United States of America v. Porifera Inc

• Court: District Court, N.D. California
• Decided: June 15, 2022
• Docket: 4:19-cv-00765
• Status: Unknown

Opinion

1 ` 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 UNITED STATES OF AMERICA, et al., Case No. 19-cv-00765-HSG

8 Plaintiffs, ORDER DENYING MOTION FOR SUMMARY JUDGMENT 9 v. Re: Dkt. No. 64 10 PORIFERA INC, 11 Defendant.

12 13 Pending before the Court is Defendant Porifera, Inc.’s motion for summary judgment. 14 Dkt. No. 64. The Court finds this matter appropriate for disposition without oral argument and the 15 matter is deemed submitted. See Civil L.R. 7-1(b). For the reasons detailed below, the Court 16 DENIES the motion. 17 I. BACKGROUND 18 In February 2019, Plaintiff Joseph Mendelssohn filed a qui tam action under seal pursuant 19 to 31 U.S.C. § 3730(b). The United States government chose not to intervene in this matter, and 20 the case was later unsealed in November 2020. See Dkt. No. 12. 21 As explained in more detail below, the facts in this case are largely disputed. However, the 22 parties agree that Plaintiff was the Vice President of Business Development and Administration 23 for Porifera, and worked for the company from 2011 until he was terminated by Olgica Bakajin, 24 the CEO, in 2018. Compare Dkt. No. 64 at 8–15, with Dkt. No. 66 at 2–10. As part of his duties, 25 Plaintiff assisted with the bookkeeping and submitted invoices for State and federal government 26 projects. See Dkt. No. 65, Ex. C (“Mendelssohn Depo.”) at 75:16–76:13, 77:15–78:10. 27 Plaintiff alleges that historically, Porifera employees received training about how to keep 1 worked. See Dkt. No. 66-8 (“Mendelssohn Decl.”) at ¶ 6; see also Dkt. No. 66-10, Ex. B. Under 2 the timekeeping policy, any changes to timesheets had to be made in ink, initialed by the 3 employee, and with an explanation for the correction. See id.; see also Dkt. No. 66-6, Ex. E 4 (“Bakajin Depo.”) at 65:21–66:13. The company’s policy further cautioned against 5 “[m]anipulation or falsification of time charges.” See Dkt. No. 66-10, Ex. B. 6 Plaintiff states that despite the company’s exacting timekeeping policies, during a senior 7 management meeting in May 2018, Porifera’s CEO Bakajin told those present to “double bill” to a 8 project with the California Energy Commission (“CEC”), referred to internally as the “Recycler.” 9 See Mendelssohn Depo. at 188:15–23. Plaintiff recounts that Bakajin said that “everybody needs 10 to be billing to the [Recycler matter] because we have about a million dollars that we can bill to.” 11 See id. at 187:19–188:23. Plaintiff found this directive concerning, and thought it “seemed 12 fraudulent” because he knew from previous discussions with Bakajin that the company only had 13 approximately $250,000 of work left to do on that project. See id. 14 Following the meeting, Plaintiff contends that he witnessed Bakajin telling others to amend 15 their timesheets retroactively, and she asked Plaintiff to amend his own timesheets from March 16 and April 2018. See Mendelssohn Decl. at ¶ 10; see also Mendelssohn Depo. at 205:6–206:24. 17 When Plaintiff pushed back and said his work was split equally between the Recycler and another 18 project, Bakajin repeated that she wanted him to bill the Recycler matter anyway. See id. Plaintiff 19 said he was intimated and felt his job was in jeopardy as a result, so he revised his timesheet as she 20 asked. See id. 21 Plaintiff contends that a few days later he told the company’s Controller Silvana Shepard, a 22 Certified Public Accountant (“CPA”), that he was concerned about the company’s recent billing 23 practices. See Mendelssohn Depo. at 188:24–189:19. In response, Shepard explained that Bakajin 24 had rejected her suggestion to use electronic timekeeping, and Shepard believed the only reason to 25 use paper timesheets is to eliminate a paper trail to “commit fraud by having the flexibility to do 26 what [Bakajin] is doing.” See Mendelssohn Depo. at 191:7–192:16. Plaintiff said he had no need 27 to tell Shepard explicitly that he was worried about fraud because she had already raised those 1 March and April 2018 invoices were ready to send to the CEC for the Recycler project, Plaintiff’s 2 review revealed potential fraudulent billing, and he delayed signing the invoices. See 3 Mendelssohn Depo. at 193:1–22; Mendelssohn Decl. at ¶ 20. Instead, he interviewed several 4 employees about their timesheets. See Mendelssohn Decl. at ¶ 13. Plaintiff asserts that these 5 conversations confirmed his fears that Porifera employees were being told to bill for government 6 projects that they were not actually working on. See id. at ¶¶ 13–14, 19. Mendelssohn said that 7 Shepard even confirmed that Bakajin had told her to update her own timesheets to bill the 8 Recycler project over other projects she had actually been working on. See, e.g., Dkt. No. 66-15, 9 Ex. G at 2:8–3:17. 