1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 UNITED STATES OF AMERICA, Case No.: 23-cv-118-CAB-BLM
11 Plaintiff, ORDER GRANTING MOTION TO 12 ex rel. RELATOR LLC DISMISS RELATOR LLC’S FIRST AMENDED COMPLAINT 13 Relator, 14 v. [Doc. No. 29] 15 WILLIAM J. KELLOG, et al, 16 Defendants. 17 18 On July 26, 2024, Defendants William J. Kellogg, La Jolla Beach and Tennis Club 19 Partners L.P., and La Jolla Beach & Tennis Club, Inc. (“Defendants”) filed a motion to 20 dismiss the First Amended Complaint. [Doc. No. 29.]1 On August 23, 2024, Plaintiff- 21 Relator Relator LLC (“Plaintiff”) filed an opposition. [Doc. No. 33.] The United States 22 did not file an opposition. On August 30, 2024, Defendants filed a reply. [Doc. No. 34.] 23 Pursuant to Civ.LR. 7.1.d.1, the Court finds the motion suitable for determination on the 24 papers.2 25 26 27 1 Defendants’ Request for Judicial Notice [Doc. No. 29-3] is GRANTED pursuant to Federal Rule of Evidence 201. 28 1 BACKGROUND 2 Defendant La Jolla Beach and Tennis Club L.P., a California limited 3 partnership (“La Jolla Borrower”) is a limited partnership that owns and operates the 4 La Jolla Beach & Tennis Club (the “Club”). Plaintiff alleges that the Club is an exclusive 5 members only private club in La Jolla, California. Plaintiff further alleges the La Jolla 6 Beach & Tennis Club, Inc. (“La Jolla Manager”), is the managing member of both La 7 Jolla Borrower and the Club and is responsible for its financial operations and 8 accounting. Finally, Plaintiff alleges that Defendant William J. Kellogg (“Kellogg”) is 9 CEO of La Jolla Borrower and La Jolla Manager. 10 This case arises from Defendants’ application for a Paycheck Protection Program 11 (“PPP”) loan. [Doc. No. 26 at 3.] The federal government implemented the PPP in 12 response to the COVID-19 pandemic to provide eligible businesses with loans to cover 13 payroll and other specified business-related expenses. Id. at 4. Businesses wishing to 14 obtain a PPP loan were required to submit a loan application, which required businesses 15 to acknowledge PPP rules and certify their eligibility to receive a loan. Id. Certain 16 businesses were ineligible for PPP loans, such as private clubs and businesses which limit 17 the number of memberships for reasons other than capacity. Id. at 5, 16. 18 Plaintiff Relator initiated this case under seal on January 23, 2023. [Doc. No. 1.] 19 Relator alleged Defendants were ineligible to receive PPP loans as a private club and 20 business which limits the number of memberships for reasons other than capacity and 21 thus knowingly made false or fraudulent statements on their PPP application in violation 22 of the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1)(A–B). Id. at 18-21. The 23 Department of Justice investigated the allegations and declined to intervene. [Doc. No. 24 11.] The Court unsealed the Complaint on January 17, 2024. [Doc. No. 11.] Defendants 25 filed a motion to dismiss the original complaint on June 14, 2024. [Doc. No. 25.] On July 26 5, 2024, Plaintiff Relator elected to file a First Amended Complaint (“FAC”) [Doc. No. 27 26], and the motion to dismiss the original complaint was denied as moot [Doc. No. 28.] 28 On July 26, 2024, Defendants filed this motion to dismiss the FAC. [Doc. No. 29.] 1 Defendants move to dismiss Relator’s FAC under Rule 12(b)(1) for lack of 2 jurisdiction pursuant to the FCA’s public disclosure bar,3 and pursuant to Rule 12(b)(6) 3 for failure to state a claim. 4 LEGAL STANDARD 5 Rule 12(b)(6) of the Federal Rules of Civil Procedure permits dismissal for “failure 6 to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). In order to 7 state a claim for relief, a pleading “must contain ... a short and plain statement of the 8 claim showing that the pleader is entitled to relief.” Id. 8(a)(2). Dismissal under Rule 9 12(b)(6) “is proper only where there is no cognizable legal theory or an absence of 10 sufficient facts alleged to support a cognizable legal theory.” Shroyer v. New Cingular 11 Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (citation omitted). 