US ex rel. Citynet, LLC v. Jimmy Gianato

962 F.3d 154

• Court: Court of Appeals for the Fourth Circuit
• Decided: June 22, 2020
• Docket: 18-1575
• Status: Published

Opinion

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 18-1575

UNITED STATES EX REL. CITYNET, LLC,

Plaintiff - Appellee,

v.

JIMMY GIANATO, individually; GALE GIVEN, individually,

Defendants - Appellants,

and

FRONTIER WEST VIRGINIA, INC., a West Virginia corporation; KENNETH ARNDT, individually; DANA WALDO, individually; MARK MCKENZIE, individually, KELLY GOES, individually,

Defendants.

Appeal from the United States District Court for the Southern District of West Virginia, at Charleston. John T. Copenhaver, Jr., Senior District Judge. (2:14-cv-15947)

Argued: January 29, 2020 Decided: June 22, 2020

Before WILKINSON, NIEMEYER, and MOTZ, Circuit Judges.

Vacated and remanded by published opinion. Judge Niemeyer wrote the opinion, in which Judge Wilkinson and Judge Motz joined. ARGUED: Geoffrey A. Cullop, PULLIN, FOWLER, FLANAGAN BROWN & POE, PLLC, Charleston, West Virginia, for Appellants. Benjamin L. Bailey, BAILEY & GLASSER LLP, Charleston, West Virginia, for Appellee. ON BRIEF: Stephen M. Fowler, PULLIN, FOWLER, FLANAGAN BROWN & POE, PLLC, Charleston, West Virginia, for Appellants. Rebecca L. Donnellan-Pomeroy, BAILEY & GLASSER LLP, Charleston, West Virginia, for Appellee.

2 NIEMEYER, Circuit Judge:

Acting on behalf of the United States, a West Virginia company, Citynet, LLC,

commenced this “qui tam” action against West Virginia officials Jimmy Gianato, Gale

Given, and others, alleging in nine counts that the defendants defrauded the United States

when obtaining federal funding for a program to improve broadband connectivity for West

Virginia residents, in violation of the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq.

Specifically, Citynet alleged that Gianato and Given, respectively the Director of the West

Virginia Division of Homeland Security and Emergency Management and the State

Technology Officer, along with other defendants, knowingly submitted false statements

and records to the United States as part of their application for funding under the federal

Broadband Technology Opportunities Program and, once the funding was obtained, made

false claims in drawing down funds under the Program.

Gianato and Given filed a motion to dismiss the complaint, asserting, among other

things, that it failed to state plausible claims for relief and that they were, in any event,

entitled to qualified immunity. The district court ruled that, with the exception of two

counts against Given related to her involvement in the preparation of the grant application,

the complaint adequately alleged that Gianato and Given had violated the FCA. And with

respect to qualified immunity, the court ruled that “the determination of whether [Gianato

and Given are] entitled to the defense [of qualified immunity] [had to] be deferred until a

later time in light of evidentiary development, such as at the summary judgment stage.” It

explained that resolving the immunity question required further fact-finding with respect

to each official’s state of mind in allegedly violating the FCA. In so concluding, the district

3 court implicitly assumed that government officials could invoke qualified immunity as a

defense to claims brought under the FCA.

Gianato and Given filed this interlocutory appeal from the district court’s ruling on

qualified immunity, claiming that, because qualified immunity is an immunity from suit,

they ought to be shielded from participating in further proceedings before the district court.

Citynet filed a motion to dismiss the appeal, contending that the district court’s ruling that

further facts were needed before ruling on immunity is not immediately appealable.

Citynet also argued that, in any event, persons violating the FCA cannot be protected by

immunity because they “knowingly perpetrated a fraud on the United States government.”

Because the district court’s ruling was contingent on the answer to the threshold

legal question of whether qualified immunity may be invoked as a defense to FCA claims,

we exercise appellate jurisdiction and hold that qualified immunity does not apply to

protect government officials from claims against them for fraud under the Act.

Accordingly, we vacate the district court’s immunity ruling and remand with the instruction

that the district court deny Gianato and Given’s claim of qualified immunity.

