The opinion of the court was delivered by: M. James LorenzUnited States District Court Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT AND ) GRANTING MOTION TO STRIKE ) SECTION VII FROM SECOND ) AMENDED COMPLAINT [doc. # 27]
On May 31, 2011, the United States declined to intervene in this qui tam action on its own behalf. (doc. #8.) Accordingly, on June 8, 2011, Relator Robert Pecanic, Jr.'s First Amended Complaint was ordered unsealed. (doc. # 9.) On January 17, 2012, Relator filed his Second Amended Complaint ("SAC") against Sumitomo Electric Interconnect Products, Inc.; Sumitomo Electric Fine Polymer, Inc.; Chris Foeger; Nobuyoshi Fujinami; and Jon Mills ("Defendants"). (doc. #22.) Relator seeks damages on behalf of the United States for Defendants' alleged violations of the False Claims Act ("FCA"), §§3729, et seq. (SAC ¶ 2.) Defendants move to dismiss the SAC pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) on the grounds that Relator does not plead fraud with the required particularity and fails to state a claim upon which relief can be granted. (doc. #27.) In the alternative, Defendants also move to strike a portion of the SAC. (Id.) The motion has been fully briefed, and the Court finds this motion suitable for determination on the papers submitted and without oral argument. See Civ. L.R. 7.1(d.1). (doc. #48.) For the following reasons, the Court GRANTS IN PART and DENIES IN PART Defendants' motion to dismiss the SAC and to strike Section VII from the
Relator Robert Pecanic is a former sales representative of Defendant Sumitomo Electric Interconnect Products, Inc. ("SEIP"). (SAC ¶ 3.) SEIP is a California corporation located in San Marcos, California. (Id. ¶ 4). SEIP is also a wholly-owned subsidiary of Defendant Sumitomo Electric Fine Polymer, Inc. ("SFP"), which is based in Osaka, Japan. (Id. ¶¶ 4-5.) The remaining Defendants hold or held various senior management positions within these two companies. Defendant Chris Foeger is the current national sales manager and former president and CEO of SEIP, whereas Defendant Nobuyoshi Fujinami is the current president and CEO of SEIP. (Id. ¶¶ 8, 9.) Mr. Fujinami also previously worked for SFP prior to taking over at SEIP in February 2010. (Id.) Lastly, Defendant Jon Mills is a former employee of SEIP who was the product manager for the division that manufactured the shrinkable wire tubing products underlying this case. (Id. ¶ 7.)
Relator alleges that these Defendants "knowingly made, and caused to be made, false claims, certifications and statements in order to obtain payments under government contracts for military specification electrical products."(SAC ¶ 2.) Specifically, Relator asserts that false claims and certifications were made to the United States regarding two groups of products sold by SEIP. The first group of products includes all variations of the "Sealed Crimp Slice Kit" ("Crimp Splice"), which is used to "create an environmentally sealed 'splice' connecting the ends of two electric wires." (Id. ¶¶ 24, 26.) "A crimp splice consists of a short metal 'crimp barrel' inside a shrinkable plastic 'insulation sleeve' with a meltable 'sealing ring' at either end."
. ¶ 26.) The second group of products encompasses all variations of SEIP and SFP's "Solder Termination Sleeve" ("STS") products. (Id. ¶ 29.) An STS is also used to create an "environmentally sealed connection" between two wires by connecting a shielded wire with a "second 'lead' wire that will be connected to the ground." (Id. ¶ 30.)
These two families of tubing products were sold by SEIP and SFP to the United States and government contractors for use in military aircraft, weapon systems, and other applications. (SAC ¶ 37.) Relator contends that the Crimp Splice and STS products contained a "variety of defects that could lead to catastrophic failure of systems in which they are installed." (Id. ¶ 36.) These alleged defects include, but are not limited to, using improper tubing and barrel materials, inserting unapproved adhesives and components, and making "other material deviations" from the required product specifications. (Id.)
