Phone Recovery Services v. Verizon Washington DC, Inc. , 191 A.3d 309 ( 2018 )

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DISTRICT OF COLUMBIA COURT OF APPEALS
No. 15-CV-1338 08/16/2018
PHONE RECOVERY SERVICES, LLC, APPELLANT,
V.
VERIZON WASHINGTON, DC, INC., ET AL., APPELLEES.
Appeal from the Superior Court
of the District of Columbia
(CAB-2277-14)
(Hon. Michael L. Rankin, Trial Judge)
(Argued January 18, 2017 Decided August 16, 2018)
Jordan Rand, with whom Joshua D. Wolson and Malini Rao were on the
brief, for appellant.
Jay P. Lefkowitz, with whom Gregory L. Skidmore, Mark A. Hiller, Scott H.
Angstreich, J. William Codinha, Laura Steinberg, Christopher T. McWhinney,
Alison L. Nadel, Emily Crandall Harlan, Megan Thibert-Ind, Russell M. Blau,
Daniel D. Barnowski, Charles C. Hunter, Daniel Z. Herbst, Wayne C. Stansfield,
Katherine J. Seikaly, Jeremy S. Newman, Daniel G. Morris, Matthew H. Kirtland,
Rebecca E. Bazan, Michael P. Donahue, Allison D. Rule, and Catherine M.
Hannan were on the brief or made an appearance, for appellees.
Before BECKWITH and MCLEESE, Associate Judges, and KRAVITZ, Associate
2
Judge, Superior Court of the District of Columbia.
BECKWITH, Associate Judge: Phone Recovery Services (PRS) appeals the
dismissal of a lawsuit it brought on behalf of the District of Columbia against
various telecommunications providers alleged to have fraudulently underpaid taxes
that the District requires such providers to charge their customers in order to fund
the city‘s 911 emergency services. At issue in this appeal, among other matters, is
whether the fraudulent conduct PRS alleged was the sort of misconduct that had
already been brought to light in news articles or other public disclosures—in which
case, PRS‘s claim that the providers had violated the District‘s False Claims Act
(FCA) would fall outside the category of cases the FCA allows others to bring on
the District‘s behalf. Following the approach taken by several federal appellate
court decisions analyzing the public disclosure bar contained in the federal analog
to the District‘s FCA, we hold that PRS‘s FCA claim was not precluded by the
statute‘s public disclosure bar. For the reasons discussed below, however, we
nonetheless affirm the trial court‘s dismissal of that FCA claim and of two
common law claims PRS included in its complaint.

Sitting by designation pursuant to D.C. Code § 11-707 (a) (2012 Repl.).
3
I. Background
The District of Columbia funds its emergency 911 call center in part by
imposing a monthly tax on all wireline, wireless, and interconnected Voice Over
Internet Protocol (VoIP) service providers, calculated at different rates for each
line leased or sold in the District. D.C. Code § 34-1803 (2012 Repl.).1 In April
2014, Phone Recovery Services brought a qui tam action as a relator against a
number of telecommunications companies operating in the District, 2 alleging that
those companies were defrauding the District of millions of dollars in 911 taxes.
The complaint3 alleged that the providers had violated the FCA, see D.C. Code
§ 2-381.02, and breached their fiduciary duty to the District. A third count
requested an accounting to allow PRS to ascertain ―the true extent to which‖ the
providers had underpaid 911 taxes. In compliance with the FCA, PRS filed its
original complaint under seal in the Superior Court and provided the District with
the opportunity to review the claim and to decide whether to intervene in the
action. D.C. Code § 2-381.03 (b)(1)(4)(A)-(B). The District ultimately declined to
1
All subsequent citations to the D.C. Code are to the 2012 replacement
volume unless otherwise specified.
2
The complaint stated claims against twenty-five named defendants and
fifteen that were unnamed, though many were subsidiaries of others.
3
PRS‘s original complaint alleged only a violation of the FCA. PRS later
amended its complaint to add the two common law claims.
4
get involved, and the court unsealed the complaint. The crux of PRS‘s complaint
was that most of the District‘s telecommunications companies had used fraudulent
means to underpay on their 911 tax obligations—underpayment that PRS says it
uncovered by relying in part upon a ―proprietary methodology‖ developed by its
principal and founder, Roger Schneider.
Roger Schneider formed PRS to investigate telecommunications firms after
discovering, while serving on an Alabama county emergency services board in
1993, that one particular provider was underremitting 911 fees to the county.
Schneider began to investigate other companies to determine whether they were
also underremitting fees, and concluded that the problem was widespread and
national in scope. According to PRS, prior to this lawsuit, it had launched more
than fifteen ―911 fee recovery efforts‖ in different jurisdictions around the country,
based in large part on the ―proprietary methodology‖ Mr. Schneider had developed
for calculating underremitted 911 fees.
PRS alleged in its complaint that, by applying its ―proprietary methodology‖
to the defendants in the District, it determined that each defendant had underpaid
taxes in three ways, and had done so intentionally, knowingly, or recklessly. First,
the complaint alleged that each defendant miscategorized the service that it
provided in order to take advantage of the different tax rates for wireline services
5
and VoIP services. See D.C. Code § 34-1803. More specifically, PRS claimed
that each defendant classified the service it provided to its customers as a wireline
primary rate interface (PRI), organized into private exchange stations and
ordinarily taxed at $0.62 per station, when the defendant was actually providing a
VoIP service that should be taxed at $0.76 per line, trunk, or path. By classifying a
service as PRI rather than VoIP, a company might save up to $0.14 per transaction.
