United States Ex Rel. Sansbury v. LB & B Associates, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
UNITED STATES OF AMERICA, )
ex rel. )
STEVEN O. SANSBURY, et al. )
)
Plaintiffs, ) Civ. Action No. 07-251 (EGS)
)
v. )
)
LB&B ASSOCIATES, INC., et al. )
)
Defendants. )
)

MEMORANDUM OPINION

Pending before the Court are two motions to dismiss filed

by Defendants Edward Brandon, Lily Brandon, and LB&B Associates,

Inc. (hereinafter, “LB&B”) (collectively, “LB&B Defendants”).

Relators brought this action against the LB&B Defendants, as

well as Bering Straits AKI, Chilkat Services, Inc., and two

individual representatives of those companies pursuant to the

qui tam provision of the False Claims Act (“FCA”), 31 U.S.C. §

3730(b). Relators allege that Defendants violated the FCA with

respect to their participation in the Small Business

Association’s (hereinafter “SBA”) Section 8(a) program and 8(a)

Mentor Protégé program. On April 14, 2011, the Government filed

its notice of election to intervene in part, electing to

intervene in Relators’ claims only insofar as they relate to the

LB&B Defendants’ participation in the Section 8(a) program, but

1
not the Mentor-Protégé program. The Government subsequently

filed its complaint in intervention on August 19, 2011. The

Government’s complaint in intervention asserts two additional

causes of action against LB&B Defendants for common law

negligent misrepresentation and fraud against the LB&B

Defendants. Pending before the Court are the LB&B Defendants’

motions to dismiss both complaints, pursuant to Rules 9(b) and

12(b)(6) of the Federal Rules of Civil Procedure.1 Having

carefully considered Defendants’ motions to dismiss, the

responses and replies thereto, the applicable law, and the

record as a whole, Defendants’ Motion to Dismiss Relators’

complaint is DENIED and Defendants’ Motion to Dismiss the

Government’s complaint in intervention is GRANTED IN PART AND

DENIED IN PART.

I. Background

A. Statutory Framework

1. The Section 8(a) Program

The SBA’s Section 8(a) program is a business development

program for small businesses owned by individuals who are

socially and economically disadvantaged. See 15 U.S.C. §

637(a); 13 C.F.R. § 124.1. Qualifying small businesses that are

1
Because a number of the arguments made in both motions to
dismiss overlap, the Court will address the motions together.
Further, because only the LB&B Defendants have responded to the
complaint, this opinion refers to them throughout as
“Defendants.”
2
owned or controlled by socially or economically disadvantaged

individuals may apply to the SBA, and if accepted into the

program, they are eligible to receive preferential treatment in

the form of “set aside” contracts. They are also eligible to

receive technological, financial, and practical assistance.

Relators’ Compl. ¶ 15; Gov’t Compl. ¶¶ 19-21.

In order for a small business to participate in the

program, it must apply to and be certified by the SBA. It must

first meet certain size requirements, see 13 C.F.R. Part 21, and

it must also be “disadvantaged,” which requires that at least

fifty one percent of the business is owned and controlled by one

or more individuals who are socially and economically

disadvantaged. See 15 U.S.C. § 637(a)(4)(A)-(B); 13 C.F.R. §

124.105. The program defines socially “disadvantaged

individuals” as those who have been “subjected to racial or

ethnic prejudice or cultural bias within American society

because of their identities as members of groups and without

regard to their individual qualities.” 13 C.F.R. § 124.103(a);

see also 15 U.S.C. § 637(a)(5). “Economically disadvantaged”

individuals are those socially disadvantaged individuals “whose

ability to compete in the free enterprise system has been

impaired due to diminished capital and credit opportunities as

compared to others in the same or similar line of business who

are not socially disadvantaged.” 13 C.F.R. § 124.104(a); see

3
also 15 U.S.C. § 637(a)(6)(A). A company selected for the

program must annually certify its continued eligibility for the

Section 8(a) program and must provide financial and other

information to the SBA. See 13 C.F.R. §§ 124.112(b),

124.509(c), 124.601, 124.602. A company may remain in the

program for a maximum of nine years if it continues to meet the

eligibility requirements throughout the period, and it may

participate in the program only once. See 13 C.F.R. §§ 124.2,

124.108(b).

Individuals who are members of certain racial and ethnic

groups are considered to be presumptively socially

disadvantaged. See 13 C.F.R. § 124.103(b)(1); see also 15

U.S.C. § 631(f)(1)(B)-(C) (explaining that socially

disadvantaged individuals include “members of certain groups

that have suffered the effects of discriminatory practices or

similar invidious circumstances over which they have no

control,” including, but not limited to “Black Americans,

Hispanic Americans, Native Americans, Indian tribes, Asian

Pacific Americans, Native Hawaiian Organizations, and other

minorities”). This presumption is rebuttable, and may be

overcome by credible evidence to the contrary. See 13 C.F.R. §

124.103(b)(3). An individual who is not a member of one of

these groups may nonetheless gain admission into the Section

8(a) program by establishing by a preponderance of the evidence

4
that he or she is socially disadvantaged under criteria set

forth in 13 C.F.R. § 124.103(c).

In the context of the Section 8(a) program, “control”

requires that “both that disadvantaged persons have the power to

control the company and that such persons actually exercise

their authority to control the company.” Gov’t Compl. ¶ 26; see

also 13 C.F.R. § 124.106. Although a non-disadvantaged

individual may be involved in the management of a company that

participates in the Section 8(a) program, that individual may

not, inter alia, exercise actual control of the company or

receive compensation that exceeds that of the socially or

economically disadvantaged person who controls the company. See

13 C.F.R. § 124.106(e). Further, non-disadvantaged individuals

who “transfer majority stock ownership or control of the firm to

an immediate family member within two years prior to the

application and remain involved in the firm as a stockholder,

officer, director, or key employee of the firm” are subject to a

rebuttable presumption that they actually control the firm. Id.

§ 124.106(f).

2. Mentor Protégé Program

In addition to the Section 8(a) program, the SBA also

administers a Mentor-Protégé program, which allows a non-Section

8(a) company to form a joint venture with a Section 8(a)

eligible company. The program is designed to encourage an

5
approved mentor, that is not a Section 8(a) concern, to provide

managerial, financial, and technical assistance in order to

improve a protégé’s ability to bid on and compete for government

contracts. See 13 C.F.R. § 124.520(a)-(b). The protégé must be

in the development stage of participation in the Section 8(a)

program, have never received an 8(a) contract, or have a size

that is half the size of the corresponding NAICS code. Id. §

124.520(c).

In order to participate in the program, a mentor and

protégé must submit their joint venture agreement to the SBA for

approval. Id. § 124.513(a)(1). The Section 8(a) participant

must be the “managing venturer” of the joint venture, and an

employee of the Section 8(a) concern must be designated as the

project manager responsible for overall contract performance.

Id. § 124.513(c)(2). Where the “8(a) concern brings very little

to the joint venture relationship in terms of resources and

expertise other than its 8(a) status, SBA will not approve the

joint venture agreement.” Id. § 124.513(a)(2). The applicable

regulations specifically provide that “[n]o determination of

affiliation or control may be found between a protégé firm and

its mentor based on the mentor/protégé agreement or any

assistance provided pursuant to the agreement.” Id. §

124.520(d)(4).

B. Factual Background

6
 LB&B is a North Carolina company that has its principal

place of business in Columbia, Maryland. It was certified by

the SBA as a Section 8(a) concern on April 6, 1995. This

certification was based on the status of President Lily Brandon,

who is an Asian Pacific American. Relators’ Compl. ¶¶ 7, 29;

Gov’t Compl. ¶ 12. Both Relators were employed at LB&B --

Steven O. Sansbury was employed as an Operations and Maintenance

Institutional Planner from 2000 until his separation from the

company in 2003, Relators’ Compl. ¶ 4; James Buechler was

employed as an Assistant Project Manager at the FDA from July

2003 until August 2005, Id. ¶ 5.