12 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, 13 accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 14 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 15 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that 16 allows the court to draw the reasonable inference that the defendant is liable for the 17 misconduct alleged.” Id. (citation omitted). However, “a plaintiff's obligation to provide 18 the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, 19 and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 20 U.S. at 555 (alteration in original) (quoting Fed. R. Civ. P. 8(a)). A court is not “required 21 to accept as true allegations that are merely conclusory, unwarranted deductions of fact, 22 or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th 23 Cir. 2001). “In sum, for a complaint to survive a motion to dismiss, the non-conclusory 24 25 3 Dismissal under Rule 12(b)(1) is denied because the public disclosure bar has not been jurisdictional 26 for the last 14 years and instead is an affirmative defense. Prather v. AT&T, Inc., 847 F.3d 1097, 1102 (9th Cir. 2017). Because the public disclosure bar is an affirmative defense, a court may consider it on a 27 motion to dismiss only “where the ‘allegations in the complaint suffice to establish’ the defense.” Sams v. Yahoo! Inc., 713 F.3d 1175, 1179 (9th Cir. 2013) (quoting Jones v. Bock, 549 U.S. 199, 215 (2007)). 28 1 factual content, and reasonable inferences from that content, must be plausibly suggestive 2 of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 3 (9th Cir. 2009) (citation omitted). 4 DISCUSSION 5 Defendants move to dismiss for two reasons: (1) the FCA's public disclosure bar 6 applies; and (2) Relator's claims fail to satisfy Rules 12(b)(6) and 9(b). [Doc. No. 7-17at 7 6–7.] As will be discussed, the Court agrees with Defendants that the public disclosure 8 bar applies. Therefore, the Court declines to address Defendants’ remaining arguments. 9 A. Applicable Law. 10 “The FCA creates civil liability for ‘any person who (A) knowingly presents, or 11 causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) 12 knowingly makes, uses, or causes to be made or used, a false record or statement material 13 to a false or fraudulent claim.’ ” United States v. Allergan, Inc., 46 F.4th 991, 993 (9th 14 Cir. 2022) (quoting 31 U.S.C.
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 10 UNITED STATES OF AMERICA, Case No.: 23-cv-118-CAB-BLM
11 Plaintiff, ORDER GRANTING MOTION TO 12 ex rel. RELATOR LLC DISMISS RELATOR LLC’S FIRST AMENDED COMPLAINT 13 Relator, 14 v. [Doc. No. 29] 15 WILLIAM J. KELLOG, et al, 16 Defendants. 17 18 On July 26, 2024, Defendants William J. Kellogg, La Jolla Beach and Tennis Club 19 Partners L.P., and La Jolla Beach & Tennis Club, Inc. (“Defendants”) filed a motion to 20 dismiss the First Amended Complaint. [Doc. No. 29.]1 On August 23, 2024, Plaintiff- 21 Relator Relator LLC (“Plaintiff”) filed an opposition. [Doc. No. 33.] The United States 22 did not file an opposition. On August 30, 2024, Defendants filed a reply. [Doc. No. 34.] 23 Pursuant to Civ.LR. 7.1.d.1, the Court finds the motion suitable for determination on the 24 papers.2 25 26 27 1 Defendants’ Request for Judicial Notice [Doc. No. 29-3] is GRANTED pursuant to Federal Rule of Evidence 201. 28 1 BACKGROUND 2 Defendant La Jolla Beach and Tennis Club L.P., a California limited 3 partnership (“La Jolla Borrower”) is a limited partnership that owns and operates the 4 La Jolla Beach & Tennis Club (the “Club”). Plaintiff alleges that the Club is an exclusive 5 members only private club in La Jolla, California. Plaintiff further alleges the La Jolla 6 Beach & Tennis Club, Inc. (“La Jolla Manager”), is the managing member of both La 7 Jolla Borrower and the Club and is responsible for its financial operations and 8 accounting. Finally, Plaintiff alleges that Defendant William J. Kellogg (“Kellogg”) is 9 CEO of La Jolla Borrower and La Jolla Manager. 