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United States ex rel. Keaveney v. SRA International Inc.

United States District Court, District of Columbia

November 29, 2016

UNITED STATES OF AMERICA, ex rel. KEAVENEY, et al. Plaintiffs,
v.
SRA INTERNATIONAL, INC., et al. Defendants.

          MEMORANDUM OPINION

          Emmet G. Sullivan Judge.

         Qui Tam Relators Kevin Keaveney and Margot Brennan (collectively “Relators”) allege violations of the False Claims Act (“FCA”), 31 U.S.C. § 3729-3733, against Defendants SRA International, Systems Research and Applications Corporation (collectively “SRA”) and Triton Services (collectively “Defendants”). Am. Compl., ECF No. 32 at 71-79. Relators allege that, to secure a Department of Defense (“DOD”) contract, Defendants made numerous false statements to the government. Id. Defendants SRA and Triton move to dismiss Relators' Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) and for failure to plead with particularity as required under Federal Rule of Civil Procedure 9(b). SRA Mot. Dismiss, ECF No. 35; Triton Mot. Dismiss, ECF No. 38. Upon review of Defendants' motions, the responses and replies thereto, and for the reasons discussed below, Defendants' Motions to Dismiss are GRANTED in part and DENIED in part.

         I. BACKGROUND

         A. Procedural History

         On June 7, 2013, Relators filed their Complaint, Compl., ECF No. 1, and on February 23, 2015, the United States filed a Notice of Election to Decline Intervention. ECF No. 14. Defendants were served with the Amended Complaint on August 19, 2015, and on October 16, 2015, Defendants filed the two motions to dismiss pursuant to Rules 12(b)(6) and 9(b) that are now before this Court. SRA Mot. Dismiss, ECF No. 35; Triton Mot. Dismiss, ECF No. 38.

         In the Amended Complaint, Relators allege that Defendants engaged in a wide array of conduct that ultimately led to the submission of false claims to the government, including that Defendants: (1) made misrepresentations and concealed key information from their proposals to fraudulently induce the government to enter into the contract (Count I); (2) charged excessive pass-through fees for subcontractor labor (Count II); (3) made misrepresentations in monthly status reports and other submissions to the government (Counts III and IV); (4) inflated invoices and charged the government for services that were never rendered (Count V); and (5) implemented a kickback scheme wherein Defendants shared the proceeds of their allegedly fraudulent conduct amongst themselves (Count VI). Am. Compl., ECF No. 32 ¶¶ 121-150.

         B. Relationship Between the Parties

         Relator Kevin Keaveney is the President of K2 Global Solutions, Inc. (“K2GS”), a defense contracting company that supplies a variety of services to federal entities, including strategic planning, risk analysis, predictive modeling, defense readiness systems and data analysis. Id. ¶ 4. Mr. Keaveney has extensive experience in the national security sector and has developed a range of products and strategic management systems that have been widely adopted by the United States military. Id. ¶¶ 12-16. These products include, inter alia, the Army Reserve Expeditionary Force (“AREF”), a doctrinal and strategic management system used by the Army Reserve, and an automated version of AREF known as the Army Reserve Pool Based Sourcing (“ARPBS”). Id. ¶¶ 12-14. Relator Margot Brennan is an officer of K2GS. Id. ¶ 5.

         Defendant Systems Research and Applications Corporation is a wholly-owned subsidiary of Defendant SRA International, Inc. and serves as SRA's primary contract vehicle with the U.S. government. Id. ¶ 6. In 2007, SRA entered into a joint venture named “Project Galaxy” with Defendant Triton Services, Inc. (“Triton”), a subcontractor. Id. ¶ 8. To perform the contract, Triton engaged various second-tier subcontractors, including K2GS, Tiber Creek Consulting, Inc. (“Tiber Creek”), Concurrent Technologies Corporation (“CTC”), and an individual named Jim Song.

         From June to October 2005, Mr. Keaveney worked as a contractor for the DOD reporting to Joseph Angello, the Director of the Office of the Undersecretary of Defense, Personnel and Readiness, Readiness, Programming and Assessments. Id. ¶ 15. In February 2007, after Mr. Keaveney's contract expired, Mr. Angello requested Mr. Keaveney's assistance to continue the ARPBS and other military projects Mr. Keaveney had developed. Because Mr. Angello required Mr. Keaveney to procure his own contract vehicle, Mr. Keaveney approached Triton, a pre-approved subcontractor for various Department of Defense prime contractors. Id. ¶ 18. Triton's Chief Executive Officer, Larry Stack, informed Mr. Keaveney that Triton would use one of its existing prime contracting relationships, ultimately its relationship with SRA, to obtain the requisite contract vehicle. Id. ¶ 18.

         C. Defendants' Contracts with the U.S. Department of Defense

         In 2003, the Department of Defense awarded Galaxy Scientific Corporation (“Galaxy”), a future subsidiary of SRA, a contract to provide analytic services and software. Id. ¶ 19. Galaxy teamed with Triton in early 2007 to become the prime contractor for an additional contract anticipated to be let in May 2007. Id. In March 2007, Mr. Angello met with Triton, Mr. Keaveney and another DOD representative to discuss the anticipated contract. Id. ¶ 20. At this meeting, the participants discussed Mr. Keaveney's future role, the structure of the prospective contract, limits on Triton's pass-through rates, and the roles of second-tier subcontractors. Id.

