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Realtors' FCA Claims Complied with Pleading Requirements

The dismissal of a complaint in a qui tam False Claims Act action was reversed by the Court of Appeals for the Tenth Circuit because the relators stated legally sufficient claims that complied with heightened pleading requirements. The relators, employees of the defendant contractor and its subcontractor, asserted claims under 31 USC 3729(a)(1) and (2). Section 3729(a)(1) imposes civil liability when a person "knowingly presents, or causes to be presented" to the government "a false or fraudulent claim for payment or approval," while Section 3729(a)(2) renders a party liable for "knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the [g]overnment." The relators' suit rested on allegations of legal falsity, i.e., that the contractor falsely certified compliance --expressly and impliedly --with the terms of its government contracts in seeking payment. Specifically, the relators alleged the contractor violated contractual and regulatory requirements by improperly disposing of hazardous and radioactive waste. The district court dismissed the relators' amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and for failure to plead fraud with particularity as required by FRCP 9(b). The district court stated the relators failed to tie their "allegations to an identifiable, plausible 'false claim' within the meaning of the False Claims Act."

Sufficient Allegations

However, the relators' complaint contained sufficient factual allegations to support both implied and express false certification claims. With regard to implied false certification, the relators documented a series of instances in which they personally observed the contractor violate its contractual and regulatory obligations. They detailed the improper activities and explained that the contractor was aware of the violations. The relators also stated they reviewed the contractor's requests for payments and none of the requests disclosed any violations. In addition, with regard to the materiality requirement, the relators cited specific contractual provisions under which the government, had it been aware of the violations, may have refused to pay the contractor. Similarly, with regard to their express false certification claims, the relators sufficiently alleged the contractor knowingly submitted false requests for payment to the government and the government paid those requests. According to the relators, because the contractor did not comply with contractual requirements, the certifications were false. Finally, the complaint complied with FRCP 9(b), which states that in "alleging fraud ..., a party must state with particularity the circumstances constituting fraud." The intent of Rule 9(b) is to give a defendant fair notice of the plaintiff's claims and the facts supporting the complaint's allegations. Here, the relators provided factual allegations regarding the "who, what, when, where and how" of the alleged false claims. Thus, the relators' complaint provided enough information to describe the contractor's fraudulent scheme, which supported a plausible inference that the contractor submitted false claims to the government. (U.S. ex rel. Lemmon, et al. v. Envirocare of Utah, Inc., CA-10, 54 CCF 79,391)




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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