United States District Court for the District of Columbia
March 24, 2004.
MICHAEL M. ALLEN, Plaintiff,
BETA CONSTRUCTION, et al., Defendants
The opinion of the court was delivered by: EMMET SULLIVAN, District Judge
MEMORANDUM OPINION AND ORDER
I. Factual and Procedural History
Plaintiff Michael Allen was employed by defendants Beta Construction
and Hampton Supply Inc. as the Director of Human Resources from February
1989 until May 1999.
Defendant Beta Construction ("Beta") is a corporation engaged in the
business of providing commercial roofing; Defendant Hampton Supply
Inc.("Hampton") is a corporation engaged in the business of providing
commercial roofing and waterproofing services; Defendant Peter Gordon Co.
("PGC") is a corporation engaged in the business of providing commercial
roofing and waterproofing services. Defendant Integrated Roofing and
Waterproofing, Inc. ("IRW") became the parent company of Beta and Hampton
in August 1999.
Defendant Paul C. Gordon ("Gordon") was, at all relevant
times, the President, CEO, and controlling shareholder of Beta,
Hampton, and PGC. Defendant Jeremy O. Brown ("Brown") was at all relevant
times Vice President for Finance or President of Hampton and Beta, as
well as a shareholder in both companies.
Allen brings this action as a qui tam relator under the False
Claims Act ("FCA"). See 31 U.S.C. § 3730 (b)(1)
(2003)(allowing a private person to bring an action for violation of the
False Claims Act on behalf of the United States Government). On March 31,
2003, the United States filed notice declining to intervene in the case,
and Allen continued the action as a private person. See March
31, 2003, Notice of United States of Election to Decline Intervention;
see also 31 U.S.C. § 3730 (b)(4)(B)(allowing private person to
continue action even if United States declines to intervene).
Pending before the Court is defendants' Motion to Dismiss plaintiff's
complaint, pursuant to Fed.R.Civ.P. 9(b), for failure to plead fraud
with particularity, and Fed.R.Civ.P. 12(b)(6), for failure to state a
claim upon which relief can be granted. Upon careful consideration of the
motion, the response and reply thereto, as well as the governing
statutory and case law, and for the following reasons, it is by the Court
hereby ORDERED that defendants' Motion to Dismiss is
Plaintiff Allen alleges that he has "personal, direct and independent
knowledge of the defendants' practice of presenting and/or submitting
false statements and false claims to the federal government" in violation
of the False Claims Act, 31 U.S.C. § 3729 et seq. Compl.
¶ 9. Specifically, plaintiff states that from 1989 to the present,
defendants bid upon and were awarded sixteen federal government contracts
for roofing and waterproofing. Compl. ¶ 16. Such contracts were
subject to the wage and reporting requirements set forth in the
Davis-Bacon Act, formerly codified at 40 U.S.C. § 276(c). Per federal
regulations, defendants were required to pay workers prevailing wages,
and weekly submit to the contracting federal agencies both payrolls and a
Statement of Compliance certifying that "each laborer or mechanic" was
paid "not less than applicable wage rates and fringe benefits or cash
equivalents for the classification or work performed." 29 C.F.R. § 5.5(a)
(3) (ii) (B)(3). Plaintiff alleges that defendants systematically
defrauded the federal government by falsely certifying compliance with
these requirements. Compl. ¶ 21.
Specifically, plaintiff states that defendants directed plaintiff, in
his capacity as Director of Human Resources, as well as other employees,
to pay their laborers wages substantially below the applicable wage
requirements, while also
directing plaintiff to falsely certify to the applicable federal
agencies with whom they were contracting that defendants were paying
their laborers the required wages. Compl. ¶ 23 ("Brown directed
[plaintiff] to falsify weekly labor payroll records to eliminate or
substantially reduce hours that were to be paid at the journeyman wage
scale set by the Davis Bacon Act. These workers would instead receive a
weekly paycheck based upon Gordon's and Brown's directive that these
workers receive only average pay of approximately $13 to $15 per hour,
although the work performed by these employees required them . . . to be
paid at the scale for mechanics, $22 per hour."). This "scheme" involved
falsifying labor payroll records, threatening employees who complained of
insufficient wages, and issuing false certifications to federal agencies
on more than 1500 occasions. Compl. ¶¶ 25-26. Plaintiff states that
the difference in wages reported and the wages actually paid was
fraudulently diverted to defendants as personal profits, a practice that
resulted in false charges to the government in the amount of
approximately $12 to $16 million, and that Gordon and Brown also diverted
fringe benefits required to be paid to employees for their own personal
use. Compl. ¶¶ 26, 28. Plaintiff also alleges that Gordon and Brown
directed plaintiff and other employees to conceal this practice from
government inspectors, and that defendants also purposely concealed
information about the accurate pay scale from
their workers. Compl. ¶ 25.