10 Plaintiff said that he expressed his concerns to Senior Director of Engineering Charlie 11 Benton, as well as raising other questions about stock options and hiring. See Mendelssohn Decl. 12 at ¶ 13. During his deposition, Benton said that he had relayed his conversation with Plaintiff to 13 Bakajin, though he could not recount the specifics of their conversation. See Dkt. No. 66-7, Ex. F 14 at 88:3–89:24. Plaintiff also told Shepard that he was no longer comfortable signing off on the 15 invoices for the CEC. See Mendelssohn Depo. at 193:1–194:6; see also Dkt. No. 66-5, Ex. D 16 (“Shepard Depo.”) at 100:11–101:11. Plaintiff then directed Shepard to give the timesheets to 17 Bakajin to sign instead. See Mendelssohn Depo. at 193:1–194:6; see also Shepard Depo. at 18 101:12–102:2. 19 Plaintiff states that Bakajin called him into her office the next business day to discuss what 20 she called “the issues of trust.” See Mendelssohn Depo. at 174:9–175:19, 178:7–15. She asked 21 Plaintiff to discuss his contributions to the company, as well as his compensation. See id. 22 Afterward, she gestured for Plaintiff to sign the invoices that Shepard had left on Bakajin’s desk. 23 See id at 198:2–199:20. Plaintiff felt like it was intended as some kind of “trust test” or test of his 24 loyalty. See id.; see also id. at 201:7–203:18. In response, Plaintiff told Bakajin that he was 25 “extremely uncomfortable signing those invoices. They don’t reflect what was done. The work 26 that was done.” Mendelssohn Depo. at 198:2–199:17. Bakajin again told Mendelssohn, “[y]ou 27 need to sign them.” Id. And Mendelssohn responded, “I’m uncomfortable. I’m not an officer 1 sign them herself. Id. 2 Following this meeting, Bakajin sent an email to Board Member Jeff Jensen, recounting 3 work performance concerns she had about Plaintiff. See Bakajin Depo., Ex. 14. She concluded 4 that “he should go,” and she would consider the timing of and severance for his termination. Id. 5 Although following the meeting Plaintiff asserts that Bakajin told other employees to redo their 6 May and June 2018 timesheets, she did not direct him to do so. See Mendelssohn Decl. at ¶¶ 24– 7 25. 8 At the end of July 2018, Bakajin and Jensen met with Plaintiff, at which point Bakajin said 9 that she could not work with Plaintiff anymore because “mutual trust was broken.” See 10 Mendelssohn Depo. at 183:2–184:9. Plaintiff asked to speak to Jensen alone, at which point he 11 confided that he believed Bakajin was terminating him because of his investigation into the 12 fraudulent billing. See id. at 196:17–197:5. Plaintiff contends that he was terminated from 13 Porifera in retaliation for his investigation and opposition to Porifera’s improper billing practices. 14 See Dkt. No. 22 (“SAC”) at ¶¶ 88–96. Plaintiff brings causes of action for (1) retaliation under the 15 False Claims Act; (2) retaliation under the California False Claims Act; (3) whistleblower 16 retaliation under Cal. Lab. Code § 1102.5; and (4) wrongful termination in violation of public 17 policy.1 Id. at ¶¶ 97–117. 18 According to Porifera, Plaintiff’s performance had deteriorated over time, he was not 19 engaged with work, and he was preoccupied by concerns over his compensation. See Dkt. No. 64 20 at 9–11, 13–15. Porifera contends that the company ultimately terminated his employment 21 because of this salary dispute. Id. at 14–15. Porifera argues that even if Plaintiff had been 22 investigating billing issues, he did not raise concerns with anyone until after his termination. Id. 23 Porifera now moves for summary judgment. 24 II. EVIDENTIARY OBJECTIONS 25 As an initial matter, Porifera raises several objections to the evidence that Plaintiff seeks 26