1. Allegations in the Government’s Complaint in
Intervention2

LB&B was incorporated in 1992. Govt. Compl. ¶ 28.

Initially, the Board of Directors of the company had six

members, only two of whom were socially and economically

disadvantaged: Ms. Brandon and her son, F. Edward Brandon Jr.

Relators and the Government allege that neither possessed

sufficient skills or experience to run a company engaged in

LB&B’s main lines of business -- government contracts,

manufacturing, facilities management, and government services.

Id. ¶¶ 29-30. Three of the other directors, including Defendant

2
These allegations relate to claims made in both the Relators’
complaint as well as in the United States’ complaint in
intervention.
7
F. Edward Brandon, Ms. Brandon’s husband, had extensive

experience in government contracting and the other lines of

business. Id. ¶ 31. Despite her alleged lack of experience,

Ms. Brandon was selected as the president of the company.

Moreover, though she contributed substantially the same amount

as the other directors, Ms. Brandon’s financial contribution was

treated as equity and she was given 51 percent of the company’s

stock. Id. ¶¶ 33-34.

In 1994, prior to applying for Section 8(a) certification,

all of the directors of the company except for Ms. Brandon

officially resigned, though they stayed on as employees with the

same titles and salaries as before their resignations. Id. ¶¶

35-37. The Government alleges that two of the original

directors sold their stock to Ms. Brandon at this time at the

share price set at the time of the company’s formation despite

the fact that the company had grown in the interim. As a result

of this sale, Ms. Brandon acquired an 81 percent interest in the

company. Id. ¶ 39.

On December 28, 1994, LB&B initially applied for Section

8(a) certification. The Government alleges that there were a

number of misrepresentations on the initial application. For

instance, Ms. Brandon’s salary was listed as $64,000 and Mr.

Brandon’s total compensation was listed at $42,500. According

to the Government, Ms. Brandon’s salary was actually $13,692.16

8
while Mr. Brandon’s total compensation was $18,126.60. Because

Mr. Brandon’s salary allegedly exceeded that of Ms. Brandon,

LB&B would have been ineligible to participate in the Section

8(a) program. Id. ¶¶ 43-47.

Further, on its application, LB&B represented that Ms.

Brandon would be responsible for the day-to-day operation of the

company and described Mr. Brandon’s role as limited to assisting

the president. Id. ¶¶ 48-49. However, the Government alleges

that Ms. Brandon had “no meaningful substantive role” in the

daily operations of the company, and did not:

(i) make specific decisions regarding bidding on new
business; (ii) oversee [LB&B’s] performance of its
government contracts . . . ; (iii) play any
substantive role in the negotiation and formulation of
[LB&B’s] government contracts; (iv) set and enforce
expectations for the company’s general managers; (v)
formulate specific company practices regarding
collective bargaining and interactions with unions; or
(vi) oversee the financial performance of [LB&B] on
its government contracts.

Id. ¶ 50. Those functions were instead overseen by Mr. Brandon

and others. Id. ¶ 51. Thus, the Government alleges that Ms.

Brandon’s actual role at the company “failed to satisfy the

statutory and regulatory requirements of control sufficient to

participate in the Section 8(a) business development program.”

Id. ¶ 52.

After receiving LB&B’s initial application for

certification, the SBA requested additional materials from the

9
company. The SBA specifically noted that Ms. Brandon’s résumé

did not appear to indicate that she had the necessary skills to

manage and operate the company. The SBA asked LB&B to provide a

fuller explanation of who had such skills at the company. Id. ¶

54. The Government alleges that in responding to this request

for information, Defendants further misrepresented Ms. Brandon’s

skills and role by stating that she had prior management

experience in the manufacturing industry, that she had direct

control over daily operations, that only she could sign company

commitments and checks, and that she controlled the finances of

the company. Id. ¶¶ 56-60.

The Government alleges that on the basis of these

misrepresentations, the SBA certified LB&B as a Section 8(a)

concern on April 6, 1995 for a period of nine years to conclude

in April 2004. Id. ¶ 61. On the basis of this certification,

LB&B was able to market itself as a Section 8(a) program

participant and bid on “set-aside” contracts, which the

Government contends it began to actively and aggressively do

after February 1, 1997. Id. ¶¶ 62-67; 82-84. Moreover, on the

yearly certifications that it submitted after April 1995, the

Government alleges that LB&B continued to falsely certify, as it

had on its original application, that Ms. Brandon controlled the

company and that she was the only person at the company who

could commit monies and sign company checks. Id. ¶¶ 68-81. For

10
instance, during this period, the Government alleges that at

least five additional people at the company had the authority to

sign company checks and make commitments. Id. According to the

Government, that Ms. Brandon did not actually control the

company is further evidenced by the numerous company memoranda

issued by Mr. Brandon between 1996 and 2004 on the full range of

company operations. Id. ¶¶ 80-81.

After LB&B “graduated” from the Section 8(a) program in

2004, the Government alleges that Ms. Brandon resigned as

president and Mr. Brandon officially took on the role he had

been performing for years. Id. ¶¶ 85-86. Nevertheless, LB&B

purportedly continued to represent itself as a woman-owned and –

operated business until at least 2007. Id. ¶ 88.

2. Allegations in Relators’ Complaint

In addition to the allegations above, Relators also allege

that Defendants engaged in fraud in two joint ventures that LB&B

entered into with Section 8(a) concerns under the SBA Mentor

Protégé program. Relators allege that in late 2003 and early

2004, prior to its “graduation” from the Section 8(a) program,

LB&B began to search for protégé companies “so that it could

continue to illegally benefit from the 8(a) programs’ [sic]

advantages on bids on government contracts.” Relators’ Compl. ¶

50. To that end, Relators claim that LB&B entered into

discussions with Bering Straits Aki, LLC (hereinafter “BSA”), an

11
Alaskan, Inuit company owned by Defendant Gail Schuber,

regarding a proposed mentor-protégé relationship. Id. ¶¶ 50-

52. On August 16, 2004, a little over four months after LB&B

exited the Section 8(a) program, the SBA approved a joint

venture agreement between LB&B and BSA, pursuant to which the

joint venture was able to secure several government contracts,

including contracts with the Centers for Medicare & Medicaid

Services, the General Services Administration Public Buildings

Services, the Federal Emergency Management Agency, and the

United States Air Force. Id. ¶¶ 52-53. Relators allege that

the project managers for these contracts were LB&B employees

until January 2005, which was after the joint venture was

approved by the SBA. Id. ¶ 55. These project managers

purportedly did not switch their employment to BSA until January

2005, when they were instructed to do so by a senior vice

president at LB&B. Id. ¶ 56.

LB&B also entered into a mentor-protégé relationship with

Ckilkat Services, an Alaskan corporation, at some point in 2006.

Id. ¶ 64. Also in 2006, LB&B hired Sheldon L. Jahn as a senior

vice president. Relators allege that Mr. Jahn’s employment was

transferred from LB&B to Chilkat in late 2006 or early 2007,

after the SBA had already approved the joint venture, so that he

could serve as the general manager of the joint venture. Id.

C. Procedural History

12
 On or about December 27, 2004, Relators filed an action

alleging similar claims relating to Defendants’ participation in

the Section 8(a) program in the United States District Court for

the District of Maryland. See United States ex rel. Sansbury v.

LB&B Associates, Inc., No. 04-4018. On May 5, 2006, the

Government filed a notice of its election not to intervene.

After the Government declined to intervene in the District

of Maryland action, Relators filed a sealed qui tam complaint in

this court on February 1, 2007, alleging violations of the FCA.

