US ex rel. Mike Ahumada v. NISH , 756 F.3d 268 ( 2014 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1672
UNITED STATES EX REL. MIKE AHUMADA,
Plaintiff – Appellant,
and
ERIC H. HOLDER, JR., Attorney General,
Plaintiff,
v.
NISH; GREEN BAY PACKAGING INC.; INTERNATIONAL PAPER
COMPANY, INCORPORATED; SMURFIT−STONE CONTAINER CORPORATION;
WEYERHAEUSER COMPANY,
Defendant – Appellees,
and
NATIONAL CENTER FOR EMPLOYMENT OF THE DISABLED, now known
as ReadyOne Industries; BOB JONES, a/k/a Robert E. Jones;
DOES 1−100,
Defendants.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:06-cv-00713-CMH-TCB)
Argued: March 20, 2014 Decided: June 23, 2014
Before NIEMEYER and DIAZ, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed by published opinion. Judge Diaz wrote the opinion, in
which Judge Niemeyer and Senior Judge Hamilton joined.
ARGUED: Martin E. Restituyo, LAW OFFICES OF MARTIN E. RESTITUYO,
New York, New York, for Appellant. Robert Carton Weaver, Jr.,
GARVEY SCHUBERT BARER, Portland, Oregon; Matthew Allen
Fitzgerald, MCGUIREWOODS, LLP, Richmond, Virginia, for
Appellees. ON BRIEF: Victor M. Glasberg, VICTOR M. GLASBERG &
ASSOCIATES, Alexandria, Virginia; Mark C. Rifkin, WOLF
HALDENSTEIN ADLER FREEMAN & HERZ LLP, New York, New York, for
Appellant. Charles William McIntyre, Jr., Franklin Darley
Annand, Washington, D.C., Jeremy S. Byrum, MCGUIREWOODS, LLP,
Richmond, Virginia; Seth A. Rosenthal, Washington, D.C., Michael
Wayne Robinson, VENABLE, LLP, Tysons Corner, Virginia; John
Francis Henault, Jr., PERKINS COIE, LLP, Washington, D.C.; Paul
H. Trinchero, Benjamin J. Lambiotte, GARVEY SCHUBERT BARER,
Portland, Oregon; Lynn F. Jacob, WILLIAMS MULLEN, P.C.,
Richmond, Virginia, for Appellees.
2
DIAZ, Circuit Judge:
Mike Ahumada, as relator, filed this qui tam action on
behalf of the United States under the False Claims Act (“FCA”),
31 U.S.C. §§ 3729 et seq. In his first amended complaint,
Ahumada alleges that his former employer, the National Center
for Employment of the Disabled (“NCED”), along with other
defendants, defrauded the government through various schemes in
connection with contracts pursuant to the Javits-Wagner-O’Day
Act, 41 U.S.C. §§ 8501 et seq. Specifically, Ahumada alleges
that NCED conspired with its suppliers and an overseeing
nonprofit to skirt applicable regulations and overcharge the
government.
After NCED and its former CEO settled, the district court
dismissed Ahumada’s claims against the remaining defendants. It
held that the FCA’s public-disclosure bar precluded subject-
matter jurisdiction and that Ahumada had not stated any viable
claims. Ahumada now appeals that dismissal, as well as the
district court’s denial of his motion for leave to file a second
amended complaint. For the reasons that follow, we affirm.
I.
A.
From February to July of 2004, NCED employed Ahumada as a
Vice President and General Manager. NCED, a nonprofit
3
corporation, produces a number of products--including military
apparel and corrugated boxes--that it sells to agencies of the
U.S. government. These sales occur pursuant to contracts under
the Javits-Wagner-O’Day Act.
The Javits-Wagner-O’Day Act establishes a government
contracting program (the “JWOD program”) to promote “employment
and training opportunities for persons who are blind or have
other severe disabilities.” 41 C.F.R. § 51-1.1(a). To that
effect, the Act created the Committee for Purchase from People
who are Blind or Severely Disabled (the “Committee”), which
makes and maintains a “procurement list” of products and
services eligible for purchase from “qualified nonprofit
agencies.” 41 U.S.C. §§ 8502, 8503. If “[a]n entity of the
Federal Government intend[s] to procure a product or service on
the procurement list,” it must do so from such a nonprofit at a
market price established by the Committee. Id. § 8504. To
qualify for participation in the program, a nonprofit must
certify, on an annual basis, that it “employs blind or other
severely disabled individuals for at least 75 percent of the
hours of direct labor required for the production or provision
of the products and services.” Id. § 8501(6)(C).
To coordinate the participation of nonprofits, the
Committee appointed the National Industries for the Severely
Handicapped (“NISH”) to serve as the JWOD program’s “central
4
nonprofit agency.” See id. § 8503(c). In this role, NISH was
responsible for “[e]valuat[ing] the qualifications” of other
nonprofits that sought to participate in the program, and for
assigning them contracts “in a fair and equitable manner.” 41
C.F.R. §§ 51-3.2(b), 51-3.4. NISH was also charged with
“monitor[ing]” the participating nonprofits to ensure their
compliance with “the statutory and regulatory requirements [of]
the program.” Id. § 51-3.2(j).