Second, the complaint alleged that even where a defendant correctly classified the
service provided as a wireline PRI service, the defendant undercharged for that
service. To demonstrate how a company might undercharge, PRS attached to the
complaint a phone bill of one of the provider‘s customers in which the provider did
not use the correct trunking ratio to arrive at the proper charge. Finally, the
complaint alleged that some companies did not pay 911 taxes at all—a claim in
apparent tension with the coinciding assertion in the estimation-of-damages section
of the complaint that each one of the companies had underremitted taxes at a rate
of 31.7%.
In their motion to dismiss, the phone companies attached thirteen news
articles that in their view constituted public disclosures precluding PRS‘s FCA
claim. 4 These articles described allegations that various telecommunications
4
AT&T Faces Additional County Lawsuit over 911 Fees,
(continued…)
6
companies failed to pay adequate 911 taxes by means such as ―intentionally
undercount[ing] lines used to calculate and remit 911 charges,‖5 issuing reports
that listed fewer business phone lines than the company actually provided,6
charging for a landline rather than multi-line commercial service, 7 and paying a
wireless fee ―based only on the number of active customers who had purchased
prepaid service directly from [the provider], as opposed to the number of
(…continued)
Telecommunications Reports‘ State NewsWire, Apr. 23, 2012; Brandon Gee,
Tennessee 911 Districts Suing AT&T over Fees, Knoxville News-Sentinel, Nov.
26, 2011; Todd South, Hamilton County 911 Suing AT&T over Unpaid Fees and
False Reports, Chattanooga Times Free Press, Nov. 15, 2011; Lawsuit Filed
Against Two Telephone Companies Regarding 911 Fees, WBIR, June 13, 2011;
Brandon Gee, AT&T, Charter Sued over 911 Phone Fee, The Tennessean, June 13,
2011; Amos Bridges, 911 Advisory Board Pursuing AT&T Audit, News-Leader,
July 23, 2010; David Holden, Judge To Rule Later on 911 Board‟s Lawsuit,
Huntsville Times, Feb. 18, 2009; Indiana—Wireless Board, TracFone Talk
Settlement in „911‟ Fee Dispute, Telecommunications Reports‘ State NewsWire,
Sept. 10, 2008; Indiana—Wireless Board Concerned with TracFone‟s Wireless
Fee Remittance, Telecommunications Reports‘ State NewsWire, Aug. 21, 2008;
Don Jacobs, 9-1-1 For E-911, Knoxville News-Sentinel, July 15, 2007; Carper
Threatens To Sue Company over 911 Fees, Charleston Gazette, Mar. 22, 2007;
Lauren Gregory, 911 Board Chasing Fees Paid, Chattanooga Times Free Press,
Feb 15, 2007; Texas—„911‟ Billing, Remitting Fees Measure Sent to Governor,
Telecommunications Reports‘ State NewsWire, June 3, 2005.
5
AT&T Faces Additional County Lawsuit over 911 Fees,
Telecommunications Reports‘ State NewsWire, Apr. 23, 2012.
6
Todd South, Hamilton County 911 Suing AT&T over Unpaid Fees and
False Reports, Chattanooga Times Free Press, Nov. 15, 2011.
7
Amos Bridges, 911 Advisory Board Pursuing AT&T Audit, News-Leader,
July 23, 2010.
7
customers [the provider] ha[d] with [local] telephone numbers.‖8 Other articles
alleged more generally that it was ―pretty much like the Wild West out there in
telephone land today‖ 9 or discussed a local legislature‘s passage of a ―bill that
would give an emergency services district the authority to obtain information to
determine whether the district‘s ‗911‘ emergency services fee is correctly billed,
collected, and remitted to the district.‖ 10 Seven of these articles described conduct
within various counties in Tennessee, and the remainder focused on conduct in five
other states.11 None described fraudulent activity in the District of Columbia.
The trial court, applying a version of the FCA that preceded a 2013
8
Indiana—Wireless Board, TracFone Talk Settlement in “911” Fee
Dispute, Telecommunications Reports‘ State NewsWire, Sept. 10, 2008.
9
Lauren Gregory, 911 Board Chasing Fees Paid, Chattanooga Times Free
Press, Feb 15, 2007 (internal quotation marks omitted).
10
Texas—„911‟ Billing, Remitting Fees Measure Sent to Governor,
Telecommunications Reports‘ State NewsWire, June 3, 2005.
11
The phone companies pull two quotes from a single article—9-1-1 for E-
911—to suggest that some of the news articles disclosed nationwide fraud.
Although this article states in a photo caption that ―[e]mergency 911 centers
nationwide are grappling with technology and funding challenges caused by the
introduction of cell phones‖ and notes elsewhere that ―no state in the nation audits
the wireless companies for 911 surcharge collections,‖ these quotes, particularly in
the context of the rest of the article, do not suggest that phone companies are
committing nationwide fraud. The article focuses instead on Tennessee‘s efforts to
implement an auditing system in order to ensure that the state‘s 911 centers were
adequately funded.
8
amendment, first found that the conduct alleged in PRS‘s complaint was
―substantially similar‖ to information already publicly available through various
news articles, and that PRS‘s FCA claim was therefore precluded by the statute‘s
public disclosure bar. 12 Because many telecommunications companies operating in
the District had a national reach, the court reasoned, articles raising the possibility
that fraudulent shortchanging of 911 fees was industrywide ―surely could have
alerted the D.C. government to the possibility of fraud.‖ The court further
expressed concern that PRS‘s complaint ―treat[ed] [] defendants uniformly,
without identifying specific allegations against any particular one.‖ Noting that the
complaint originally named defendants that PRS later learned had ceased operating
in the District before the time period at issue, and that ―PRS‘s claims to each
particular defendant [were] speculative,‖ the court concluded that PRS had added
little to what was already in the public domain. In the court‘s view, PRS appeared
to have ―arrived at its specific accusations by applying the same calculations to
each defendant in accordance with its share of the wireless communications market
in the District, multiplied by the number of lines the FCC allocates to the District.‖
PRS had also applied this calculation to unnamed defendants and had admitted that
12
The court likewise found that PRS did not meet the FCA‘s ―original
source‖ exception, D.C. Code § 2-381.03 (c-1)(2)(C), which when satisfied allows
parties to proceed on an FCA claim despite triggering the public disclosure bar.
