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Si v. Laogai Research Foundation

United States District Court, D. Columbia.

October 14, 2014

PENCHENG SI, Plaintiff,

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For PENGCHENG SI, United States of America ex rel, Plaintiff: Ruth Ann Azeredo, LEAD ATTORNEY, PRO HAC VICE, Law Office of Ruth Ann Azeredo, Annapolis, MD; Timothy W. Romberger, LEAD ATTORNEY, LAW OFFICES OF TIMOTHY W. ROMBERGER, Washington, DC.


For UNITED STATES OF AMERICA, Interested Party: Beverly Maria Russell, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE FOR D.C., Civil Division, Washington, DC; Daniel Sage Ward, LEAD ATTORNEY, Ward & Ward, PLLC, Washington, DC; Laurie J. Weinstein, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE, Washington, DC.

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KETANJI BROWN JACKSON, United States District Judge.

Relator Pencheng Si (" Relator" ) is a computer technician who once worked for Defendants Laogai Research Foundation (" LRF" ) and the China Information Center (" CIC" ) in the District of Columbia. Relator brings this action under the False Claims Act (" FCA" ), 31 U.S.C. § § 3729-3733 (2012), seeking to challenge the business practices of LRF and CIC (together, " Corporate Defendants" ) and their executive director, Harry Wu (collectively, " Defendants" ) with respect to Defendants' alleged misuse of federal grant funding.[1] Relator's central contention is that, during the five years that he worked for Defendants, he observed them undertaking myriad acts that Relator believes violate the FCA, including making gross overstatements regarding the qualifications of Wu and other employees in grant applications, engaging in improper lobbying activities, and using grant funding for personal expenses. ( See Am. Compl., ECF No. 43, ¶ ¶ 126-180.) The complaint also maintains that Defendants terminated Relator's employment in retaliation for his having unearthed and reported the purported misuse of grant funds. ( Id. ¶ ¶ 181-186.)

Before this Court at present is Defendants' second motion to dismiss Relator's complaint with respect to this matter. (Defs.' Mot. to Dismiss Pl.'s Am. Compl. (" Defs.' Mot." ), ECF No. 49.) This Court previously agreed with Defendants that Relator's initial complaint was deficient under Federal Rule of Civil Procedure 9(b) and permitted Relator to amend his complaint, see Si v. Laogai Research Found., No. 09-2388, 2013 WL 4478953, at *1-2 (D.D.C. Aug. 21, 2013), which Relator has now done. In the instant motion, Defendants argue that the amended complaint too must be dismissed because Relator's renewed allegations continue to fall short of the requirements of Rule 9(b) and also fail to state a claim upon which relief can be granted for the purpose of Rule 12(b)(6). (Defs.' Mem. in Supp. of Defs.' Mot. (" Defs.' Mem." ), ECF No. 50, at 12-23.)[2]

On September 30, 2014, this Court issued an order granting in part and denying in part Defendants' motion to dismiss, and stating that the Court would release a subsequent memorandum opinion explaining

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the Court's reasoning. (Order (" Sept. 30 Order" ), ECF No. 59.) The instant document is that memorandum opinion. In short, the lynchpin of the Court's ruling in this case is the fact that, although Relator appears to have gone back to the proverbial drawing board in crafting the amended complaint (his amended complaint is nearly double the length of his original pleading and provides more detail regarding Defendants' business practices and internal finances), the amended complaint nevertheless still lacks a sufficient factual basis for any plausible fraud claim under the FCA, and fails even to identify clearly how the alleged facts support each purported claim for relief. Therefore, Relator has not cured the deficiencies in the original complaint with respect to the FCA counts (Counts I-IV), and Defendants' motion to dismiss must be GRANTED with respect to those counts. As for Relator's remaining contention--that the termination of his employment constituted retaliation for engaging in protected activity in furtherance of the FCA (Count V)--the amended complaint does contain sufficient allegations to raise a plausible inference that Relator engaged in activity that the FCA protects and was fired for that reason. Consequently, Defendants' motion to dismiss is DENIED with respect to the retaliation count.


A. The Parties

Defendants LRF and CIC are both non-profit corporations based in the District of Columbia. (Am. Compl. ¶ ¶ 9-10.) LRF has the " the purported purpose to educate Chinese people about the Laogai system" ( id. ¶ 15), which, according to the New Oxford American Dictionary, is " a system of labor camps, many of whose inmates are political dissidents." New Oxford Am. Dictionary 952 (2nd ed. 2005); see also id. (noting that the word " laogai" means " reform through labor" in Chinese). CIC was created and funded " to promote an independent media outlet for Chinese citizens in China unaffected by Chinese government influences." (Am. Compl. ¶ 17.) Both corporations rely on federal grants from the State Department's National Endowment for Democracy (" DOS/NED" ) program. ( Id. ¶ ¶ 14-18.)