Beginning in October 2005--about eight months before
Ahumada filed his initial complaint in this case--The Oregonian,
a Portland-based newspaper, published a series of articles
describing questionable practices within the JWOD program.
Among other issues, the articles alleged that NCED was receiving
payment on JWOD contracts despite failing to employ the
requisite percentage of disabled workers. The articles
attributed at least some of the problems in the program to lax
oversight by NISH.
The El Paso Times published the first in a similar series
of articles that November. Its articles reported that the
Committee had begun investigating NCED for its perceived lack of
compliance with JWOD labor requirements. The articles further
alleged that certain NCED suppliers, including International
Paper Co. (“IPC”), Green Bay Packaging, Inc., and Smurfit-Stone
Container Corp., helped NCED skirt JWOD regulations by providing
5
NCED with finished products rather than component parts. See 41
C.F.R. § 51-4.4(d) (prohibiting JWOD-participating nonprofits
from “subcontract[ing] the entire production process for all or
a portion of an order without the Committee’s prior approval”).
The articles reported that NCED then resold these products to
the government under the pretense that they were produced
entirely by disabled NCED employees. The allegations reported
in the two newspapers were also the subject of a television
documentary.
In the wake of this publicity, the FBI launched a criminal
investigation that resulted in the indictments of three NCED
executives. Bob Jones and Patrick Woods--NCED’s former CEO and
former Board President--ultimately pleaded guilty to various
fraud and embezzlement charges. In 2010, a jury convicted
NCED’s former COO, Ernie Lopez, of making false statements and
conspiracy to defraud the government.
B.
On June 20, 2006, Ahumada filed this qui tam suit under the
FCA against NCED, Jones, and one-hundred John Doe defendants in
the U.S. District Court for the Eastern District of Virginia.
The complaint alleged that, between 1999 and 2006, Jones and
NCED engaged in a series of schemes to defraud the government,
primarily by receiving payments on JWOD contracts despite
failing to comply with JWOD regulations. Ahumada later filed a
6
first amended complaint alleging that NCED: (1) falsely
represented its compliance with JWOD’s disabled-labor
requirements; (2) falsely represented that it produced certain
products it sold to the government; and (3) overcharged the
government.
The first amended complaint also named several additional
defendants, including NISH and four NCED suppliers: IPC, Green
Bay, Smurfit, and Weyerhaeuser Co. (collectively, the “supplier
defendants”). Ahumada alleged that NISH knew that NCED was not
complying with JWOD requirements but continued to assign it
contracts to improve NISH’s own bottom line. He also alleged
that the supplier defendants conspired with NCED and facilitated
its fraud by issuing artificially inflated invoices, and, later,
providing rebates; falsely billing NCED for raw materials
despite actually providing finished or nearly finished products;
and falsely stamping finished products with NCED’s box
manufacturing certificate. According to Ahumada, the supplier
defendants engaged in this conduct while knowing--and attempting
to conceal--that NCED was not complying with JWOD regulations.
Per its statutory mandate, the United States intervened in
Ahumada’s suit with respect to defendants NCED and Jones. See
31 U.S.C. § 3730(b)(2). Both eventually settled with the
government and Ahumada. The United States chose not to
intervene with respect to the claims against NISH and the
7
supplier defendants, and those parties moved to dismiss
Ahumada’s suit.
In support of their motions to dismiss, NISH and the
supplier defendants advanced two primary arguments. First, they
argued that the district court lacked subject-matter
jurisdiction pursuant to the FCA’s “public-disclosure bar.” See
31 U.S.C. § 3730(e)(4)(A) (2006). This provision precludes
subject-matter jurisdiction over claims “based upon” publicly
disclosed allegations unless the relator is an “original
source.” Id. Second, they argued that the first amended
complaint suffered from various pleading defects. In response,
Ahumada moved for leave to file a proposed second amended
complaint.
The district court granted the defendants’ motions to
dismiss. See United States ex rel. Ahumada v. Nat’l Ctr. for
Emp’t of the Disabled, No. 1:06-cv-713, 2013 WL 2322836 (E.D.
Va. May 22, 2013). The court held that the first amended
complaint was “devoid of any particularized facts” and therefore
failed to plead fraud with the particularity required by Federal
Rule of Civil Procedure 9(b). Id. at *3-*4. Specifically, it
did not identify the “who, what, when, where and how” of the
alleged false claims. Id. at *3 (internal quotation marks
omitted). The court also held that the first amended
complaint’s “general[]” and “conclusory” allegations were
8
insufficient because they adequately alleged neither scienter--
“an essential element of any FCA claim”--nor the specific
elements of a conspiracy. Id. at *4.
