UNITED STATES OF AMERICA AND STATE OF CALIFORNIA EX REL: RUSTY FRYBERGER, et al., Plaintiffs,
KIEWIT PACIFIC COMPANY, et al., Defendants.
ORDER GRANTING MOTION TO DISMISS AND DENYING MOTION TO STAY AS MOOT RE: ECF No. 54
JON S. TIGAR, District Juge.
In this federal and state false claims case, Defendants move to dismiss or, in the alternative, to stay in favor of a state court action filed by Defendant Kiewit Pacific Co. ECF No. 54. The Court will grant the motion to dismiss and deny the motion to stay as moot.
Relators Rusty Fryberger, Steve Ruel, Scott Thompson, Sr., SSL, LLC, and Surecast, LLC filed this qui tam action under seal pursuant to the federal False Claims Act, 31 U.S.C. §§ 3729-3731 and the California False Claims Act, Cal. Gov. Code §§ 12650-12656, on behalf of the United States Government and the State of California. The operative First Amended Complaint ("FAC") asserts that Defendants Kiewit Pacific Co., Kiewit Infrastructure Group, Ron Rattai, John Chamberlain, and Bruce Hesse violated 31 U.S.C. §§ 3729(a)(1)(A)-(C) and (G) and California Government Code §§ 12651(a)(2) and (7).
A. Factual Allegations
The Court accepts the following allegations as true for the purpose of resolving this Rule 12(b)(6) motion. Cahill v. Liberty Mutual Ins. Co. , 80 F.3d 336, 337-38 (9th Cir. 1996).
The First Amended Complaint alleges that Defendants presented false claims for payment to the federal and California governments "by falsely certifying compliance with the specifications for installation of Mechanically Stabilized Earth ("MSE") Walls on the Sepulveda Pass Widening Project (contract C0882) in Los Angeles, California, on interstate 405. FAC ¶ 1. The project was funded by the United States through an April 2009 grant in the amount of $189, 900, 000 issued pursuant to the American Reinvestment and Recovery Act, Pub. L. 111-5 (Feb. 17, 2009), and by the State of California through the Los Angeles County Metropolitan Transportation Authority ("LACMTA"). Id.
Defendant Kiewit Pacific Co. is the "Prime Design Build Contractor" on the project; Kiewit Infrastructure Group is a related corporate entity. Id . ¶ 2. The individual Defendants are employees and managers of Kiewit "who had actual knowledge" of the allegedly false claims. Id . ¶ 3. The project was executed through a Design Build Contract. Relators allege that the contract set out certain requirements that led Kiewit to make false certifications for payment. Id . ¶ 4. In particular, Defendants allegedly falsely certified "compliance with SSL, LLC's proprietary MSE retaining system, including, but not limited to certifying that it had been installed in compliance with SSL, LLC's approved working drawings, " id. ¶ 6, and "that they had furnished and installed materials and had provided construction services required by SSL, LLC's MSE system when they had not done so, " id. ¶ 7.
MSE wall structures "generally consist of the precast wall panel which is tied back and then backfilled with earth." Id . ¶ 27. Relators' company, SSL, LLC, contracted with Kiewit to furnish concrete MSE wall panels, soil reinforcement, pins, bearing pads, filter cloth, and other materials for forty-four MSE walls. Id . ¶ 17. SSL subcontracted Relator Fryberger's firm Surecast West to fabricate and deliver precast panels to the job site. Id . ¶ 23. SSL's proprietary MSE system was pre-qualified under the Caltrans Standard Specifications, dated May 2006, section 10-1.50. Id . ¶ 18. SSL was not contracted to install the panels; instead, SSL provided only the materials for the panels and "technical field assistance." Id . ¶ 19. SSL also agreed to furnish "working shop drawings in accordance with Caltrans' May 2006 Standard Specifications." Id . ¶ 17. Kiewit was responsible for "developing, providing, and completing all Design Documents for the Project as described in the Contract Documents." Id . ¶ 21.
MSE wall systems like SSL's depend on drainage to carry water from the backfill through "underdrains" placed at the low point along the width of the wall and backfill. Id . ¶ 29. Specification 68.-1 of the standard specifications provides for underdrains that are four-inch perforated pipes. Id . The underdrains carry the water away through outlet drains that discharge at the precast concrete face of the wall installation. Id . ¶ 30. The most frequent cause of failure of MSE and other retaining wall systems is improper installation of drains; the walls fail due to hydrostatic pressure on the face of the MSE wall and settlement of the structural fill and wall foundation. Id . ¶ 31. The standard design specification for the MSE installation included detailed parameters for the installation of the underdrains. Id . ¶¶ 32-33. The First Amended Complaint alleges that the specification required a certification of compliance with the underdrain specification pursuant to section 6-1.07. Id . ¶ 34.
