United States Ex Rel. Gagne v. City of Worcester

United States Court of Appeals
For the First Circuit

No. 08-1904

UNITED STATES OF AMERICA EX REL.
EDWARD L. GAGNE AND LINDA JENESKI,

Plaintiffs, Appellants,

v.

CITY OF WORCESTER; STEPHEN WILLAND,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. F. Dennis Saylor IV, U.S. District Judge]

Before

Lynch, Chief Judge,
*
Farris and Boudin, Circuit Judges.

Daniel Joseph Shea with whom Daniel J. Shea, P.C. was on brief
for appellants.
Janet J. McGuiggan, Assistant City Solicitor, City of
Worcester Law Department, for appellees.

May 8, 2009

*
Of the Ninth Circuit, sitting by designation.
 LYNCH, Chief Judge. This appeal involves the standards

for pleading with particularity fraud claims brought under two

subsections of the False Claims Act ("FCA") concerned with making

false records or statements to get false claims paid and conspiring

to defraud the government by getting false claims paid. 31 U.S.C.

§ 3729(a)(2) and (a)(3).

Plaintiffs mistakenly read the Supreme Court's 2008

opinion in Allison Engine Co. v. United States ex rel. Sanders, 128

S. Ct. 2123 (2008), as having altered the requirements of pleading

fraud with particularity set forth in United States ex rel. Rost v.

Pfizer, Inc., 507 F.3d 720 (1st Cir. 2007), and United States ex

rel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220 (1st Cir.

2004). Allison Engine concerns a different issue and does not

alter those fraud with particularity requirements, which apply as

well to the conspiracy claim. The complaint was properly dismissed

for failing to meet those standards. The district court also acted

properly within its discretion in not allowing plaintiffs to amend

their complaint yet a third time.

Edward L. Gagne and Linda Jeneski, a present and a former

employee of the Worcester City Manager's Office of Employment and

Training ("CMOET"), filed a qui tam action on behalf of the federal

government against the defendant City of Worcester and a former

City official. The United States declined to enter the case.

Plaintiffs alleged federal grant funds meant for one purpose were

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fraudulently diverted to improper expenditures. They alleged the

defendants were liable under the FCA for violations of provisions

requiring defendants to have: "knowingly present[ed], or cause[d]

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)(1); "knowingly ma[de], use[d], or

cause[d] to be made or used, a false record or statement to get a

false or fraudulent claim paid or approved by the Government," id.

§ 3729(a)(2); and "conspire[d] to defraud the Government by getting

a false or fraudulent claim allowed or paid," id. § 3729(a)(3).

Despite their having twice amended their complaint, relators failed

to provide details on any particular false or fraudulent statement

made to get a false claim paid by the federal government.

The district court granted defendants' motion to dismiss

for failure to comply with Fed. R. Civ. P. 9(b) and denied relators

leave to amend a third time. United States ex. rel. Gagne v. City

of Worcester, No. 06-40241, 2008 WL 2510143 (D. Mass. June 20,

2008). The court later denied a Rule 59(e) motion and said

relators had mischaracterized its earlier order as resting on a

need to make a presentment claim under subsections (a)(2) and

(a)(3). On appeal, relators argue that the court applied the

"presentment" requirement of § 3729(a)(1) to their subsection

(a)(2) and (a)(3) claims and that this, along with the court's

reliance on Rost and Karvelas, was error in light of the Supreme

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Court's decision in Allison Engine. They also challenge the

court's denial of leave to amend. We affirm for the reasons which

follow.

I.

The facts as alleged in the complaint are set forth

without crediting unsupported conclusions or assertions. Universal

Commc'n Sys., Inc. v. Lycos, Inc., 478 F.3d 413, 415 (1st Cir.

2007).