9
it did not know the number of lines operated or amount in taxes submitted by each
defendant over the relevant time period.
For similar reasons, the court also granted dismissal of the FCA claim on the
independent ground that PRS failed to plead fraud with the particularity required
by Super. Ct. Civ. R. 9 (b). Finally, the court dismissed PRS‘s breach-of-
fiduciary-duty claim and request for an accounting on the ground that PRS had not
established that the defendants had a fiduciary relationship with the District.
On appeal, PRS challenges each of the trial court‘s findings, and we address
them in turn.
II. False Claims Act
The False Claims Act—modeled after federal legislation 13 established during
the Civil War to combat defense contractors‘ efforts to defraud the government,
see United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649
(D.C. Cir. 1994)—permits both the District‘s Attorney General and private qui tam
relators to recover from those who make false or fraudulent claims to the District
13
See Grayson v. AT&T Corp., 980 A.2d 1137, 1146 n.25 (D.C. 2009). The
portion of this opinion addressing the Consumer Protection Procedures Act issue
was vacated subsequent to a rehearing en banc in Grayson v. AT&T Corp., 989
A.2d 709 (D.C. 2010) (per curiam).
10
for payment, but bars recovery where the allegations are substantially the same as
public disclosures found in news reports and other public filings. D.C. Code §§ 2-
381.02, -381.03. Since the federal statute‘s enactment, Congress has amended the
Act on various occasions in attempts to strike the appropriate balance between
―adequate incentives for whistle-blowing insiders with genuinely valuable
information and discouragement of opportunistic plaintiffs who have no significant
information to contribute of their own,‖ Springfield Terminal Ry., 14 F.3d at 649,
and the D.C. Council has followed suit.
A. Public Disclosure Bar
1. The 2013 Amendment
As a preliminary matter, PRS argues that the trial court erred in applying the
pre-2013 version of the FCA to PRS‘s claims, rather than applying the version in
place when the complaint was filed—the version amended in 2013—to all of the
conduct at issue.14 The 2013 amendment was significant, in PRS‘s view, because
it limited the scope of the public disclosure bar to claims that are ―substantially the
14
We review issues of statutory interpretation de novo. E.g., District of
Columbia v. Place, 892 A.2d 1108, 1110–11 (D.C. 2006); see also United States
ex. rel. Osheroff v. Humana Inc., 776 F.3d 805, 809–11 (11th Cir. 2015)
(reviewing amendment of the federal FCA de novo).
11
same‖ as, rather than ―based upon,‖ facts available to the public.15 Specifically,
the District‘s FCA previously provided that ―[n]o person may bring an action
pursuant to . . . [the FCA] based upon allegations or transactions . . . disclosed by
15
PRS also appears to argue that the 2013 amendment altered the
jurisdictional nature of the public disclosure bar. We agree with PRS—and with
the majority of federal appellate courts interpreting the federal act—that the
amendment changed the bar from a jurisdictional requirement to an affirmative
defense properly asserted in a motion to dismiss pursuant to Rule 12 (b)(6). E.g.,
United States ex rel. Chorches for Bankr. Estate of Fabula v. Am. Med. Response
Inc., 865 F.3d 71, 79–80 (2d Cir. 2017); Prather v. AT&T Inc., 847 F.3d 1097,
1103 (9th Cir. 2017); United States ex rel. Advocates for Basic Legal Equality, Inc.
v. U.S. Bank, N.A., 816 F.3d 428, 433 (6th Cir. 2016). As the Third Circuit
recently noted, ―Congress removed the jurisdictional language that prohibited a
court from entertaining the suit if the public disclosure bar applied,‖ while leaving
―undisturbed similar jurisdictional language in neighboring provisions.‖ United
States ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294,
300 (3d Cir. 2016). Compare 31 U.S.C. § 3730 (e)(4)(A) (2009) (―No court shall
have jurisdiction over an action under this section based upon the public disclosure
of allegations or transactions‖ (emphasis added)) with 31 U.S.C. § 3730 (e)(4)(A)
(2010) (―The court shall dismiss an action or claim under this section, unless
opposed by the Government, if substantially the same allegations . . . were publicly
disclosed‖ (emphases added)). Although the pre-amendment version of our statute
lacked the obviously jurisdictional language found in and later removed from the
federal provision, the District‘s FCA, similar to the amended federal statute, now
instructs that a ―court shall not dismiss an action or claim‖ under the public
disclosure bar if ―[t]he District is opposed to the dismissal.‖ D.C. Code § 2-381.03
(c-1)(2)(B). Among other reasons, we decline to read the amended statute as
imposing a jurisdictional requirement because allowing the government to cure a
jurisdictional defect simply by opposing a motion to dismiss would run afoul of
settled precedent holding that ―[p]arties cannot waive subject matter jurisdiction by
their conduct or confer it . . . by consent, and the absence of such jurisdiction can
be raised at any time.‖ See, e.g., Chase v. Pub. Def. Serv., 956 A.2d 67, 75 (D.C.
2008)) (quoting Customers Parking, Inc. v. District of Columbia, 562 A.2d 651,
654 (D.C. 1989)).
