligation to make a payment to the government. The complaint generally averred that GLS made false claims to avoid paying penalties the government would have assessed under its contracts, had it known of the alleged wrongdoing. However, the court explained that the government’s right to seek such reimbursement does not in itself create an obligation. Further, the relators cannot allege a reverse false claim premised on the same conduct as its other claims. The court therefore dismissed Count III.

Motion to Dismiss by Small Business Defendants

Next, the court considered the motion to dismiss filed by small business defendants KMS, Wright, and Shee Atika, who separately challenged the relators’ FCA claims as relying on deficient group pleading and failing to plead with particularity each of the subcontractors’ involvement. However, the court held the relators satisfied this standard. The complaint alleged the three subcontractors knowingly entered into sham employment arrangements to further GLS’ scheme, which was essential to the fraud and the government’s improper payments to GLS.

Motion to Dismiss Corporate Owners as Defendants

Next, the court considered a motion to dismiss by AECOM and DynCorp, partners and shareholders in GLS. The court agreed that the relators had not adequately pleaded the existence of a “joint venture” that would extend liability to each by virtue of the corporate relationship. Further, the court found the complaint did not allege any specific acts conferring liability to AECOM and dismiss the claims. However, the court dismissed the claims without prejudice, noting it would permit an amended complaint after discovery, as needed.

However, the court denied the motion to dismiss DynCorp as a defendant. The relators argued that even absent the existence of a joint venture, DynCorp may be held liable for GLS’ misconduct because the two corporations are alter egos of one another. The complaint asserted that DynCorp personnel managed the day-to-day operations of GLS, shared the same business address as GLS, controlled “back office” support for GLS’ linguists, hired and fired GLS personnel, and developed training policies for GLS personnel. The court found these allegations satisfied the “unity of interest” rule for determining whether the two firms were alter egos. Second, the court held that dismissing the case against DynCorp would create an inequitable result, as DynCorp appeared to have engaged in the FCA violations hand-in-hand with GLS. The court declined to allow DynCorp to escape liability by hiding behind GLS, at least at this stage of the inquiry.

Statute of Limitations

Finally, the defendants argued the claims based on conduct before June 19, 2009, were barred by the statute of limitations. In response, the relators argued they were entitled to equitable tolling due to GLS’ on-going scheme of concealment. The court sided with the plaintiffs, finding they may be entitled to equitable tolling. Further, as an affirmative defense, the court explained the defendants bear the burden of establishing the dates of violations as relevant to the six-year limitations period and when government officials were on notice for purposes of the extended limitations provision.

TVPRA Violations

The defendants also moved to dismiss Count IV of the complaint, which alleged violations of the TVPRA, arguing the complaint was not sufficiently specific. However, the court first noted that TVPRA claims are not subject to the heightened pleading standard applied to the FCA. Further, the court found the complaint alleged ongoing misconduct including the confiscation of the relators’ passports, the employment of some linguists on tourist visas rather than work visas, and the forced signing of fraudulent employment contracts to obtain visas. As a result of GLS’ alleged actions, some of the relators were detained by the Kuwaiti government and others could not leave their assigned military base without fear of arrest or deportation.

Defendants DynCorp, AECOM, KMS, Wright, and Shee Atika argued that GLS was solely responsible for this conduct. In response, the relators argued that the defendants are liable because they benefited financially from the scheme. First, the court found the relators plausibly asserted that some DynCorp employees were involved in the scheme, including some who purported to be GLS employees. However, the court dismissed the claims against AECOM, KMS, Wright, and Shee Atika, finding these defendants were not sufficiently connected to the TVPRA violations to attach liability.

Next, the defendants argued that the force labor provisions of the TVPRA did not apply extraterritorially, and therefore claims premised on the confiscation of passports in Kuwait must be dismissed for lack of subject matter jurisdiction. However, the court disagreed, explaining that the defendants, as government contractors, may be held liable for § 1592 offenses committed abroad. As contractors, the defendants operated outside the country in connection with their contracts with the government, and were not Kuwaiti nationals. However, as above, the court held that only the claims against GLS and DynCorp could proceed, as AECOM and the small business defendants were not shown to be involved in the alleged violations.

Finally, the defendants challenged the availability of certain remedies under the TVPRA. The defendants argued the relators sought damages for emotional distress and physical injuries in Kuwait, which are preempted by the Defense Base Act. However, the court explained that the DBA applies to accidental injuries that occur during the course of employment, not to abuse. The court concluded that the relators’ allegations did not describe injuries that were likely to occur during the course of their regular duties, even in a war zone. The court also rejected the defendants’ suggestion that there is no restitution available under the TVPRA, as the act’s restitution provision applies only to criminal cases. The court found nothing in the text of the statute suggesting that restitution applies solely to criminal cases, and denied the motion.

FCA Fadlalla v. Dyncorp