United States District Court, S.D. California
UNITED STATES OF AMERICA ex rel. ERIN HAYES LUPO, Plaintiff,
QUALITY ASSURANCE SERVICES, INC., an entity; GLENN RUSSELL DEACON II, an individual; GLENN RUSSELL DEACON, an individual; SUSAN DEACON, an individual; and SHELLY BECKER, an individual, Defendants.
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION TO DISMISS PLAINTIFF/RELATOR'S
FIRST AMENDED COMPLAINT
JEFFREY T. MILLER United States District Judge.
Quality Assurance Services, Inc. (“QAS”), Glenn
Russell Deacon, Glenn Russell Deacon II, Susan Deacon, and
Shelly Becker (collectively, “Defendants”) move
the court to dismiss the first amended complaint
(“FAC”) of Relator Erin Hayes Lupo for failure to
state a claim. (Doc. No. 18.) Relator opposes the motion.
(Doc. No. 19.) The court finds the matter appropriate for
decision without oral argument pursuant to Civil Local Rule
7.1(d)(1). For the following reasons, the court grants the
motion in part and denies the motion in part.
a California corporation that contracts to perform
inspections and diagnostic testing on medical equipment for
hospitals and other health care providers. (Doc. No. 13
¶¶ 6, 17.) The individual defendants are all
shareholders of QAS. (Id. ¶¶ 7-10.)
Relator worked at QAS for approximately eight years,
including as office manager. (Id. ¶¶ 5,
September 16, 2016, Relator filed the FAC, alleging six
counts: (1) substantive violations of the False Claims Act
(“FCA”), 31 U.S.C. § 3729(a)(1); (2)
conspiracy to violate the FCA, id. §
3729(a)(3); (3) retaliation in violation of the FCA,
id. § 3730(h); (4) retaliation in violation of
California Labor Code section 1102.5 (“section
1102.5”); (5) retaliation in violation of California
Labor Code section 232.5 (“section 232.5”); and
(6) wrongful termination in violation of California public
policy. (See generally Doc. No. 13.) All six counts
stem from allegations that Defendants falsified medical
device inspection reports, which caused the submission of
false claims to the government, and that QAS terminated
Relator for exposing that activity.
motion to dismiss under Federal Rule of Civil Procedure
12(b)(6) challenges the legal sufficiency of the pleadings.
Generally, to overcome such a motion, the complaint must
contain “enough facts to state a claim to relief that
is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “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.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Facts
merely consistent with a defendant's liability are
insufficient to survive a motion to dismiss because they
establish only that the allegations are possible rather than
plausible. Id. at 678-79. The court must accept as
true the facts alleged in a well-pleaded complaint, but mere
legal conclusions are not entitled to an assumption of truth.
Id. The court must construe the pleading in the
light most favorable to the non-moving party. Concha v.
London, 62 F.3d 1493, 1500 (9th Cir. 1995).
heightened pleading standard governs FCA claims, however.
United States ex rel. Cafasso v. Gen. Dynamics C4 Sys.,
Inc., 637 F.3d 1047, 1054 (9th Cir. 2011). That
heightened standard, provided by Federal Rule of Civil
Procedure 9(b), requires that the complaint “state with
particularity the circumstances constituting fraud or
mistake, ” although “[m]alice, intent, knowledge,
and other conditions of a person's mind may be alleged
generally.” “Rule 9(b) demands that, when
averments of fraud are made, the circumstances constituting
the alleged fraud be specific enough to give defendants
notice of the particular misconduct so that they can defend
against the charge and not just deny that they have done
anything wrong.” Vess v. Ciba-Geigy Corp. USA,
317 F.3d 1097, 1106 (9th Cir. 2003) (internal ellipsis
omitted). To satisfy Rule 9(b), “[a]verments of fraud
must be accompanied by ‘the who, what, when, where, and
how' of the misconduct charged.” Id.
(quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th
court will address each count in the FAC in the order Relator
presents them, and then Relator's claim for punitive
Violation of the FCA
primary source of FCA liability arises under 31 U.S.C. §
3729(a)(1)(A), which prohibits submission of false or
fraudulent claims to the United States. This subsection
imposes liability upon a person who “knowingly
presents, or causes to be presented, a false or fraudulent
claim for payment or approval[.]” The next subsection,
(a)(1)(B), imposes liability for knowingly making, using, or
causing to be made or used, a false record or statement that
is material to a false or fraudulent claim. The difference
between subsections (a)(1)(A) and (a)(1)(B) “is that
the former imposes liability for presenting a false claim,
while the latter imposes liability for using a false record
or statement to get a false claim paid.” Jana, Inc.
v. United States, 34 Fed.Cl. 447, 449 (1995).
to state a claim under subsection (a)(1)(A), Relator must
show: “(1) a false or fraudulent claim (2) that was
material to the decision-making process (3) which defendant
presented, or caused to be presented, to the United States
for payment or approval (4) with knowledge that the claim was
false or fraudulent.” Hooper v. Lockheed Martin
Corp., 688 F.3d 1037, 1047 (9th Cir. 2012). To state a
claim under subsection (a)(1)(B), Relator must show that
Defendants “knowingly made, used, or caused to be made
or used, a false record or statement material to a false or
fraudulent claim.” Id.
moving to dismiss the FAC, Defendants focus on Relator's
failure to identify any actual claims made to the government.
