United States of America, ex rel. Pragathi Gogineni and Ravindra Gogineni v. Fargo Pacific Inc.

• Court: District Court, D. Guam
• Decided: April 23, 2020
• Docket: 1:17-cv-00096
• Status: Unknown

Opinion

6 7 THE DISTRICT COURT OF GUAM 8 UNITED STATES OF AMERICA ex rel. CIVIL CASE NO. 17-00096 RAVINDRA GOGINENI, 9 Plaintiff, ORDER RE: MOTION TO DISMISS FOR 10 LACK OF JURISDICTION AND MOTION vs. TO DISMISS FOR FAILURE TO STATE A 11 CLAIM UPON WHICH RELIEF CAN BE FARGO PACIFIC INC., EDGAR L. GRANTED 12 MCCONNELL, and JAY S.H. PARK, Defendants. 13 14 Before the Court are two motions by Defendants to dismiss this action—one for failure to 15 state a claim upon which relief can be granted, ECF 31, and one for lack of jurisdiction, ECF 39. 16 For the reasons below, the motion to dismiss for lack of jurisdiction is DENIED, while the 17 motion to dismiss for failure to state a claim upon which relief can be granted is GRANTED IN 18 PART and DENIED IN PART. 19 I. BACKGROUND 20 Pursuant to Section 8(a) of the Small Business Act, the Small Business Association (“the 21 SBA”) administers the 8(a) Business Development Program, promoting the development of 22 small businesses controlled by socially and economically disadvantaged individuals. ECF 20 23 (“FAC”) ¶ 16. As part of this program, the SBA offers “8(a) certification” to small, minority 24 owned businesses, while certain federal contracts are set aside for businesses so certified. Id. One 25 of the eligibility requirements for certification is that the business be majority-owned and 26 controlled by socially and economically disadvantaged individuals. Id. ¶¶ 16, 19. 27 Defendant Jay Park was and is the president of Defendant Fargo Pacific (“Fargo”), a 28 general contractor here on Guam. Id. ¶¶ 17, 19. He is Asian American and therefore falls within 1 one of the “presumed groups” of socially disadvantaged individuals. Id. ¶ 19. Fargo was certified 2 under the SBA’s 8(a) program from 2002 to 2011. Id. ¶ 18. During this time, Fargo was awarded 3 two government roofing contracts set aside for 8(a) participants that are the subject of this 4 lawsuit. The first is Contract No. N40192-06-D-2540 (“2006 IDIQ Contract”), a contract worth 5 $9.68-million. Id. ¶¶ 1-2. The second is Contract No. N40192-09-D-2710 (“2009 IDIQ 6 Contract”), a contract worth $20.4-million. Id. 7 Plaintiff alleges that, during the time Fargo was certified under the SBA’s 8(a) program, 8 Fargo entered into a series of secret consulting agreements with Defendant Edgar L. 9 McConnell—who is not eligible to be an 8(a) participant—intended to circumvent the 8(a) 10 program’s requirements. Id. ¶ 28. The consulting agreements provided that McConnell would 11 perform work on the contracts at issue and would be entitled to 50% of the Gross Profit on those 12 contracts. Id. ¶¶ 32, 55. They also provided that McConnell would “manage all aspects of the 13 project[s] in a manner similar to which he is currently doing so for Western Roofing Service, 14 i[.]e. pricing Task Orders, ordering materials, supervising field management, securing 15 Manufacturers Warranties, insuring contract compliance, etc.” ECF 20-1 ¶ 13. 16 Plaintiff contends that these consulting agreements established a de facto joint venture 17 between Fargo and McConnell with respect to the contracts at issue, which was not disclosed to 18 the SBA as mandated under 8(a) program requirements. FAC ¶¶ 38, 63, 67-68. Plaintiff further 19 contends that the joint venture violated SBA regulations and rendered Fargo ineligible for the 20 8(a) contracts. Id. ¶ 68. 21 II. LEGAL STANDARD 22 A. Fed. R. Civ. P. 12(b)(1) 23 To invoke a federal court’s subject-matter jurisdiction, a plaintiff needs to provide only “a 24 short and plain statement of the grounds for the court’s jurisdiction.” Fed. R. Civ. P. 8(a)(1). 25 Under Rule 12(b)(1), a defendant may challenge the plaintiff’s jurisdictional allegations in one of 26 two ways. Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). A “facial” attack accepts the 27 truth of the plaintiff’s allegations but asserts that they “are insufficient on their face to invoke 28 1 federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004). “The 2 district court resolves a facial attack as it would a motion to dismiss under Rule 12(b)(6): 3 Accepting the plaintiff’s allegations as true and drawing all reasonable inferences in the 4 plaintiff’s favor, the court determines whether the allegations are sufficient as a legal matter to 5 invoke the court’s jurisdiction.” Leite, 749 F.3d at 1121. “[A] facial attack is easily remedied by 6 leave to amend jurisdictional allegations pursuant to 28 U.S.C. § 1653.” NewGen, LLC v. Safe 7 Cig, LLC, 840 F.3d 606, 614 (9th Cir. 2016). 8 Unlike a facial attack, a factual attack contests the truth of the plaintiff’s factual 9 allegations, usually by introducing evidence outside the pleadings. NewGen, 840 F.3d at 614. In 10 resolving a factual attack on jurisdiction, the district court need not presume the truthfulness of 11 the plaintiff’s allegations, and it may review evidence beyond the complaint without converting 12 the motion to dismiss into a motion for summary judgment. Safe Air for Everyone, 373 F.3d at 13 1039. The plaintiff bears the burden of proving by a preponderance of the evidence that each of 14 the requirements for subject-matter jurisdiction has been met. Leite, 749 F.3d at 1121. Normally, 15 if the existence of jurisdiction turns on disputed factual issues, the district court itself may 16 resolve those factual disputes. Id. at 1121-22. However, the court “must leave the resolution of 17 material factual disputes to the trier of fact when the issue of subject-matter jurisdiction is 18 intertwined with an element of the merits of the plaintiff’s claim.” Id. at 1122 n.3. 19 B. Fed. R. Civ. P. 12(b)(6) 20 Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a 21 plaintiff’s allegations fail to set forth a set of facts that, if true, would entitle the complainant to 22 relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 679 23 (2009). The pleadings must raise the right to relief beyond the speculative level; a plaintiff must 24 provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause 25 of action will not do.” Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 26 (1986)). On a motion to dismiss, a court accepts as true a plaintiff’s well-pleaded factual 27 allegations and construes all factual inferences in the light most favorable to the plaintiff. See 28 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). A court is not 1 required to accept as true legal conclusions couched as factual allegations. Iqbal, 556 U.S. at 2 678. 3 Under Rule 9(b), “a complaint alleging implied false certification [under the False Claims 4 Act] must plead with particularity allegations that provide a reasonable basis to infer that (1) the 5 defendant explicitly undertook to comply with a law, rule[,] or regulation that is implicated in 6 submitting a claim for payment and that (2) claims were submitted (3) even though the defendant 7 was not in compliance with that law, rule[,] or regulation.” Ebeid ex. rel. U.S. v. Lungwitz, 616 8 F.3d 993, 998 (9th Cir. 2010). The complaint’s allegations need not identify particular claims 9 submitted by the defendant; “it is sufficient to allege ‘particular details of a scheme to submit 10 false claims paired with reliable indicia that lead to a strong inference that claims were actually 11 submitted.’” Id. at 998-99. 12 In evaluating a Rule 12(b)(6) motion, review is ordinarily limited to the contents of the 13 complaint and material properly submitted with the complaint. Van Buskirk v. Cable News 14 Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002); Hal Roach Studios, Inc. v. Richard Feiner & 15 Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). Under the incorporation by reference 16 doctrine, courts may also consider documents “whose contents are alleged in a complaint and 17 whose authenticity no party questions, but which are not physically attached to the pleading.” 18 Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by 307 F.3d 19 1119, 1121 (9th Cir. 2002). Courts may treat such a document as “part of the complaint, and thus 20 may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6).” 