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United States ex. rel. Lim v. Salient Federal Solutions, Inc.

United States District Court, S.D. California

May 9, 2018

UNITED STATES OF AMERICA, ex. rel. JAVIER LIM, Plaintiff-Relator,
v.
SALIENT FEDERAL SOLUTIONS INC., a corporation, BRAD ANTLE, an individual, J.D. KUHN, an individual and DOES 1-100 inclusive, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS [DKT. NO. 21]

          Hon. Gonzalo P. Curiel United States District Judge.

         Before the Court is Salient Federal Solutions, Inc. and Salient CRGT Holdings, Inc. (“Defendants”) Motion to Dismiss. Dkt. No. 21. This motion to dismiss was filed on March 15, 2018. On April 5, 2018, Plaintiff-Relator Javier Lim filed a response in opposition and an affidavit to support that opposition. Dkt. No. 23-24. Defendants filed a Reply on April 20, 2018. Dkt. No. 25.

         Defendants move pursuant to Rule 12(b)(6) to dismiss Count IV of his complaint on the grounds that Relator's Complaint fails to allege facts to support the essential elements of his False Claims Act (“FCA”) retaliation claim. Defendants move to dismiss Counts I-III of the Complaint with regard to a set of allegations related to 2015 General and Administrative Expenses for failure to plead with particularity under Rule 9(b).

         Pursuant to Civil Local Rule 7.1(d)(1), the Court finds the matter suitable for adjudication without oral argument. For the reasons set forth below, the Court will GRANT in PART and DENY in PART Defendants' Motion to Dismiss.

         I. LEGAL STANDARD

         A. Rule 12(b)(6)

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is proper where there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balisteri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). To survive a motion to dismiss, the plaintiff must allege “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). While a plaintiff need not give “detailed factual allegations, ” a plaintiff must plead sufficient facts that, if true, “raise a right to relief above the speculative level.” Id. at 545. “[F]or a complaint to survive a motion to dismiss, the non-conclusory ‘factual content, ' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009).

         In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe all inferences from them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions, however, need not be taken as true merely because they are cast in the form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Moreover, a court “will dismiss any claim that, even when construed in the light most favorable to plaintiff, fails to plead sufficiently all required elements of a cause of action.” Student Loan Mktg. Ass'n v. Hanes, 181 F.R.D. 629, 634 (S.D. Cal. 1998).

         B. Rule 9(b)

         The FCA is an anti-fraud statute and requires fraud allegations such that complaints alleging FCA violations must fulfill the requirements of Rule 9(b). Bly-Magee v. California, 236 F.3d 1014, 1018. Under Rule 9(b), a heightened pleading standard applies to complaints alleging fraud, requiring that they state “with particularity the circumstances constituting fraud or mistake.” Cafasso v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 (9th Cir. 2011). To satisfy Rule 9(b), a pleading must identify the “who, what, when, where, and how of the misconduct charged, ” as well as “what is false or misleading about [the purportedly fraudulent] statement and why it is false. Id. at 1055 Claims of fraud or mistake--including FCA claims--must be plead with particularity and must also plead plausible allegations under Ashcroft v. Iqbal, 556 U.S. 662 (2009). Id.

         II. BACKGROUND

         A. Procedural History

         Plaintiff filed this FCA action under seal on April 4, 2016. Dkt. No. 1. On February 23, 2018, the United States declined to intervene in the case. Dkt. No. 13. That same day, this Court ordered that the Complaint be unsealed and served upon the Defendants.[1]

         B. Facts

         Plaintiff-Relator Javier Lim was a project control analyst for Defendants between May 2008 and October 9, 2015. Compl. ¶ 9. Defendant Salient Federal Solutions was a Delaware corporation that serves as a prime contractor and subcontractor for the United States Government and is a subsidiary of Salient CRGT Holdings, Inc. Id. ¶¶ 10-11. Brad Antle was Chief Executive Officer of Salient and is the current CEO of Salient CRGT and allegedly approved the false claims submitted to the United States. Id. ¶ 12. J.D. Kuhn was the Vice President of Finance and Corporate Controller of Salient and now serves as Senior Vice President and Controller of Salient CRGT. Id. ¶ 13.[2] Kuhn allegedly ordered the false claims to be submitted to the United States and participated in prohibited uses of the General and Administrative (“G&A”) Expenses Pool. Id. ¶ 13.

         1. Overhead and Fringe Benefit Rate Scheme

         In April 2012, Salient was awarded a Global Command Terrestrial Communications Support Contract that was a “Cost Plus Fixed Fee” contract. Id. ¶¶ 17-19. Such contracts allow government contractors to charge actual costs of labor, plus a fixed percentage to be applied to the total cost of labor, with the fixed percentage to be applied determined by the labor pool that provided services for that particular contract. Id. ¶¶ 20-21. In 2015, Defendants submitted their 2014 Incurred Cost Claims to a Defense Contract Audit Agency for approval and payment. Defendants indicated that they had used an indirect labor pool that provided for a payment on a management overhead rate of 21.00% of the total labor (“Legacy Management” pool). Id. ¶ 24. Plaintiff alleges that Defendants actually used a labor pool that should have only provided for an 8.10% fixed overhead charge (“International” pool), resulting in an overcharge to the United States of $709, 468.63. Id. ¶¶ 25-26. Plaintiff alleges that in August of 2015, his supervisor and Director of Information of Systems, Jeremy Ross, approached relator and told him to change the GCTC contract fixed pool numbers from the International pool to Legacy Management pool. Id. ¶ 30. Plaintiff went to Director of Accounting Scott Thatcher, and asked why he was told to change the organization numbers. Id. ¶ 31. Thatcher responded that “it's obvious they are trying to charge the government at a higher rate.” Similarly, Ross responded “it sure looks that way” in response to a question by Plaintiff as to whether the company was trying to bill the United States at a higher rate. Id. ¶ 33. Plaintiff alleges that at least two other major contracts applied the wrong pool information to overcharge the United States. Id. ¶ 35.

         2. 2010 General and Administrative Expense Pool (“2010 G&A Expense Pool”) Allegations

         Plaintiff alleges that in 2010 the entirety of pricing specialist Miranda Marlow's annual salary was submitted to the G&A pool as costs when Ms. Marlow had actually been out for three months of family medical leave. Id. ¶¶ 44-46. Plaintiff alleges that a claim was submitted to the United States that included an entire year's worth of salary. Id. ΒΆ 46. Plaintiff alleges that he filed a ...


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