Also important to the success of an MSE retaining wall system is the installation of the underdrains in permeable material, which is gravelly and resistant to compaction. Id . ¶ 37. The specifications provide, for example, that compaction of the permeable material "is not required" and that "equipment shall not be operated directly on the permeable material or filter fabric." Id . ¶ 36-37. SSL's contract, design, and working drawings showed the installation of underdrains in permeable material. Id . ¶ 38.
The contract also provided for the development of Quality Assurance and Quality Control ("QA/QC") Plans. The QA/QC Plan requirements obligated Kiewit to maintain "complete and accurate written records that provide objective evidence of QA/QC activities." Id . ¶ 43. They also authorized Kiewit's Design Coordination Manager to release drawings from construction only after the required approvals and signatures were obtained from the owner of the site and certain Kiewit employees. "The drawings could not thereafter be varied from." Id . ¶ 43.
During SSL's design work phase, Kiewit asked Caltrans whether it could eliminate the required underdrains and outlet drains; Caltrans refused. Id . ¶ 48. Nevertheless, Sherman Lee of Kiewit repeatedly asked SSL to leave out underdrains on the working drawings in January and February 2010. Id . ¶ 49. Lee also asked SSL to write on drainage drawings: "see contract plans for details on drainage." Id . SSL complied, but Caltrans rejected certain MSE working drawings because they did not "show and call out" the underdrains, cleanout pipes, or outlet pipes. Id . ¶ 50. After MSE wall 1897 failed, Kiewit "maintained that Caltrans had removed the requirement for permeable materials from the underdrain specifications. Caltrans denied this claim." Id . ¶ 51. Relators allege that Kiewit failed to install the necessary drainage components despite certifying to LACMTA that the components were installed on, inter alia, several QA/QC checklists. Id . ¶¶ 56, 58. For example, a superintendent for Kiewit stopped construction on wall 1672 because it lacked "drainage detail, " but he was overruled and construction proceeded. Id . ¶ 56.
The MSE wall installation proceeded through day and night shifts. During the day, MSE wall panel units would be placed on a concrete leveling pad, stabilized, and surveyed. Due to the need for truck traffic to place the structural backfill, that operation was performed at night. Consequently, "LACMTA needed to rely entirely upon Kiewit's QA/QC program to monitor that phase of the work." Id . ¶ 46. But according to Relators, Kiewit began installing MSE wall panels without an approved QA/QC plan. Id . ¶ 53. Relators allege a number of false claims in addition to the failure to install underdrains. First, Kiewit allegedly installed walls 1665 and 1667 with "sub-optimum soils at the foundation grade" causing differential settlement; those walls were subsequently torn down. Id . ¶ 55. The wire mesh straps on walls 16546 and 1634 were improperly installed; Kiewit subsequently fired a superintendent who brought the improper installation to the attention of Bruce Hesse, Segment 1 manager for Kiewit. Id . ¶ 57. Kiewit also allegedly failed to install inspection wires, which are used to survey the extent of corrosion over time, or cut them to two feet in length to make it appear they were properly installed when, in fact, they were not. Id . ¶ 60. The First Amended Complaint alleges a number of other defects in Kiewit's installation work as well.
In October and November 2011, SSL discovered that panels on wall 1897 were moving, following near-record rainfall near the site of the wall. Id . ¶ 65. Relators visited the site and witnessed panel movement. Subsequently, some panels disconnected from the wall because the reinforcing mesh was improperly installed. Id . ¶ 66. In January 2012, Relators met with Kiewit's fired superintendent, Zachary Strawn, who executed a declaration documenting Kiewit's deviations from specifications and the falsification of QA/QC documents. Id . ¶ 67. Relators disclosed those documents to LACMTA prior to filing this suit. Id . After Relators notified Kiewit of the wall failure, which Relators stated by letter was caused by a number of factors including improper drainage, pooling water, and saturated backfill, Kiewit initiated an investigation. In February 2012, Kiewit terminated SSL's materials contract for default. Id . ¶ 70.
Kiewit billed LACMTA periodically. Id . ¶ 44. Relators allege that Kiewit billed for underdrain installations and permeable material "as part of the pay items for retaining wall and concrete barriers." Id . ¶ 45d. According to Relators:
A pre-condition to payment for the MSE system was Kiewit's furnishing a certificate of compliance' under the Standard Specifications stating that the material meets the criteria of the proprietary system when measured in accordance with all test methods and standards specified in the Standard Specifications, the special provisions, and the approved working drawings. Kiewit thereby falsely certified compliance with the MSE wall working drawings for SSL's system in order to receive payment for the installation of the MSE walls.