21 United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 22 Dismissal with leave to amend should be freely given “when justice so requires.” Fed. R. 23 Civ. P. 15(a)(2). This policy is applied with “extreme liberality.” Morongo Band of Mission 24 Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990); see also Lopez v. Smith, 203 F.3d 1122, 25 1127 (9th Cir. 2000). Dismissal without leave to amend is appropriate only when the court is 26 satisfied that the deficiencies in the complaint could not possibly be cured by amendment. 27 Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003). 28 1 A. Lack of Subject Matter Jurisdiction 2 3 Prior to its amendment in 2010, the False Claims Act (“FCA”) provided that: 4 No court shall have jurisdiction over an [FCA qui tam] action … based 5 upon the public disclosure of allegations or transactions in a criminal, civil, 6 or administrative hearing, in a congressional, administrative, or Government 7 Accounting Office report, hearing, audit or investigation, or from the news 8 media, unless the action is brought by the Attorney General or the person 9 bringing the action is an original source of the information. 10 31 U.S.C. § 3730(e)(4)(A) (2006).1 11 The public disclosure bar is triggered when three conditions are met: “(1) the disclosure at 12 issue occurred through one of the channels specified in the statute; (2) the disclosure was 13 ‘public’; and (3) the relator’s action is ‘based upon’ the allegations or transactions publicly 14 disclosed.” U.S. ex rel. Solis v. Millennium Pharmaceuticals, 885 F.3d 623, 626 (9th Cir. 2018). 15 For the action to be “based upon” the public disclosure, “the publicly disclosed facts need not be 16 identical with, but only substantially similar to, the relator’s allegations.” Id. 17 If X + Y = Z, Z represents the allegation of fraud and X and Y represent 18 its essential elements. In order to disclose the fraudulent transaction publicly, 19 the combination of X and Y must be revealed, from which readers or listeners 20 may infer Z, i.e., the conclusion that fraud has been committed.… [I]n a 21 fraud case, X and Y inevitably stand for but two elements: a misrepresented 22 state of facts and a true state of facts. 23 U.S. ex rel. Mateski v. Raytheon Co., 816 F.3d 565, 571 (9th Cir. 2016) (internal citations, 24 quotation marks omitted). 25 26 1 The 2010 amendments “transformed the public disclosure bar from a jurisdictional bar to an 27 affirmative defense.” Prather v. AT&T, Inc., 847 F.3d 1097, 1102 (9th Cir. 2017). However, “the amendments … are not retroactive.” Id. at 1103. Because this action is based in part on fraud 28 1 In order to invoke the public disclosure bar, Defendants rely on the following publicly 2 disclosed facts: 3 • Fargo was a participant in the 8(a) business development program. 4 • The Navy IDIQ Contracts were set aside for 8(a) certified contractors. 5 • The Requests for Proposals for the IDIQ Contracts required joint venture proposals to be identified. 6 • Fargo did not submit an offer as a joint venture when bidding on the IDIQ 7 Contracts. 8 • McConnell was “receiving a substantial share of the profit under the delivery orders” issued under the IDIQ Contracts. 9 10 ECF 39 at 6-7. 11 Plaintiff asserts numerous arguments in his opposition to Defendants’ motion, but the 12 Court need only reach one of them: that these facts do not disclose the allegedly fraudulent 13 transaction on which this action is based. As noted above, in order to publicly disclose the 14 fraudulent transaction, two things must be revealed: “a misrepresented state of facts and a true 15 state of facts.” Raytheon, 816 F.3d at 571. Although a true state of facts is identified—that 16 McConnell was receiving a substantial share of the profit under the IDIQ Contracts—none of the 17 publicly disclosed facts reveals any misrepresentations as to this state of facts. 18 Conversely, although the publicly disclosed facts reveal that Fargo did not represent itself 19 as a joint venture with respect to the IDIQ Contracts, none of the publicly disclosed facts would 20 warrant an inference that the true state of facts materially differed from this representation or that 21 fraud was committed. Here, the action is “based upon” the allegation that McConnell and Fargo 22 entered into an undisclosed de facto joint venture with respect to the IDIQ Contracts, in violation 23 of SBA regulations. Importantly, however, there is no contention by either party that SBA 24 regulations prohibited McConnell from receiving a “substantial share” of the profits under the 25 IDIQ Contracts. Accordingly, this fact alone cannot be considered “substantially similar” to the 26 allegation that McConnell and Fargo formed a de facto joint venture with respect to the IDIQ 27 28 1 Contracts. In the absence of any public disclosure of this aspect of the transaction, the public 2 disclosure bar simply does not apply. 