The United States was contemporaneously served with the

Complaint. The Government filed several motions for an

extension of time to determine whether it would intervene in the

claims raised in Relators’ complaint. During this time, the

Government met with both Relators and Defendants and attempted

to resolve the matter short of continued litigation. On April

14, 2011, the Government filed a notice of election to

intervene; it elected to intervene in that part of the action

that relates to Defendants’ participation in the Section 8(a)

program and declined to intervene in the remaining claims

relating to participation in the Mentor-Protégé program. Upon

the unsealing of the action before this Court on June 29, 2011,

Defendants moved to unseal the District of Maryland action,

which was eventually unsealed on October 13, 2011. On August

19, 2011, after Defendants were served with Relators’ complaint,

13
the Government filed its complaint in intervention. Defendants

filed motions to dismiss both the Relators’ complaint and the

Government’s complaint in intervention. Those motions are now

ripe for determination by this Court.

II. Standard of Review

A. Rule 12(b)(6)

A motion to dismiss pursuant to Rule 12(b)(6) tests the

legal sufficiency of the complaint. See Browning v. Clinton,

292 F.3d 235, 242 (D.C. Cir. 2002). In order to be viable, a

complaint must contain “a short and plain statement of the claim

showing that the pleader is entitled to relief, in order to give

the defendant fair notice of what the . . . claim is and the

grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550

U.S. 544, 555 (2007) (internal quotation marks and citations

omitted). The plaintiff need not plead all of the elements of a

prima facie case in complaint, Swierkiewicz v. Sorema N.A., 534

U.S. 506, 511-14 (2002), nor must the plaintiff plead facts or

law that match every element of a legal theory. See Krieger v.

Fadely et al., 211 F.3d 134, 136 (D.C. Cir. 2000).

However, despite these liberal pleading standards, to

survive a motion to dismiss, “a complaint must contain

sufficient factual matter, accepted as true, to state a claim to

relief that is plausible on its face.” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (internal quotation marks omitted);

14
Twombly, 550 U.S. at 562. A claim is facially plausible when

the facts plead in the complaint allow “the court to draw the

reasonable inference that the defendant is liable for the

misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly,

550 U.S. at 556). While this standard does not amount to a

“probability requirement,” it does require more than a “sheer

possibility that a defendant has acted unlawfully.” Id. (citing

Twombly, 550 U.S. at 556).

“[W]hen ruling on a defendant’s motion to dismiss [pursuant

to Rule 12(b)(6)], a judge must accept as true all of the

factual allegations contained in the complaint.” Atherton v.

D.C. Office of the Mayor et al., 567 F.3d 672, 681 (D.C. Cir.

2009) (quoting Erickson v. Pardus, 551 U.S. 89, 94 (2007)). The

court must also give the plaintiff “the benefit of all

inferences that can be derived from the facts alleged.” Kowal

v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir.

1994)(internal citation omitted). Despite this, a court need

not “accept inferences drawn by plaintiffs if such inferences

are unsupported by the facts set out in the complaint. Id.

Further, “[t]hreadbare recitals of the elements of a cause of

action, supported by mere conclusory statements” are not

sufficient to state a claim. Iqbal, 556 U.S. at 678 (internal

citation omitted).

B. Rule 9(b)

15
 This Circuit has held that complaints brought under the

False Claims Act are subject to the heightened pleading

requirements of Fed. R. Civ. P. 9(b). See United States ex rel.

Totten v. Bombardier Corp. and Envirovac, Inc., 286 F.3d 542,

551-52 (D.C. Cir. 2002) (“Every circuit to consider the issue

has held that, because the False Claims Act is self-evidently an

anti-fraud statute, complaints brought under it must comply with

Rule 9(b).”). Rule 9(b) requires that “in all averments of

fraud or mistake, the circumstances constituting fraud or

mistake shall be stated with particularity.” Fed. R. Civ. P.

9(b). This specificity requirement “normally . . . means that

the pleader must state the time, place and content of the false

misrepresentations, the fact misrepresented and what was

obtained or given up as a consequence of the fraud.” United

States ex rel. Joel D. Joseph v. Cannon, 642 F.2d 1373, 1385

(D.C. Cir. 1981) (internal quotation marks omitted).

Likewise, in the context of the FCA, “the circumstances

that must be pleaded with specificity are matters such as the

time, place, and contents of the false representations, such

representation being the element of fraud about which the rule

is chiefly concerned.” Totten, 286 F.3d at 552 (internal

citation omitted) (emphasis in original); Shekoyan v. Sibley

Int’l. Corp., 217 F. Supp. 2d 59, 73 (D.D.C. 2002) (noting that

in the FCA context, “a claimant must typically allege the

16
identity of the person who made the fraudulent statement, the

time, place and content of the misrepresentation, the resulting

injury, and the method by which the misrepresentation was

communicated”) (internal citation omitted).

C. False Claims Act

The FCA provides a civil penalty and treble damages against

any individual who: (1) knowingly presents or causes to be

presented a false or fraudulent claim for payment or approval by

the United States, 31 U.S.C. § 3729(a)(1); (2) knowingly makes,

uses, or causes to be made or used, a false record or statement

material to getting a false or fraudulent claim paid or approved

by the Government, id. § 3729(a)(2); or (3) conspires to defraud

the United States by getting a false or fraudulent claim allowed

or paid, id. § 3729 (a)(3). To enforce these and other

provisions of the FCA, a private person, known as a “relator,”

may bring a civil or qui tam action in the government’s name.

31 U.S.C. § 3730(b)(1). If the government elects to intervene,

it shall then have the primary responsibility for prosecuting

the action, although the relator may continue as a party to the

action, subject to certain limitations enumerated in the

statute. Id. § 3730(c)(1).

III. Discussion

A. Relators’ Standing to Bring FCA Claims Related to
Participation in 8(a) Program

17
 Defendants first argue that, because the Government has

intervened in this action with respect to the claims regarding

their participation in the 8(a) program, those claims have been

rendered impermissibly duplicative, and Relators thus lack

standing to bring them. See Defs.’ MTD Relators’ Compl. at 19-

20. Relators argue that Defendants cannot seek to dismiss the

portions of their complaint in which the Government has

intervened. Rather, they argue that the only way for Defendants

to limit their participation is to file a motion pursuant to 31

U.S.C. § 3730(c)(2)(D), which states that “[u]pon a showing by

the defendant that unrestricted participation during the course

of the litigation by the person initiating the action would be

for purposes of harassment or would cause the defendant undue

burden or unnecessary expense, the court may limit the

participation by the person in the litigation.” Relators’ Opp’n

at 17 (quoting 31 U.S.C. § 3730(c)(2)(D)). The Government

agrees that its complaint in intervention is the operative

complaint as to all claims in which it has intervened. However,

the Government notes that Relators also still have the right to

continue in the action as parties with respect to those

intervened claims. The Government therefore recommends that the

Court deny as moot Defendants’ motion to dismiss the Section

8(a) claims in Relators’ initial complaint. See Gov’t’s Opp’n

at 5 n.1.

18
 The FCA states that “[a] person may bring a civil action

for a violation of section 3729 for the person and for the

United States government.” 31 U.S.C. §3730(b)(1). Thus, the

statute explicitly gives a relator the right to proceed as a

real party in interest in a qui tam action. The statute does

not indicate that a relator does not retain standing after the

government intervenes. In fact, the statute provides for the

opposite, stating: “If the Government proceeds with the action,

it shall have the primary responsibility for prosecuting the

action, and shall not be bound by an act of the person bringing

the action. Such person shall have the right to continue as a

party to the action . . . .” 31 U.S.C. § 3730(c)(1) (emphasis

added). Thus, by automatic operation of the statute, the

Government’s complaint in intervention becomes the operative

complaint as to all claims in which the government has

intervened. See United States ex rel. Feldman v. City of New

York, 808 F. Supp. 2d 641, 648-49 (S.D.N.Y. 2011)). However, a

relator’s initial complaint continues to be the operative

complaint for all non-intervened claims and relators remain a

party to the Government’s intervened claims and continue to have

rights to participate in those claims under 31 U.S.C. §

3730(c)(1) and to receive any relator’s recovery permitted by 31

U.S.C. § 3730(d), subject to the limitations of the FCA and the

facts and circumstances a particular case. Defendants can only

19
seek to have the Court limit relators’ participation pursuant to

31 U.S.C. § 3730(c)(2)(D).

Most other courts that have addressed this issue have

dismissed relators’ superseded claims. See, e.g. Feldman, 808

F. Supp. 2d at 649 (dismissing relator’s amended complaint for

lack of standing because it was “superseded in its entirety by

the Government’s Amended Complaint”); United States ex rel Magee

v. Lockheed Martin Corp., No. 09-324, 2010 U.S. Dist. LEXIS

23295, at *8-*9 (S.D. Miss. Mar. 12, 2010) (same); United States

ex rel. Becker v. Tools & Metals, Inc., No. 3:05-CV-0627, 2009

U.S. Dist. LEXIS 27507, at *6, *17-*19 (N.D. Tex. March 31,

2009); In re Pharm. Indus. Average Wholesale Price Litig., No.