12
the news media[.]‖ D.C. Code § 2-381.03 (c)(2)(A) (2001) (emphasis added). In
March 2013, the D.C. Council amended this language to state that ―a court shall
dismiss an action or claim under [the FCA] if substantially the same allegations or
transactions as alleged in the action or claim were publicly disclosed[.]‖ D.C.
Code § 2-381.03 (c-1)(1) (2013) (emphasis added). The purpose of this
amendment was to ―make the District‘s false claims act consistent with federal
law,‖ 2012 D.C. Laws 19-323 (Act 15-549), which previously barred suits that
alleged facts ―based upon‖ publicly disclosed material, and which Congress,
prompted by a circuit split on the interpretation of this language, amended to read
―substantially the same.‖16
Courts have since recognized that the amended federal statute, barring suits
alleging facts that are ―substantially the same‖ as those already in the public
domain, essentially codified one interpretation of the prior statute that read ―based
upon‖ to mean facts ―substantially similar‖ to those publicly disclosed. See, e.g.,
Bellevue v. Universal Health Servs. of Hartgrove, Inc., 867 F.3d 712, 718 (7th Cir.
2017) (holding that the change was ―not significant,‖ as the court had ―previously
interpreted the phrase ‗based upon [a] public disclosure‘ to mean ‗substantially
16
31 U.S.C § 3730 (e)(4)(A); Grayson, 980 A.2d at 1146–48 (describing
the various interpretations by different circuits of the language ―based upon‖).
13
similar to publicly disclosed allegations‘‖) (quoting Leveski v. ITT Educ. Servs.,
Inc., 719 F.3d 818, 828 n.1 (7th Cir. 2013)); United States ex rel. Mateski v.
Raytheon Co., 816 F.3d 565, 570, 573–75 (9th Cir. 2016); United States ex rel.
Osheroff v. HealthSpring, Inc., 938 F. Supp. 2d 724, 732 n.10 (M.D. Tenn. 2013).
In our decision in Grayson v. AT&T Corp., this court also interpreted the pre-
amendment language ―based upon‖ to mean ―substantially similar,‖ 980 A.2d at
1146–48, and we likewise conclude that there is no significant substantive
difference between the District‘s pre-amendment and post-amendment versions of
the public disclosure bar.17
17
PRS does not explain how the 2013 amendment changed the meaning of
the statute, other than to state that the amendment lowered the public-disclosure
bar by some unspecified metric. The one case on which PRS relies, United States
ex rel. Sanchez v. Abuabara, No. 10-61673-civ, 2012 WL 1999527, at *3 (S.D.
Fla. June 4, 2012), held that the federal amendment ―broadened the ability of
relators to commence qui tam lawsuits under the Act enormously.‖ Id. at *2
(internal quotation marks omitted). But the Sanchez court‘s characterization of the
amendment as an expansion reflects the fact that prior to the amendment the
Eleventh Circuit had adopted a narrower reading of the public disclosure bar
language. Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562, 567
(11th Cir. 1994) (emphasis removed). PRS also argues that the long title of the
District‘s amending act signals that the D.C. Council intended to expand the ability
of relator plaintiffs to bring claims:
AN ACT . . . to make the District‘s false claims
consistent with federal law and thereby qualify the
District for additional Medicaid recoveries . . . to expand
the liability of individuals and entities that submit false or
fraudulent claims to the District, to facilitate qui tam
(continued…)
14
2. Application of the Public Disclosure Bar
As noted above, the FCA now provides that ―a court shall dismiss an action
or claim‖ brought by a qui tam plaintiff on the District‘s behalf ―if substantially the
same allegations or transactions as alleged in the action or claim were publicly
disclosed . . . [b]y the news media.‖ D.C. Code § 2-381.03 (c-1)(1)(C). This
public disclosure bar ―is triggered where the public disclosure raises the inference
of fraud so as to set the government squarely upon the trail of the alleged fraud.‖
Grayson, 980 A.2d at 1148 (internal quotation marks omitted). ―[T]he Act bars
suits based on publicly disclosed allegations or transactions,‖ rather than general
information. Springfield Terminal Ry., 14 F.3d at 653 (internal quotation marks
omitted). Thus, ―a qui tam action cannot be sustained where all of the material
elements of the fraudulent transaction are already in the public domain and the qui
(…continued)
actions for false or fraudulent claims by increasing the
rights of qui tam plaintiffs and the reward to which they
are entitled[.]
2012 D.C. Laws 19-232 (emphases added). This language indicates, however, that
the D.C. Council‘s principal goal was to conform the text of the local FCA to that
of the federal FCA in order to ―qualify the District for additional Medicaid
recoveries.‖ To the extent that this language reveals an intent to increase qui tam
plaintiffs‘ rights or the potential liability of those submitting false claims to the
District, the more logical reading is that the Council intended to expand the
potential award for plaintiffs and penalty for fraudulent entities, not to lower the
public-disclosure bar.
15
tam relator [only] comes forward with additional evidence incriminating the
defendant.‖ Grayson, 980 A.2d at 1148 (quoting Springfield Terminal Ry., 14 F.3d
at 655) (alterations in original).
Here, PRS‘s complaint alleged that every defendant misclassified VoIP
services as PRI, or some other channel service, in order to take advantage of lower
surcharge assessments; that even where a device was correctly classified as a PRI
device, defendants undercharged for their services; and that some defendants did
not charge for or remit 911 taxes at all. The trial court, reviewing the thirteen news
articles the phone companies appended to their motion to dismiss, concluded that
when ―taken together with common knowledge,‖ these articles ―sufficed to alert
the District to the likelihood of a similar scheme within its borders‖ because each
article described ―an instance or instances of major telephone companies
fraudulently shortchanging‖ and ―some, but not all, of the articles[] raise[d] the
possibility that this problem [was] industry-wide.‖ In PRS‘s view, the court both
misread the articles and reviewed the articles collectively at too high a level of
generality to merit application of the public disclosure bar. 18
In defending the trial court‘s application of the public disclosure bar, the
18
We review the grant of a motion to dismiss an FCA claim de novo.