10 This case arises from Defendants’ application for a Paycheck Protection Program 11 (“PPP”) loan. [Doc. No. 26 at 3.] The federal government implemented the PPP in 12 response to the COVID-19 pandemic to provide eligible businesses with loans to cover 13 payroll and other specified business-related expenses. Id. at 4. Businesses wishing to 14 obtain a PPP loan were required to submit a loan application, which required businesses 15 to acknowledge PPP rules and certify their eligibility to receive a loan. Id. Certain 16 businesses were ineligible for PPP loans, such as private clubs and businesses which limit 17 the number of memberships for reasons other than capacity. Id. at 5, 16. 18 Plaintiff Relator initiated this case under seal on January 23, 2023. [Doc. No. 1.] 19 Relator alleged Defendants were ineligible to receive PPP loans as a private club and 20 business which limits the number of memberships for reasons other than capacity and 21 thus knowingly made false or fraudulent statements on their PPP application in violation 22 of the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(1)(A–B). Id. at 18-21. The 23 Department of Justice investigated the allegations and declined to intervene. [Doc. No. 24 11.] The Court unsealed the Complaint on January 17, 2024. [Doc. No. 11.] Defendants 25 filed a motion to dismiss the original complaint on June 14, 2024. [Doc. No. 25.] On July 26 5, 2024, Plaintiff Relator elected to file a First Amended Complaint (“FAC”) [Doc. No. 27 26], and the motion to dismiss the original complaint was denied as moot [Doc. No. 28.] 28 On July 26, 2024, Defendants filed this motion to dismiss the FAC. [Doc. No. 29.] 1 Defendants move to dismiss Relator’s FAC under Rule 12(b)(1) for lack of 2 jurisdiction pursuant to the FCA’s public disclosure bar,3 and pursuant to Rule 12(b)(6) 3 for failure to state a claim. 4 LEGAL STANDARD 5 Rule 12(b)(6) of the Federal Rules of Civil Procedure permits dismissal for “failure 6 to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). In order to 7 state a claim for relief, a pleading “must contain ... a short and plain statement of the 8 claim showing that the pleader is entitled to relief.” Id. 8(a)(2). Dismissal under Rule 9 12(b)(6) “is proper only where there is no cognizable legal theory or an absence of 10 sufficient facts alleged to support a cognizable legal theory.” Shroyer v. New Cingular 11 Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (citation omitted). 12 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, 13 accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 14 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 15 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that 16 allows the court to draw the reasonable inference that the defendant is liable for the 17 misconduct alleged.” Id. (citation omitted). However, “a plaintiff's obligation to provide 18 the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, 19 and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 20 U.S. at 555 (alteration in original) (quoting Fed. R. Civ. P. 8(a)). A court is not “required 21 to accept as true allegations that are merely conclusory, unwarranted deductions of fact, 22 or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th 23 Cir. 2001). “In sum, for a complaint to survive a motion to dismiss, the non-conclusory 24 25 3 Dismissal under Rule 12(b)(1) is denied because the public disclosure bar has not been jurisdictional 26 for the last 14 years and instead is an affirmative defense. Prather v. AT&T, Inc., 847 F.3d 1097, 1102 (9th Cir. 2017). Because the public disclosure bar is an affirmative defense, a court may consider it on a 27 motion to dismiss only “where the ‘allegations in the complaint suffice to establish’ the defense.” Sams v. Yahoo! Inc., 713 F.3d 1175, 1179 (9th Cir. 2013) (quoting Jones v. Bock, 549 U.S. 199, 215 (2007)). 28 1 factual content, and reasonable inferences from that content, must be plausibly suggestive 2 of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 3 (9th Cir. 2009) (citation omitted). 