01-12257, 2007 U.S. Dist. LEXIS 89835, at *17 (D. Mass. Dec. 6,

2007) (“[O]nce the government has intervened, the relator has no

separate free-standing FCA cause of action.”) (citing United

States ex rel. Barajas v. Northrop Corp., 147 F.3d 905, 910 (9th

Cir. 1998))); but see United States ex rel. Landis v. Tailwind

Sports Corp., No. 10-cv-976, 2014 U.S. Dist. LEXIS 83313 (D.D.C.

June 19, 2014), at *23-*28 (refusing to dismiss relators’

intervened claims on the basis that they no longer had standing

because the text of the FCA does not require it).

However, dismissal is by no means required especially

where, as here, Defendants have made no showing that the

Relators’ participation during the course of the litigation will

20
cause them undue burden or expense that would justify limiting

their participation. Therefore, because the Government’s

complaint in intervention supersedes Relators’ complaint with

respect to the intervened claims, and because Relators have the

right to continue as parties to this action, the Court will deny

Defendants’ motion to dismiss Relators’ claims, to the extent

that they are duplicative of the Government’s claims, as moot.

B. Statute of Limitations

1. Government’s FCA Claims pre-February 2001

Defendants argue that all of the Government’s FCA claims

that predate February 1, 2001 are barred by the statute of

limitations. The FCA provides that:

A civil action under section 3730 may not be brought--

(1) more than six years after the date on which
the violation of section 3729 is committed, or

(2) more than three years after the date when
facts material to the right of action are known
or reasonably should have been known by the
official of the United States charged with
responsibility to act in the circumstances, but
in no event more than 10 years after the date on
which the violation is committed,

whichever occurs last.

31 U.S.C. § 3731(b). The Act further states that “[f]or statute

of limitations purposes, any . . . Government pleading shall

relate back to the filing date of the complaint of the person

who originally brought the action, to the extent that the claim

21
of the Government arises out of the conduct, transactions, or

occurrences set forth, or attempted to be set forth, in the

prior complaint of that person.” Id. § 3731(c).3

Neither party disputes that the Government’s claims arise

out of the conduct, transactions, and occurrences set forth in

Relators’ complaint, and that the Government’s complaint thus

“relates back” to the date of the filing of Relators’ complaint.

Defs.’ MTD Govt.'s Compl. at 15-16; Govt.’s Opp’n at 11.

Defendants argue that because the Government did not file its

complaint in intervention within three years of the date when it

should have known of any potential claims – that is, February 1,

2007, the date on which Relators filed their initial complaint –

the Government cannot avail itself of the ten-year statute of

limitations in section 3731(b)(2), and thus only a six-year

statute of limitations applies. Therefore, according to

Defendants, the Government may only maintain claims for

violations that are alleged to have occurred after February 1,

3
Section 3731(c) was added as an amendment as part of the Fraud
Enforcement and Recovery Act of 2009. As the D.C. Circuit held
in United States ex rel. Miller v. Bill Harbert International
Construction, Inc., 608 F.3d 871, 879-80 (D.C. Cir. 2010), the
2009 amendments to Section 3731 apply to this matter as “the
provision permitting relation back was made expressly
‘applicable to cases pending on the date of enactment.’”
Miller, 608 F.3d at 878 (quoting Fraud Enforcement and Recovery
Act of 2009, Pub. L. No. 111-21, § 4(f)(2), 123 Stat. 1617,
1625).
22
2001, six years prior to the filing of Relators’ complaint. MTD

Govt.'s Compl. at 16.

The Government argues that Defendants ignore a fundamental

principle of the qui tam mechanism: “that for statute of

limitations purposes, the Government stands in the shoes of the

relator.” Govt.’s Opp’n at 9. Thus, if a relator’s claim is

timely, so too will a government complaint in intervention

alleging the same wrongdoing be timely, regardless of when it is

filed. Id. The Government admits that it was aware of

Relators’ claims beginning on or around December 27, 2004, when

the same Relators filed a qui tam action in the United States

District Court for the District of Maryland. Id. at 5, 12-14.

The Government argues that because the initial complaint in this

action was filed by Relators on February 1, 2007, within three

years of the date when U.S. officials became aware of the claims

on December 27, 2004, the Government’s complaint in intervention

can apply to claims as far back as February 1, 1997, even though

the Government did not file its complaint in intervention until

August 19, 2011. Id. at 12-14. The Government’s theory then

is that it can avail itself of the ten year statute of

limitations in section 3731(b)(2) by operation of section

3731(c)’s relation-back provision.

The Government provides no support for its theory that if

the Relator files its initial complaint within three years of

23
when the Government should have been aware of certain claims,

the relation-back provision allows for the Government to take

advantage of the ten-year statute of limitations, starting from

the date of filing of the Relators’ initial complaint. Indeed,

the only case cited by the Government, United States ex rel.

Serrano v. Oaks Diagnostics Inc., 568 F. Supp. 2d 1136 (C.D. Cal

2008), is entirely irrelevant. There, in a pre-FERA case, the

court addressed the question of whether the government’s

complaint in intervention related back to relator’s complaint,

which was filed almost five years prior to the complaint in

intervention. The court ruled that the government’s complaint

did relate back to the relator’s complaint after conducting an

exhaustive analysis of relation-back principles under Fed. R.

Civ. P. 15. Id. at 1139-42. Because relator had filed the

original complaint within three years of the alleged conduct,

the court did not address which statute of limitations would

apply. Id. at 1142. Here, in a case to which the FERA

amendments apply, Relators did not file their original complaint

within three years of the alleged conduct, which spans as far

back as 1994, when Defendants first applied for the Section 8(a)

program. Even accepting that the Relators’ District of Maryland

action is relevant here, that action was not filed until

December 2004.

24
 Similarly, the cases on which Defendants rely also do not

address the precise issue presented here as most of them predate

the 2009 amendments. See United States ex rel. Frascella v.

Oracle Corp., 751 F. Supp. 2d 842 (E.D. Va. 2010); United States

ex rel. Purcell v. MWI Corp., 520 F. Supp. 2d 159 (D.D.C. 2007);

United States v. Intrados/Int’l Mgmt. Group, 265 F. Supp. 2d 1

(D.D.C. 2002). Indeed, all of these cases hold that the

relation-back provision allows the government to take advantage

of the six-year statute of limitations from the date of the

filing of the relator’s initial complaint, a point that is not

in dispute here.

For instance, in Frascella, defendants, like Defendants

here, argued that many of the government’s claims were barred by

the applicable statute of limitations. 751 F. Supp. 2d at 848.

There, relator filed his sealed complaint on May 29, 2007 and

the government filed its complaint in intervention on July 29,

2010, more than three years after relator’s initial complaint.