Relator worked for LRF and CIC from May of 2003 until he was fired in June of 2008. ( Id. ¶ 7.) Defendants originally hired Relator as a computer technician, but during his time as an employee of LRF and CIC, Relator acquired new titles--such as Assistant Director of CIC--and new responsibilities. ( Id.) At the same time that Relator was advancing professionally, he also began learning more about the inner workings of the organizations and became increasingly concerned about what he viewed as unlawful conduct. ( See id.) Such conduct ranged from alleged minor frauds ( e.g., Defendant Wu exaggerating his life story) to alleged egregious illegalities ( e.g., Defendant Wu embezzling Corporate Defendants' money).

It appears undisputed that Defendant Wu was, for all intents and purposes, the controlling force behind LRF and CIC when Relator worked for those organizations. ( Id. ¶ 12.) Before arriving in the United States from China in the 1980s, Wu spent some period of time detained in a Chinese forced labor camp. ( See id. ¶ ¶ 30-42 (pointing to inconsistencies in Wu's story but not disputing that he spent some time in a Chinese prison)). Wu is now President and Executive Director of LRF and the Publisher of CIC. ( Id. ¶ 12.) According to Relator, Wu is also a font of ethical and financial impropriety.

B. The Amended Complaint

This lawsuit stems primarily from a series of allegedly unlawful acts that Relator

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purportedly witnessed in his capacity as an employee of LRF and CIC, as well as facts relating to the manner in which Relator was fired. Relator's sprawling amended complaint contains more than one hundred paragraphs of allegations that, as a general matter, appear to emphasize six different types of allegedly unlawful behavior on the part of Defendants: (1) Defendant Wu made misrepresentations regarding his personal story; (2) LRF and CIC engaged in illicit lobbying; (3) Defendants made improper payments to third parties in violation of their grant obligations; (4) Defendant Wu submitted fraudulent claims for reimbursement; (5) Defendants made misrepresentations in grant applications; and (6) Defendants unlawfully terminated Relator's employment in retaliation for his having raised concerns about the aforementioned conduct. ( Id. ¶ ¶ 24-125.) The amended complaint provides myriad examples of specific acts that relate to each of these categories of conduct, and according to Relator, these facts raise plausible legal claims that relate to five different provisions of the FCA. ( See id. ¶ ¶ 126-186 (alleging violations of 31 U.S.C. § 3729(a)(1)(A) (Count I), 31 U.S.C. § 3729(a)(1)(B) (Count II), 31 U.S.C. § 3729(a)(1)(G) (Count III), 31 U.S.C. § 3729(a)(1)(C) (Count IV), and 31 U.S.C. § 3730(h) (Count V)).) The alleged facts and asserted causes of action are summarized as follows.

1. Allegations Of Fact

a. Defendant Wu Misrepresented His Personal Story

The first type of misconduct Relator alleges in his amended complaint is that Defendant Wu " aggrandize[d] and embellish[ed] his experiences and background in China so as to create a persona of the persecuted, victimized intellectual who had to flee China." ( Id. ¶ 26.) To bolster this claim, Relator points to a number of examples of Wu providing inconsistent explanations regarding the reasons for his imprisonment in a forced labor camp and the length of time he spent in that camp. ( Id. ¶ ¶ 30-37 (pointing to at least four different explanations Wu has given for his own imprisonment: (1) he had criticized the Soviet invasion of Hungary, (2) he had skipped school, (3) he had stolen money, and (4) he was wealthy and Catholic).) Relator also claims that Wu has lied about the activities he engaged in after arriving in the United States from China by falsely claiming to have been a visiting geology professor at the University of California, for example, and by exaggerating his connection to the Hoover Institution of Stanford University. ( Id. ¶ ¶ 38-42.)

b. LRF And CIC Engaged In Illicit Lobbying

The amended complaint also catalogues in great detail dozens of examples of circumstances in which Corporate Defendants allegedly engaged in lobbying in contravention of an explicit certification that no grant funding would be spent on such activities. ( Id. ¶ ¶ 50-75.)[3] For example, Corporate Defendants allegedly lobbied a number of congressmen with the intent that they would support an increase in the budgets of LRF and CIC. ( Id. ¶ ¶ 52-54, 56, 58, 63.) The amended complaint also alleges that Defendants " hosted conferences and/or receptions [for] members of Congress" ( id. ¶ 66), wrote letters to and met with members of Congress, advocating for certain bills and policy positions ( id. ¶ ¶ 59, 61, 65, 67-70), and even contributed

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financially to at least one election campaign ( id. ¶ 64).