I

Under the American Recovery and Reinvestment Act of 2009, Congress

appropriated approximately $4.7 billion in federal funds for the Broadband Technology

Opportunities Program, seeking to create jobs and expand broadband access in rural and

underserved communities. On behalf of the Executive Office of the State of West Virginia,

Gianato and others submitted an application for funding under the Program with a proposal

4 for a “middle-mile” project, which would link a telecommunications carrier’s core network

to local hubs, such as schools, libraries, and healthcare facilities. In February 2010, the

Executive Office received a grant of over $126 million in Program funding for that project.

Citynet, a communications service provider that had unsuccessfully applied for

Program funding, commenced this action on behalf of the United States under the FCA. It

alleged in nine counts that Gianato, Given, and various other defendants not involved in

this appeal engaged in a scheme to fraudulently cause the federal government to award

Program funds to the Executive Office by knowingly submitting false statements and

records as part of the grant application and by subsequently submitting false claims to the

federal government for payments under the Program. According to the complaint, the

defendants prepared the grant application with the intent that another entity, Frontier West

Virginia, Inc., “be the actual recipient of [any] grant funds awarded to the [Executive

Office],” and, as a result, the Executive Office’s grant proposal contained numerous

material misrepresentations. Citynet also alleged that, once the Executive Office had been

awarded a grant under the Program, it coordinated with Frontier to submit false invoices to

the government while fraudulently using the funds in pursuit of a project entirely different

from the one that had been awarded federal funding. Thus, Frontier, through the Executive

Office, billed the federal government for “material and labor it did not provide, and for

fiber links that were not constructed.”

Gianato and Given filed a motion to dismiss the complaint under Federal Rule of

Civil Procedure 12(b)(6), arguing, inter alia, that each count against them failed to state a

plausible claim for relief; that, as state officials sued in their individual capacities for

5 conduct undertaken in the course of their official duties, they were not “persons” subject

to liability under the FCA; and that, in any event, they were entitled to qualified immunity.

In a 104-page opinion and order dated March 30, 2018, the district court granted the

motion to dismiss in part and denied it in part. As relevant to this appeal, the court

determined that, with the exception of two counts against Given related to the preparation

of the grant application, Citynet had adequately pleaded that both Gianato and Given had

violated the FCA. The court deferred ruling on Gianato and Given’s assertion of qualified

immunity, concluding that, without further facts, it could not determine the level of scienter

with which they had acted or, relatedly, whether their actions had violated a clearly

established right. Recognizing that the FCA requires a showing that the defendant acted

with actual knowledge, deliberate ignorance, or reckless disregard, the court observed that

“a reasonable person with ‘actual knowledge’ of his fraud would doubtlessly know that the

fraud he perpetrates is wrong. At the other end, whether a reasonable person ‘act[ing] in

reckless disregard of the truth’ would recognize that his actions constitute a fraud under

the FCA is a much closer issue.” The court concluded:

While the complaint sufficiently alleges that the defendants acted with the requisite scienter, the court cannot at this juncture decide the level of scienter with which [Gianato and Given] acted in allegedly violating the FCA. That obfuscates the qualified immunity analysis as set forth above, and the qualified immunity decision consequently must be deferred until a time when the court can make an informed decision based upon the evidence.

Gianato and Given filed this interlocutory appeal from the district court’s immunity

ruling, asserting that it was a “final decision under the collateral order doctrine.”

6 Contending otherwise, Citynet filed a motion to dismiss the appeal, and we deferred ruling

on the motion pending briefing on the merits and oral argument.

II

At the outset, we must address Citynet’s motion to dismiss this appeal, as it

challenges our jurisdiction.

Citynet contends in its motion that when a district court defers ruling on the claim

of qualified immunity because of a need for factual development, a court of appeals lacks

jurisdiction to review the district court’s order. But in its subsequent brief, Citynet takes a

position somewhat in tension with its motion, asserting that an immunity defense is not

available in response to a claim that defendants knowingly violated the FCA, thus implying

that the issue of immunity can be decided as a matter of law at this stage of the proceeding.

The principles for determining our jurisdiction are well established. Ordinarily, the

denial of a motion to dismiss is interlocutory and thus not subject to immediate appeal. See

Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949). But, under the collateral

order doctrine, appellate jurisdiction extends to “‘a narrow class of decisions that do not

terminate the litigation,’ but are sufficiently important and collateral to the merits that they

should ‘nonetheless be treated as final.’” Will v. Hallock, 546 U.S. 345, 347 (2006)

(quoting Digital Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 863, 867 (1994)).