Id. The Frascella court, however, did not reach the precise

question raised here - whether the Government can avail itself

of the ten-year statute of limitations even where it failed to

file a complaint in intervention within three years of Relator’s

complaint - because the government conceded that it should have

known of any potential claims against defendant when relator

filed his complaint. Id. at 849 n.3. Instead, the government

25
argued that claims based on alleged false statements made

thirteen years prior to the filing of relator’s complaint were

timely because the U.S. officials charged with responsibility to

act could not reasonably have known of those claims prior to the

filing of relator’s complaint. Id. at 849. The Frascella court

found the government’s argument unavailing because a 1998 audit

by the GSA had uncovered some of the same false statements

alleged in relator’s complaint. The government, the court held,

was thus on inquiry notice of these statements such that a

reasonable person would investigate. Id. at 851-853. Despite

Defendants’ contention that the facts of Frascella are identical

to those here, there was no earlier filed qui tam action at

issue in Frascella that the government claimed was the specific

starting date for statute of limitations purposes. See Defs.’

MTD Govt.’s Compl. at 17.

Similarly, the issue before the court in Purcell was

analytically distinct. There, in a pre-FERA case, defendants

argued that the government’s claims against the president of the

company, who was not named as a defendant in relator’s

complaint, were time barred because they were not filed within

three years of the date that a relevant government official

became aware of them. 520 F. Supp. 2d at 169. In ruling on a

prior motion to dismiss, the Purcell court denied defendant’s

motion on the grounds that it did not have enough information,

26
at that state in the litigation, to assess whether the claims

were timely. Id.; see also United States ex rel Purcell v. MWI

Corp., 254 F. Supp. 2d 69, 78 (D.D.C. 2003). After discovery,

defendants reiterated their arguments regarding the timeliness

of the government’s claim during summary judgment proceedings

and the court agreed. 520 F. Supp. 2d at 169-170. The court

applied the “discovery-due diligence” standard, under which “a

plaintiff is deemed to have sufficient notice of critical facts

to set the statute of limitations running if the plaintiff has

inquiry notice of the injury and its cause.” Id. at 170 (citing

United States v. Kubrick, 444 U.S. 111, 120 (1979). Because the

relator’s complaint, filed more than three years prior to the

government’s complaint in intervention, did provide the

government with evidence supporting its case against defendants,

the government’s claims were time barred. Id. at 170-72. The

Court again did not consider the impact of a previously filed

qui tam action, and the government did not attempt to avail

itself of the ten-year limitations period.

Finally, Defendants cite to Intrados, which is also

inapposite. That case, while brought under the FCA, was not a

qui tam action. Instead, the United States directly sued

defendants under the Act. In doing so, the government argued

that claims based on conduct that occurred more than six years

prior to the filing of its complaint were timely because

27
defendants had concealed the alleged fraud. 265 F. Supp. 2d at

10. The court ruled that the government “did not exercise due

diligence in uncovering the fraud,” especially because a

relevant audit of the alleged fraudulent conduct was completed

more than three years before the filing of the government’s

complaint. Id. at 11. Thus, claims relating to invoices

submitted more than six years before the filing of the

government’s complaint were time barred. Id. at 10-11.

The plain text of section 3731(b)(2) appears to only relate

to the government. However, several courts, including one in

this District, have concluded that where the government does not

intervene, the relator can take advantage of the tolling

provision in section 3731(b)(2). See, e.g., U.S. ex rel. Pogue

v. Diabetes Treatment Ctrs. of Am., Inc., 474 F. Supp. 2d 75,

82-89 (D.D.C. 2007) (collecting cases evidencing a three-way

split among jurisdictions about whether and when relators may

invoke the tolling provision, and holding that relators may take

advantage of the tolling provision even where the government

does not intervene and that the limitations period is measured

by the knowledge of the relevant government official); see also

U.S. ex rel. Malloy v. Telephonics Corp., 68 Fed. App’x 270, 273

(3d Cir. 2003) (holding that relators may invoke the tolling

provision and basing the tolling period’s start on the relator’s

own knowledge); U.S. ex rel. Ven-A-Care of the Fla. Keys, Inc.

28
v. Actavis Mid Atlantic LLC, 659 F. Supp. 2d 262, 273-74 (D.

Mass. 2009) (concluding that relators may invoke the tolling

provision and basing the beginning of the period on the

knowledge of the relevant government official). This view,

while not a majority view, does offer some support for the

Government’s theory – if the Relators here can take advantage of

3731(b)(2), their initial complaint was filed within three years

of the date when the Government first became aware of the

claims. And if the Government’s complaint in intervention

relates back to the date the Relators’ complaint was filed, then

the Government’s claims can span as far back as February 1,

1997.

As explained above, none of the cases cited by either party

adequately describe the situation currently before the Court,

where Relator filed a second suit in a different court within

three years of the relevant U.S. official learning of the

alleged fraud through the filing of the first suit. Nor is the

Court aware of any such cases. Thus the court must look to the

text of the statute for guidance. See Murphy Exploration &

Prod. Co. v. United States DOI, 252 F.3d 473, 480 (D.C. Cir.

2001) (citing Carter v. United States, 530 US. 255, 271 (2000)).

By its express terms, section 3731(b)(2) is silent as to whether

it applies to Relators. However, subsection (b) of section 3731

begins by stating that it applies to “civil action[s] under

29
section 3730,” which includes actions brought by both the

Government and Relators.4 That prohibition, however, does not

apply here as Relators are proceeding pursuant to section

3730(b). Section 3731(b) concludes with “whichever occurs

last.” This language is not included in subsections (a) or (b),

but rather is offset in the same way as the introductory

4
The Supreme Court has held that the limitations period in
Section 3731(b) applies only to actions brought pursuant to
Sections 3730(a) and (b), but not to retaliation actions brought
by qui tam plaintiffs pursuant to Section 3730(h). See Graham
County Soil & Water Conservation Dist. v. United States ex rel.
Wilson, 545 U.S. 409, 415-422 (2005).

Another court in this District, relying on Graham, has found
that section 3731(b)(2) does not apply to Relators. See Landis,
2014 U.S. Dist. LEXIS 83313 at *44-*53. There, in determining
whether a relator could take advantage of section 3731(b)(2)’s
tolling provision in an action in which the Government had
intervened, the court declined to follow Pogue and held that “it
is not reasonable to construe Section 3731(b)(2) to mean that
the application of tolling to relator’s lawsuit turns on the
knowledge of the responsible United States government official,
when the government has in fact declined to prosecute the claims
brought by the relator and the government has not intervened or
become a party to the relator’s lawsuit.” Id. at 51. The court
reasoned that the “most reasonable and intuitive construction of
section 3731(b)(2) is that ‘a civil action under section 3730’
does not apply to all actions under section 3730, but only as to
those actions in which the United States has ‘acted,’ by seeking
to participate.” Id. Thus, the court held that with respect to
Relators claims against non-intervened defendants, the six year
statute of limitations in section 3731(a) applied. This
holding, however, does not in any way impact the effect of the
tolling provision on claims for which the government has
intervened and whether those claims are timely if a relator
files suit within three years of the relevant government
official’s knowledge.

30
language. This indicates that the two subsections are to be

read together. See Pogue, 474 F. Supp. 2d at 85.

Thus, looking at the language of section 3731(b) as a

whole, it seems clear that it includes Relators, at least in

actions in which the Government has intervened, and there is

nothing in section (b)(2) to suggest that Relators are excluded.

See Pogue, 474 F. Supp. 2d at 84; see also Landis, 2014 U.S.

Dist. LEXIS 83313 at *51. This reading of Section 3731(b) is

also consistent with Graham, in which the Supreme Court did not

differentiate between relators and the government with respect

to actions brought under section 3730(b). 545 U.S. at 415.

The legislative history of section 3731(b) also supports

this interpretation of the statute. The Senate report on the

1986 amendments to the FCA states that section 3731(b)(2)’s

tolling provision means that the “statute of limitations does

not begin to run until the material facts are known by an

official within the Department of Justice with the authority to

act in the circumstances.” S. Rep. No. 345, 99th Cong., 2d

Sess., 30 (July 28, 1986), reprinted in 1986 U.S.C.C.A.N. 5266.