Grayson, 980 A.2d at 1144.
16
phone companies contend that this court‘s opinion in Grayson and analogous
federal authority compel the conclusion that PRS‘s allegations were substantially
the same as those already made known in the media. In Grayson, the plaintiff-
relator alleged that various telecommunication companies were retaining unused
balances on calling cards, rather than remitting those balances to the District
pursuant to the governing abandoned property law. 980 A.2d at 1139–40. We
held that several disclosures—specifically a newsletter stating that stored value
cards could constitute a class of unclaimed property, a Commerce Clearing House
(CCH) State Tax Review Article discussing ―that prepaid calling card breakage
must be reported and paid or delivered to the States and the District,‖ and other
articles disclosing that ―the calling card company industry routinely fails to count
breakage as unclaimed property‖—were sufficient to raise the necessary inference
of fraud to trigger the public disclosure bar. Id. at 1140–41 (internal quotation
marks omitted), 1151–52.
This case differs from Grayson in two important ways. As an initial matter,
in Grayson, the publicly disclosed misconduct and the misconduct alleged in the
complaint were nearly identical. 980 A.2d at 1139–43, 1150–52. The CCH State
Tax Review article and other news articles described the practice of retaining
unused calling card balances, rather than remitting those balances to the state—and
the complaint alleged that and nothing more. Id. at 1141, 1151–52. These
17
disclosures ―provided specific details about the fraudulent scheme and the types of
actors involved in it, removing this from a situation where the government would
need to comb through myriad transactions performed by various types of entities in
search of potential fraud.‖ Id. at 1152 (quoting In re Nat. Gas Royalties, 562 F.3d
1032, 1042 (10th Cir. 2009)). In the present case, the phone companies argue that
―[t]he central allegation in the Amended Complaint is that telecommunications
providers . . . have ‗underpaid‘ or failed to ‗remit‘ the proper amount of 911
Taxes,‖ while PRS contends that none of the companies‘ articles alleged that these
providers engaged in the specific conduct described in the complaint. In other
words, the parties dispute the level of generality at which to view PRS‘s
allegations and the resulting similarity of those allegations to the phenomena
disclosed in the proffered articles.
This degree of specificity as to the method of fraud alleged in the complaint
as compared to that described in prior disclosures has turned out to be significant—
and often determinative—to other courts analyzing a dismissal under the federal
public disclosure bar. In United States ex rel. Goldberg v. Rush Univ. Med. Ctr.,
680 F.3d 933 (7th Cir. 2012), for example, the plaintiff-relator alleged that the
defendant-hospital was billing Medicare for services rendered by residents who
were supervised inadequately. Id. at 934–35. The defendant argued that there had
been prior public disclosures that ―many if not all of the 125 teaching hospitals‖ in
18
the country had billed Medicare for services rendered by unsupervised residents,
despite the fact that it was improper to bill for residents‘ services where the
residents were not supervised by a teaching physician. Id. at 934. The Seventh
Circuit held that the allegations in the complaint were different from those in the
previous disclosure: ―[u]nless we understand the ‗unsupervised services‘
conclusion of the [prior disclosures] at the highest level of generality—as covering
all ways that supervision could be missing or inadequate—the allegations of these
relators are not ‗substantially similar.‘‖ Id. at 936; see also Leveski v. ITT Educ.
Servs., Inc., 719 F.3d 818, 831–32 (7th Cir. 2013) (cautioning against viewing
allegations at a high level of generality and holding that the alleged ―more
sophisticated, second-generation method of violating the [Act]‖ were not
substantially similar to the ―more rudimentary scheme‖ previously disclosed).
The Ninth Circuit in United States ex rel. Mateski v. Raytheon Co., 816 F.3d
565 (9th Cir. 2016), weighed the reasoning from Goldberg and other Seventh
Circuit cases in addressing ―for the first time‖ whether to ―approach the substantial
similarity question at a high or low level of generality, and accordingly whether a
complaint that is similar only at a high level of generality triggers the public
disclosure bar.‖ Id. at 575–77. The defendant had entered into a contract with
various government agencies to design and build a Visible Infrared Imaging
Radiometer Suite (VIIRS) sensor, which was to be one component of a larger
19
satellite system project. Id. at 567. While the project was underway, various
public disclosures consisting of government reports and news articles revealed that
many of the project‘s inefficiencies were due to inadequate management of the
VIIRS sensor aspect of the project, among other problems attributable to the
defendant. Id. at 567–68. The plaintiff-relator, who had been an engineer for the
defendant and assigned to the sensor project, brought a qui tam action alleging that
defendant had violated the FCA by failing to comply with numerous contractual
requirements, fraudulently covering up noncompliance, and employing improper
billing procedures. Id. at 568. The complaint also made numerous specific
allegations that catalogued the method by which the defendant was committing
fraud—such as the ―creation of false waivers,‖ ―improper (and forged) signoffs
certifying work performed,‖ and the ―failure to rectify issues relating to
electrostatic discharge.‖ Id.
The Ninth Circuit observed that ―[i]f considered at a high level of generality,
[the plaintiff‘s] Complaint and the public reports both discuss[ed] problems with
VIIRS,‖ but ―[i]f considered at a more granular level, the allegations in [the]
Complaint discuss specific issues found nowhere in the publicly disclosed
information.‖ Id. at 574. Surveying precedent from other federal jurisdictions, the
court then concluded that the reasoning from the Seventh Circuit best
―effectuate[d] the purpose of the public disclosure bar by ‗strik[ing] a balance
20
between encouraging private persons to root out fraud and stifling parasitic
lawsuits.‘‖ Id. at 577 (quoting Schindler Elevator Corp. v. United States ex rel.