         On June 13, 2007, Triton and SRA submitted a proposal, called a Task Execution Plan (“TEP” or “task proposal”), to the DOD outlining their anticipated work on the contract. Id. ¶ 23. The TEP highlighted Mr. Keaveney's role as “Technical Team Leader” and detailed the six discrete tasks to be performed. Id. Defendants' proposal was ultimately successful and SRA and Triton secured the task order. Id. ¶ 24. On May 6, 2008, Defendants submitted a “follow-on” TEP to the DOD to request additional funds for the second half of the contract's base year and the following two option years. Id. ¶ 35. The 2008 TEP was largely similar to the 2007 TEP. Id. To keep the government apprised of their progress under the contract, Defendants submitted Monthly Status Reports (“MSRs”). Id. ¶ 59. In late 2008, Defendants removed Mr. Keaveney, K2GS and Tiber Creek from the contract and replaced them with Triton employees. Id. ¶¶ 39-42; 138.

         II. STANDARD OF REVIEW

         A. Federal Rule of Civil Procedure 12(b)(6)

         A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). The pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). The pleading standard does not require detailed factual allegations, but should be “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. at 678. Naked assertions without factual enhancements or formulaic recitations of the elements of a cause of action will not suffice. Id. Rather, to survive a motion to dismiss, a complaint “must contain sufficient factual matter . . . to ‘state a claim to relief that is plausible on its face.'” Id. Plausibility entails that the plaintiff has pled factual content that is not merely consistent with liability but allows the Court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id.

         In considering a 12(b)(6) motion, the Court should liberally view the complaint in the plaintiff's favor, accepting all factual allegations as true, and giving the plaintiff the benefit of all inferences that can be drawn therefrom. Redding v. Edwards, 569 F.Supp.2d 129, 131 (D.D.C. 2008) (citing Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994)).

         A. Federal Rule of Civil Procedure 9(b)

         Rule 9(b) requires that when alleging fraud, “the circumstances constituting fraud or mistake... be stated with particularity.” Fed.R.Civ.P. 9(b). Complaints brought under the False Claims Act are subject to Rule 9(b)'s heightened pleading requirements. See U.S. ex rel. Totten v. Bombardier, 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).”). That said, a plaintiff “need not allege the existence of a request for payment with particularity...Rule 9(b) requires particularity only with respect to the circumstances constituting fraud[.]” U.S. ex rel. Folliard v. CDW Tech. Servs., Inc., 722 F.Supp.2d 20, 27 (D.D.C. 2010) (emphasis in original).

         To meet this threshold, plaintiffs must “state the time, place and content of the false misrepresentations, the fact misrepresented and what was retained or given up as a consequence of the fraud.” U.S. ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004) (internal citations omitted). Pleaders must also identify the individuals allegedly involved in the fraud. Id. The particularity requirement discourages nuisance suits, safeguards defendants from frivolous accusations, and guarantees that defendants receive sufficient information to allow them to prepare a response. U.S. ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981).

         Courts “must not rigidly apply the requirements of Rule 9(b), but rather should analyze the Rule on a case by case basis.” U.S. ex rel. Head v. Kane Co., 798 F.Supp.2d 186, 193 (D.D.C. 2011). Courts should “hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts.” U.S. ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F.Supp.2d 28, 34 (D.D.C. 2003). A complaint “can pass muster under the Rule 12(b)(6) threshold yet fail to comply with the strictures of Rule 9(b).” Anderson v. USAA Cas. Ins. Co., 221 F.R.D. 250, 252 n.3 (D.D.C. 2004). Thus Courts consider first whether the relator has pled the relevant claim, and then turn to whether the relator has “pled the circumstances of the fraud with particularity.” Folliard, 722 F.Supp.2d at 28.

         B. False Claims Act

         The FCA, 31 U.S.C. §§ 3729-3733, imposes a civil penalty and treble damages on any individual who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government...a false or fraudulent claim for payment or approval” or “a false record or statement to get a false or fraudulent claim paid or approved by the Government.” 31 U.S.C. § 3729(a).[1] The FCA defines “claims” to include “any request or demand, whether under a contract or otherwise, for money or property[.]” 31 U.S.C. § 3729(c). Under the statute, a private party, commonly called a “relator, ” is empowered to bring a qui tam action on behalf of the government. The Government may elect to intervene in qui tam actions, but where it declines to do so (as in this case), the Relators may proceed and, if successful, collect a large portion of any recovery. Martin v. Arc of Dist. of Columbia, 541 F.Supp.2d 77, 81 (D.D.C. 2008) (citing U.S. ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1254 (D.C. Cir. 2004)). False Claims may take a variety of forms, including: (1) presentment claims; (2) fraudulent inducement claims; and (3) false certification claims. Head, 798 F.Supp.2d at 195. A subcontractor may be liable under the statute “even when it did not itself present any false claims to the government if it engaged in a fraudulent scheme that induced the government to pay claims submitted by the contractor.” Toyobo, 811 F.Supp.2d at 45.