3 B. Failure to State a Claim 4 1. Elements for Liability Under the False Claims Act 5 A Plaintiff asserting a claim under the False Claims Act may advance any of three 6 different theories: (1) a factually false claim; (2) an implied false certification; and 7 (3) promissory fraud. U.S. ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1170-71 (9th Cir. 8 2006). Under the first theory, “an archetypical qui tam False Claims action … the claim for 9 payment is itself literally false or fraudulent.” Id. at 1170. Under an implied false certification 10 theory, “when a defendant submits a claim, it impliedly certifies compliance with all conditions 11 of payment. But if the claim fails to disclose the defendant’s violation of a material statutory, 12 regulatory, or contractual requirement … the defendant has made a misrepresentation that 13 renders the claim ‘false or fraudulent.’” U.S. ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 14 890, 901 (9th Cir. 2017). Finally, under a promissory fraud theory, “liability will attach to each 15 claim submitted to the government under a contract, when the contract … was originally 16 obtained through false statements or fraudulent conduct.” Id. at 902. 17 Plaintiff here advances claims under an implied false certification theory and a 18 promissory fraud theory. Counts 1 and 2 of the FAC assert a promissory fraud claim and an 19 implied false certification claim respectively relating to the 2006 IDIQ Contract, while Counts 3 20 and 4 assert a promissory fraud claim and an implied false certification claim respectively with 21 respect to the 2009 IDIQ Contract. Irrespective of the theory advanced, liability under the FCA 22 requires four elements: “(1) a false statement or fraudulent course of conduct, (2) made with 23 scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys 24 due.” Campie, 862 F.3d at 899. Defendants argue that none of these four elements have been 25 adequately pleaded. 26 a. Falsity 27 Plaintiff alleges that Defendants deceived the government by deliberately failing to 28 disclose that Fargo and McConnell had formed a de facto joint venture with respect to the IDIQ 1 Contracts. See, e.g., FAC ¶ 61. “Because common-law fraud has long encompassed certain 2 misrepresentations by omission, ‘false or fraudulent claims’ includes more than just claims 3 containing express falsehoods.… [M]isrepresentations by omission can give rise to liability” as 4 well. Universal Health Srvcs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989, 1999 (2016). This 5 includes omissions regarding the joint venture status of 8(a) participants performing under an 6 8(a) contract: 7 … Ab-Tech’s claims clearly were fraudulent. The payment vouchers 8 represented an implied certification by Ab-Tech of its continuing adherence 9 to the requirements for participation in the 8(a) program. Therefore, by 10 deliberately withholding from SBA knowledge of the prohibited contract 11 arrangement with Pyramid, Ab-Tech not only dishonored the terms of its 12 agreement with that agency but, more importantly, caused the Government 13 to pay out funds in the mistaken belief that it was furthering the aims of the 14 8(a) program. In short, the Government was duped by Ab-Tech’s active 15 concealment of a fact vital to the integrity of that program. The withholding 16 of such information—information critical to the decision to pay—is the 17 essence of a false claim. 18 Ab-Tech Const., Inc. v. U.S., 31 Fed. Cl. 429, 434 (1994). 19 Defendants argue that Plaintiff has not adequately pleaded that McConnell and Fargo 20 entered into a joint venture within the meaning of SBA regulations, and therefore has not 21 adequately pleaded that there was anything misleading about the failure to disclose the details of 22 their agreement. During the relevant time period, SBA regulations defined a joint venture as “an 23 association of individuals and/or concerns with interests in any degree or proportion … 24 consorting to engage in and carry out … business ventures for joint profit … for which purpose 25 they combine their efforts, property, money, skill, or knowledge, but not on a continuing or 26 permanent basis for conducting business generally.” 