Defendants quote the Ninth Circuit's observation in
United States ex rel. Aflatooni v. Kitsap Physicians
Serv., 314 F.3d 995, 997 (9th Cir. 2002), that
“[i]t seems to be a fairly obvious notion that a False
Claims Act suit ought to require a false claim.” At the
summary judgment stage, as was the case in
Aflatooni, that may indeed be an obvious notion. At
the pleading stage, it is less obvious. In fact, as
Defendants acknowledge, the Ninth Circuit has held
“that it is sufficient to allege particular details of
a scheme to submit false claims paired with reliable indicia
that lead to a strong inference that claims were actually
submitted.” Ebeid ex rel. United States v.
Lungwitz, 616 F.3d 993, 998-99 (9th Cir. 2010) (internal
quotations omitted). The FAC, even if not artfully drafted,
meets Ebeid's requirements. First, Relator
alleges particular details of a scheme: rather than properly
test medical equipment, Defendants produced reports on the
performance of medical equipment using falsified data and
provided those reports to various health care providers,
including government-run institutions. Second, there is
convincing reason to infer that this alleged scheme caused
claims to be submitted to the government: the various health
care providers used the equipment to treat patients and
sought reimbursement for that treatment via claims to the
government for Medicare and Medicaid funds; but the
government would not have made those payments had it known
the treatment was rendered on improperly tested and
uncertified medical equipment. Through this process, false
claims for payment were submitted.
court finds that, in alleging this activity, the FAC
satisfies the stated purposes of Rule 9(b)-giving Defendants
“notice of the particular misconduct so that they can
defend against the charge and not just deny that they have
done anything wrong.” Vess, 317 F.3d at 1106.
Relator claims that on numerous occasions, but at minimum on
January 15, 2016 (when), Glenn Russell Deacon II, through his
employment at QAS (who and where), generated fraudulent
reports that were not based on actual testing done (what),
which were provided to health care providers, which were then
used to garner improper government payments (how). This
recitation makes clear what wrongs Relator believes Glenn
Russell Deacon II (and QAS) committed, and the manner in
which those wrongs were committed. At this point in the case,
the specific manner in which reports were delivered to the
health care providers and then incorporated into false claims
is less important.
while Relator undoubtedly will be required to offer more as
this case advances, possibly including, as Defendants
suggest, “what programs were at issue, which forms were
used to submit allegedly false claims, what false statements
or certifications (if any) were made in support of any claim,
and who submitted the claim or made the false certifications,
” (id. at 11), the court finds that she has
satisfied her burden at the pleading stage with regard to QAS
and Glenn Russell Deacon II.
court agrees with Defendants, however, that Relator has
failed to state facts demonstrating how the other individual
defendants participated in the scheme. Instead, Relator
merely claims that the other defendants “were aware of
Glenn Russell Deacon II's fraudulent practices.”
(Doc. No. 13 ¶¶ 25-26.) “This is not
sufficient to put each individual [d]efendant on notice of
their alleged role in a fraudulent scheme as required by the
particularity requirements of the FCA.” (Doc. No. 18-1
at 12.) Accordingly, the court grants Defendants' motion,
with leave to amend, as to Glenn Russell Deacon, Susan
Deacon, and Shelly Becker, but denies it as to QAS and Glenn
Russell Deacon II.
Conspiracy to Violate the FCA
Count II, Relator alleges that, through the acts described,
Defendants entered into a conspiracy “among
themselves” and with unnamed others to defraud the
government in violation of the FCA. In moving to dismiss this
count, Defendants make two points.
Defendants argue the intracorporate conspiracy doctrine bars
Relator's allegation as to a conspiracy “among
themselves.” The intracorporate conspiracy doctrine,
derived from antitrust law, holds that a conspiracy requires
“an agreement among two or more persons or distinct
business entities.” United States v. Hughes
Aircraft Co., 20 F.3d 974, 979 (9th Cir. 1994), as
amended (Apr. 28, 1994). “The logic for the
doctrine comes directly from the definition of a
conspiracy.” Hoefer v. Fluor Daniel, Inc., 92
F.Supp.2d 1055, 1057 (C.D. Cal. 2000). “It is basic in
the law of conspiracy that you must have two persons or
entities to have a conspiracy. ‘A corporation cannot
conspire with itself anymore than a private individual can,
and it is the general rule that the acts of the agent are the
acts of the corporation.'” Id. (quoting
Nelson Radio & Supply Co. v. Motorola, Inc., 200
F.2d 911, 914 (5th Cir.1952)).
the Ninth Circuit has not spoken on the issue, a number of
district courts, including those within the Ninth Circuit,
have applied the intracorporate conspiracy doctrine to FCA
claims. See, e.g., United States ex rel. Huey v.
Summit Healthcare Ass'n, Inc., 2011 WL 814898, at
*6-7 (D. Ariz. Mar. 3, 2011) (applying doctrine and
distinguishing FCA cases from criminal conspiracies);
United States ex rel. Fago v. M&T Mortgage
Corp., 518 F.Supp.2d 108, 117-18 (D.D.C. 2007) (finding
that corporation cannot conspire with its employees and
defendant therefore entitled to judgment as a matter of law
on conspiracy claim); United States v. EER Sys.
Corp., 950 F.Supp. 130, 132-33 (D. Md. 1996) (dismissing
conspiracy claim under FCA where plaintiff did not allege
exception to established rule that a corporation cannot
conspire with its officers or agents); United States ex
rel. Fent v. L-3 Comm. Aero Tech LLC, 2007 WL 3283689,
at *5 (N.D. Okla. Nov. 2, 2007) (applying doctrine to FCA
claim); United States v. Berkeley Heartlab, Inc.,
2016 WL 7851459, at *17 (D.S.C. Mar. 28, 2016) (same).
Defendants cite a number of these cases in their motion,
Relator does not cite a single instance in which a court
refused to apply the doctrine to an FCA case. The court's
own research also failed to turn up such a case. Accordingly,
the court follows the many ...