         III. ANALYSIS

         Defendants make several arguments in support of their Motions to Dismiss: (1) Relators' Amended Complaint is barred by the statute of limitations; (2) Relators' Amended Complaint failed to comply with FCA pre-filing requirements; (3) Relators fail to state a claim for fraudulent inducement; (4) Relators fail to state a presentment claim for various phantom expenses, pass-through fees and purported kickback scheme; and (5) Relators fail to state a material false statement claim. Each argument will be addressed in turn.

         A. Relators claims in the Amended Complaint relate back to original complaint and thus are not barred by the statute of limitations.

         Defendants first argue that the claims alleged in Relators' Amended Complaint are barred by the FCA's six year statute of limitations because the Relators' Amended Complaint “advances several new alleged false claims or false statements, i.e. theories of liability, that are not encompassed within the original Complaint.” SRA Mot. Dismiss, ECF No. 35 at 8(citing to a purported eleven alleged new claims); Triton Mot. Dismiss, ECF No. 38 at 7-8. Relators maintain that the six Counts in the Amended Complaint “relate back to the original complaint, since the legal claims and the basic factual allegations are substantively identical to the original complaint . . . .” Relators' Opp'n, ECF No. 42 at 41.

         The FCA precludes civil actions filed “more than 6 years after the date on which the violation . . . is committed.” 31 U.S.C. § 3731(b)(1). The alleged violations in this case occurred between June 2007 and November 2008, while the Amended Complaint was filed more than six years later on August 19, 2015. See Am. Compl., ECF No. 32. However, under Rule 15(c)(1)(B), “an amendment to a pleading relates back to the date of the original pleading when . . . the amendment asserts a claim or defense that arose out of the conduct, transaction or occurrence set out - or attempted to be set out - in the original pleading.” Fed.R.Civ.P. 15(c)(1)(B). The Court of Appeals for the District of Columbia Circuit (“Court of Appeals”) has held that, in making the determination of whether an amendment relates back to the date of the original complaint, courts should consider whether the allegations in the amended complaint relate to the same contract at issue in the original complaint. U.S. ex rel. Miller v. Bill Harbert Int'l Constr., Inc., 608 F.3d 871, 882, 908 (D.C. Cir. 2010) (per curiam) (holding that amended claims related to two distinct contracts were not “fairly encompass[ed]” by the claims in original complaint, which were based on a third contract, were “unique and no two involved the same ‘conduct, transaction[], or occurrence.'”); see also J.B. Helmer, False Claims Act: Whistleblower Litigation at 618 (6th ed. 2012) (noting that a relator must often rush to file the initial complaint and that amendment provides the “opportunity to craft the allegations of the complaint more carefully” and should be construed to relate back under Rule 15 as long as the amended allegations “arise out of the conduct or occurrences set forth or attempted to be set forth in the initial complaint.”).

         A review of the Amended Complaint confirms that the same six counts pled in the Amended Complaint are also pled in the original complaint. See Comparison of Amended Complaint against Original Complaint, ECF No. 35-3. Moreover, the changes reflect Relators' effort to enhance the level of factual detail. See id. Relying on Miller, Defendants argue that the mere fact Relators' complaints concern the same underlying contract is insufficient to invoke the relation back doctrine. SRA Mot. Dismiss, ECF No. 35 at 9. However, Defendants' argument is not persuasive. In Miller, the Court of Appeals considered whether claims based on two separate contracts properly related back to the claims initially pled that arose from a third contract. 608 F.3d at 882. The Court of Appeals noted that the three contracts at issue were “similar only in that each was funded” by the same source and concerned work related to sewer systems, ultimately concluding that the “differences among [the contracts] are significant.” Id. at 881. By contrast, both the amended and original complaints here clearly address the same underlying contract and arise out of the same conduct. See SRA Mot. Dismiss, ECF No. 35 at 9 (conceding that “the connection to the subject task order” is a “commonality” between Relators' complaints). Further, Defendants' argument that the Amended Complaint advances several new “theoretical” bases of liability is inaccurate in light of the fact that the six counts provided in the original complaint remain the same. See id.; Am. Compl., ¶ 121-150. The Court finds that Relators' Amended Complaint “expand[s] upon or clarif[ies] facts previously alleged” and thus properly relates back to the original complaint. United States v. Hicks, 283 F.3d 380, 388 (D.C. Cir. 2002)(citing 6A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1504, at 84 (2d ed. 1990)). Because the Amended Complaint relates back to the original complaint, it was timely filed under Rule 15.

         B. Relators Amended Complaint complies with FCA pre-filing procedures.

         Defendants also argue that the Amended Complaint should be dismissed for failure to comply with 31 U.S.C. § 3730(b)(2), which requires all FCA complaints to be filed under seal. SRA Mot. Dismiss, ECF No. 35 at 9; Triton Mot. Dismiss, ECF No. 38 at 7-8. Relators respond that the statutory requirement to file the Complaint under seal applies only ...


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