4 DISCUSSION 5 Defendants move to dismiss for two reasons: (1) the FCA's public disclosure bar 6 applies; and (2) Relator's claims fail to satisfy Rules 12(b)(6) and 9(b). [Doc. No. 7-17at 7 6–7.] As will be discussed, the Court agrees with Defendants that the public disclosure 8 bar applies. Therefore, the Court declines to address Defendants’ remaining arguments. 9 A. Applicable Law. 10 “The FCA creates civil liability for ‘any person who (A) knowingly presents, or 11 causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) 12 knowingly makes, uses, or causes to be made or used, a false record or statement material 13 to a false or fraudulent claim.’ ” United States v. Allergan, Inc., 46 F.4th 991, 993 (9th 14 Cir. 2022) (quoting 31 U.S.C. § 3729(a)(1)). “A private person, known as a qui tam 15 relator, may bring a civil action under the FCA in the name of the U.S. government.” Id. 16 at 994 (citing 31 U.S.C. § 3730(b)). “The government may proceed with the action or 17 decline to take over the action; if the government declines, then the relator can still 18 pursue the action.” Id. (citing 31 U.S.C. § 3730(b)(4)). “The FCA incentivizes 19 whistleblowers to come forward by offering successful relators up to thirty percent of the 20 recovery.” Id. (citing 31 U.S.C. § 3730(d)). However, “the FCA ... provides limits on 21 who can bring a qui tam action and the sources of information upon which they can base 22 their suit.” Id. “These ‘bars’ to suit are intended to prevent ‘parasitic’ or ‘opportunistic’ 23 qui tam actions.” Id. (citation omitted). 24 B. Public Disclosure Bar. 25 The public disclosure bar is set forth in 31 U.S.C. § 3730(e)(4)(A), which provides: 26 The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as 27 alleged in the action or claim were publicly disclosed— 28 1 (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; 2 (ii) in a congressional, Government Accountability Office, or other 3 Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney 4 General or the person bringing the action is an original source of the 5 information.
6 Thus, the public disclosure bar is triggered when: “(1) the disclosure at issue 7 occurred through one of the channels specified in the statute; (2) the disclosure was 8 public; and (3) the relator's action is substantially the same as the allegation or transaction 9 publicly disclosed.” Id. at 996 (citing United States ex rel. Solis v. Millennium Pharms., 10 Inc., 885 F.3d 623, 626 (9th Cir. 2018)) (internal quotations omitted). 11 Here, as currently pled, the FAC is barred by the public disclosure bar. The fact 12 that Defendants obtained a PPP loan was disclosed on a federal website, 13 PandemicOversight.gov, which qualifies as a “report” for purposes of the public 14 disclosure bar. See U.S. ex rel. Rosner v. WB/Stellar IP Owner, LLC, 739 F.Supp.2d 396, 15 405, 407 (S.D.N.Y. 2010) (holding that a “database available on a government website” 16 can qualify as a “report” under the public disclosure bar when “readily available,” “free,” 17 and “easily navigable”). Searching for “La Jolla Beach and Tennis Club Partners L.P.” on 18 this site provides results showing that the LJBTC Partnership did receive a PPP loan in 19 April 2020 in the amount of $4,200,165.00. The Government’s website shows the full 20 name of the business that received the loan, the loan amount, the date the loan was 21 approved, the lender, the loan amount forgiven, the date the loan amount was forgiven, 22 the number of jobs reported, the number of loans, the spending category, and the 23 industry. Specifically, the website shows that Defendant is in the Golf Courses and 24 Country Clubs sector of the Arts, Entertainment and Recreation industry. [Doc. No. 29-2 25 at 13, 73.] In addition, the information regarding Defendant being an “exclusive” country 26 club could also be found in news media sources, including a news article discussing 27 “exclusive” country clubs receiving PPP loans while still collecting full dues – and listing 28 1 Defendant as one such potential club. [Doc. No. 29-2 at 57-66.] Thus, there were several 2 qualifying public disclosures. 