Gagne worked for the CMOET; Jeneski was a former CMOET

employee. Defendant Stephen Willand was the head of CMOET and also

served as Executive Director of the Central Massachusetts Regional

Employment Board ("CMREB") and the Director of the City's "One Stop

Provider," also known as "Workforce Central," which was established

under the Workforce Investment Act ("WIA"), 29 U.S.C. §§ 2801-2945.

Under the WIA, the federal government provides grants to

states to fund job training programs. See generally id. § 2811;

see also Santana v. Calderón, 342 F.3d 18, 20 (1st Cir. 2003). One

stop providers, such as Workforce Central, provide training, adult

education, literacy programs, and support services. 29 U.S.C.

§§ 2841, 2864.

The gist of the relators' complaint is that the City

improperly used WIA grant funds to pay Willand and other CMOET

employees for performing very little work or for work unrelated to

WIA projects, to provide City cars to Willand and others, and to

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pay out $130,000 to settle a state employment discrimination

lawsuit that plaintiff Gagne had brought, alleging sexual

orientation discrimination. Primarily, the complaint alleged that

City employees falsely categorized hours on their time sheets as

time spent on WIA projects.

Relators filed suit on November 9, 2006 naming the City

as defendant.1 The central allegations of their Second Amended

Complaint, filed on January 4, 2008, were as follows:

During Workforce Central and CMREB Fiscal Year
2004 (FY2004), and before and after FY2004,
Defendant City's Agents STEPHEN WILLAND, BRUCE
DAHLQUIST, DONALD ANDERSON, KEVIN CROWLEY, and
CARLENE BULL, among others, with the full
knowledge and acquiescence of Defendant City's
upper management statutorily responsible for
the integrity of WIA federal funds . . . ,
made and caused to be made false, misleading
and fraudulent pretenses and representations
through periodic reports and requests for
funds to the U.S. Department of Labor, U.S.
Department of Health and Human Services, and
State of Massachusetts based on the allocation
of Workforce Central and CMREB employees' time
which were not based on after-the-fact actual
activities of the employees charged to the
various programs, contracts, grants or awards
of the [WIA]. . . . In order to accomplish the
unlawful funding of WILLAND and DAHLQUIST,
capitated funds earned from the welfare
activities of Workforce Central were "loaned"

1
Relators filed a First Amended Complaint without leave of
the court on June 18, 2007. See Fed. R. Civ. P. 15(a) (allowing
one amendment as of right if no responsive pleading has been filed
but requiring leave for subsequent amendments). The City moved to
dismiss. Relators filed an opposition in which they also asked for
leave to amend. The court granted leave to amend, allowed relators
to name Willand as an additional defendant, and held the City's
first motion to dismiss moot.

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 to various Workforce Central time accounts to
which ANDERSON, CROWLEY, BULL, and others
would bill their time to free-up Wagner-Peyser2
funds so that WILLAND and DAHLQUIST could bill
to Wagner-Peyser as specifically prohibited by
law. The loans from welfare program earnings
were loaned to Department 31S account numbers
224, 228 and 231 and were never repaid.
Accounts 31S224, 31S228, and 31S231 appear on
Anderson and Crowley's time sheets while
Wagner-Peyser, which is their legitimate One-
Stop overhead, does not. CARLENE BULL is the
person responsible for the accounting
manipulation.

Second Amended Complaint ¶ 30. Plaintiffs also alleged that:

Beginning on or before June 28, 2003 and
continuing on and after June 25, 2004 . . .
[Willand and other City employees] did
knowingly and willfully combine, conspire, and
agree with each other, and with others known
and unknown to the Relators, to commit
offenses against the United States, to wit,
fraud or misapplication concerning Federal
funds under the [WIA], in violation of [18
U.S.C. § 665] and fraud or misapplication
concerning a program receiving Federal funds
in violation of [18 U.S.C. § 666]; and did
further so combine, conspire and agree to
defraud the United States by impeding,
impairing, obstructing and defeating the
lawful government functions of the U.S.
Department of Labor through deceit, trickery
and dishonest means.