27 1 Plaintiff brings the claim for retaliation under the False Claims Act, 31 U.S.C. § 3730(h), against 1 to introduce in support of his opposition to the motion for summary judgment. See Dkt. No. 67 at 2 6–7. Porifera argues, for example, that Plaintiff is not competent to conclude that any alleged 3 changes to timesheets were in fact fraudulent. See id. at 6. Whether the timesheets were in fact 4 fraudulent is not at issue in this case. See, e.g., Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 5 1097, 1103 (9th Cir. 2008) (noting that “[t]he elements differ for a [False Claims Act] violation 6 claim and a [False Claims Act] retaliation claim” because a retaliation claim only requires “a 7 plaintiff [to] show that he or she suspected that the defendant submitted a false claim—not that the 8 defendant actually submitted one”); U.S. ex rel. Hopper v. Anton, 91 F.3d 1261, 1269 (9th Cir. 9 1996) (holding that to engage in a protected activity for purposes of a retaliation claim under 31 10 U.S.C. § 3730(h), the plaintiff must only “investigat[e] matters which are calculated, or reasonably 11 could lead, to a viable [Federal Claims Act] action”). And in any event, Plaintiff has presented 12 different versions of timesheets reflecting changes to time billed to the Recycler project, as well as 13 recounted conversations he had with Bakajin and other employees about time they spent on 14 projects and their billing practices. Porifera further argues that much of Plaintiff’s evidence is 15 hearsay. See id. at 6–7. It points out, for example, that much of Plaintiff’s evidence includes 16 interviews he had with other Porifera employees, including Shepard, about their timesheets. See 17 id. at 7. 18 “To survive summary judgment, a party does not necessarily have to produce evidence in a 19 form that would be admissible at trial, as long as the party satisfies the requirements of Federal 20 Rules of Civil Procedure 56.” Fraser v. Goodale, 342 F.3d 1032, 1036–37 (9th Cir. 2003) 21 (quotation omitted). At this stage, the focus is on the admissibility of the contents of the evidence, 22 not its form. Fraser, 342 F.3d at 1036; see also JL Beverage Co., LLC v. Jim Beam Brands Co., 23 828 F.3d 1098, 1110 (9th Cir. 2016) (“[A]t summary judgment a district court may consider 24 hearsay evidence submitted in an inadmissible form, so long as the underlying evidence could be 25 provided in an admissible form at trial, such as by live testimony.”) “Accordingly, district courts 26 in this circuit have routinely overruled authentication and hearsay challenges at the summary stage 27 where the evidence could be presented in an admissible form at trial, following Fraser.” Hodges 1 Because Porifera raised these evidentiary objections in reply, Plaintiff did not have an 2 opportunity to respond. However, there is no evidence before the Court suggesting that Plaintiff 3 could not call these employees as witnesses to discuss their conversations about their timesheets 4 and possible fraud at the company. As noted above, Shepard herself was deposed as part of this 5 case. Accordingly, the Court OVERRULES Porifera’s evidentiary objections at this time on the 6 basis that the evidence could be presented in an admissible form at trial. Porifera can renew any 7 objections at trial to the extent Plaintiff is unable to remedy any authentication or hearsay issues. 8 III. LEGAL STANDARD 9 Summary judgment is proper when a “movant shows that there is no genuine dispute as to 10 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). 11 A fact is “material” if it “might affect the outcome of the suit under the governing law.” Anderson 12 v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is “genuine” if there is evidence in the 13 record sufficient for a reasonable trier of fact to decide in favor of the nonmoving party. Id. The 14 Court views the inferences reasonably drawn from the materials in the record in the light most 15 favorable to the nonmoving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 16 574, 587–88 (1986), and “may not weigh the evidence or make credibility determinations,” 17 Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997), overruled on other grounds by Shakur v. 18 Schriro, 514 F.3d 878, 884–85 (9th Cir. 2008). 19 The moving party bears both the ultimate burden of persuasion and the initial burden of 20 producing those portions of the pleadings, discovery, and affidavits that show the absence of a 21 genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the 22 moving party will not bear the burden of proof on an issue at trial, it “must either produce 23 evidence negating an essential element of the nonmoving party's claim or defense or show that the 24 nonmoving party does not have enough evidence of an essential element to carry its ultimate 25 burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 26 (9th Cir. 2000). Where the moving party will bear the burden of proof on an issue at trial, it must 27 also show that no reasonable trier of fact could not find in its favor. Celotex Corp., 477 U.S. at 1 supporting its claim or defense simply by saying that the nonmoving party has no such evidence.” 