Kirk, 563 U.S. 401, 413 (2011) (emphasis removed)). The court thus went on to
hold that the fraud that was alleged to be afflicting the VIIRS project was
―different in kind and in degree from the previously disclosed information.‖ Id. at
578.
In this case, the proffered articles explain that various telecommunication
companies failed to pay adequate 911 taxes, but none states that the companies did
so by misclassifying VoIP services as PRI services or by failing to apply the
―trunking ratio‖ for PRI services so as to undercharge for PRI services. Although
PRS alleged a type of fraud that could, at a high level of generality, fall within the
scope of the fraud alleged in the prior media disclosures, we embrace the approach
of the Ninth and Seventh Circuits and conclude that PRS‘s description of the
precise mechanism by which the phone companies allegedly committed fraud
differs markedly from the publicly disclosed misconduct for purposes of the public
disclosure bar.
In this same vein, the present case is also distinguishable from Grayson in
that the public disclosures in Grayson contained a clearer assertion of nationwide
fraud in the relevant industry. The Seventh Circuit‘s decision in United States ex
21
rel. Gear v. Emergency Med. Assocs. of Illinois, 436 F.3d 726 (7th Cir. 2006),
provides a useful illustration. The plaintiff there alleged that a medical school was
billing for unbillable services performed by medical residents. Id. at 727. The
court decided that the public disclosure bar applied because a public government
report had concluded that the practice of billing for residents‘ services ―was
normal, if not universal, among teaching hospitals‖ and the plaintiff ―was unable to
describe any other facts underlying the suit, which therefore must have been ‗based
upon‘ the published report.‖ United States ex rel. Baltazar v. Warden, 635 F.3d
866, 869 (7th Cir. 2011) (summarizing Gear); see also Gear, 436 F.3d at 729 (―It
is true that . . . Gear submitted his own affidavit saying that he based his complaint
on ‗personal observations and experience,‘‖ but this ―self-serving affidavit is
insufficient to sustain a claim that his allegations are not based on public
information‖ where he ―points to no evidence upon which this suit depends that
[was] not publicly disclosed.‖ (internal quotations marks omitted)). And similarly,
in Natural Gas Royalties, the Tenth Circuit held that prior allegations of
mismeasurement of natural gas by drilling companies constituted public
disclosures of the misconduct alleged in the case where—besides providing
―specific details about the fraudulent scheme and the types of actors involved in it‖
that ―remov[ed] this from a situation where the government would need to comb
through myriad transactions performed by various types of entities,‖ 562 F.3d at
22
1042 (emphasis added)—those public disclosures also ―named a significant
percentage of industry participants as wrongdoers and indicated that others in the
industry were very likely engaged in the same practices.‖ Id.
The public disclosures in this case do not establish a nationwide occurrence
of fraudulent underremittance by the method alleged by PRS. Rather, the articles
are almost entirely confined to possible violations of the 911 tax laws in particular
states. Given that laws and enforcement regimes may differ from state to state, and
that there may be widespread noncompliance in one state while there is full
compliance in another, the disclosures here do not provide the same basis for
setting the District of Columbia ―upon the trail‖ of the fraud alleged in this case.
That makes this case very different from Gear and Natural Gas Royalties in that
none of the public disclosures provided by the phone companies indicates
widespread or even near universal noncompliance with every state‘s 911 tax law.
Based on these distinctions, we hold that PRS‘s allegations of fraudulent
underpayment are not substantially the same as the allegations of underpayment
disclosed in the media, and that the complaint was therefore not barred by these
public disclosures.19
19
Appellees also rely on United States ex rel. Jamison v. McKesson Corp.,
649 F.3d 322 (5th Cir. 2011), for the proposition that appellant‘s complaint must
(continued…)
23
B. Sufficiency of Pleading Under Rule 9 (b)
PRS argues that the trial court erred in concluding that the amended
complaint fell short of providing the requisite detail to satisfy Super. Ct. Civ. R.
9 (b)‘s pleading standard and therefore failed to adequately plead claims under
both D.C. Code § 2-381.02 (a)(6) (holding liable one who knowingly makes a false
statement material to an obligation to pay the District) and § 2-381.02 (a)(3)
(imposing liability for each fraudulent claim for which a person has possession of
(…continued)
be barred because the complaint ―treated the defendants uniformly, without
identifying specific allegations against any particular one.‖ Jamison held that the
public disclosure bar applied because the plaintiff claimed that around 450
defendants had engaged in one of several generally described fraudulent schemes
involving medical equipment ―without alleging which defendants engaged in
which schemes or what particular actions were fraudulent,‖ id. at 328, and because
it took ―no particular knowledge or effort to describe a general scheme of fraud
and then list arbitrarily a large group of possible perpetrators.‖ Id. at 331.
Although we agree that the uniformity of PRS‘s allegations is significant, in our
view, this deficiency is better addressed by Super. Ct. Civ. R. 9 (b). See infra Part
II.B. Jamison itself noted, in its analysis of the application of the public disclosure
bar, that it was ―highly unlikely that [plaintiff‘s] original complaint satisfied the
heightened pleading requirement of Federal Rule of Civil Procedure 9 (b).‖ Id. at
328 n.9. But the court had not been presented with that issue. More critically, in
Jamison, the complaint contained only the same general allegations as those that
had already been publicly disclosed. As the court stated, ―one could have
produced the substance of the complaint merely by synthesizing the public
disclosures‘ description of the joint venture scheme[.]‖ 649 F.3d at 331. In
contrast, here, again, appellees have not proffered articles that describe the precise
type of fraud alleged in this case. The specific allegations are different from the
proffered disclosures, but may still fail when subjected to Rule 9 (b)‘s pleading
standards.