Similarly, the House report noted that fraud was often difficult

to detect, thus the statute extended the statute of limitations.

However, the House Report also explained that “the Committee did

not intend to allow the Government to bring fraud actions ad

infintum [sic], and therefore imposed the strict 10 year limit

31
on False Claims Act cases.” H. Rep. No. 660, 99th Cong., 2d

Sess., 25 (June 26, 1986). This legislative history indicates

that Congress intended the limitations period to run based on

the knowledge of the government.

Following the reasoning of Pogue, which allows relators to

take advantage of the tolling provision of section 3731(b)(2) if

they file a complaint within three years of the relevant

government official learning of the fraud, which they did here,

the Court finds that the government’s claims dating back to

February 1, 1997 are timely. As the Pogue court noted,

“[m]easuring (b)(2)’s limitations period by the government’s

knowledge, and never the relator’s, makes sense because it means

that . . . the government will be able to recover upon the

maximum amount of claims within the overall ten-year repose

period.” 474 F. Supp. 2d at 88.

2. The Government’s Remaining Tort Claims

In addition to its claims pursuant to the FCA, the

Government has also brought claims for common law fraud and

negligent misrepresentation. These claims are governed by 28

U.S.C. § 2415, the general federal statute of limitations, which

provides that “every action for money damages brought by the

United States or an officer or agency thereof which is founded

upon a tort shall be barred unless the complaint is filed within

three years after the right of action first accrues.” 28 U.S.C.

32
§ 2415(b). Because claims of negligent misrepresentation and

fraud sound in tort, they are governed by this three year

statute of limitations, Intrados, 265 F. Supp. 2d at 14, subject

to tolling where “facts material to the right of action are not

known and reasonably could not have been known by an official of

the United States charged with the responsibility to act in the

circumstances.” 28 U.S.C. § 2416(c).

Defendants argue that because the Government’s common law

claims were brought more than three years after the date the

relevant Government official could reasonably have known of

them, i.e., February 1, 2007, they are time-barred and must be

dismissed. Defs.’ MTD Govt.’s Compl. at 25. The Government

argues to the contrary that its fraud claims are also subject to

section 3731(c)’s relation back provision because it provides

that if the Government elects to intervene in a qui tam action,

it may file its own complaint to “clarify or add detail to the

claims in which the Government is intervening and to add any

additional claims with respect to which the Government contends

it is entitled to relief.” Govt.’s Opp’n at 17 (quoting 31

U.S.C. § 3731(c)) (emphasis in original). Thus, the Government

argues that the tolling provision of section 3731(b)(2) applies

to its common law claims and that its claims relating to conduct

after February 1, 1997 are timely. Id. at 18 n.8.

33
 The Government is correct that its complaint in

intervention relates back to the filing of Relator’s complaint,

because it arises out of the same conduct, transaction, or

occurrence. Frascella, 751 F. Supp. 2d at 854. However, it

does not then follow that the ten-year statute of limitations in

section 3731(b)(2) applies to the Government’s common law

claims; the statute of limitations in 28 U.S.C. § 2415(b) still

applies. Thus, the Court must count back from February 1, 2007

to determine which claims are timely. Accordingly, to the

extent that the Government’s fraud and negligent

misrepresentation claims arise out of factual allegations that

predate February 1, 2004, they are time-barred.

C. Relators’ and Government’s Failure to State a Claim

It is axiomatic that a plaintiff bringing an action for

fraud under the FCA must, first and foremost, allege that an

actual false claim or statement was presented to the government.

See Totten, 286 F.3d at 551; U.S. ex rel. Head v. Kane Co., 798

F. Supp. 2d 186, 195-96 (D.D.C. 2011). The FCA defines “claims”

to include “any request or demand, whether under a contract or

otherwise, for money or property which is made to a contractor,

grantee, or other recipient if the United States Government

provides any portion of the money or property which is requested

or demanded.” 31 U.S.C. § 3729(c). Congress has emphasized

that the FCA should be broadly interpreted “to reach all types

34
of fraud . . . that might result in financial loss to the

Government.” United States v. Neifert-White Co., 390 U.S. 228,

232 (1968). Accordingly, “[f]alse claims under the FCA take a

variety of forms.” United States v. Sci. Applications Int’l

Corp., 626 F.3d 1257, 1266 (D.C. Cir. 2010). These include: (1)

presentment claims; (2) fraudulent inducement claims; and (3)

false certification (express or implied) claims. See id.

(endorsing implied false certification theory as basis for FCA

claims in D.C. Circuit); U.S. ex rel. Bettis v. Odebrecht

Contractors of Cal., Inc., 393 F.3d 1321, 1326 (D.C. Cir. 2005)

(recognizing that claims based upon fraudulent inducement are

actionable under the FCA).

To state a claim for a false claim under the FCA, a

plaintiff must show that “(1) the defendant submitted a claim to

the government, (2) the claim was false, and (3) defendant knew

the claim was false.” United States ex rel. Harris v. Bernard,

275 F. Supp. 2d 1, 6 (D.D.C. 2003). The FCA does not require

proof of specific intent to deceive when a defendant presents

false or fraudulent claims to the government. 31 U.S.C. §

3729(b); United States v. TDC Mgmt. Corp., Inc., 24 F.3d 292,

296 (D.C. Cir. 1994).

An FCA plaintiff may also plead a claim under 31 U.S.C. §

3729(a)(1)(B), which provides a cause of action against anyone

who “knowingly makes, uses, or causes to be made or used, a

35
false record or statement material to a false or fraudulent

claim.” Section 3729 (a)(1)(B) attaches FCA liability to a

defendant who prepares in support of a claim a statement that it

knows to be a misrepresentation. United States ex rel. Totten

v. Bombardier Corp., 380 F.3d 488, 500-01 (D.C. Cir. 2004).

1. Relators Have Stated a Mentor-Protégé Program
Claim

According to Defendants, Relators’ sole allegation that

Defendants violated the FCA with regard to its participation in

the Mentor-Protégé program is that Defendants “falsely certified

in the joint venture agreements submitted to SBA for approval .

. . that the joint venture employed general managers who were

from 8(a), Alaskan, Intuit companies.” Defs.’ MTD Relators’

Compl. at 22 (citing Compl. ¶ 71). As such, Defendants argue

that Relators have failed to state a claim under the FCA

regarding their participation in the Mentor-Protégé program.

Defendants make three arguments in support of dismissal. First,

they argue that there are no requirements in the SBA regulations

regarding the general manager of a mentor-protégé joint venture,

as opposed to project managers. Therefore, according to

Defendants, Relators’ allegations regarding John Krulic and

Sheldon Jahn, who are described in the complaint as “general

managers,” are completely irrelevant. Second, Defendants argue

that Relators’ own complaint demonstrates that the alleged

36
representations regarding Mr. Krulic’s and Mr. Jahn’s employment

were true. In their complaint, Relators allege that these two

individuals “switched” employment, but they provide no factual

allegations in support of their speculation. Indeed, as

Defendants note, Relator Sansbury was no longer employed during

the relevant time period, and Relator Buechler did not work at

any of the relevant job site locations. Finally, Defendants

argue that any alleged “switch” in employment is not a violation

of the relevant SBA regulations.

According to the applicable SBA regulations, when a mentor

and protégé partner for the purpose of an 8(a) contract, they

must submit a joint venture agreement to the SBA for approval.