2 Nissan Fire & Marine Ins. Co., 210 F.3d at 1105. “If a moving party fails to carry its initial 3 burden of production, the nonmoving party has no obligation to produce anything, even if the 4 nonmoving party would have the ultimate burden of persuasion at trial.” Id. at 1102–03. 5 “If, however, a moving party carries its burden of production, the nonmoving party must 6 produce evidence to support its claim or defense.” Id. at 1103. In doing so, the nonmoving party 7 “must do more than simply show that there is some metaphysical doubt as to the material facts.” 8 Matsushita Elec. Indus. Co., 475 U.S. at 586. A nonmoving party must also “identify with 9 reasonable particularity the evidence that precludes summary judgment.” Keenan v. Allan, 91 10 F.3d 1275, 1279 (9th Cir. 1996). If a nonmoving party fails to produce evidence that supports its 11 claim or defense, courts enter summary judgment in favor of the movant. Celotex Corp., 477 U.S. 12 at 323. 13 IV. DISCUSSION 14 A. Retaliation 15 The parties appear to agree that to succeed under both the Federal and California False 16 Claims Act, (1) Plaintiff must have engaged in protected activity; (2) Porifera must have been 17 aware of such protected activity; and (3) Porifera must have discriminated against Plaintiff 18 because he engaged in protected activity. See Moore v. California Inst. of Tech. Jet Propulsion 19 Lab’y, 275 F.3d 838, 845 (9th Cir. 2002); McVeigh v. Recology San Francisco, 213 Cal. App. 4th 20 443, 455 (Cal. Ct. App. 2013) (reciting elements for Cal. Gov’t Code § 12653). Similarly, to 21 succeed on his retaliation claim under California Labor Code § 1102.5, Plaintiff must establish 22 that (1) he participated in protected activity under the statute; (2) he was subjected to an adverse 23 employment action; and (3) there is a causal nexus between his protected activity and the adverse 24 action. See Lawson v. PPG Architectural Finishes, Inc., 12 Cal. 5th 703, 710 (Cal. 2022). 25 Porifera argues that it is entitled to summary judgment on all three of Plaintiff’s retaliation 26 claims because there is no evidence that Plaintiff (1) engaged in protected activity; (2) that 27 Porifera was aware of such protected activity; or (3) that Plaintiff was terminated because of his 1 that Plaintiff was terminated because of concerns about his performance and disputes over his 2 compensation. Id. 3 Porifera’s arguments, however, plainly require the Court to sidestep genuine disputes of 4 material fact. The Court finds at this stage that there is sufficient evidence from which a 5 reasonable factfinder could conclude that Plaintiff was investigating and objecting to participate in 6 fraudulent billing practices on government contracts; Porifera was aware of this protected activity; 7 and Porifera fired him because of it. To note just a few nonexhaustive examples, the evidence 8 viewed in the light most favorable to Plaintiff reflects that: 9 • Plaintiff was present for a meeting in which Bakajin told senior management to bill 10 time to the Recycler over other projects. See Mendelssohn Depo. at 187:19– 11 188:23. Bakajin also told Plaintiff directly that he should allocate his time to the 12 Recycler, despite the fact that he may have in actuality split his time equally 13 between the Recycler and another project. See Mendelssohn Decl. at ¶ 10; see also 14 Mendelssohn Depo. at 205:6–206:24. At this time, Plaintiff raised concerns about 15 Bakajin’s request. Id. 16 • Plaintiff then interviewed employees about their billing practices, reviewed 17 timesheets, and conferred with the Controller about his concerns that Bakajin was 18 asking employees to retroactively change timesheets, in contravention of Porifera’s 19 own policies. See, e.g., Mendelssohn Depo. at 188:24–194:6; Mendelssohn Decl. 20 at ¶ 13. 21 • At least according to Plaintiff, he raised these concerns with Benton, who spoke 22 with Bakajin. See, e.g., Mendelssohn Decl. at ¶ 13; Dkt. No. 66-7, Ex. F at 88:3– 23 89:24. Plaintiff also explicitly told Bakajin that he did not want to sign the March 24 and April 2018 timesheets because they did not reflect the work that was actually 25 done on the projects and he could not “attest to the accuracy” of the timesheets. 