Id. In particular, Article 2 of the contract required Kiewit to comply with the specifications in its construction of the project. Id . ¶ 82. Article 16.4 required Kiewit to sign and certify that the work had been performed in accordance with contract documents prior to receiving each progress payment. Id . ¶ 83. And, in addition to falsely certifying the installation of the underdrain components, Relators allege that Kiewit also certified that proper QA/QC measures procedures were in effect despite Kiewit's refusal to heed QA/QC personnel statements indicating quality problems in Kiewit's construction work. Id . 84a-g.
Relators assert that Defendants' conduct violated the federal and California False Claims Acts. Id . ¶ 90, 92. Relators further allege that Kiewit retaliated against SSL, entitling SSL to recover damages caused by wrongful suit against its material bond. Id . ¶ 93. Finally, SSL alleges that Kiewit's termination of SSL's contract constituted defamation because Kiewit falsely represented to Caltrans that SSL's proprietary MSE system was unsuited for installation. Id . ¶ 96. Caltrans withdrew approval of SSL's proprietary system for state highway projects from March 2012 to October 2012, disabling SSL from competing for projects totaling 387, 799 square feet of wall area and $6, 786, 482.50 (based on the average bid price) throughout California. Id . ¶ 97. SSL claims its total damage in this respect was $3, 393, 241.25 because SSL "customarily is successful on over 50% of the projects upon which it competes." Id.
Additionally, SSL alleges that the State of Washington suspended approval of its MSE system, disabling it from competing on project there as well; using the same fifty percent figure, SSL estimates its damages from Washington State to be $719, 372.50.
B. Defendants' Request for Judicial Notice and Supplemental Factual Material
Although a court's review on a motion to dismiss is generally limited to the allegations in the complaint, Lee v. City of Los Angeles , 250 F.3d 668, 688 (9th Cir. 2001), courts may properly take judicial notice of material attached to the complaint, and of matters in the public record. Fed.R.Evid. 201(b). See, e.g., Castillo-Villagra v. INS , 972 F.2d 1017, 1026 (9th Cir. 1992). In addition, the "incorporation by reference" doctrine allows judicial notice of a document attached by a defendant to a motion to dismiss when a "plaintiff's claim depends on the contents of a document" and "the parties do not dispute the authenticity of the document, even though the plaintiff does not explicitly allege the contents of that document in the complaint." Knievel v. ESPN , 393 F.3d 1068, 1076 (9th Cir. 2005). Therefore, a court may take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment; however, courts may not take judicial notice of facts subject to reasonable dispute. Lee , 250 F.3d at 689. A court "shall take judicial notice if requested by a party and supplied with the necessary information." Fed.R.Evid. 201(d).
Defendants submitted several judicially noticeable documents with their motion, including: the First Amended Complaint filed in Kiewit Pacific Co. v. SSL, LLC, Case No. BC496136 (LA Super Ct. May 6, 2013); SSL's cross-complaint in that action, filed July 15, 2013; an order staying Great American Insurance Co. v. Kiewit Pacific Co., No. 12-cv-8106-ABC (C.D. Cal. Feb. 6, 2013); and the complaint in that action, filed September 20, 2012. Defendants' request for judicial notice of those documents is GRANTED. The Court need not take judicial notice of documents already filed in this action, however, and Defendants' request for judicial notice of those documents is DENIED as moot.
Defendants also submitted extensive factual material with their motion through declarations. First, attached to the declaration of Jennifer Totten, Kiewit's Technical Lead on the Sepulveda Pass Widening Project, are excerpts of the Design/Build Contract, dated April 29, 2009. Because the action is premised, in part, on that contract, the Court will take judicial notice of it. Much of the other material submitted by Defendants is not judicially noticeable and may only be considered by the Court if it relates to Defendants' challenge to the Court's subject matter jurisdiction over Relators' claims. In particular, Defendants argue, as discussed below, that the public disclosure bar contained in the federal and California false claims laws is jurisdictional, and therefore requires the Court to consider factual material outside the complaint and judicially noticeable documents to resolve the dispute. See Mot., ECF No. 54-1 p. 9 (citing U.S. ex rel. Mateski v. Raytheon Co., No. 06-cv-3614-ODW, 2013 WL 692798, at *2 (C.D. Cal. Feb. 26, 2013)).