As an alternative basis for dismissal, the court held that
the public-disclosure bar deprived it of subject-matter
jurisdiction. In the court’s view, “[t]he allegations [in the
first amended complaint] clearly track the news media stories
[which] appear[] to be the basis of [Ahumada’s] claim.” Id. at
*6. Furthermore, the court held that Ahumada had not
established that he was an “original source”--so as to avoid the
public-disclosure bar--because he failed to demonstrate that he
possessed “direct and independent knowledge” of the information
underlying the allegations. Id.
Finally, the district court denied Ahumada leave to amend.
It explained that the proposed amendments “fail[ed] to cure the
deficiencies . . . in the [first amended complaint]” and were
therefore futile. Id. at *7. Because “[t]he specific details
added to the [second amended complaint] [were] all information
that c[ould] be found in the public domain,” the court
determined that the new pleading was “likewise based upon a
public disclosure.” Id.
Ahumada appealed, and we exercise jurisdiction pursuant to
28 U.S.C. § 1291.
9
II.
Although Ahumada nominally challenges the district court’s
order dismissing the first amended complaint, his arguments on
appeal center on the sufficiency of the allegations in the
second. In essence, rather than directly challenge the district
court’s dismissal of the first amended complaint, Ahumada argues
that the district court should have granted him leave to amend,
which he contends would have cured any pleading or
jurisdictional defects. We thus consider the issues presented
by this appeal solely through the prism of Ahumada’s proposed
second amended complaint, ultimately seeking to determine
whether the district court erred in concluding that it was
futile.
Generally, we review a district court’s denial of a motion
for leave to amend for abuse of discretion. See US Airline
Pilots Ass’n v. Awappa, LLC, 615 F.3d 312, 320 (4th Cir. 2010).
But where, as here, the district court denied such a motion on
grounds of futility, we employ the same standard that would
apply to our review of a motion to dismiss. See Pollard v.
Pollard, 325 F. App’x 270, 272 (4th Cir. 2009); see also Platten
v. HG Bermuda Exempted Ltd., 437 F.3d 118, 132 (1st Cir. 2006).
Thus, we review de novo the district court’s legal conclusion
that Ahumada’s proposed amendments “fail[ed] to cure the
deficiencies . . . in the [first amended complaint]”: namely,
10
that the complaint failed to state a claim on which relief could
be granted and failed to overcome the FCA’s public-disclosure
bar. 1 See Ahumada, 2013 WL 2322836, at *7.
III.
We first consider whether the FCA’s public-disclosure bar
rendered the second amended complaint futile by precluding
subject-matter jurisdiction. We hold that the public-disclosure
bar deprived the district court of jurisdiction over the claims
against all of the appellees except Weyerhaeuser.
A.
At the time Ahumada filed this action, the FCA’s public-
disclosure bar provided that “[n]o court shall have jurisdiction
over an action under [the FCA] based upon the public disclosure
of allegations or transactions . . . unless . . . the person
bringing the action is an original source of the information.” 2
31 U.S.C. § 3730(e)(4)(A) (2006). Qualifying public disclosures
1
We review any factual findings underlying the district
court’s analysis of the public-disclosure bar--a jurisdictional
defense--for clear error. See United States ex rel. Rostholder
v. Omnicare, Inc., 745 F.3d 694, 699 (4th Cir. 2014).
2
Congress amended the public-disclosure bar in 2010, but
those amendments are not retroactive. The prior version of the
statute applies to this action because it was filed before the
amendments’ enactment. See United States ex rel. May v. Purdue
Pharma L.P., 737 F.3d 908, 915-16 (4th Cir. 2013) (citing Graham
Cnty. Soil & Water Cons. Dist. v. United States ex rel. Wilson,
559 U.S. 280, 283 n.1 (2010)).
11
include those “from the news media” or “a criminal, civil, or
administrative hearing,” among others. Id. Once a defendant
files a motion to dismiss based on the public-disclosure bar,
the relator bears the burden of proving by a preponderance of
the evidence that the bar does not apply. See United States ex
rel. Vuyyuru v. Jadhav, 555 F.3d 337, 348 (4th Cir. 2009).
“Under this Court’s precedent, a qui tam action is based
upon publicly disclosed allegations only if the qui tam
plaintiff’s allegations were actually derived from the public
disclosure itself.” United States ex rel. Rostholder v.
Omnicare, Inc., 745 F.3d 694, 699 (4th Cir. 2014) (internal
quotation marks omitted). This stands in contrast to the
broader tests applied by our sister circuits, which generally
consider allegations to be “based upon” a public disclosure if
they “were ‘supported by’ or ‘substantially similar’ to fraud
that had been publicly disclosed.” United States ex rel. May v.
Purdue Pharma L.P., 737 F.3d 908, 918 (4th Cir. 2013); see also
United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49,
57 (1st Cir. 2009) (“[T]he Fourth Circuit [is] alone among the
courts of appeals in favoring a narrow reading of the ‘based
upon’ language.”). Notably, the public-disclosure bar
“encompasses actions even partly based upon”--i.e., partly
derived from--public disclosures. See Vuyyuru, 555 F.3d at 350-
51 (emphasis added).