Notably, in addition to providing numerous examples of Corporate Defendants' allegedly illegal lobbying efforts, the amended complaint also alleges that the government specifically warned Defendants about their improper lobbying efforts on at least two occasions. In 2004, government officials overseeing the DOS/NED grant process purportedly warned Defendants not to lobby with federal funds. ( Id. ¶ 71.) Then in 2006, government officials went even further, sending an email " express[ing] . . . disappointment with the fact that a significant portion of LRF's work was influencing the U.S. Government and inform[ing] Defendant Wu that LRF need[ed] to shift its efforts to LRF's 'goal' of ending gross human rights violations." ( Id. ¶ 49.)

c. Defendants Made Improper Payments To Third Parties In Violation of Their Grant Obligations

Relator also alleges that LRF and CIC--through Defendant Wu--made numerous fraudulent payments to third parties using federal grant money. Much like the list of alleged lobbying violations, Relator gives extensive examples of these supposedly improper payments--e.g., payments to friends of Wu for work that was never performed, payments to other non-profit corporations, payments to contractors providing personal services to Wu rather than services to Corporate Defendants, and payments to Wu himself for personal expenses. ( Id. ¶ ¶ 76-82, 86.)

The amended complaint contains only two instances where Corporate Defendants are alleged to have made statements to the government regarding payments to third parties: at one point, Relator alleges that LRF and CIC " submit[ted] falsified documentation" to the government regarding use of grant funding that was, in fact, used for personal expenses ( id. ¶ 86), and at another point, Relator alleges that Corporate Defendants falsely reported that no government funds were being spent on an ongoing lawsuit ( id. ¶ 96). No details are provided about the form or nature of these submissions to the government.

d. Defendant Wu Made Fraudulent Claims For Reimbursement And Improperly Retained Fees

Relator's allegations regarding Defendant Wu's false or fraudulent receipt of funds for his own personal use appear to come in two varieties. First, Relator alleges that Defendant Wu " often travelled for personal reasons but had [the State Department] pay for that travel." ( Id. ¶ 88.) According to the amended complaint, in order to accomplish this, " Wu, with the assistance of his wife, created false timesheets, travel authorizations, receipts for hotels and other expenses," and that these false documents formed the basis of the reimbursement. ( Id.) Defendants had apparently certified at some unspecified prior time that timesheets submitted for reimbursement would be accurate. ( Id. ¶ 89.)

Second, in addition to claiming fraudulent reimbursements for personal travel expenses, Relator claims that Wu failed to turn over additional speaking and travel fees to Corporate Defendants. ( Id. ¶ ¶ 87, 94.) By keeping this money as well as the reimbursement from the government, Wu allegedly obtained " double recovery." ( Id.) Although Relator does not say so explicitly, the amended complaint suggests that such double recovery is improper and that Wu had an obligation to disclose these speaking and travel fees to the government. The amended complaint claims that Wu did not disclose this double recovery to the government. ( Id.)

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e. Defendants Made False Representations In Grant Applications

The broad contention that Defendants made false representations in grant applications is repeated at various times throughout the amended complaint. Relator begins by alleging that LRF has been receiving grant funding from the State Department since at least 1992, and that CIC has been receiving grant funding from that same source since at least 2002. ( Id. ¶ ¶ 15, 17.) Relator also states that CIC's funding is renewed annually. ( Id. ¶ 17.) Regarding the alleged misrepresentations in those applications, the amended complaint mostly contains very general contentions. ( See, e.g., id. ¶ 2 (" Corporate Defendants, with the assistance of Defendant Wu, knowingly submitted, caused to be submitted and/or facilitated the submission of false and fraudulent documents . . . in order to secure payments which were used by Defendants for prohibited and unauthorized uses." ).)