Before each of these products could be sold to the United States or government contractors, they were required to be tested by Naval Air Systems Command ("NAVAIR") and be qualified for inclusion on NAVAIR's "Qualified Products Lists" ("QPLs"). (Id. ¶¶ 50- 51, 54.) This qualification process included providing samples for testing, meeting set standards and military specifications, and certifying that the product conforms to the required specifications based on supplemental testing. (Id. ¶¶ 23, 54, 56.) After approval, the manufacturer also must periodically certify that "the listed product is still available from the listed [manufacturing] plant, can be produced under the same conditions as originally qualified, and meets the requirements of the current issue of the specification." (Id. ¶ 67.) SEIP and SFP completed this process and obtained approval for the Crimp Splice and STS products to be included on the QPLs. ( Id. ¶
However, Relator alleges that SEIP and SFP's product certifications were false and concealed the aforementioned defects in the Crimp Splice and STS products. (SAC ¶ 22.) These asserted discrepancies in the QPL applications and the certification process include: falsely identifying the San Marcos facility as the manufacturing plant when the products were being produced in Mexico from Chinese parts, (Id. ¶¶ 72, 77-78.), concealing the true origin of the products by using removable "Made in Mexico" stickers, (Id. ¶¶ 74-75.), skewing the testing process by selecting components that appeared most likely to pass inspection, (Id. ¶ 92.), and improperly color coding the Crimp Splice components (Id. ¶¶ 153, 155.) Relator repeatedly brought his concerns about these discrepancies to the attention of management over the course of several years. (SAC ¶¶ 114, 156, 223, 247, 266.) Yet, management allegedly ignored Mr. Pecanic's complaints, did not address the underlying issues, and threatened to terminate him. (Id. ¶¶ 199, 217, 248, 284.) Ultimately, Relator refused to continue selling the allegedly defective products and was eventually terminated. (Id. ¶¶ 288-89.)
Out of these allegations, Mr. Pecanic asserts the following separate counts under the FCA: violations of 31 U.S.C. § 3729(a)(1)(A), violations of 31 U.S.C. § 3729(a)(1)(B), violations of 31 U.S.C. § 3729(a)(1)(G), violations of 31 U.S.C. § 3729(a)(1)(c), violations of 31 U.S.C. § 3729(a), and violations of 31 U.S.C. § 3730(h). Mr. Pecanic's Count VI is not a separate cause of action because 31 U.S.C. § 3730(c)(5) contains an alternative remedy provision that is only appropriate when the U.S. Government has recovered damages.
Defendants move to dismiss all of Relator's counts under Rule 9(b) of the Federal Rules of Civil Procedure because the SAC does not plead fraud with the requisite particularity. (Defs' Mot. Dismiss 2-7.) Defendants additionally move to dismiss with prejudice Counts III, IV, V, VI, and VII under Rule 12(b)(6) of the Federal Rules of Civil Procedure on the basis that these counts fail to state claims for which relief may be granted. (Id. 7-15.) Defendants further move to strike paragraphs 182-84 of the SAC because those allegations are irrelevant and highly prejudicial to Defendants. (Id. 15.) In response, Relator opposes and also requests judicial notice of several documents regarding product specifications underlying his claims. (doc. #39.) Lastly, in reply, Defendants request judicial notice of additional similar records. (doc. #41.) The Court GRANTS Relator and Defendants' requests for judicial notice.*fn1
The False Claims Act (FCA) imposes civil liability upon "[a]ny person" 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." 31 U.S.C. § 3729(a). Persons who do so are liable for civil penalties of up to $10,000 per claim and treble damages. Id. An FCA action may be commenced in one of two ways. Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U.S. 409, 412 (2005). First, the Government may bring a civil action against the alleged false claimant. 31 U.S. C. § 3730(a). Second, a private person, known as a "relator," may bring a qui tam civil action on behalf of the United States Government against the alleged false claimant. Id. § 3730(b). Additionally, the FCA provides a "cause of action for an individual retaliated against by his employer for assisting an FCA investigation or proceeding" as a supplemental enforcement mechanism. Graham, 545 U.S. at 412 (citing 31 U.S.C. § 3730(h)).
Once a qui tam action is initiated, the Government receives a copy of the complaint and is given sixty days to intervene in the action. 31 U.S.C. § 3730(b)(2), (4). If the Government declines to intervene, as was done in this case, the relator has the exclusive right to conduct the action on the Government's behalf. Id. § 3730(b)(2). If successful, the relator is entitled to receive twenty-five to thirty percent of the action or settlement proceeds in addition to attorney's fees and costs. Id. § 3730(d)(1).
Under this framework, an FCA claim "can be based on the allegation that a party has falsely certified compliance with a statute or regulation as a condition to government payment." United States v. Corinthian Colls., 655 F.3d 984, 992 (9th Cir. 2011) (citing United States ex rel. Hendow v. Univer. of Phoenix, 461 F.3d 1166, 1168 (9th Cir. 2006)). Yet when invoking this false certification basis, a claim must still be first pleaded with the required particularity for fraud. Id. at 991-92. Additionally, in ...