24
money to be used by the District and knowingly delivers less than all of it). PRS
takes particular issue with the trial court‘s findings that PRS had provided merely
―educated guesses‖ rather than ―estimates,‖ and that PRS had ―calculated
defendants‘ under-remittances on a uniform, rather than individualized basis.‖ For
their part, the service providers contend that PRS did little more than copy and
paste ―the same conclusory statements more than two dozen times‖ to reach a
conclusion that ―each and every Defendant had underpaid its 911 Taxes by the
same exact percentage,‖ revealing the unreliability of PRS‘s proprietary
methodology and underscoring the complaint‘s failure to describe any specific
misrepresentations unique to any given defendant. We review de novo the
dismissal of a complaint pursuant to Super. Ct. Civ. R. 9 (b). See Kowal v. MCI
Commc‟ns Corp., 16 F.3d 1271, 1278 (D.C. Cir. 1994) (reviewing dismissal under
the federal rule). 20
Federal courts have held that the heightened pleading requirements of Fed.
R. Civ. P. 9 (b) govern qui tam actions brought under the federal FCA. See United
States ex rel. Schneider v. J.P. Morgan Chase Bank, N.A., 224 F. Supp. 3d 48, 55–
56 (D.D.C. 2016) (applying Fed. R. Civ. P. 9 (b) to the federal FCA and holding
20
The parties assume we apply the same de novo standard of review that
applies under Fed. R. Civ. P. 9 (b).
25
that ―[b]ecause the False Claims Act is self-evidently an anti-fraud statute,
complaints brought under it must [] comply with Rule 9 (b)‖ (internal quotation
marks omitted)); United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 123
(D.C. Cir. 2015) (same). Our own Rule 9 (b) is identical to Fed. R. Civ. P. 9 (b),21
and we likewise apply its pleading requirements to PRS‘s claim under the
District‘s FCA. Given ―the quasi-criminal nature of FCA violations‖ and the fact
that a violator may be liable for treble damages,22 particularity in pleading is
―especially important‖ in FCA cases. United States ex rel. Atkins v. McInteer, 470
F.3d 1350, 1360 (11th Cir. 2006). ―Rule 9 (b) ensures that the relator‘s strong
financial incentive to bring an FCA claim—the possibility of recovering between
fifteen and [twenty-five] percent23 of a treble damages award—does not precipitate
the filing of frivolous suits.‖ Id.
To allege fraud or mistake, a plaintiff must ―state with particularity the
circumstances constituting fraud or mistake‖ by providing the ―time, place, and
contents of the false representations, the facts misrepresented, and what was
21
See Super. Ct. Civ. R. 9 cmt. (describing Rule 9 as ―identical to Federal
Rules of Civil Procedure 9‖).
22
D.C. Code § 2-381.02 (a) (establishing liability and setting forth penalties
for FCA violations in D.C.).
23
D.C. Code § 2-381.03 (f)(1)(A) allows a qui tam plaintiff to ―receive at
least 15%, but not more than 25%, of the proceeds‖ of an action or settlement.
26
obtained or given up as a consequence of the fraud.‖ United States ex rel. Barko v.
Halliburton Co., 952 F. Supp. 2d 108, 112 (D.D.C 2013) (internal quotation marks
omitted) (construing Fed. R. Civ. P. 9 (b)). A plaintiff must also ―set forth an
adequate factual basis for his allegations,‖ United States ex rel. Totten v.
Bombardier Corp., 286 F.3d 542, 552 (D.C. Cir. 2002), or, in other words, ―invest
the complaint with indicia of reliability.‖ Heath, 791 F.3d at 125 (―[T]he point of
Rule 9 (b) is to ensure that there is sufficient substance to the allegations to both
afford the defendant the opportunity to prepare a response and to warrant further
judicial process.‖); see also Sibley v. St. Albans Sch., 134 A.3d 789, 809 n.13 (D.C.
2016) (―To comply with the more rigorous pleading requirement of Rule 9 (b), a
complaint must allege ‗such facts as will reveal the existence of all the requisite
elements of fraud. Allegations in the form of conclusions on the part of the pleader
as to the existence of fraud are insufficient.‘‖).24
Rule 9 (b)‘s requirements effectuate its purpose ―to alert defendants ‗as to
the particulars of their alleged misconduct‘ so that they may respond. The
24
Even under the less stringent Rule 8 (a) standard, which applies to fraud
claims as well, the plaintiff ―must plead ‗enough facts to state a claim to relief that
is plausible on its face,‘ i.e., ‗factual content that allows the court to draw the
reasonable inference that defendant is liable for the misconduct alleged.‘‖ Poola v.
Howard Univ., 147 A.3d 267, 276 (D.C. 2016) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007), and Comer v. Wells Fargo Bank, N.A., 108
A.3d 364, 371 (D.C. 2015) (internal citation omitted)).