26 See Mendelssohn Depo. at 198:2–199:17. Plaintiff said he believed Bakajin was 27 testing him as a sign of his loyalty. See id. 1 employment the same day as this meeting when he refused to sign the revised 2 timesheets. See Bakajin Depo., Ex. 14. 3 • When Bakajin terminated Plaintiff’s employment, she spoke about “issues of trust” 4 and breaking that trust, rather than any alleged deficiencies in Plaintiff’s 5 performance. See id. at 183:2–184:9. 6 7 Porifera seems to suggest that because Plaintiff never used the words “fraud” or 8 “illegality” when speaking to employees at Porifera about billing problems with the Recycler 9 project, he was not actually engaged in protected activity. See, e.g., Dkt. No. 64 at 17–19. But 10 there are no magic words required to invoke protection under the Federal or California False 11 Claims Acts. See, e.g., Mendiondo, 521 F.3d at1104 (finding that plaintiff “engaged in protected 12 activity if she reasonably believed that [the employer] was possibly committing fraud against the 13 government, and she investigated the possible fraud”); McKenzie v. BellSouth 14 Telecommunications, Inc., 219 F.3d 508, 516 (6th Cir. 2000) (noting that the plaintiff “need not 15 use formal words of ‘illegality’ or ‘fraud’” as long as she alleges “activity with a nexus to a qui 16 tam action, or fraud against the United States government”). Plaintiff has presented evidence that 17 he looked into and raised concerns that Porifera was intentionally changing timesheets to bill work 18 to government projects that employees did not actually perform, thus defrauding the government. 19 Porifera further argues that because part of Plaintiff’s job was collecting timesheets, Plaintiff 20 would have to provide even more specific notice that he was engaging in protected activities. See 21 Dkt. No. 64 at 20–21. It would not be enough to show the employer’s knowledge of activities that 22 fall within the plaintiff’s job duties. See United States ex rel. Campie v. Gilead Scis., Inc., 862 23 F.3d 890, 908 (9th Cir. 2017). But Plaintiff has asserted that his duties did not include 24 investigating or discovering fraud. See Mendelssohn Decl. at ¶ 5. And at least as alleged, Bakajin 25 seemed to push back on Plaintiff’s attempts to scrutinize the nature and extent of any changes to 26 the timesheets. 27 At trial, Porifera will have the opportunity to argue that Plaintiff’s investigation into the 1 contemplating a gui tam action. Although the evidence is not overwhelming, making all 2 inferences in Plaintiff’s favor as it must at this stage, the Court finds that Plaintiff has raised at 3 || least one genuine dispute of material fact precluding summary judgment as to Plaintiff's 4 retaliation claims. See Fed. R. Civ. P. 56(a). 5 B. Wrongful Termination 6 To establish her claim for wrongful termination in violation of the public policies 7 embodied in the Federal False Claims Act, 31 U.S.C. §§ 3729 et seq. and the California Labor 8 Code § 1102.5, plaintiff must provide similar evidence to his retaliation claims: that he was 9 terminated based on his complaints about potentially false billing practices. See Mendiondo, 521 10 F.3d at 1105; see also Haney v. Aramark Unif. Servs., Inc., 121 Cal. App. 4th 623, 641 (Cal. Ct. 11 App. 2004). As discussed above, Plaintiff has provided sufficient evidence to establish at least 12 || one triable issue of fact as to his retaliation claims. The same evidence precludes summary 5 13 || judgment on his claim for wrongful termination in violation of public policy. Accordingly, the 14 || Court DENIES Porifera’s motion for summary judgment as to this claim as well. 2 15 || Vv. CONCLUSION 16 Because the Court finds that there are disputed issues of material fact, the Court DENIES 3 17 the motion for summary judgment. The Court further DIRECTS the parties to meet and confer 18 and file a joint status report by June 16, 2022, regarding whether the parties believe it would be 19 || productive to refer this case to a magistrate judge for a settlement conference in advance of the 20 trial. The Court cautions that because the June 28, 2022, pre-trial conference and July 11, 2022, 21 trial dates remain in effect, the parties may have to simultaneously prepare for the settlement 22 || conference and trial. 23 IT IS SO ORDERED. 24 || Dated: 6/15/2022 25 Appr 3 Ml). 6 HAYWOOD S. GILLIAM, JR. United States District Judge 27 28