Under this doctrine, a conclusive order denying a motion to dismiss on qualified

immunity grounds constitutes an immediately appealable collateral order if it turns on a

pure issue of law. See Ashcroft v. Iqbal, 556 U.S. 662, 671–72 (2009) (“A district-court

7 decision denying a Government officer’s claim of qualified immunity can fall within the

narrow class of appealable orders despite the absence of a final judgment” if it “turns on

an issue of law” (cleaned up)); see also Al Shimari v. CACI Int’l, Inc., 679 F.3d 205, 221

(4th Cir. 2012) (en banc) (“[O]rders denying dismissal motions, insofar as those motions

are based on immunities that are not absolute but conditioned on context, . . . are . . .

immediately appealable” when based on “abstract issues of law” (cleaned up)). This is so

because qualified immunity “is an immunity from suit rather than a mere defense to

liability; and . . . it is effectively lost if a case is erroneously permitted to go to trial.”

Mitchell v. Forsyth, 472 U.S. 511, 526 (1985). Accordingly, we have recognized that a

district court’s refusal to rule on the immunity question nullifies the benefits of the defense

and may thus be treated as an immediately appealable denial of immunity. See Nero v.

Mosby, 890 F.3d 106, 125 (4th Cir. 2018); Jenkins v. Medford, 119 F.3d 1156, 1159 (4th

Cir. 1997) (en banc). An exception arises, however, when further factual development is

needed to rule on the immunity question itself. See Al Shimari, 679 F.3d at 220 (“[E]ven

a party whose assertion of immunity ultimately proves worthy must submit to the burdens

of litigation until a court becomes sufficiently informed to rule”).

Citynet bases its motion to dismiss this appeal on this exception. The district court

did indeed conclude that factual development was needed to rule on the immunity question.

But the court’s ruling presumed that the immunity defense was available in response to an

FCA claim. In so presuming, the court skipped the logically antecedent legal question of

whether qualified immunity could ever be invoked as a defense to claims of fraud brought

under the FCA. And resolution of this question requires no factual development. The

8 district court’s deferral ruling in this case thus depends on resolution of this pure issue of

law, supporting our exercise of appellate jurisdiction at this time. Accordingly, we deny

Citynet’s motion to dismiss the appeal.

III

When applicable, the doctrine of “[q]ualified immunity shields federal and state

officials from money damages” in cases alleging violations of either “statutory or

constitutional right[s].” Ashcroft v. al-Kidd, 563 U.S. 731, 735 (2011). But we have yet

to address the more specific question of whether qualified immunity may be invoked as a

defense to claims brought under the FCA — the resolution of which turns on whether the

FCA’s scienter requirement is inconsistent with the doctrine.

Originally passed in 1863 in response to widespread fraud against the government

during the American Civil War, “the FCA is a fraud prevention statute” that imposes

liability on those who defraud federal government programs. United States ex rel. Owens

v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 728 (4th Cir. 2010)

(cleaned up); see also Rainwater v. United States, 356 U.S. 590, 592 (1958). In its current

version, the FCA provides that suit may be brought against “any person” who, inter alia,

“knowingly presents, or causes to be presented, [to the United States government] a false

or fraudulent claim for payment or approval”; “knowingly makes, uses, or causes to be

made or used, a false record or statement material to a false or fraudulent claim”; or

conspires to commit such acts. 31 U.S.C. § 3729(a)(1)(A)–(C). “In adopting the FCA,

9 ‘the objective of Congress was broadly to protect the funds and property of the

government.’” Owens, 612 F.3d at 728 (quoting Rainwater, 356 U.S. at 592).

The FCA requires explicitly that, to be liable under the Act, the defendant must have

acted “knowingly.” And it defines “knowingly” to “mean that a person, with respect to

information — (i) has actual knowledge of the information; (ii) acts in deliberate ignorance

of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or

falsity of the information.” 31 U.S.C. § 3729(b)(1)(A). We have previously recognized

that this element is so defined to ensure that liability is not imposed for “honest mistakes

or incorrect claims submitted through mere negligence.” Owens, 612 F.3d at 728 (quoting

S. Rep. No. 99-345, at 7 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5272). Thus,

FCA liability attaches only where a person has acted intentionally or recklessly.