Plaintiff alleges that defendants engaged in several other fraudulent
schemes. For example, plaintiff states that defendants falsely certified
compliance with EPA regulations governing disposal of asbestos material.
Compl. ¶¶ 29-30. Specifically, plaintiff avers that Defendants Brown
and Gordon directed him to obtain an asbestos abatement license as part
of his Human Resources Director function, but Gordon later directed
plaintiff to transfer his licence to a shell Company, AR II Industries
("AR II"). AR II was subsequently listed as an independent asbestos
removal subcontractor in defendants' federal contract bids, but asbestos
roofing material was subsequently not disposed of in compliance with the
awarded contracts or EPA regulations, and was instead improperly disposed
of in Maryland landfills. Compl. ¶¶ 29-30. Finally, plaintiff states
that defendants, in order to secure federal contracts, certified that
contract work was performed by minority subcontractors, specifically
William D. Euille and Associates, when in fact defendants simply paid the
minority subcontractor to lend its name to contract bid documents. Compl.
Count I, Use of False Statements, alleges that by virtue of the acts
described above, defendants knowingly presented, or caused to be
presented to officers, employees, or agents of the United States false or
fraudulent claims paid or approved by the
United States under contracts funded with federal monies, and used
false records and statements to have the fraudulent or false claims paid.
31 U.S.C. § 3729(a).
Count II, Presentation of False Claims, alleges that as a result of the
alleged scheme described above, defendants recovered payment from the
Federal Government for services pursuant to contracts and purchase orders
that were never received by the United States. 31 U.S.C. § 3729(a).
II. Defendants' Motion to Dismiss Pursuant to Fed.R.Civ.P.
9(b) and Fed.R.Civ.P. 12(b)(6)
A. Fed.R.Civ.P. 12(b)(6)
In appraising the sufficiency of a complaint, a court must follow "the
accepted rule that a complaint should not be dismissed unless it appears
beyond doubt that the plaintiff can prove no set of facts in support of
his claim which would entitle him to relief." Conley v. Gibson,
355 U.S. 41
, 45-46 (1957); see also Swierkiewicz v. Sorema,
534 U.S. 506
, 514 (2002) (noting the Federal Rules' notice pleading standard,
and holding that a court may dismiss a complaint "only if it is clear
that no relief could be granted under any set of facts that could be
proved consistent with the allegations.") (quoting Hishon v. King
& Spalding, 467 U.S. 69
, 73 (1984)). For purposes of a motion to
dismiss, a court must treat the plaintiff's factual allegations as true,
must liberally construe the complaint in favor of the plaintiff.
Jenkins v. McKeithen, 395 U.S. 411
, 421-422 (1969).
B. Fed.R.Civ.P. 9(b)
This Circuit has held that complaints brought under the False Claims
Act are subject to the heightened pleading requirements of Fed.R. Civ.
P. 9(b). See U.S. ex rel. Totten v. Bombardier Corp.,
286 F.3d 542, 551-52 (D.C. Cir. 2002)("Every circuit to consider the issue has
held that, because the False Claims Act is self-evidently an anti-fraud
statute, complaints brought under it must comply with Rule 9(b).").
Rule 9(b) requires that "in all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with
particularity." Fed.R.Civ.P. 9(b). This specificity requirement
"normally means that the pleader must state the time, place and content
of the false misrepresentations, the fact misrepresented and what was
obtained or given up as a consequence of the fraud." United States v.
Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981) (internal citation and
Likewise, in the False Claims Act context, "the circumstances that must
be pleaded with specificity are matters such as the time, place, and
contents of the false representations, such representation being the
element of fraud about which the rule is chiefly concerned."