Thus, to determine whether the Court can take notice of the documents in question, the Court must first determine whether the public disclosure bar is jurisdictional. The predecessor statute to the Federal False Claims Act prior to its amendment in 2010 provided: "No court shall have jurisdiction over an action" subject to the public disclosure bar. See Mateski, 2013 WL 692798, at *2 (noting predecessor statute applied because action was filed prior to 2010); Graham Cnty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson , 559 U.S. 280, 286, (2010) (discussing predecessor statute). However, through the 2010 amendments to the FCA, Congress deleted that phrase and replaced it with: "The court shall dismiss an action or claim" subject to the public disclosure bar. 31 U.S.C. § 3730(a)(4)(A), as amended by 124 Stat. 901, Pub. L. 111-148, Title X, § 10104(j)(2), Mar. 23, 2010. The legislative history on the change in language is "opaque" as the amendments were "inserted without floor debate or other discussion, as technical' amendments." Graham Cnty., 559 U.S. at 281.
The change in language raises the question whether the public disclosure bar in its amended form (a) deprives the Court of subject matter jurisdiction or (b) can be raised as a substantive defense. Few courts have interpreted the 2010 change in language.
"To ward off profligate use of the term jurisdiction, '" the Supreme Court has adopted "a readily administrable bright line' for determining whether to classify a statutory limitation as jurisdictional.... We inquire whether Congress has clearly state[d]' that the rule is jurisdictional; absent such a clear statement, we have cautioned, courts should treat the restriction as nonjurisdictional in character.'" Id . (quoting Arbaugh v. Y & H Corp. , 546 U.S. 500, 516 (2006) (citing Gonzalez v. Thaler , 565 U.S. ___, 132 S.Ct. 641, 648-649 (2012)). The Court's "bright line" rule does not require that Congress "incant magic words in order to speak clearly, " but that observation does not change the default: absent a clear congressional statement to the contrary, statutory rules are non-jurisdictional. Id.
Here, there was a "clear statement" from Congress that the rule was jurisdictional, but Congress deleted it. Congress replaced the description of the rule as jurisdictional with language merely requiring dismissal. The Court therefore concludes, as have most of the few courts to consider the same question, that the amended public disclosure bar is not jurisdictional. See Ping Chen ex rel. U.S. v. EMSL Analytical, Inc., No. 10-cv-7504-RA, 2013 WL 4441509, at *8-9 (S.D.N.Y. Aug. 16, 2013) (concluding public disclosure bar is non-jurisdictional); U.S. ex rel. Paulos v. Stryker Corp., No. 11-cv-0041-W-ODS, 2013 WL 2666346, at *3 (W.D. Mo. June 12, 2013) (holding bar is non-jurisdictional); U.S. ex rel. Fox Rx, Inc. v. Omnicare, Inc., No. 11-cv-962-WSD, 2013 WL 2303768, at *8 n. 16 (N.D.Ga. May 17, 2013) (observing bar is non-jurisdictional); United States v. Chattanooga-Hamilton Cnty. Hosp. Auth., No. 10-cv-322, 2013 WL 3912571, at *7 n. 6 (E.D. Tenn. July 29, 2013) (same).
Because the Court concludes the public disclosure bar is non-jurisdictional, the Court cannot consider factual material that is not either contained in the complaint as allegations, attached to the complaint, or otherwise judicially noticeable. However, as the above-cited cases demonstrate, media reports are judicially noticeable documents provided they are not considered by the Court for the truth of their content, but rather for the fact that the reports were made. See, e.g., Heliotrope Gen., Inc. v. Ford Motor Co. , 189 F.3d 971, 981 n. 18 (9th Cir. 1999) (taking judicial notice of media reports submitted by defendants) (citing Fed.R.Evid. 201(d)); Ping Chen, 2013 WL 4441509, at *8-9 (taking judicial notice of "the fact that press coverage, prior lawsuits, or regulatory filings contained certain information, without regard to the truth of their contents") (citing Staehr v. Hartford Fin. Servs. Group, Inc. , 547 F.3d 406, 425 (2d Cir.2008)). Government investigation reports relating to the false claims at issue are also judicially noticeable, as the authenticity of such public documents is beyond dispute. The Court will therefore consider the Caltrans Monthly Status Reports, Caltrans' March 16, 2012 investigation report, and the news articles attached as exhibits F and G to the declaration of Michael McCauley, counsel for Defendants. The Court finds that the remaining documents submitted by Defendants, including two presentations that were produced by government agencies but are not government reports, are not judicially noticeable, and the Court will not consider them. Nor will the Court consider any facts asserted via Defendants' declarations.
As discussed below, the Court concludes on the basis of the documents before it that (a) the fraud alleged in the Complaint was "publicly disclosed" and (b) that Plaintiff is not an ...