Yet, by acting intentionally or recklessly, a government official necessarily forfeits

any entitlement to qualified immunity. See al-Kidd, 563 U.S. at 743 (explaining that

qualified immunity protects “all but the plainly incompetent or those who knowingly

violate the law” (emphasis added) (quoting Malley v. Briggs, 475 U.S. 335, 341 (1986))).

Stated otherwise, qualified immunity does not protect government officials when they act

to violate the law with actual knowledge, deliberate ignorance, or reckless disregard of a

risk to a constitutional or statutory right. See, e.g., Washington v. Wilmore, 407 F.3d 274,

283–84 (4th Cir. 2005) (reasoning that qualified immunity may not shield government

officials who knowingly create or use false evidence to obtain a criminal conviction); Hope

v. Pelzer, 536 U.S. 730, 744–45 (2002) (reasoning that qualified immunity may not shield

government officials for a course of conduct where they have ignored a regulation with

10 impunity); Raub v. Campbell, 785 F.3d 876, 884 n.8 (4th Cir. 2015) (explaining that “[i]n

the arrest context, a law enforcement officer’s omission of material facts from a warrant

affidavit deprives him of qualified immunity . . . if the omission was made intentionally or

with a ‘reckless disregard for the truth’” (emphasis added) (quoting Miller v. Prince

George’s Cnty., 475 F.3d 621, 627 (4th Cir. 2007))). Thus, the state of mind required to

establish liability under the FCA is also sufficient to preclude immunity protection, and

therefore immunity cannot protect a public official from a suit alleging a claim under the

FCA. In order to have violated the FCA, a government official would have necessarily had

to act in a manner inconsistent with the type of “reasonable but mistaken judgments”

qualified immunity is designed to shield. al-Kidd, 563 U.S. at 743.

Moreover, there is good reason to hesitate before applying qualified immunity — a

doctrine that “acts to safeguard the government, and thereby to protect the public at large”

rather than to “benefit [the government’s] agents” — to situations where the victim of the

alleged violation is the United States government itself, and the perpetrator a federal or

state agent. Wyatt v. Cole, 504 U.S. 158, 168 (1992). While courts have recognized the

public interest in affording public officers immunity from suit to protect their ability to

exercise independent discretion in carrying out their official duties, see, e.g., Nixon v.

Fitzgerald, 457 U.S. 731, 744–45 (1982), it surely does not serve the public interest to

extend immunity protection to public officials who defraud the government. Thus, while

immunity should protect discretion, it must not shield fraud.

At bottom, we hold that qualified immunity may not be invoked as a defense to

liability under the FCA. See Samuel v. Holmes, 138 F.3d 173, 178 (5th Cir. 1998)

11 (reasoning that “qualified immunity seems particularly ill-suited” to FCA retaliation claims

under 31 U.S.C. § 3730(h) because “[g]ranting government officials the protection of

qualified immunity would hardly spur reluctant employees to step forward” with

knowledge of fraud against the government); United States ex rel. Parikh v. Citizens Med.

Ctr., 977 F. Supp. 2d 654, 685 (S.D. Tex. 2013) (holding that because the FCA attaches

liability only if a defendant knowingly presents a false or fraudulent claim, “qualified

immunity . . . has little role to play in False Claims Act cases”). Therefore, Gianato and

Given cannot claim qualified immunity as a defense to Citynet’s FCA claims, as the district

court assumed was a possibility.

IV

Gianato and Given ask us also to exercise pendent appellate jurisdiction over the

district court’s determination that, as state officials sued in their individual capacities for

actions taken in the course of their official duties, they qualify as “persons” subject to FCA

liability. Pendent appellate jurisdiction, however, is available “only (1) when an issue is

inextricably intertwined with a question that is the proper subject of an immediate appeal;

or (2) when review of a jurisdictionally insufficient issue is necessary to ensure meaningful

review of an immediately appealable issue.” Adams v. Ferguson, 884 F.3d 219, 224 (4th

Cir. 2018) (cleaned up). Because the question of whether the state officials are “persons”

under the FCA is neither inextricably intertwined with nor necessary to ensure meaningful

review of their claim of qualified immunity, pendent appellate jurisdiction to consider the

issue is unavailable.

12 * * *

For the foregoing reasons, we vacate the district court’s ruling deferring for further

factual development the immunity issue and remand with the instruction that the district

court deny Gianato and Given’s motion to dismiss on the basis of qualified immunity.

VACATED AND REMANDED