Totten, 286 F.3d at
552 (internal citation and quotation omitted)(emphasis in
original); Shekoyan v. Sibley Intern. Corp., 217 F. Supp.2d 59,
73 (D.D.C. 2002)(in the False Claims Act context, "a claimant must
typically allege the identity of the person who made the fraudulent
statement, the time, place and content of the misrepresentation, the
resulting injury, and the method by which the misrepresentation was
communicated")(internal citation and quotation omitted).
C. The Complaint States a Claim with Adequate Particularity
Plaintiff brings this action under the False Claims Act. The
FCA "proscribes only false claims-that is actual demands for money or
property and false records or statements used to induce such claims. The
FCA, in other words, attaches liability not to underlying fraudulent
activity, but to the claim for payment." rotten, 286 F.3d at 551
(internal citation and quotation omitted). At bottom, the elements of an
FCA claim are that a defendant, knowing that a claim for payment was
false or fraudulent, presented a claim to the United States government
for payment, or used false records or statements in order to have a false
or fraudulent claim paid by the government. See
31 U.S.C. § 3729 (a)(1), (a)(2).
Defendants argue that the Complaint fails to allege with particularity
each element of an FCA claim. For example,
defendants argue that the Complaint "fails to identify which defendant
participated in each false or fraudulent scheme or statement . . .
[but] rather point to all defendants collectively." Defs.' Mot. to
Dismiss at 6. Defendants also argue that the Complaint fails to "allege
the particulars of the time, place, and content of the false
representations, what facts were misrepresented, or the identity of the
person or persons who made the misrepresentations . . . and fails even to
identify a single document submitted by any of the defendants." Defs.'
Mot. to Dismiss at 8. Defendants submit that the Complaint should
identify, by name, the identities of the workers whose wages were
falsified, and the specific pay periods in which the falsifications
allegedly occurred. Further, defendants argue that the Complaint fails to
identify any specific form or document containing false of fraudulent
statements related to defendants' allegedly illegal disposal of asbestos;
and fails to identify the contract(s) on which defendants allegedly
fraudulently certified the use of a minority subcontractor.
Defendants are correct that plaintiff must, because he brings a claim
under the False Claims Act, go beyond the mere notice pleading which
would be sufficient to survive a Rule 12(b)(6) motion to dismiss.
However, while something more than notice pleading is certainly required
when a claim falls under the purview of Rule 9(b), defendants' detailed
precisely what is required of plaintiff serves to divorce the
Rule 9 requirements from the dictates of related pleading rules.
As the Circuit has aptly stated,
Rule 9(b) is not . . . to be read in isolation
from other procedural canons . . . the requirement
of particularity does not abrogate Rule 8 and it
should be harmonized with the general directives
in subdivisions (a) and (e) of Rule 8 that the
pleadings should contain a [FNA]short and plain
statement of the claim or defense' and that each
averment should be `simple concise and direct.'
Cannon, 642 F.2d at 1386 (internal citation and quotation
omitted). Thus, while the "time, place, and contents of the false
representations" must be pleaded with specificity in an FCA cause of
action, Totten, 286 F.3d at 552, "the simplicity and flexibility
contemplated by the rules must be taken into account when reviewing a
complaint for 9(b) particularity." Pogue v. Diabetes Treatment
Centers of America, Inc., 238 F. Supp.2d 258, 267 (D.D.C. 2002)
(denying motion to dismiss in FCA context, where time range pled was
twelve years and the fraudulent scheme was alleged to be nationwide); see
also Swierkiewicz, 534 U.S. at 513-14 ("Other provisions of the
Federal Rules of Civil Procedure are inextricably linked to Rule 8(a)'s
simplified notice pleading standard. Rule 8(e)(1) states that `[n]o
technical forms of pleading or motions are required,' and Rule 8(f)
provides that `[a]ll pleadings shall be so construed as to do substantial
Here, plaintiff has adequately pleaded the time, place, and
contents of the allegedly false representations and claims.