13 C.F.R. § 121.103(h) (2005). 27 Plaintiffs have adequately pleaded the existence of a joint venture plausibly falling within 28 the meaning of this regulatory definition. The consulting agreement attached as Exhibit A to the 1 FAC includes provisions under which McConnell and Fargo were to combine their efforts and 2 property to carry out the Task Orders issued under the 2006 Contract. See ECF 20-1 ¶¶ 8-11, 13- 3 15. It also provides that, in lieu of receiving a salary for his efforts, McConnell would split the 4 gross profits from roofing work performed under the contract. Id. at 1-2. Finally, the agreement 5 provides that McConnell will “manage all aspects of the project in a manner similar” to what he 6 had previously done for Western Roofing Service. Id. ¶ 13. 7 Defendants argue that under Defense Contract Audit Agency guidelines, determining 8 whether a joint venture arrangement exists is a “fact-intensive inquiry,” ECF 31 at 9, and “no one 9 factor should be the sole determinant of whether the relationship is a joint venture,” id. at 10 10 (quoting DCAA Guidance at 37-4). However, it is precisely for this reason that the dispute is not 11 amendable to resolution on a motion to dismiss. In this procedural context, all reasonable 12 inferences are to be drawn in favor of the plaintiff. The details of Defendants’ Consulting 13 Agreement are pleaded with particularity and, construed in the light most favorable to Plaintiff, 14 they at least support a plausible inference that Defendants formed a joint venture within the 15 meaning of 13 C.F.R. § 121.103(h). Accordingly, the Court finds that Plaintiff has adequately 16 pleaded falsity under the False Claims Act. 17 b. Scienter 18 Defendants also argue that Plaintiff has failed to adequately plead scienter. “Under the 19 False Claims Act’s scienter requirement, innocent mistakes, mere negligent misrepresentations, 20 and differences in interpretation will not suffice to create liability. Instead, Relators must allege 21 that [the defendant] knew that its statements were false, or that it was deliberately indifferent to 22 or acted with reckless disregard of the truth of the statements.” United States v. Corinthian 23 Colleges, 655 F.3d 984, 996 (9th Cir. 2011) (internal citations, quotation marks omitted). 24 Defendants argue that scienter is inadequately pleaded because the FAC lacks “factual 25 allegations that would demonstrate that any of the Defendants knew that the Consulting 26 Agreement violated [Fargo Pacific’s] 8(a) status and rendered [Fargo Pacific] ineligible for the 27 award of the roofing contracts.” ECF 31 at 15. To the extent Defendants mean that the FAC’s 28 allegations do not conclusively demonstrate knowledge of falsity when construed in Defendants’ 1 favor, they may well be correct. However, this is not the standard on a motion to dismiss. In this 2 context, the court construes all factual inferences in the light most favorable to the plaintiff, see 3 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008), and asks only 4 whether those facts and inferences “plausibly suggest[]” the necessary scienter, Bell Atlantic 5 Corp. v. Twombly, 550 U.S. 544, 557 (2007). Defendants’ argument also fails because it treats a 6 failure to show “knowledge” that the Consulting Agreement created a joint venture with a failure 7 to show scienter. But the scienter requirement can also be met by allegations that Defendants 8 were deliberately indifferent to whether the Consulting Agreement created a joint venture or that 9 they acted with reckless disregard to whether the Consulting Agreement created a joint venture. 10 Considered under the proper legal standard, Plaintiff has adequately pleaded scienter. The 11 FAC alleges, among other things, that: 12 • “Park testified under oath that he hid his profit-sharing agreement with McConnell 13 from the Navy, because he knew that if the Navy found out, he would not get the 14 8(a) set-aside contracts.” FAC ¶ 71(b). 