13 C.F.R. § 124.513. The agreement must contain, inter alia, “a

provision . . . [d]esignating an 8(a) Participant as the

managing venturer of the joint venture,” and an employee of the

managing venturer as the project manager responsible for

performance of the 8(a) contract. Id. § 124.513(c)(2). Here,

Relators have alleged that Defendants made false representations

regarding the employment of several project managers of the

relevant joint ventures. According to Relators’ complaint,

which must be taken as true at this stage in the litigation,

James Krulic was listed as the general manager of the BSA-LB&B

joint venture on the joint venture agreement approved by the SBA

on August 16, 2004 despite the fact that he was an LB&B employee

37
at the time. Relators’ Compl. ¶ 52. Relators further allege

that Mr. Krulic did not become a BSA employee until January

2005, well after the joint venture was approved and even then

only at the direction of senior employees at LB&B. Id. ¶¶ 53-

56. With respect to the Chilkat joint venture, Relators allege

that Mr. Jahn was a senior vice president at LB&B during 2006,

and that LB&B and Chilkat entered into a joint venture agreement

in which he was listed as the project manager. Id. ¶¶ 63-64.

Relators allege that in late 2006 or early 2007, Mr. Jahn’s

employment was switched to Chilkat for the purposes of the joint

venture agreement. Id. ¶ 64. Relators do not provide a

specific date for the approval of the joint venture, noting only

that it was approved “in or about 2006.” Id. ¶ 64. Relators

also contend that Relator Buechler did in fact work with the

BSA/LB&B joint venture. See Relators’ Opp’n at 22 n.6 (citing

Compl. ¶¶ 61-62).

Relators additionally allege that although Mr. Krulic and

Mr. Jahn were listed as “general managers” by defendants, they

were, in actuality, project managers. According to Relators,

they were employees of LB&B and then moved over to the joint

venture, such that the relevant “project manager” was not from

an 8(a) protégé company. See id. at 20-21. Relators also

contend that they should be allowed to conduct discovery on the

work these men performed to see if Defendants were in

38
contravention of the applicable regulations. See id. at 21; see

also Allen v. Beta Constr., 309 F. Supp. 2d 42, 47 (D.D.C. 2004)

(“[W]hile significant details [] will be necessary . . . these

details are not necessary at this very preliminary stage of

litigation.”).

Further, Relators also allege that Defendants listed Andrew

F. Van Der Stuyf, Edward J. Keenan, Donald Wilson, and Donald

Krauth as project managers on contracts secured pursuant to the

mentor-protégé relationship. These contracts were entered into

in October, November, and December 2004. At the time of

contracting, Mr. Van Der Stuyf, Mr. Keenan, Mr. Wilson, and Mr.

Krauth were purportedly employees of LB&B, despite the fact that

they were listed as project managers. See Relators’ Compl. ¶¶

53-55. Relators allege that they did not “switch” their

employment to BSA until the end of January 2005. Id. ¶ 57.

According to Relators, all four were only employees of BSA on

paper. Id.

Relators have provided more than the requisite “short and

plain statement of the claim showing that [they are] entitled to

relief.” Twombly, 550 U.S. at 555 (internal quotation marks and

citations omitted). They have also stated more than just one

false claim or statement in the relevant joint venture

agreements. As such, Defendants cannot credibly argue that they

are not on notice of the claims against them with respect to

39
their joint ventures with BSA and Chilkat or the false claims or

statements they allegedly made in connection with those joint

ventures. While Relators may not have pled sufficient facts to

ultimately succeed on the merits of their claim, that is not

required at this stage in the litigation. “Indeed, [Relators],

having first stated a claim with sufficient specificity,” which

the Court finds that they have for the reasons stated in Section

III.B.2 supra, “must be allowed to fill in those details through

the discovery process, especially because these details are in

defendants’ possession and will be identified when produced in

discovery.” Allen, 309 F. Supp. 2d at 47.

2. Relators and the Government Have Stated Their
Claims with Adequate Particularity

Defendants argue that the Government’s Section 8(a) claims

and Relators’ claims relating to their participation in the

Mentor-Protégé program fail because they have failed to plead

those claims with the particularity required by Fed. R. Civ. P.
5
9(b). Defendants argue that the “Government has failed to

sufficiently identify what was given up as a consequence of the

alleged fraud” because it has not “identified a single specific

false claim or invoice for payment or the date(s) or cost(s) of

5
The Court need not analyze Defendants’ arguments with respect
to Relators’ Section 8(a) claims because the Government’s
Complaint in Intervention supersedes those claims and is the
operative complaint with respect to those claims. See Section
III.A infra.
40
any such claims.” Defs.’ MTD Gov’t Compl. at 21. According to

Defendants, the Government has provided only two examples of

contracts that were allegedly fraudulently obtained. Id.

Further, Defendants argue that both the Government and Relators

have alleged an open-ended time frame for their claims. Id.;

Defs.’ MTD Relators’ Compl. at 25-26. With respect to Relators’

claims, Defendants argue that they consist of nothing more than

allegations that “all defendants” obtained “approval of joint

ventures under the SBA’s 8(a) Mentor-Protégé Program through

misrepresentation, and that LB&B subsequently obtained contracts

and payments based on those misrepresentations.” Defs.’ MTD

Relators’ Compl. at 25. Additionally, Defendants argue that

Relators claims are deficient because they “(a) do not specify

particular claims or payments made in relation to the alleged

fraudulent activity; (b) do not allege any fraudulent activity

on the part of Lily Brandon or Ed Brandon; (c) make allegations

‘upon information and belief;’ [and] (d) make general

allegations against all Defendants in their Complaint.” Id. at

26.

It is well established in this Circuit that “the simplicity

and flexibility contemplated by the rules must be taken into

account” when reviewing a complaint under Rule 9(b). United

States ex rel. McCready v. Columbia/HCA Healthcare, 251 F. Supp.

2d 114, 116 (D.D.C. 2003). Most importantly, Rule 9(b)’s

41
particularity requirement must be read in concert with Rule 8,

which requires only that a complaint contain a “short and plain

statement” of the claim. See Cannon, 642 F.2d at 1386 (holding

that “[t]he requirement of particularly does not abrogate Rule

8, and it should be harmonized with the general directives . . .

of Rule 8 . . . ”) (internal citations and quotation marks

omitted); Allen, 309 F. Supp. 2d at 46.

Defendants’ narrow reading of Rule 9(b) would essentially

eviscerate this standard and require claimants to provide

detailed proof of their allegations at this early stage in the

litigation. That is simply not what is required on a motion to

dismiss pursuant to Rule 9(b). Pogue, 238 F. Supp. 2d at 269.

Rather, at this stage in the litigation, an FCA “plaintiff need

not allege with specificity every element of its cause of action

if the complaint contains allegations from which an inference

may be drawn that the plaintiff will produce evidence on the

essential elements.” Intrados, 265 F. Supp. 2d at 7. Indeed,

the language of Rule 9(b) makes clear that “particularity [must

be pled] only with respect to the circumstances constituting

fraud. . . .” United States ex rel. Folliard v. CDW Tech.

Servs., Inc., 722 F. Supp. 2d 20, 27 (D.D.C. 2010). This is

especially true where, as here, the Government’s FCA claims are

based on a fraudulent “scheme,” in which the circumstances make

it likely that the alleged fraud was “consummated through the

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presentment of false claims.” United States ex rel. Head v.

Kane, 798 F. Supp. 2d 186, 203 (D.D.C. 2011) (quoting United

States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir.

2009)).

The Government argues that it has pled its FCA “false

claim” and “false statement” claims with particularity.

Specifically, the Government contends that it is has set forth:

(1) the who (the LB&B Defendants); (2) the what (express and

implied representations regarding the extent of Ms. Brandon’s

control of LB&B and its eligibility for the Section 8(a)

program); (3) the when (on or after February 1, 1997 in

certifications to the SBA and in set-aside contracts, and until

LB&B’s graduation from the 8(a) program); (4) the where or with

whom (the SBA and Government agencies that award set-aside

contracts); (5) the how (claims for payment submitted pursuant

to set-aside contracts that were obtained based on a fraudulent

8(a) certification, statements in annual 8(a) certifications,

and contract materials submitted by the SBA to Government

agencies to secure 8(a) contracts); and (6) damages (Section

8(a) contracts and modifications/extensions to those contracts,

and payments on invoices made pursuant to those contracts).