Plaintiff submitted an 18 page Complaint, identifying sixteen federal
contracts awarded defendants, and alleging that defendants Gordon and
Brown engaged in a systematic, multi-year scheme of certifying to the
federal government that they were paying workers certain wages as
required by law, when in fact they were not. Plaintiff repeatedly alleges
that Defendants Gordon and Brown instructed him to falsify specific
documents presented to federal agencies, and alleges that he, as the
former Director of Human Resources, has first-hand knowledge of this
ongoing fraud. With regard to the "asbestos scheme," plaintiff concisely
Brown and Gordon specifically directed [plaintiff]
to obtain an asbestos abatement licence . . . the
certification was transferred by Mr. Allen to a
shell company, AR II Industries, at Gordon's
direction . . . AR II was shown on the bid . . .
as an independent asbestos removal
contractor . . . After the contract was awarded,
Gordon directed [employees] to ignore the
contract's requirements that asbestos roofing
material . . . be disposed of in accordance with
Compl. ¶ 30. Likewise, the minority contractor allegations identify
the specific minority contractor who defendants allegedly fraudulently
claimed to have hired as a subcontractor.
Such pleading sets out a "sufficiently detailed description of the
specific scheme and its falsehoods" so as to survive Rule 9(b) scrutiny.
Pogue, 238 F. Supp.2d at 268 (noting that complaint covering
multi-year period may not require "a detailed allegation
of all facts supporting each and every instance of submission of a
false claim"). Morever, plaintiff's Complaint serves the central purpose
of Rule 9(b), properly read in conjunction with Rule (8): "the
requirements of Rule 9(b) guarantee all defendants sufficient information
to allow for preparation of a response." Cannon, 642 F.2d at
1385. Defendants cannot credibly argue that they are not now on notice of
the charges against them: plaintiff alleges that defendants Brown and
Gordon, through their companies, systematically falsely certified that
they were paying appropriate employee wages; falsely certified compliance
with, and received federal monies under, asbestos removal regulations
applicable to federal contracts; and falsely certified that they were
using a minority subcontractor in order to secure federal contracts.
While significant details which will be necessary for plaintiff to
succeed on the merits of the case are indeed absent, these
details are not necessary at this very preliminary stage of litigation.
Indeed, plaintiff, having first stated a claim with sufficient
specificity, must be allowed to fill in those details though the
discovery process, especially because these details are in "defendants'
possession and will be identified when produced in discovery." Pl.'s Opp.
to Mot. to Dismiss at 12.
Accordingly, for the reasons stated above, the Court finds that
plaintiff has stated a claim with sufficient particularity
so as to comply with the pleading requirements of both Rule 8 and
III. Statute of Limitations
Finally, defendants argue that this action is barred in whole or in
part by the FCA six year statute of limitations. See
31 U.S.C. § 3731 (b)(1) ("A civil action under section 3730 may not be brought
more than 6 years after the date on which the violation of section 3729
is committed."). Specifically, defendants argue "Plaintiff's Complaint
was filed on May 30, 2001. Accordingly, any claims prior to May 30, 1995
are time barred . . . [t]herefore, the claims Plaintiff is alleging
between 1989 and May 29, 1995 are clearly time-barred under the six-year
statute of limitations." Defs.' Mot. to Dismiss at 18.
Here, it is unclear from the face of the Complaint when the statute of
limitations began to run, as "[m]any courts have held that the commission
of the violation occurs on the date of the Government's final
payment on the false claim." TS Infosystems, Inc. v. U.S.,
36 Fed. Cl. 570 (Fed.Cl. 1996) (collecting cases)(emphasis added). It is
unclear from the Complaint when the government made that last payment on
each of the contracts; it is quite possible that some or all of the
alleged false claims for each of the sixteen contracts were submitted and
the six year time period. Accordingly, the Court cannot comfortably
conclude that the claims are time barred, and thus will not dismiss the
Complaint on statute of limitation grounds at this juncture.
Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir 1996)
("courts should hesitate to dismiss a complaint on statute of limitations
grounds based solely on the face of the complaint . . . because statute
of limitations issues often depend on contested questions of fact,
dismissal is appropriate only if the complaint on its face is
conclusively time-barred"). Of course, if it becomes clear during or
after discovery that some or all of the claims are indeed time-barred,
defendants can certainly move for summary judgment on those claims.
For the reasons stated herein, it is by the Court hereby
ORDERED that defendant's Motion to Dismiss Count I of the
Complaint is DENIED; and it is
FURTHER ORDERED that a status hearing is scheduled for
April 30, 2004, at 10:30 a.m. in Courtroom One.
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