15 • “Jay Park testified under oath in the Arbitration proceedings that he knew that if 16 such an arrangement w[ere] disclosed to the SBA, it would not qualify under SBA 17 rules for minority preference.” Id. ¶ 78. 18 • “Park admitted when examined by the Arbitrator … that he and McConnell were 19 fully aware that their agreement violated 13 CFR § 124.513. This was why 20 Paragraph 20 of the Consulting Agreement stated that the ‘terms of this agreement 21 will be kept confidential by both parties.’” Id. 22 These allegations, accepted as true and construed in the light most favorable to the 23 plaintiff, support the plausible inference that Defendants knew that they had formed what the 24 SBA would consider a joint venture, or that they were deliberately indifferent to or acted with 25 reckless disregard to whether they had formed what the SBA would consider a joint venture.2 26 Accordingly, the Court finds that Plaintiff has adequately pleaded the scienter requirement. 27 2 This conclusion is not altered by the fact that “the very question of whether the Consulting 28 1 c. Materiality 2 Defendants also argue that the FAC fails to adequately plead that compliance with SBA 3 regulations regarding joint ventures was material to the Navy’s decision to pay Fargo Pacific, 4 because “[a]t most, the FAC alleges that the SBA would have had the option to terminate FPI 5 from the 8(a) program had it known of the existence of the Consulting Agreement.” ECF 31 at 6 19. “Section 3729(b)(4) defines materiality using language … employed to define materiality in 7 other federal fraud statutes: ‘[T]he term “material” means having a natural tendency to influence, 8 or be capable of influencing, the payment or receipt of money or property.’” Escobar, 136 S. Ct. 9 at 2002 (quoting 31 U.S.C. § 3729(b)(4)). The Court of Federal Claims has noted that the kind of 10 implied certification at issue here has such a natural tendency to influence the Government’s 11 payment decision: 12 [B]y deliberately withholding from SBA knowledge of the prohibited 13 contract arrangement with Pyramid, Ab-Tech … caused the Government to 14 pay out funds in the mistaken belief that it was furthering the aims of the 15 8(a) program.… The withholding of such information—information critical 16 to the decision to pay—is the essence of a false claim. 17 Ab-Tech Const., Inc. v. U.S., 31 Fed. Cl. 429, 434 (1994). 18 Additionally, Plaintiff submits a letter from the SBA to Fargo Pacific, in which the SBA 19 notes that an undisclosed, unapproved joint venture agreement would render Fargo Pacific 20 ineligible to continue performance on an 8(a) contract. Specifically, the letter states: “Please be 21 aware … that it is very easy to create a situation where a de facto joint venture is created.… If 22 the SBA were to declare your project a joint venture, then you would no longer be able to 23 perform on that contract since the joint venture did not obtain prior approval.” ECF 38-1, Ex. A 24 at 2. Plaintiff seeks judicial notice of this letter as a matter of public record because the SBA 25

26 differing interpretations.” ECF 31 at 16. The allegations in the FAC support the plausible inference that Defendants’ understood the Consulting Agreement to disqualify Fargo Pacific from 27 Section 8(a) set-aside contracts. The existence of other potential interpretations is irrelevant to whether the scienter requirement has been adequately pleaded with respect to Defendants 28 1 provided it to Plaintiff in response to a Freedom of Information Act (“FOIA”) request. See 2 ECF 38-1, Ex. A at 1. Defendants do not contest that the letter itself is a matter of public record 3 subject to judicial notice; however, they argue that the letter is actually referring to a teaming 4 agreement Fargo Pacific had previously entered into with Western Roofing. See ECF 40 at 10. 5 The Court finds such disputes over the proper inferences to be drawn from a particular 6 document inappropriate for resolution on a motion to dismiss. Ultimately, Plaintiff proffers the 7 letter merely to corroborate what is already facially plausible from the allegations in the FAC: 8 that the concealment of an unapproved joint venture has a “natural tendency” to influence the 9 Government’s payment decision and is therefore material for purposes of the False Claims Act. 10 Accordingly, the Court finds that Plaintiff has adequately pleaded materiality. 