Id. ¶ 22.

Other paragraphs of the complaint alleged that defendants

engaged in a conspiracy to defraud the government, by "caus[ing]

false, misleading and fraudulent pretenses and representations to

2
The Wagner-Peyser Act, 29 U.S.C. § 49 et seq., enacted in
1933, was amended by the WIA. Workforce Central and the CMREB
received funds under both statutes.

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be made to WIA funding sources . . . to allow [City employees] to

receive excessive and unreasonable compensation through unlawful,

dishonest and deceitful means by misapplication or obtaining by

fraud of funds from the [WIA]." Id. ¶ 23. The complaint also

alleged defendants violated the WIA because Willand and others

worked for the CMOET while at the same time holding official roles

in Workforce Central and the CMREB.3 Id. ¶¶ 9-10. Defendants

moved to dismiss on January 28, 2008, arguing that the Second

Amended Complaint still failed to allege fraud with the

particularity required under Rule 9(b).4

On June 20, 2008, the district court entered an order

dismissing the Second Amended Complaint, as we have described. The

court noted that relators' opposition incorporated by reference

their earlier opposition to the first motion to dismiss, in which

they had sought leave to amend. The court said it was unclear

whether relators intended to request leave to amend their complaint

3
In their opposition to the City's motion to dismiss the
first complaint on Rule 9(b) grounds, plaintiffs had attached 119
pages of allegedly fraudulent time sheets. But these time sheets
were not attached to the Second Amended Complaint.
4
Defendants also argued that the court lacked jurisdiction
under the public disclosure bar of the FCA, see generally Rost, 507
F.3d at 727-28; 31 U.S.C. § 3730(e)(4)(A), and that relators had
not served them properly, see Fed. R. Civ. P. 4. The district
court held it could not determine whether the public disclosure bar
applied on the record before it and did not reach the Rule 4
argument. Defendants do not address either ruling on appeal.

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again, but held that even if they did, it would not allow further

amendment. Gagne, 2008 WL 2510143, at *5 n.5.

Relators filed a motion to alter or amend judgment

purportedly under Rule 59(e), arguing that the court had committed

a manifest error of law by relying on Karvelas, which they said

dealt only with "presentment" cases, or cases brought under

subsection (a)(1) of the FCA in which the allegation is that the

defendant actually presented a false claim to the government.5

They argued Karvelas did not apply to subsection (a)(2) or (a)(3)

cases. The court denied plaintiffs' motion, stating relators erred

in arguing it based its holding on a presentment requirement, and

saying it "ha[d] considered the sufficiency of relators' complaint

5
Relators also argued the court committed a manifest error
of law by misstating the statutory language in describing their
claims. The court said the complaint alleged defendants violated
the FCA "by (1) presenting false or fraudulent claims for payment
or approval to the federal government in violation of § 3729(a)(1),
(2) making or using false records or statements to make false or
fraudulent claims in violation of § 3729(a)(2), and (3) conspiring
to get false or fraudulent claims paid or approved by the federal
government in violation of § 3729(a)(3)." Gagne, 2008 WL 2510143,
at *1 (emphasis added). Relators argued that the court's
substitution of "and" for the statute's "or" conflated the three
subsections and led it to extend the presentment requirement of
(a)(1).
Relators also argue the court erroneously summarized the
elements of each subsection. For example, it substituted "to make
false or fraudulent claims" for the statute's "to get a false or
fraudulent claim paid or approved by the Government" in describing
subsection (a)(2). While the court did use summary language in
describing relators' claims that did not reflect the exact
statutory text, the remainder of its opinion shows this summary did
not cause it to analyze the complaint incorrectly.

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with regard to Rule 9(b) only," which it held applies with equal

force to subsections (a)(1) through (a)(3). Relators appealed.

II.

A. The Dismissal of Relators' Complaint

We review de novo the district court's dismissal order

for failure to comply with Rule 9(b). See SBT Holdings, LLC v.

