United States District Court, N.D. California
UNITED STATES OF AMERICA AND STATE OF CALIFORNIA EX REL: RUSTY FRYBERGER, et al., Plaintiffs,
KIEWIT PACIFIC COMPANY, et al., Defendants
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Re: ECF No. 78.
For UNITED STATES OF AMERICA, Plaintiff: Sara Winslow, LEAD ATTORNEY, United States Attorney's Office, Northern District of California, San Francisco, CA.
For United States of America and State of California Ex Rel: Rusty Fryberger, United States of America and State of California Ex Rel: Surecast, LLC, United States of America and State of California Ex Rel: SSL, LLC, United States of America and State of California Ex Rel: Scott Thompson, Sr., United States of America and State of California Ex Rel: Steve Ruel, Plaintiffs: Weldon Sanford Wood, LEAD ATTORNEY, Attorney at Law, Redwood City, CA; Bruce Paul Babbitt, PRO HAC VICE, Jameson Babbitt Stites & Lombard, PLLC, Seattle, WA.
For Kiewit Pacific Company, Bruce Hesse, Ron Rattai, Kiewit Infrastructure Group, Defendants: Aaron Gruber, LEAD ATTORNEY, JONES DAY, San Francisco, CA; Daniel Delos McMillan, Michael S. McCauley, Jones Day, Los Angeles, CA.
For John Chamberlain, Defendant: Aaron Gruber, LEAD ATTORNEY, JONES DAY, San Francisco, CA.
For DeputyAttorneyGenera Jennifer McClory Hamilton, Office of The Attorney General, Interested Party: Jennifer Yvette McClory Hamilton, LEAD ATTORNEY, California State Department of Justice, Office of the Attorney General, Fraud Department, San Francisco, CA.
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS SECOND AMENDED COMPLAINT, AND GRANTING STAY
JON S. TIGAR, United States District Judge.
Before the Court is Defendants' Motion to Dismiss the Second Amended Complaint, or in the Alternative, to Stay. ECF No. 78. The Court will grant in part and deny in part the motion to dismiss, and grant the motion to stay.
The background of this case is discussed in more detail in the Court's prior Order, ECF No. 69, United States v. Kiewit P. Co., 2013 WL 5770514 (N.D. Cal. Oct. 24, 2013).
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 (" FCA" ) and the California False Claims Act, Cal. Gov. Code § § 12650-12656 (" CFCA" ), on behalf of the United States Government and the State of California. Relators allege that Defendants Kiewit Pacific Company and Kiewit Infrastructure Group presented false claims for payment to the federal and California governments related to contract work performed on the Sepulveda Pass Widening Project (contract C0882) in Los Angeles, California, on interstate 405. 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" ). Defendant Kiewit Pacific Company is the " Prime Design Build Contractor" on the project. Relators' company, SSL, LLC, contracted with Kiewit to furnish concrete Mechanically Stabilized Earth (" MSE" ) wall panels, soil reinforcement, pins, bearing pads, filter cloth, and other materials for forty-four MSE walls. SSL subcontracted Relator Fryberger's firm, Relator Surecast, to fabricate and deliver precast panels to the job site.
Kiewit began installing MSE walls in October 2010. SAC, ECF No. 70 ¶ 57. During near-record rainfall in October and November 2011, panels of MSE wall 1897 began to shift. Id. ¶ 79. On November 30, 2011, six wall panels disconnected from MSE wall 1897. Id. ¶ 81. In December 2011, the news media began to report on the wall failure. Id. ¶ 82. One report included a quotation from a Metro Community Relations spokesperson who said that " 'they would be looking at the walls to see what happened and to insure that this does not happen again.'" Id. ¶ 82. Another report stated: " The Contractor is currently performing an in-depth investigation to the cause of the localized failure. Experts have been brought in to collect forensic evidence." Id. ¶ 83. It is clear from the media reports, discussed in more detail in the Court's prior Order, that the state and local governments were aware of the failure of MSE wall 1897, and that they had initiated and were involved in investigating the failure. Relators' Second Amended Complaint alleges that, though LACMTA in particular was involved in the investigation, Kiewit was tasked as the primary investigator of the wall failure. Id. ¶ ¶ 83-85.