11 d. Claim for Payment 12 In order to satisfy the heightened pleading standard under Rule 9(b), a plaintiff asserting 13 claims under the False Claims Act must either (1) identify representative examples of false 14 claims, or (2) “allege particular details of a scheme to submit false claims paired with reliable 15 indicia that lead to a strong inference that claims were actually submitted.” Ebeid ex rel. U.S. v. 16 Lungwitz, 616 F.3d 993, 999 (9th Cir. 2010) (internal quotation marks omitted). Defendants 17 argue that Plaintiff has done neither. The Court disagrees. 18 The FAC alleges the specific details of agreements between Defendants Fargo Pacific and 19 McConnell to perform work under two federal contracts. Both the agreements and the federal 20 contracts are identified with specificity. See FAC Exs. A-E; FAC ¶ 1. As explained above, the 21 FAC also adequately pleads that the provisions of the agreements between Fargo Pacific and 22 McConnell rendered Fargo Pacific ineligible to perform under the federal contracts at issue. 23 Accordingly, the FAC adequately pleads that Fargo Pacific’s express and implied certifications to 24 the SBA that it remained eligible to perform under the contracts were false. 25 Further, the FAC alleges that there were 31 task orders under the 2006 IDIQ Contract 26 totaling $9.68 million, FAC ¶ 107, with the first signed on or about October 24, 2006 and the last 27 completed on or about March 1, 2010, FAC ¶ 97. The FAC alleges that there were 46 task orders 28 under the 2009 IDIQ Contract totaling $20.4 million, FAC ¶ 141, with the first signed on or 1 about September 16, 2009 and the last completed on or about September 21, 2013, FAC ¶ 131. 2 These specifically alleged facts are reliable indicia that lead to a strong inference that claims were 3 actually submitted. This inference is strong because, if claims were not actually submitted, it 4 would mean either that Fargo Pacific performed at least some of these task orders without 5 requesting payment for the work or that Fargo Pacific did not perform the work but the Navy 6 continued issuing task orders to Fargo Pacific anyway. The Court finds that Plaintiff has 7 adequately pleaded Defendants submitted claims for payment under the 2006 and 2009 IDIQ 8 Contracts. 9 2. Compliance with Rule 9(b) 10 Defendants also argue generally that the FAC fails to plead fraud with particularity as 11 required by Fed. R. Civ. P. 9(b). However, as noted above, each element of fraud under the False 12 Claims Act has been pleaded with particularity. Plaintiff alleges the specific terms of the 13 Consulting Agreement, which—although perhaps subject to disagreement—permit the plausible 14 inference that Defendants were acting as a de facto joint venture. Plaintiff further alleges that this 15 joint venture arrangement was purposely not disclosed to the SBA in Fargo Pacific’s annual 8(a) 16 program certifications or to the Navy in Fargo Pacific’s bid for the 2009 IDIQ Contract3 or its 17 claims for payment under either the 2006 or the 2009 IDIQ Contracts. Plaintiff also identifies 18 provisions of the SBA’s rules and regulations, as well as parts of the SBA’s annual recertification 19 form that require joint venture arrangements to be disclosed and preapproved by the SBA. 20 Although there may be a genuine factual dispute as to whether the arrangement formed 21 between Defendants constituted a “joint venture” within the meaning of the SBA’s regulations, 22 Plaintiff has pleaded all the details that could reasonably be expected of any plaintiff proceeding 23 under the False Claims Act. The Court concludes that the FAC adequately pleads the 24 circumstances constituting fraud with particularity, as required under Fed. R. Civ. P. 9(b). 