Town of Westminster, 547 F.3d 28, 33 (1st Cir. 2008).

We have previously held the heightened pleading

requirements of Fed. R. Civ. P. 9(b) apply to claims brought under

subsection (a)(1) of the FCA, Karvelas, 360 F.3d at 227-28, and

subsection (a)(2), Rost, 507 F.3d at 731. We now hold those Rule

9(b) requirements apply to conspiracy claims under subsection

(a)(3). That is the rule of most circuits. See, e.g., United

States ex rel. Marlar v. BWXT Y-12, L.L.C., 525 F.3d 439, 445 (6th

Cir. 2008); United States ex rel. Joshi v. St. Luke's Hosp., Inc.,

441 F.3d 552, 556 (8th Cir. 2006); Corsello v. Lincare, Inc., 428

F.3d 1008, 1014 (11th Cir. 2005) (per curiam); see also 2 J.T.

Boese, Civil False Claims and Qui Tam Actions § 5.04, at 5-44 to

-45 (3d ed. 2009).

Rule 9(b) requires that "[i]n alleging fraud or mistake,

a party must state with particularity the circumstances

constituting fraud or mistake." This standard "means that a

complaint must specify 'the time, place, and content of an alleged

false representation.'" Rost, 507 F.3d at 731 (quoting Doyle v.

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Hasbro, Inc., 103 F.3d 186, 194 (1st Cir. 1996)); see also

Alternative Sys. Concepts, Inc. v. Synopsis, Inc., 374 F.3d 23, 29

(1st Cir. 2004) (noting that Rule 9(b) requires the pleader "to

specify the who, what, where, and when of the allegedly false or

fraudulent representation"). "Conclusory allegations . . . are not

sufficient" to satisfy Rule 9(b). Rost, 507 F.3d at 731. The rule

may be satisfied, however, "where, although some questions remain

unanswered, the complaint as a whole is sufficiently particular to

pass muster under the FCA." Id. at 732; see also Karvelas, 360

F.3d at 233 n.17 ("In a related context, we held that courts will

allow private securities fraud cases 'to advance past the pleadings

stage when some questions remain unanswered, provided the complaint

as a whole is sufficiently particular to pass muster under the

[Private Securities Litigation Reform Act].'" (quoting In re

Cabletron Sys., Inc., 311 F.3d 11, 32 (1st Cir. 2002))).

The essence of relators' argument is that they have pled

facts sufficient to meet the Rule 9(b) standards under (a)(2) and

(a)(3), if not as to the "presentment" of a false claim to the

federal government.6 They say under Allison Engine they do not

need to plead presentment as to their (a)(2) and (a)(3) claims.

That is true as far as it goes, but irrelevant. The district court

did not impose a presentment requirement; rather, it correctly held

6
Relators make no arguments specific to their (a)(1) claim
and have therefore waived that argument on appeal.

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that the allegations made did not otherwise meet the fraud pleading

requirements for the elements of claims under subsections (a)(2)

and (a)(3).

In Allison Engine, an FCA qui tam action, the Supreme

Court clarified, unanimously, the pleading requirements for the

elements of claims brought under subsections (a)(2) and (a)(3) of

the FCA. It reversed an opinion of the Sixth Circuit which held

that the relators did not need to show that the defendant intended

that the false claim be paid by the government, only that it be

paid by a private entity using government funds. Allison Engine,

128 S. Ct. at 2126-28.

The Supreme Court held that claims under subsections

(a)(2) and (a)(3) need not show that a false claim has actually

been presented to the government. Id. at 2129-30. It also held

that the complaint must show that the government, and not a private

contractor using government funds, was the defrauded party. Id. at

2128. The Court said that subsection (a)(2) does not "require[]

proof that a defendant's false record or statement was submitted to

the Government," only that "the defendant made a false record or

statement for the purpose of getting 'a false or fraudulent claim

paid or approved by the Government.'" Id. at 2129-30; see also 1

Boese, supra § 2.02[G]. The defendant must have "intend[ed] the

Government to rely on that false statement as a condition of

payment." Allison Engine, 128 S. Ct. at 2130. Under subsection

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(a)(3), the Court held, the complaint need not show the defendants