The complaint provides two examples of allegedly false statements in Defendants' grant applications. First, according to Relator, the grant applications falsely included the exaggerations about Defendant Wu's life story described above. ( Id. ¶ ¶ 29, 41-42.) Second, the complaint alleges that Defendants' grant applications misrepresented who was on their board of directors. ( Id. ¶ 109-11.) For example, Defendants allegedly listed a Professor Yu Ying-shih as a " Director," when in fact he had merely agreed to advise the board. ( Id. ¶ 109.)

f. Defendants Unlawfully Terminated Relator Because He Raised Concerns About Their Unlawful Conduct

The final category of factual allegations in the amended complaint concerns Relator's contention that he was terminated in retaliation for engaging in protected activity under the FCA. ( See id. ¶ ¶ 181-186.) Relator recounts several conversations in which he allegedly expressed concern about Defendants' misuse of funds and " the billing of the DOS/NED Program for monies that Corporate Defendants were not entitled to receive[.]" ( Id. ¶ 113.)

First, Relator alleges that he approached Wu in 2005 to " sp[eak] with him about the absence of a proper system to account for Corporate Defendant[s'] financial and cash management." ( Id.) According to the amended complaint, Wu responded by telling Relator to " mind [his] own business," and then offered to reimburse Relator for the cost of his personal laptop using company funds. ( Id. (alteration in original).) Relator alleges that he met with Wu again in February of 2006 to discuss Wu's misuse of funds for personal expenses ( id. ¶ 115), and that he also discussed with Wu the misuse of funds for a private lawsuit in April of 2007 ( id. ¶ 116). Relator next alleges that he had a conversation with Wu's wife, Chinglee Chen (Corporate Defendants' accountant) in January of 2008, in which Relator told Chen that she should come to the office to work instead of staying home. ( Id. ¶ 117.)

Relator also contends that, in March of 2008, he spoke with a member of the board of both Corporate Defendants, Tienchi Martin, to discuss " possible actions, internal and external, that could be taken to correct Defendant Wu's improper, unethical, and illegal conduct with respect to the inappropriate use of funds" for the aforementioned private lawsuit. ( Id. ¶ 118.) According to Relator, Martin shared the concerns with other board members, and Wu found out about these conversations. ( Id. ¶ ¶ 118-19.) Three months later, Wu terminated Relator's employment, allegedly noting that Relator " kn[ew] too much about what [Wu is] doing" and issuing threats and bribes to prevent Relator from revealing the alleged fraud. ( Id. ¶ 120.)

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According to Relator, since his termination, Wu and other employees of the Corporate Defendants have continued to retaliate against him through slander and intimidation. ( See id. ¶ ¶ 121-125.)

2. Legal Actions (Counts)

Without specifically linking any of the types of conduct or examples that Relator details to any particular legal cause of action, Relator's amended complaint maintains generally that all of the actions of Defendants described above constitute one or more violations of the FCA. Citing different provisions of that statute, Relator sets forth five CA-related counts. Count I is brought under 31 U.S.C. § 3729(a)(1)(A), and maintains that " Defendant[s] knowingly presented or caused to be presented, false or fraudulent claims to the United States Government for payment or approval[.]" ( Id. ¶ 127.) Count II is brought under 31 U.S.C. § 3729(a)(1)(B), and maintains that " Defendants knowingly made, used, or caused to be made or used false records and statements, to get the false or fraudulent claims paid or approved by the Government[.]" ( Id. ¶ 140.) Count III is brought under 31 U.S.C. § 3729(a)(1)(G), and maintains that " Defendants knowingly made, used, or caused to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government and/or knowingly concealed or knowingly and improperly avoided or decreased an obligation to pay or transmit money or property to the Government[.]" ( Id. ¶ 164.) Count IV is brought under 31 U.S.C. § 3729(a)(1)(C), and maintains that " Defendants conspired to defraud the Government[.]" ( Id. ¶ 179.) Finally, Count V is brought under 31 U.S.C. § 3730(h), and maintains that " Defendant[s] terminated Relator because he had objected to Defendants fraudulent conduct[.]" ( Id. ¶ 184.)

Notably, although each of the counts specifically states that certain paragraphs of the prior recitation of facts are " re-allege[d] and incorporat[ed] by reference" ( id. ¶ ¶ 126, 139, 152, 166), the same comprehensive set of paragraph citations-- all of the facts previously alleged in the complaint--are listed for each of the complaint's first four counts. This means that none of the fraud counts in the amended complaint specifies which particular set of facts Relator believes support the count. Moreover, the first four counts themselves contain no meaningful differentiation, since the same ten paragraphs of broad boilerplate text are recited as the substance of each count, including such generalized statements as " LRF and CIC sought grants and funds from [the] United States and in order to receive the grants and funds made representations that were not true and made these misrepresentations intentionally" ( id. ¶ ¶ 128, 141, 153, 167), and " [t]he Defendants not only were awarded grant funds when they should not have ...

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