Relators allege that Defendants falsely certified compliance with the specifications for installation of MSE walls on the project. In particular, the operative Second Amended Complaint alleges that Defendants knowingly and willfully failed to provide underdrains under the MSE walls, that they installed inoperable underdrains, that they failed to install permeable materials around the drains, that they falsified quality assurance reports, and that they broke reinforcing mesh by driving over it with heavy equipment. Id. ¶ 15. Relators also identify numerous other alleged deficiencies in Kiewit's work on the project, some of which Relators allege contributed to the wall failure. Relators stress, however, that the premise of their claims is that Kiewit falsely certified compliance in exchange for government funds in violation of federal and state law, and not that Kiewit was responsible for the wall failure.
Relators allege that they conducted an independent investigation of the failure and provided the results of that investigation to the local and federal governments on May 17, 2012. Id. ¶ 104. This action was filed on May 25, 2012.
Previously, the Court granted Defendants' first motion to dismiss the First Amended Complaint on October 24, 2013, ECF No. 69, because Relators' claims were barred by the public disclosure bar of both the Federal and California False Claims Acts, and Relators were not " original sources" of information within the meaning of those statutes. The Court also found that Relators had failed adequately to allege a reverse false claim, any claims against the individual Defendants, a conspiracy claim, and retaliation and defamation claims on behalf of Relator SSL, LLC. However, although the Court dismissed Relators' First Amended Complaint in its entirety, the Court also rejected Defendants' argument that Relators had failed adequately to allege falsity, materiality, and scienter. Relators' Second Amended Complaint was filed November 21, 2013. ECF No. 70.
II. LEGAL STANDARDS
On a motion to dismiss, the Court accepts the material facts alleged in the complaint, together with all reasonable inferences to be drawn from those facts, as true. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). However, " the tenet that a court must accept a complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). To be entitled to the presumption of truth, a complaint's allegations " must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011), cert. den'd, ___ U.S. ___, 132 S.Ct. 2101, 182 L.Ed.2d 882 (2012).
To survive a motion to dismiss, a plaintiff must plead " enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Plausibility does not mean probability, but it requires " more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 687. " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
In addition, fraud claims are subject to a heightened pleading standard. " In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). The allegations must be
specific enough to give a defendant notice of the particular misconduct alleged to constitute the fraud such that the defendant may defend against the charge. Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). In general, allegations sounding in fraud must contain " an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007). However, " [m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b).
III. REQUESTS FOR JUDICIAL NOTICE
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).
For these reasons, and the reasons discussed in the Court's prior Order, the Court hereby GRANTS Defendants' request for judicial notice, ECF No, 75, in its entirety. Defendants' second request for judicial notice, ECF No. 88, is hereby GRANTED as well. The Court notes that the publicly available power-point presentation attached as Exhibit E is judicially noticeable only for the fact that the government investigation report was made, and not for the truth of the matter asserted.
The False Claims Act (" FCA" ) authorizes private parties with knowledge of past or present fraud on the United States to sue on the Government's behalf to recover civil penalties and damages. 31 U.S.C. § § 3729-3733. Similarly, the California False Claims Act (" CFCA" ) authorizes private parties to sue on behalf of the State to recover civil penalties and damages. Cal. Gov. Code § 12650, et seq.
A. Public Disclosure Bar
Both the FCA and the CFCA require courts to dismiss false claims suits based on information already disclosed publicly unless the relator is an " original source" of the information. See 31 U.S.C. § 3730(e)(4)(A); Cal. Gov. Code § 12652(d)(3)(A). This rule arises out of the twin purposes of the FCA: " to alert the government as early as possible to fraud that is being committed against it and to encourage insiders to come forward with such information where they would otherwise have little incentive to do so." U.S. ex rel. Biddle v. Bd. of Trustees of Leland Stanford, Jr. Univ., 161 F.3d 533, 538 (9th Cir. 1998). Where neither purpose is implicated, the relator should not be rewarded:
Where the relator brings new information of fraud to the government, the relator should be rewarded regardless of how the relator came into possession of that information. The reason is that the allegations in the complaint, being previously undisclosed, are valuable to the government in remedying the fraud that is being committed against it. On the other hand, where the allegations of the fraud are already public knowledge, the relator confers no additional benefit upon the government by subsequently ...