"intended the false record or statement to be presented directly to

the Government," but it must show they intended to defraud the

government and "agreed that the false record or statement would

have a material effect on the Government's decision to pay the

false or fraudulent claim." Id. at 2130-31.7

Karvelas requires the complaint to provide, among other

fraud specifics, "details concerning the dates of the claims, the

content of the forms or bills submitted, their identification

numbers, [and] the amount of money charged to the government."

Karvelas, 360 F.3d at 233. Rost recognizes that Karvelas

nevertheless allows some flexibility in construing the fraud

allegations of FCA complaints. Rost, 507 F.3d at 731-32. Even

viewing the complaint under a more flexible standard, we agree with

7
Allison Engine thus forecloses, in subsection (a)(2) and
(a)(3) cases, a broad reading of portions of our Karvelas and Rost
holdings. For example, in Karvelas, which involved a subsection
(a)(1) claim, we said that "the defendant's presentation of false
or fraudulent claims to the government is a central element of
every [FCA] case," Karvelas, 360 F.3d at 232 (emphasis added), and
that a complaint must "provide details that identify particular
false claims for payment that were submitted to the government,"
id., repeated in Rost, 507 F.3d at 731. That is true only of cases
under subsection (a)(1), which expressly includes a presentment
requirement. As to subsection (a)(2) or (a)(3) claims, the relator
must still connect the allegedly fraudulent statement to a planned
claim on the government fisc, must show that the defendant intended
the statement would have a material effect on the government's
decision to pay a claim, and must plead the facts of the fraud with
sufficient particularity to satisfy Rule 9(b). Cf. Universal
Commc'n Sys., Inc., 478 F.3d at 426-27 (noting that Rule 9(b)
required plaintiff to draw connection between defendants' false
statements and allegedly fraudulent securities scheme).

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the district court that the complaint was insufficiently particular

to pass muster under subsections (a)(2) and (a)(3) of the FCA.

We take the most specific of the paragraphs of the

complaint, paragraph 30. The complaint does allege the

beneficiaries of the alleged fraud. It also identifies which

statute was the source of the federal funds. It alleges, in less

clear terms than our recounting, that Willand and other City

employees engaged in certain practices; it also referred generally

to other unnamed City employees. It named employee Bull "as the

person responsible for the accounting manipulation," albeit without

explanation, including any explanation as to why the manipulation

was fraudulent. It did allege in general terms some of the

mechanisms said to be fraudulent: that certain unspecified funds

from Workforce Central welfare activities were "loaned" to other

Workforce Central time accounts and that City employees would bill

their unspecified time (presumably to those time accounts) in order

to free up Wagner-Peyser funds. The purpose of the loans, it is

alleged, was so that Willand and Dahlquist could bill something

which is unspecified, and whatever they did bill was prohibited by

some unspecified law. The complaint adds that City employees

Anderson and Crowley had time sheets, unspecified, with these

particular accounts being listed on them for some times,

unidentified, while their legitimate, unspecified, overhead account

under the Wagner-Peyser Act was not listed.

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 The complaint largely ignores the fact that it is the

fraud itself which must be pled with particularity, not just who

benefits from the fraud and what pot of federal money may be the

object of the fraud. It is also not enough to allege there has

been some accounting misallocation of expenses to one federal pot

of money rather than another without some explanation of why that

is fraudulent.8

Relators provide no details on what the alleged "false,

misleading and fraudulent pretenses and representations" consisted

of, who made them, or when they were made "to get a false or

fraudulent claim paid or approved by the Government," 31 U.S.C.