27
heightened pleading standard is also designed to prevent ‗fishing expeditions,‘ to
protect defendants‘ reputations from allegations of fraud, and to narrow potentially
wide-ranging discovery to relevant matters.‖ Chesbrough v. VPA, P.C., 655 F.3d
461, 466 (6th Cir. 2011) (citations omitted); see also 5A Charles A. Wright et al.,
Federal Practice and Procedure § 1296 (3d ed. 2004) (―[T]he greater pleading
specificity required by Rule 9 (b) deters the filing of suits solely for discovery
purposes; the rule thus guards against the institution of a fraud-based action in
order to discover whether unknown wrongs have occurred—the classic fear of
‗fishing expeditions.‘‖). Where a complaint is filed against multiple defendants,
then, ―Rule 9 (b) requires that the identity and role of individual defendants alleged
to have made false representations be specified in the complaint.‖ Sibley, 134
A.3d at 809 n.13; see also United States ex rel. Bender v. N. Am. Telecomms., Inc.,
686 F. Supp. 2d 46, 53–54 (D.D.C. 2010).
PRS‘s complaint falls short in myriad respects. As the trial court noted,
―[t]he complaint treats the defendants uniformly, without identifying specific
allegations against any particular one,‖ and nothing in the complaint suggests what
PRS might have done ―to winnow its list to these defendants.‖ PRS‘s assertion to
the contrary that it used its knowledge and proprietary methodology to identify the
specific defendants named in the complaint fails to explain why PRS initially
pressed claims against certain defendants that had ceased operating in the District
28
before 2006 or against unnamed ―subsidiaries and related entities‖ of each named
defendant.
The ―proprietary methodology‖ itself does little to convince us that PRS‘s
pleadings meet Rule 9 (b)‘s standard. PRS contends that it conducted
―individualized calculations for each [d]efendant‖ and that the trial court‘s
conclusion that PRS provided the court only with ―educated guesses‖ improperly
―ignored PRS‘s lengthy description of its methodology.‖ Although the complaint
details PRS‘s methodology at some length, and although PRS modified its
methodology ―to determine the number of lines on which each carrier remitted or
failed to remit 911 surcharges,‖ the ostensible accuracy that this level of detail
purports to convey is belied by PRS‘s conclusion that every single defendant
underremitted 911 taxes at the identical rate of 31.7%—and further, that some
defendants, though PRS cannot say which, did not remit taxes at all.
Finally, although PRS claimed that the phone companies made fraudulent
misrepresentations by withholding taxes owed to the District and by falsely
certifying ―under penalty of law that [they had] properly collected and remitted the
correct amount of 911 Taxes,‖ this allegation is likewise inadequately pled. There
is little indication that PRS has evidence that each company failed to pay the
required amount in 911 taxes—let alone that they knowingly did so, as opposed to
29
simply interpreting applicable regulations differently or failing to establish
adequate accounting procedures. The same uniformity that afflicts PRS‘s
underremittance calculations mars its allegations regarding the providers‘
misrepresentations, in that PRS has presented nothing in the way of details that
each defendant in fact committed fraud. Instead, PRS presents conclusory
allegations—identical for every company—that each made ―repeated false
certifications as to the accuracy of the remittance‖ and that each ―misrepresented to
the District that the 911 taxes have been paid as required under the Act.‖ In sum,
the trial court did not err in concluding that PRS failed to satisfy the heightened
standard of pleading required under Rule 9 (b).25
III. Breach-of-Fiduciary-Duty and Accounting Claims
Finally, PRS argues that the trial court erred by dismissing its claims for a
25
PRS asks that we forgo affirming the trial court‘s dismissal under Rule
9 (b) and instead grant PRS leave to amend its complaint under Super. Ct. Civ. R.
15. PRS never requested leave to amend, or reconsideration of the decision not to
grant leave to amend, in the trial court. PRS does so now for the first time, but in
conclusory fashion, without describing how it might modify the complaint to
remedy potential deficiencies. Under these circumstances the trial court did not
abuse its discretion by failing to grant leave sua sponte. See Flax v. Schertler, 935
A.2d 1091, 1105 (D.C. 2007) (―This court reviews a trial court‘s decision to permit
or deny an amendment of pleadings for abuse of discretion.‖); District of Columbia
v. Tinker, 691 A.2d 57, 60 (D.C. 1997) (same); see also Islamic Ctr. of Nashville v.
Tennessee, 872 F.3d 377, 386–87 (6th Cir. 2017) (interpreting the analogous
Federal rule and holding that the district court did not abuse its discretion by not
granting leave to amend sua sponte where appellant never requested it).
30
breach of fiduciary duty and for an accounting, and specifically challenges the
court‘s finding that the telephone companies were not in a fiduciary relationship
with the District of Columbia. The companies contend that PRS did not establish
the requisite fiduciary relationship but in any event lacked standing as a qui tam
relator to assert these claims on behalf of the District.
The District‘s FCA confers standing on relators to pursue a limited,
statutorily specified set of causes of action on behalf of the government. The
statute does not, however, confer standing to assert common law claims for an
injury sustained by the District. See, e.g., United States ex rel. Rockefeller v.
Westinghouse Elec. Co., 274 F. Supp. 2d 10, 14 (D.D.C. 2003), aff‟d sub nom.
Rockefeller ex rel. United States v. Washington TRU Sols. LLC, No. 03–7120,
2004 WL 180264 (D.C. Cir. Jan. 21, 2004) (per curiam) (relator lacked standing to
bring fraud, payment by mistake, unjust enrichment claims); United States ex rel.
Phipps v. Comprehensive Cmty. Dev. Corp., 152 F. Supp. 2d 443, 451–52
(S.D.N.Y. 2001) (relator lacked standing to bring fraud, mistake of fact, and unjust
enrichment claims). Accordingly, we affirm the trial court‘s dismissal of Counts II
and III on the ground that PRS did not have standing to assert either common law
claim.
31
IV. Conclusion
We hold that the trial court erred in concluding that the previous public
disclosures barred PRS‘s lawsuit against the telecommunications providers for
violations of the False Claims Act, but we affirm the dismissal of the claim on the
trial court‘s alternative ground that PRS failed to satisfy the pleading requirements
in Super. Ct. Civ. R. 9 (b). We also affirm the dismissal of PRS‘s claims alleging a
breach of fiduciary duty and requesting an accounting.
So ordered.