12
We easily conclude that Ahumada’s allegations are at least
partly based upon public disclosures. Ahumada barely argues
otherwise in his opening brief, stating in just a single
sentence that his “action is not based upon any public
disclosure” because “the only evidence in the record . . . is
that Ahumada has relied only upon his own personal knowledge.”
Appellant’s Br. at 17. To the contrary, however, the second
amended complaint itself plainly relies on public disclosures.
It explicitly references reporting from The Oregonian and El
Paso Times, and many of Ahumada’s allegations “appear to have
been lifted almost verbatim from” the various articles. 3 See
Ahumada, 2013 WL 2322836, at *6. Moreover, several of the
essential allegations constitute little more than direct
citations to testimony from the Lopez trial. Because that
information, at a minimum, appears to “actually derive” from
public disclosures, see Rostholder, 745 F.3d at 699, we have no
reason to disturb the district court’s factual finding that
3
Ahumada asserts that the references to the two newspapers
are inconsequential because he was in fact the newspapers’
source. But even if this is true, he does not seem to have been
their only source. In any event, Ahumada’s repeated reliance on
testimony from the Lopez trial (at which Ahumada did not
testify) is alone sufficient for us to conclude that the
allegations in the second amended complaint are at least partly
based upon a public disclosure.
13
public disclosures at least partly form “the basis of
[Ahumada]’s claim,” see Ahumada, 2013 WL 2322836, at *6.
B.
Even though his action is partly “based upon” public
disclosures, Ahumada may nevertheless avoid the public-
disclosure bar if he is an “original source” of the allegations.
See 31 U.S.C. § 3730(e)(4)(A) (2006); see also Rockwell Int’l
Corp. v. United States, 549 U.S. 457, 467 (2007) (describing
original-source status as an “exception” to the public-
disclosure bar). To qualify as an original source, a relator
must establish that he (1) has “direct and independent knowledge
of the information on which the allegations are based”; and (2)
“has voluntarily provided the information to the Government
before filing [the] action.” 31 U.S.C. § 3730(e)(4)(B) (2006).
1.
Considering the second requirement first, we conclude that
Ahumada has adequately established that he reported his
allegations to the government prior to filing suit. In an
affidavit he submitted in response to the defendants’ motions to
dismiss, Ahumada averred that, “around January 2006,” he met
with FBI agent Steve Chambers and “told him everything [he] knew
about all of the defendants.” J.A. 578. Similarly, the second
amended complaint itself alleges that, in an April 2006 meeting
with Chambers and agent Tom Murray, Ahumada “described in detail
14
the various schemes taking place at NCED that were being used to
defraud the government.” Id. at 232.
Rather than question the truth of these statements, NISH
and the supplier defendants object that they do not “establish
that [Ahumada] discussed any allegations against NISH or any
specific [supplier defendant] with the FBI.” 4 Appellees’ Br. at
27 n.8 (emphasis added). Similarly, they argue that “Ahumada
has not shown, with the requisite particularity, that he
informed the government about his specific allegations against
the remaining defendants.” Id. at 28 (emphasis added).
We think this asks too much. We agree that a relator may
not satisfy the original-source exception’s reporting
requirement through an ambiguous assertion that leaves open to
question whether the plaintiff actually reported information
relating to any particular claim or concerning any particular
defendant. But that is not the case here. Ahumada’s affidavit
4
NISH and the supplier defendants also note that any 2006
conversations with the FBI post-dated the publication of the
initial reports in The Oregonian and El Paso Times. But a
relator’s report to the government need only occur “before [he]
fil[ed] [the] action,” not before the public disclosure. See 31
U.S.C. § 3730(e)(4)(B); see also United States ex rel. Siller v.
Becton Dickinson & Co., 21 F.3d 1339, 1351 (4th Cir. 1994)
(stating that the relator must “provide the information to the
government before filing his qui tam action” (emphasis
omitted)). But see U.S. ex rel. McKenzie v. BellSouth
Telecomms., Inc., 123 F.3d 935, 942 (6th Cir. 1997) (“[A]
relator must inform the government of the alleged fraud before
the information has been publicly disclosed.”).
15
specifically states that he told the FBI “everything [he] knew
about all of the defendants.” J.A. 578 (emphasis added). Read
in conjunction with the second amended complaint’s allegations
(which of course name the defendants and outline in detail what
Ahumada knew), we find nothing ambiguous about this statement.
Requiring more would prove needlessly duplicative.
2.
Whether Ahumada has satisfied the original-source
exception’s “direct and independent knowledge” requirement is a
more complicated question.
Under our case law, a “relator’s knowledge is ‘direct’ if
he acquired it through his own efforts, without an intervening
agency, and it is ‘independent’ if the knowledge is not
dependent on public disclosure.” Grayson v. Adv. Mgmt. Tech.,
Inc., 221 F.3d 580, 583 (4th Cir. 2000). To establish that his
knowledge meets this standard, a relator must “allege specific
facts--as opposed to mere conclusions--showing exactly how and
when” he obtained it. See United States ex rel. Hafter v.
Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162 (10th Cir.
1999). “A mere assertion of [direct and independent] knowledge,
without adequate basis in fact and unsupported by competent
proof,” will not establish jurisdiction. Id. at 1163.
In applying these standards, we note that the original-
source exception “does not permit . . . claim smuggling.”
16
Rockwell Int’l, 549 U.S. at 476. In other words, the fact that
“a relator is an original source with respect to some claim”
does not confer “jurisdiction in gross” over all of his claims.
Id. (emphasis added). For this reason, we separately address
the source of Ahumada’s knowledge with respect to his claims
against each defendant.
a. NISH
In his second amended complaint, Ahumada alleges that NISH
facilitated NCED’s fraud by ignoring NCED’s lack of compliance
with JWOD regulations. According to the complaint, NISH
representatives toured NCED facilities on three occasions (in
1999, 2002, and 2005), and these visits “would have disclosed
and did disclose that NCED did not employ significant numbers of
severely disabled individuals.” J.A. 250. Nevertheless, the
complaint alleges, NISH did not bar NCED from participating in
the JWOD program. Instead, NISH continued to certify NCED’s
compliance with JWOD labor requirements “each and every year.”
Id. Meanwhile, NISH’s own revenues increased by at least 86
percent. Accordingly, the second amended complaint concludes,
NISH “aided” NCED in “wrongfully profit[ing] from the United
States.” Id. at 253.
Even assuming these allegations are true, Ahumada has not
established that they are based on his direct and independent
knowledge. Ahumada worked at NCED for only six months in 2004,
17
so it is far from clear how he gained direct knowledge of the
NISH visits in 1999, 2002, and 2005. Ahumada has offered no
explanation for how he learned of these events. But nearly all
of the information appears in public disclosures. Indeed, the
second amended complaint itself explicitly cites testimony from
the Lopez trial for at least one of its allegations against
NISH.
Accordingly, without any other explanation from Ahumada, we
conclude that his knowledge necessarily derives from public
disclosures or some other “intervening agency.” Grayson, 221
F.3d at 583. The allegations against NISH therefore do not
avoid the public-disclosure bar.
b. Green Bay
So too with the claims against Green Bay. The substance of
Ahumada’s allegation against Green Bay is that it produced
“complete and nearly complete” products for NCED in violation of
NCED’s obligation to produce such products itself. See J.A.
257. According to the second amended complaint, Green Bay was
aware that NCED’s governments contracts “required direct labor”
by disabled employees, yet it sold NCED the finished products
anyway. See id. at 256-57.
As Ahumada forthrightly acknowledges, however, NCED did not
place orders with Green Bay until “after [Ahumada was]
terminated from employment by NCED.” Id. (emphasis added). To
18
support his allegation that Green Bay provided NCED with
finished products, Ahumada cites publicly disclosed testimony
from the Lopez trial. See id. at 257 (“Jose Rosales, Sales
Representative for Green Bay, testified at the criminal trial of
Ernie Lopez that commencing in February 2006, NCED ordered a
million postal sleeves from Green Bay.”). Accordingly, we
conclude that Ahumada is not an original source with respect to
the claims against Green Bay.
c. IPC
In contrast to Green Bay, IPC “was already making
containers for NCED” at the time Ahumada began working there.
Id. at 258. According to the second amended complaint, these
containers came from IPC’s San Antonio plant, rather than its El
Paso plant, because the general manager of the El Paso plant
“refused to go along with the illegal scheme of manufacturing
boxes that were supposed to be made by disabled individuals.”
Id. Thus, Ahumada asserts, IPC “unquestionably knew that NCED
was participating in the JWOD program . . . and that NCED was
not meeting the JWOD requirement.” Id.
To be sure, this allegation comes closer than the previous
ones to establishing Ahumada’s direct and independent knowledge.
But it nevertheless falls short of the mark. To support his
assertion that IPC “unquestionably knew” of NCED’s wrongdoing--
the scienter element of the FCA claim--Ahumada states that he
19
“was told that [IPC’s] General Manager . . . refused to go along
with the illegal scheme.” Id. (emphasis added). But he does
not state who told him this information--whether some third
party or an employee of IPC itself. See United States v. N.Y.
Med. Coll., 252 F.3d 118, 121 (2d Cir. 2001) (per curiam)
(noting that a relator is not an original source if “a third
party is the source of the core information on which the qui tam
complaint is based” (internal quotation marks and emphasis
omitted)). He thus has not established that his knowledge was
“direct,” rather than derived from an “intervening agency.” See
Grayson, 221 F.3d at 583.