§ 3729 (a)(2). See Alternative Sys. Concepts, Inc., 374 F.3d at

29. They also do not specify what the "periodic reports and

requests for funds" were which were made.

Relators also fail to connect the only falsity or fraud

for which they provide any detail -- the allegedly fraudulent time

sheets -- to an effort to get a false claim paid or approved by the

government. They state only that "[t]he employee time-sheets are

official documents that are issued in compliance with law and

required to be maintained to support invoices." They do not

provide any details about the invoices themselves. They do not

8
The complaint also alleged that defendants conspired to
pay the tort settlement to Gagne "unlawfully, from WIA
funds, . . . as prohibited by law." The complaint provides no
explanation about how or why this was fraudulent.

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show how the time sheets had a material effect on the government's

decision to pay the invoices or any other claim, even if the time

sheets were considered. Although the complaint gives details on

the time accounts to which City employees allegedly falsely billed

their time, such fraudulent reporting is not actionable under the

FCA unless it is connected to getting a false or fraudulent claim

on the government paid or approved.

The complaint attempts to track the general statutory

language by alleging that defendants, "through each act of

fabrication and submission of a fraudulent time sheet or other

document, made or used a false record or statement to get a false

or fraudulent claim paid or approved by the Government," and

estimates that in FY2004, there were up to 1000 instances of

fraudulent time sheet submission, rendering defendants liable for

approximately $500,000 in damages. However, a conclusory

allegation that defendants' submissions of time sheets was the

making or usage of a false record or statement to get a false or

fraudulent claim paid or approved by the government, absent more

detail about those submissions and their connection to the false or

fraudulent claims, is insufficient under Rule 9(b). See Rost, 507

F.3d at 731.

Finally, the complaint alleges that Willand's and other

City employees' holding multiple positions violated the WIA.

However, "FCA liability does not attach to violations of federal

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law or regulations . . . that are independent of any false claim."

Id. at 727.

The district court was correct.

B. The Denial of Leave to Amend

Relators also challenge the district court's refusal to

grant them leave to amend their complaint a third time. See Fed.

R. Civ. P. 15(a)(2). Our review is for abuse of discretion.

O'Connell v. Hyatt Hotels of P.R., 357 F.3d 152, 154 (1st Cir.

2004).

Rule 15(a) reflects a liberal amendment policy, see id.,

and provides that a court "should freely give leave when justice so

requires." Even so, "the district court enjoys significant

latitude in deciding whether to grant leave to amend," and we

"defer to the district court's decision 'if any adequate reason for

the denial is apparent on the record.'" ACA Fin. Guar. Corp. v.

Advest, Inc., 512 F.3d 46, 55 (1st Cir. 2008) (quoting LaRocca v.

Borden, Inc., 276 F.3d 22, 32 n.9 (1st Cir. 2002)). Reasons for

denying leave include undue delay in filing the motion, bad faith

or dilatory motive, repeated failure to cure deficiencies, undue

prejudice to the opposing party, and futility of amendment. Foman

v. Davis, 371 U.S. 178, 182 (1962); Rost, 507 F.3d at 733-34.

We hold the district court did not abuse its discretion.

The court did not, as relators argue, base its denial of leave to

amend on the "lack of clarity" as to whether they were actually

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requesting leave. The court's order was based on relators'

repeated failure to cure the deficiencies in their pleadings. See

Gagne, 2008 WL 2510143, at *5 n.5 (citing Rost and Foman for the

proposition that permissible grounds for denial of leave to amend

include a repeated failure to cure pleading deficiencies). The

original complaint was filed in 2006; the First Amended Complaint

was filed in 2007; the Second Amended Complaint in January 2008.

The district court's opinion was on June 20, 2008. Plaintiffs do

not get a fourth chance to try to get it right. See ACA Fin. Guar.

Corp., 512 F.3d at 57.

III.

We affirm the district court's order dismissing relators'

claim and denying leave to amend.

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