25 26 27 3 The 2006 IDIQ Contract was awarded before the formation of the Consulting Agreement, an 28 1 Consulting Agreement 2 Defendants argue that the FAC fails to state a claim with respect to any allegedly false 3 claims filed by Defendants before the Consulting Agreement was entered into on November 28, 4 2007. Count 1 of the FAC attempts to impose liability on such claims by advancing a promissory 5 fraud theory, stating that the 2006 IDIQ Contract itself was obtained through fraud, and thus 6 liability attaches to any claims for payment made under that contract. However, the FAC fails to 7 allege with particularity any facts plausibly suggesting that a joint venture existed at the time the 8 2006 IDIQ contract was awarded. The FAC’s only attempt at alleging fraudulent conduct in 9 obtaining the 2006 IDIQ Contract is the conclusory assertion that “when [McConnell] and Fargo 10 [Pacific] obtained the 2006 IDIQ Contract, it was never their intention to follow the SBA 11 regulations regarding these special set aside contracts.” FAC ¶ 87. No supporting facts are 12 alleged from which this conclusory assertion might be inferred. Accordingly, the Court finds the 13 FAC’s claim for fraudulent inducement of the original award of the 2006 IDIQ Contract 14 insufficiently pleaded. Because this insufficiency could be cured by additional allegations, leave 15 to amend will be granted.4 16 However, the Court notes that this conclusion does not affect the viability of Plaintiff’s 17 implied certification theory for claims made after the Consulting Agreement was entered into, 18 nor does it affect Plaintiff’s promissory fraud theory that Defendants fraudulently induced the 19 SBA to recertify Fargo Pacific under the 8(a) program—thus permitting Fargo to continue 20 performing its IDIQ Contracts under the 8(a) program—by concealing the Consulting Agreement 21 and the joint venture arrangement from the SBA in Fargo Pacific’s annual recertification forms. 22 23 24 25

26 4 The Court notes, however, that unless Plaintiff is aware of additional substantive facts that were omitted from the FAC, amendment of the complaint will likely be futile. Because the Court has 27 already drawn all reasonable inferences in favor of Plaintiff in ruling on this motion to dismiss, any amendment that merely elaborates on the inferences that might be drawn from the facts 28 1 4. Statute of Limitations 2 Defendants also argue that any attempt to impose liability for violations of the False 3 || Claims Act occurring before August 24, 2007 is time-barred. The Court agrees. The False Claims 4 || Act only permits an action for violations thereof to be brought within the later of (1) 6 years after 5 || the date on which the violation of the False Claims Act occurred; or (2) “3 years after the date 6 || when facts material to the right of action are known or reasonably should have been known ... 7 || but in no event more than 10 years after the date on which the violation is committed.” 18 U.S.C. g || § 3731(b). Taken together, these provisions create an absolute bar on all claims brought more g || than ten years after the violation. Plaintiff attempts to avoid dismissal by requesting that the 10 || Court “exercise discretion and defer ruling on this defense until discovery is had and the record 11 ||418 more complete, or until [the] plaintiff is given an opportunity to amend.” ECF 38 at 24. Under 12 || this statute, however, the ten-year bar is straightforward and admits of no exception. Plaintiff has 13 || identified no potential discovery or amendment to the complaint that would permit him to pursue 14 claims for violations of the False Claims Act that occurred before August 24, 2007. Accordingly, 15 || any claims for alleged violations of the False Claims Act occurring before August 24, 2007 are 16 || dismissed without leave to amend. 17 IV. CONCLUSION 18 Defendants’ motions to dismiss are granted in part and denied in part. The motion to 19 || dismiss for lack of jurisdiction is denied in its entirety. The motion to dismiss for failure to state a 209 || claim upon which relief can be granted is GRANTED WITHOUT LEAVE TO AMEND with 21 |} respect to alleged violations of the False Claims Act before August 24, 2007; GRANTED 92 || WITH LEAVE TO AMEND with respect to alleged violations of the False Claims Act from 23 || August 24, 2007 to November 28, 2007; and DENIED with respect to alleged violations of the 24 || False Claims Act from November 28, 2007 onward. Any amended complaint shall be filed no 25 || later than May 4, 2020.

. a /s/ Frances M. Tydingco-Gatewood 27 Chief Judge 3g uv, Dated: Apr 23, 2020