Gov’t’s Opp’n at 22.

Similarly, Relators argue that their claims relating to

Defendants’ participation in the SBA Mentor-Protégé program

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survive a Rule 9(b) challenge. According to Relators, they have

alleged a claim of fraud in the inducement. Relators’ Opp’n at

24-26. They also contend that they have not alleged an open

ended time frame – they have stated that the LB&B/BSA joint

venture was approved in 2004 and that the LB&B/Chilkat joint

venture was approved in 2006. They argue that these facts are

sufficient at this stage in the litigation.

Both the Government’s and Relators’ allegations relating to

Defendants’ participation in the Section 8(a) program and the

Mentor-Protégé program plainly meet Rule 9(b)’s pleading

requirements. They have both detailed the circumstances of the

fraudulent schemes relating to both programs, and they have

identified which defendants were involved in those schemes.

They have provided specific time frames – the Government alleges

that LB&B’s fraud began in approximately 1994 and continued

throughout the time that the company participated in the Section

8(a) program; Relators allege that LB&B’s fraud began in August

2004 with respect to the BSA joint venture and in 2006 with

respect to the Chilkat joint venture. That neither the

Government nor Relators provide a precise end date for the fraud

does not defeat their claims. See Kane, 798 F. Supp. 2d at 204

(finding that relator’s allegations that a fraudulent plan began

in 1999 and continued to “the present time” was “sufficient in a

case involving a complex, fraud scheme”); United States ex rel.

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Harris v. Bernad, 275 F. Supp. 2d 1, 8 (D.D.C. 2003) (holding

that in a case involving a complex fraud scheme that lasted for

a number of years, an allegation that the fraud was perpetrated

from 1993 to the present was sufficient); Pogue, 238 F. Supp. 2d

at 268 (concluding that allegations that a complex fraud scheme

occurred over a twelve-year period satisfied Rule 9(b)).

The Government also clearly links Defendants’ false claims

and statements to payments made by various Government agencies.

See Govt.’s Compl. ¶ 66 (noting that in March 1998 LB&B was

awarded a set aside contract with the U.S. Army Operational Test

and Evaluation Command and in March 1999 it was awarded a

contract with the U.S. Army Material Command Acquisition

Center). Those allegations are sufficient; the Government is

not required to plead specific dates, invoices, or payment

amounts pursuant to a Section 8(a) scheme that spanned many

years. Folliard, 722 F. Supp. 2d at 31 (“Although defendants

argue that relator must provide ‘transaction dates’ on which

individual claims were submitted, this is incorrect.”). Indeed,

this court has routinely held that “‘while Rule 9(b)’s

particularity requirement applies to the [contention] that the

request was fraudulent,’ Rule 12(b)(6)’s ‘general standards

apply to the . . . existence of a request for payment.’” Kane,

798 F. Supp. 2d at 205 (quoting Folliard, 722 F. Supp. 2d at

27).

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 Relators have also provided sufficient details, including

the specific joint venture agreements and the fact that project

managers listed on the agreements as being employees of the

protégé companies were actually LB&B employees at the time those

representations were made. Relators have further alleged that

LB&B employees were aware of those facts and directed the

relevant employees to switch their employment to the protégé

companies. They need not allege more at this stage. See Allen,

309 F. Supp. 2d at 46; see also United States ex rel. Westrick

v. Second Chance Body Armor, Inc., 685 F. Supp. 2d 129, 137

(D.D.C. 2010) (holding that the government had alleged enough on

a motion to dismiss by alleging the defendant had predicated

each sale with a fraudulent representation).

Thus, the Court finds that both the Government and Relators

have provided more than enough detail to satisfy Rule 9(b)’s

purpose of guaranteeing Defendants have “‘sufficient information

to allow for preparation of a response.’” United States ex rel.

Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C.

Cir. 2004) (quoting Cannon, 642 F.2d at 1385). “While

significant details which will be necessary for plaintiff[s] to

succeed on the merits of the case are indeed absent, these

details are not necessary at this very preliminary stage of

litigation.” Allen, 309 F. Supp. 2d at 47. Relators and the

Government must be allowed the opportunity to fill in these

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details through the discovery process. See id. Accordingly,

Defendants’ motions to dismiss the Government’s and Relators’

claims for failure to plead them with sufficient particularity

are denied.

3. Relators’ and Government’s False Claims Act
Conspiracy Claims

Defendants also move to dismiss the Government and Relators

FCA conspiracy claims pursuant to Rule 12(b)(6) because they

have not pled any agreement or overt act. Defendants

additionally argue that the FCA conspiracy claims are barred by

the intra-corporate conspiracy doctrine.

Section 3729(a)(3) of the FCA attaches liability to anyone

who “conspires to defraud the Government by getting a false or

fraudulent claim allowed or paid.” The FCA does not define

“conspiracy,” but “courts have held that general civil

conspiracy principles apply to FCA conspiracy claims.”

Westrick, 685 F. Supp. 2d at 140. Thus, the intra-corporate

conspiracy doctrine, a principle of civil conspiracy law,

applies to FCA conspiracies as well. Under this doctrine, “a

corporation cannot conspire with its employees, and its

employees, when acting in the scope of their employment, cannot

conspire among themselves.” United States ex rel. Fago v. M&T

Mortg. Corp., 518 F. Supp. 2d 108, 117 (D.D.C. 2007).

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 There is no dispute that Defendants Edward Brandon and Lily

Brandon are or were employees of Defendant LB&B. Thus, any

conspiracy claims between these individual Defendants and LB&B

fail pursuant to the intra-corporate conspiracy doctrine. See

Kane, 798 F. Supp. 2d at 201-02 (dismissing an FCA conspiracy

claim where plaintiffs had alleged a conspiracy between

employees of the corporation and the corporation itself). Thus,

the Government’s conspiracy claims fail to state a claim.

However, to the extent that Relators have alleged a

conspiracy between employees of LB&B, LB&B itself, BSA, and/or

Chilkat, those claims are not barred under that doctrine. In

order to state a claim for conspiracy pursuant to the FCA,

Relators must show “(1) that defendant[s] conspired with one or

more persons to have a fraudulent claim paid by the United

States, (2) that one or more of the conspirators performed any

act to have such claim paid by the United States, and (3) that

the United States suffered damages as a result of the claim.”

United States v. Bouchey, 860 F. Supp. 890, 893 (D.D.C. 1994).

Here, Relators have alleged that LB&B conspired with BSA and

Chilkat to form a joint venture that did not meet the applicable

requirements; that the project managers listed on the joint

venture agreements were LB&B employees, not employees of the

protégé companies, as required; that at some point after the

joint ventures were approved, the relevant employees switched

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their employment from LB&B to the protégé companies; and that

the joint ventures were able to secure set aside contracts as a

result of the misrepresentation. At this stage in the

litigation, Relators have alleged sufficient facts to survive a

motion to dismiss. See Westrick, 685 F. Supp. 2d at 141

(finding that assertions of meetings between employees of two

companies were sufficient to state a claim for conspiracy).

D. Relators’ Claims Against Remaining Defendants

Relators did not serve Bering Straits AKI, Chilkat

Services, or the individual named Defendants from those

companies. Thus, the Court will sua sponte dismiss their claims

against those Defendants pursuant to Fed. R. Civ. P. 4(m), which

provides that “[i]f a defendant is not served within 120 after

the complaint is filed, the court . . . must dismiss the action

without prejudice against that defendant.”

IV. Conclusion

For the reasons stated above, the Court DENIES Defendants’

Motion to Dismiss Relators’ complaint and GRANTS IN PART AND

DENIES IN PART Defendants’ Motion to Dismiss the Government’s

complaint in intervention.

SO ORDERED.

Signed: Emmet G. Sullivan
United States District Judge
July 16, 2014

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