Ahumada also alleges that IPC submitted to NCED eleven
invoices for “226,701 complete GSA boxes” in September and
October of 2004, after Ahumada informed an IPC representative of
NCED’s fraudulent conduct. J.A. 258. These boxes, Ahumada
alleges, “were stamped with NCED’s [box manufacturing
certificate], falsely making it appear that the boxe[s] were
manufactured by NCED in compliance with the JWOD . . . labor
requirements.” Id. But Ahumada offers no basis on which he
could have known such detailed information directly. In fact,
because the invoices Ahumada cites were issued after he left
NCED in July 2004, this information almost certainly derives
from public disclosures or some other intervening agency. Cf.
Rockwell Int’l, 549 U.S. at 475 (concluding that the relator did
20
not possess direct and independent knowledge “[b]ecause [he] was
no longer employed by [the defendant]” at the time the alleged
fraud occurred). Likely confirming as much, the same page of
the second amended complaint explicitly cites testimony from the
Lopez trial.
In sum, because Ahumada has not established that his
allegations against IPC are based on his direct and independent
knowledge, he does not qualify as an original source.
d. Smurfit
Ahumada’s allegations against Smurfit are much like those
against Green Bay: Ahumada alleges that Smurfit began filling
“large orders for complete or nearly complete containers” only
“[a]fter [Ahumada] was terminated by NCED.” J.A. 260 (emphasis
added). Paragraph 145 of the second amended complaint does
further allege that, after Ahumada was terminated, he informed
Smurfit representatives of NCED’s illegal conduct. But it again
provides no explanation for how Ahumada directly knew that
Smurfit “continued to make complete containers” for NCED. See
id. Moreover, the next paragraph of the complaint again cites
testimony from the Lopez trial, strongly suggesting that this
public disclosure was in fact the source of Ahumada’s knowledge.
Ahumada is therefore not an original source with respect to the
Smurfit allegations either.
e. Weyerhaeuser
21
Ahumada’s primary allegation against Weyerhaeuser is that,
during the time that Ahumada worked at NCED, it “provided NCED
with raw sheets as well as complete or nearly complete boxes.”
Id. at 261. According to the second amended complaint, Ahumada
met with Steve Cartmill, a Weyerhaeuser sales manager, “on many
occasions during this period” and took him on tours of the NCED
facility. Id. On these tours, Cartmill allegedly saw that NCED
failed to employ a sufficient number of disabled workers. The
complaint further alleges that Cartmill told Ahumada that
Weyerhaeuser was issuing artificially inflated invoices to NCED
and later providing rebates, and that NCED had requested
Weyerhaeuser to bill for raw sheets rather than complete boxes
it actually provided. Based on these allegations, Ahumada
asserts that Weyerhaeuser “facilitate[d] NCED’s defrauding of
the Government.” Id. at 262.
Thus, in contrast to many of the allegations against the
other defendants, Ahumada learned the facts underlying the
Weyerhaeuser allegations directly through the course of his
employment with NCED. See United States ex rel. Barajas v.
Northrop Corp., 5 F.3d 407, 411 (9th Cir. 1993) (finding that
the relator’s knowledge “was direct and independent because he
acquired it during the course of his employment”). To be sure,
the information Ahumada alleges he learned from Cartmill might
in some sense be characterized as secondhand. But Cartmill was
22
an employee of Weyerhaeuser itself, not an “intervening agency”
or “third party.” See Grayson, 221 F.3d at 583 (emphasis
added); see also N.Y. Med. Coll., 252 F.3d at 121. And, as
further support for his original-source status, Ahumada alleges
that he independently confirmed what Cartmill told him about
Weyerhaeuser’s billing practices through his own inquiry with
NCED’s Controller.
Because Ahumada’s knowledge derived from an admission the
defendant made to him during the course of Ahumada’s employment-
-an admission Ahumada then confirmed “through his own efforts”--
we believe it is sufficiently direct to satisfy the original-
source exception. 5 See Grayson, 221 F.3d at 583; see also United
States ex rel. Devlin v. California, 84 F.3d 358, 360 (9th Cir.
1996) (explaining that a relator’s knowledge is direct and
independent if he “discovered the information underlying his
allegations . . . through his own labor”). Accordingly, the
district court did not lack subject-matter jurisdiction over
Ahumada’s claims against Weyerhaeuser.
5
Although the second amended complaint again refers to
testimony from the Lopez trial, it notes only that the testimony
“corroborated” Ahumada’s allegations against Weyerhaeuser. J.A.
261. In other words, the allegations neither derive from the
testimony nor directly rely on it. In any event, Ahumada
accused Weyerhaeuser of wrongdoing before the Lopez trial began.
And no other public disclosure in the record even mentions
Weyerhaeuser.
23
C.
To summarize, we hold that the public-disclosure bar
deprives the district court of jurisdiction over Ahumada’s
claims against NISH, Green Bay, IPC, and Smurfit. With respect
to those defendants, the district court correctly determined
that Ahumada’s proposed amendments to his first amended
complaint were futile. Because the public-disclosure bar does
not preclude jurisdiction over the claims against Weyerhaeuser,
however, we must also consider the separate question of whether
those claims were adequately pleaded.
IV.
A.