3 In addition, the allegations of the FAC are “substantially similar” to the 4 information already disclosed by the U.S. Government on pandemicoversight.gov and by 5 various news media sources. In the Ninth Circuit, the following formula is used to 6 determine substantial similarity: 7 [I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, 8 the combination of X and Y must be revealed, from which readers or 9 listeners may infer Z, i.e., the conclusion that fraud has been committed. Mateski v. Raytheon Co., 816 F.3d 565, 571 (9th Cir. 2016) 10
11 As discussed above, the “X” is the information on the government website and the 12 news articles which discloses that Defendant is an “exclusive” country club and obtained 13 a PPP loan. The “Y” is the general PPP guideline publicly available on the SBA’s 14 sba.gov website which states that private clubs that limit membership for reasons other 15 than capacity are not eligible for PPP loans. In fact, the FAC specifically alleges that the 16 SBA regulations “are clear that private clubs that limit membership for reasons other than 17 capacity are not eligible whatsoever to obtain PPP loans” [Doc. No. 26 at ¶22], and that 18 “even a brief review of the rules would reveal that these types of clubs cannot take PPP 19 money” [Doc. No. 26 at ¶24]. Thus, by Plaintiff’s own allegations, such a prohibition 20 was clearly and publicly available prior to the filing of the complaint. 21 When “X” and “Y” are combined, the conclusion that fraud has been committed 22 (“Z”) can be inferred. In other words, the material elements of the alleged fraud – that 23 Defendants applied for a PPP loan despite being an “exclusive” club – were publicly 24 disclosed. From that information, “readers or listeners may infer . . . the conclusion that 25 fraud has been committed.” Mateski, 816 F.3d at 571. 26 Accordingly, the material elements of the allegedly fraudulent “transaction” were 27 disclosed in the public domain and Plaintiff’s claim and the prior disclosure are 28 substantially similar. 1 C. Original Source. 2 Since there has been a public disclosure, the case must be dismissed unless Relator 3 found to be an “original source” of the information and the Government does not 4 ||oppose dismissal. 31 U.S.C. § 3730(e)(4)(A). Relator bears the burden of establishing 5 || that it qualifies as an original source. United Statesex re. Solis v. Millennium 6 || Pharmaceuticals, Inc., 445 F.Supp.3d 786, 795 (9th Cir. 2020)(citations omitted). An 7 || “original source” is defined in relevant part as an individual who “has knowledge that is 8 ||independent of and materially adds to the publicly disclosed allegations or transactions, 9 who has voluntarily provided the information to the Government before filing an 10 || action under this section.” 31 U.S.C. § 3730(e)(4)(B). 11 Relator's allegations appear to be based entirely on public information. Relator 12 || does not cite any information in the FAC that materially adds to the public disclosures or 13 shows that Relator had any independent knowledge of the alleged fraud. See United 14 || States ex rel. Hastings v. Wells Fargo Bank, NA, Inc., 656 Fed. App'x 328, 331-32 (9th 15 || Cir. 2016) (“Allegations do not materially add to public disclosures when they provide 16 || only background information and details relating to the alleged fraud — they must add 17 || value to what the government already knew.”). Accordingly, Plaintiff fails to show that it 18 an “original source” for purposes of circumventing the public disclosure bar. 19 CONCLUSION 20 For the reasons set forth above, Defendants’ motion to dismiss is GRANTED 21 || WITH LEAVE TO AMEND. Plaintiff may file a Second Amended Complaint 22 ||(“SAC”) no later than December 28, 2024. If no SAC is filed by December 28, 2024, 23 case will be closed. 24 ||Dated: November 25, 2024 € Z 25 Hon. Cathy Ann Bencivengo 26 United States District Judge 27 28