As relevant here, 6 Ahumada asserts claims against
Weyerhaeuser pursuant to three separate provisions of the FCA--
specifically, those imposing liability against a person who:
(1) knowingly presents, or causes to be presented, [to
the government] a false or fraudulent claim for
payment or approval;
6
Ahumada also asserted a claim against Weyerhaeuser for so-
called “reverse” false claims. See 31 U.S.C. § 3729(a)(7)
(2006). But by failing to discuss that claim in his brief,
Ahumada has effectively abandoned it on appeal. See United
States v. Al-Hamdi, 356 F.3d 564, 571 n.8 (4th Cir. 2004)
(“[C]ontentions not raised in the argument section of the
opening brief are abandoned.”). As Ahumada’s brief also
neglects to mention the one-hundred John Doe defendants, his
claims against them are likewise abandoned.
24
(2) knowingly makes, uses, or causes to be made or
used, a false record or statement to get a false or
fraudulent claim paid or approved by the Government;
[and]
(3) conspires to defraud the Government by getting a
false or fraudulent claim allowed or paid.
31 U.S.C. § 3729(a) (2006). 7 Under the first two of these
provisions, we have held that a relator must “plausibly allege
four distinct elements: (1) there was a false statement or
fraudulent course of conduct; (2) made or carried out with the
requisite scienter; (3) that was material;” and (4) that
“involved a claim” made to the government for payment.” 8
7
Amendments to the FCA enacted in 2009 slightly alter the
text of each of these provisions, and the second amended
complaint cites the amended versions. Like the 2010 amendments,
however, the 2009 amendments are generally not retroactive. See
Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21,
§ 4(f), 123 Stat. 1617, 1625 (“The amendments made by this
section shall take effect on the date of enactment . . . and
shall apply to conduct on or after the date of enactment
. . . .”).
That said, the changes to § 3729(a)(2), specifically, apply
to “all claims under the False Claims Act . . . pending on or
after [June 7, 2008].” See id. § 4(f)(1). And a circuit split
has arisen over whether “claims . . . pending,” in this context,
refers to underlying claims for payment from the government or
the legal claims presented in the action itself. See, e.g.,
Sanders v. Allison Engine Co., 703 F.3d 930, 940 (6th Cir.
2012), cert. denied, 133 S. Ct. 2855 (collecting cases on both
sides of the split). We need not address that issue here,
however, because the changes to the text do not affect our
analysis of the adequacy of Ahumada’s allegations.
8
We have previously framed the fourth element as requiring
proof that that the false statement “caused the government to
(Continued)
25
Rostholder, 745 F.3d at 700 & n.6 (internal quotation marks and
alterations omitted). To plead a claim for an FCA conspiracy,
the relator must allege that the conspirators “agreed that [a]
false record or statement would have a material effect on the
Government’s decision to pay [a] false or fraudulent claim.”
Allison Engine Co. v. United States ex rel. Sanders, 553 U.S.
662, 673 (2008).
In alleging these elements, the complaint must “contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.” See Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (internal quotation marks omitted).
But allegations of fraud must also meet the more stringent
“particularity” requirement of Federal Rule of Civil Procedure
9(b). To satisfy Rule 9(b), “an FCA plaintiff must, at a
minimum, describe the time, place, and contents of the false
representations, as well as the identity of the person making
the misrepresentation and what he obtained thereby.” United
States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d
pay out money.” See, e.g., Rostholder, 745 F.3d at 700 & n.6
(emphasis added). While this formulation remains accurate with
respect to § 3729(a)(1), the Supreme Court clarified in Allison
Engine Co. v. United States ex rel. Sanders that § 3729(a)(2)
merely requires proof that the defendant “made a false . . .
statement for the purpose of getting a false or fraudulent claim
paid or approved by the Government.” 553 U.S. 662, 671 (2008)
(internal quotation marks omitted).
26
370, 379 (4th Cir. 2008) (internal quotation marks omitted).
More precisely, the complaint must allege “the who, what, when,
where and how of the alleged fraud.” Id. (internal quotation
marks omitted). Requiring such particularized pleading, we have
explained, “prevent[s] frivolous suits, . . . eliminat[es] fraud
actions in which all the facts are learned after discovery, and
. . . protect[s] defendants from harm to their goodwill and
reputation.” United States ex rel. Nathan v. Takeda Pharm. N.
Am., Inc., 707 F.3d 451, 456 (4th Cir. 2013), cert. denied, 134
S. Ct. 1759 (2014) (internal quotation marks omitted).
B.
Applying those standards here, we conclude that Ahumada has
failed to plead viable FCA claims against Weyerhaeuser.
Ahumada essentially alleges that Weyerhaeuser participated
in two separate schemes to defraud the government. 9 First, he
alleges that Weyerhaeuser “provided NCED with . . . complete or
9
The second amended complaint also contains certain
undifferentiated allegations against “the [supplier] defendants”
as a group. But because Rule 9(b) requires a relator to plead
FCA claims with particularity--including by identifying “the
‘who[’] . . . of the alleged fraud”--we consider only the
Weyerhaeuser-specific allegations here. See Wilson, 525 F.3d at
379; see also, e.g., Arnlund v. Smith, 210 F. Supp. 2d 755, 760
(E.D. Va. 2002) (“A plaintiff must identify, with particularity,
each individual defendant’s culpable conduct; defendants cannot
be grouped together without specification of which defendant
committed which wrong.” (alterations and internal quotation
marks omitted)).
27
nearly complete boxes,” notwithstanding the fact that NCED had
JWOD contracts to produce such boxes itself. J.A. 261-62.
Second, he alleges that Weyerhaeuser provided inflated invoices
to NCED and later issued rebates to NCED or its then-CEO, Jones,
“for the amount in excess [of] the actual price.” Id. at 262.
Neither of these allegations passes muster.
With respect to the production allegation, we fail to see
how Weyerhaeuser selling complete boxes to NCED, without more,
constitutes a “fraudulent course of conduct.” See Rostholder,
745 F.3d at 700. There is nothing inherently fraudulent about
producing a particular product and selling it to a customer.
And while it is true that applicable JWOD regulations prohibited
NCED from “subcontract[ing] the entire production process for
. . . an order without the Committee’s prior approval,” see 41
C.F.R. § 51-4.4(d), we have held that the FCA cannot “be used as
a regulatory-compliance mechanism in the absence of . . .
fraudulent conduct directed at the federal government,”
Rostholder, 745 F.3d at 702-03.
Ahumada’s second amended complaint contains no specific
allegation that NCED ever falsely represented to the government
that it produced the boxes Weyerhaeuser provided. Although
Ahumada does allege that an NCED representative “asked” a
Weyerhaeuser customer service manager “to bill NCED for raw
sheets instead of the completed boxes,” Ahumada does not further
28
allege that Weyerhaeuser actually complied with that request.
See J.A. 261-62. Nor does Ahumada allege that Weyerhaeuser,
specifically, falsely stamped products it produced with NCED’s
box manufacturing certificate. Thus, in the absence of any
other well-pleaded fraudulent course of conduct or false
statement, the production allegation does not state a viable
claim for a violation of the FCA.
Ahumada’s allegation regarding the rebate scheme fares no
better. This allegation (which comprises just a single sentence
in the second amended complaint) is utterly devoid of specifics.
Among other deficiencies, it offers no information regarding who
at Weyerhaeuser was involved in the scheme, what Weyerhaeuser
gained from participating, or when the scheme took place. Nor
does the complaint offer even a general description of the
rebates themselves--for example, an estimation of how many
rebates Weyerhaeuser issued or in what amounts. Without any
such specifics, the rebate allegation does not satisfy Rule
9(b).
Finally, we reject Ahumada’s argument that he adequately
pleaded a claim for conspiracy to defraud the government. See
31 U.S.C. § 3729(a)(3) (2006). To state a claim for conspiracy
under the FCA, a relator must do more than simply show that the
alleged conspirators agreed to make a false record or statement;
the relator must also show “that the conspirators had the
29
purpose of ‘getting’ the false record or statement to bring
about the Government’s payment of a false or fraudulent claim.”
Allison Engine, 553 U.S. at 672-73.
Neither the production allegation nor the rebate allegation
establishes a claim for an FCA conspiracy. In neither case does
Ahumada adequately allege that Weyerhaeuser acted with the
purpose of defrauding the government. 10 And, to the extent that
these allegations plead agreements at all, Ahumada does not
identify who at Weyerhaeuser entered them, when he or she did
so, or what Weyerhaeuser sought to gain. The conspiracy claim
therefore fails to meet even the basic plausibility standard of
Rule 8(a), much less the more stringent particularity
requirement of Rule 9(b). Cf. Bell Atl. Corp. v. Twombly, 550
U.S. 544, 557 (2007) (“[A] conclusory allegation of agreement at
some unidentified point does not supply facts adequate to show
illegality.”).
In sum, we hold that Ahumada’s second amended complaint
fails to adequately plead any FCA claim against Weyerhaeuser.
10
As a coda to his allegations against Weyerhaeuser,
Ahumada asserts that “Weyerhaeuser participated in the above
schemes to facilitate NCED’s defrauding of the Government.”
J.A. 262. But he pleads no particular factual allegations to
support this conclusion. This statement, accordingly, does not
satisfy the “purpose” requirement articulated in Allison Engine.
See Iqbal, 556 U.S. at 678 (stating that a complaint must offer
more than “naked assertion[s] devoid of further factual
enhancement” (internal quotation marks omitted)).
30
In conjunction with our previous determination that the district
court lacked subject-matter jurisdiction over the claims against
the other appellees, we agree with the district court that
Ahumada’s attempt to amend his pleading was futile. The
district court therefore did not err in denying Ahumada leave to
amend and dismissing his action.
V.
For the reasons given, we affirm the district court’s
judgment.
AFFIRMED
31