United States Ex Rel. Shea v. Verizon Business Network Services Inc. , 904 F. Supp. 2d 28 ( 2012 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
UNITED STATES OF AMERICA, :
EX REL. STEPHEN M. SHEA :
:
-and- :
:
STEPHEN M. SHEA, :
:
Plaintiffs, :
:
v. : No. 1:09-cv-1050 (GK)
:
VERIZON BUSINESS NETWORK SERVICES :
INC.; VERIZON FEDERAL INC.; :
MCI COMMUNICATIONS SERVICES, INC. :
d/b/a VERIZON BUSINESS SERVICES; :
and CELLO PARTNERSHIP d/b/a :
VERIZON WIRELESS, :
:
Defendants. :
___________________________________:
MEMORANDUM OPINION
Relator Stephen M. Shea (“Plaintiff” or “Relator”) brings
this qui tam action against Verizon Business Network Services,
Inc., Verizon Federal Inc., MCI Communications Services, Inc.
d/b/a Verizon Business Services, and Cello Partnership d/b/a
Verizon Wireless (“Defendants” or “Verizon”) pursuant to the
Federal False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq.
This matter is before the Court on Defendants’ Motion to
Dismiss the Second Amended Complaint [Dkt. No. 51]. Upon
consideration of the Motion, Opposition, Reply, and the entire
record herein, and for the reasons set forth below, Defendants’
§
Motion to Dismiss is granted for lack of jurisdiction as to
Relator and granted without prejudice as to the United States.
I. BACKGROUND 1
Plaintiff filed his first qui tam complaint against Verizon
on January 17, 2007. Civ. No. 1:07-cv-0111 (GK) (“Verizon I”)
[Verizon I Dkt. No. 1, “2007 Complaint”]. The 2007 Complaint
explained that the “action concern[ed] the knowing submission to
the United States of certain prohibited surcharges under
contracts to provide telecommunications services between
defendant Verizon Communications Inc. (and its division Verizon
Business) and the General Services Administration.” 2007
Complaint ¶ 2. The United States intervened in the 2007 lawsuit,
and in February 2011 the parties reached a settlement agreement
in which Verizon paid the United States $93.5 million. The
settlement agreement did not include any admission of liability.
The case was dismissed on February 28, 2011. [Verizon I Dkt. No.
41].
Plaintiff filed the current case, a second qui tam
complaint against Verizon on June 5, 2009. Civ. No. 1:09-cv-
01050 (GK) (“Verizon II”) [Dkt. No. 1, “2009 Complaint”]. On
1
For purposes of ruling on a motion to dismiss, the factual
allegations of the complaint must be presumed to be true and
liberally construed in favor of the plaintiff. Aktieselskabet AF
21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir.
2008); Shear v. Nat’l Rifle Ass’n of Am., 606 F.2d 1251, 1253
(D.C. Cir. 1979). Therefore, unless otherwise noted, the facts
set forth herein are taken from the Second Amended Complaint.
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November 30, 2011, the United States informed the Court that it
was “not intervening at this time” in the 2009 lawsuit. [Dkt.
No. 26]. On July 26, 2012, Plaintiff filed his First Amended
Complaint. [Dkt. No. 37]. On September 12, 2012 Plaintiff filed
his Second Amended Complaint (“SAC”), which is the current
complaint in Verizon II and the subject of the Motion to Dismiss
presently before the Court.
The Second Amended Complaint explains that “[t]his lawsuit
is based on a scheme by [] [Verizon] to defraud the United
States by knowingly billing the government for non-allowable
surcharges . . . .” SAC ¶ 1. Plaintiff claims that his knowledge
of the fraud is “[b]ased on his experience consulting with large
commercial telecommunications customers” and that, as a
consultant, he “learned that most telecommunication carriers,
including Worldcom, later named MCI Communications Corp.,
acquired by Verizon in 2006 (collectively ‘MCI/Verizon’), had a
custom and practice of charging [Non-Allowable Tax-Like
Charges].” SAC ¶ 3. The Second Amended Complaint then alleges
that “MCI/Verizon overcharged the United States, just like its
commercial customers.” SAC ¶ 4.
The Second Amended Complaint describes the following as the
source of Plaintiff’s insider knowledge: “In 2004, Shea received
an MCI document indicating that the company was charging the
government for regulatory fee surcharges, and various state
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taxes, including utility taxes, ad valorem/property taxes, and
business, occupational, and franchise taxes.” SAC ¶ 4. The
Complaint further claims that “[a] former Verizon employee, who
worked at the company for over 30 years and retired as a
manager, senior staff consultant, confirmed that Verizon did not
have a separate billing system for federal customers and
commercial customers, and that Verizon’s billing system did not
have the capability to turn off the surcharges that were
generally charged to all customers.” SAC ¶ 27. The Second
Amended Complaint then alleges that “[b]ased on Verizon’s
practice of improperly billing Non-Allowable Tax-Like Charges to
commercial customers and the government, on information and
belief, Verizon improperly billed for Non-Allowable Tax-Like
Charges on the following federal telecommunication contracts
[listing 20 contracts between Defendants and the U.S.
government].” SAC ¶ 28.
On September 12, 2012, Defendants filed their Motion to
Dismiss the Second Amended Complaint (“MTD”). [Dkt. No. 51]. On
September 27, 2012, Plaintiff filed his Opposition to
Defendants’ Motion to Dismiss the Second Amended Complaint
(“Opposition”). [Dkt. No. 54]. On October 9, 2012, Defendants
filed their Reply in Support of their Motion to Dismiss the
Second Amended Complaint (“Reply”). [Dkt. No. 55]. And on
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October 25, 2012, the United States filed its Statement of
Interest. [Dkt. No. 56]. 2
II. STANDARD OF REVIEW
To survive a motion to dismiss under Rule 12(b)(6), a
plaintiff need only plead “enough facts to state a claim to
relief that is plausible on its face” and to “nudge[ ] [his or
her] claims across the line from conceivable to plausible.” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “[O]nce a
claim has been stated adequately, it may be supported by showing
any set of facts consistent with the allegations in the
complaint.” Id. at 563.
Under the Twombly standard, a “court deciding a motion to
dismiss must not make any judgment about the probability of the
plaintiffs’ success . . . [,] must assume all the allegations in
the complaint are true (even if doubtful in fact) . . . [, and]
must give the plaintiff the benefit of all reasonable inferences
derived from the facts alleged.” Aktieselskabet AF 21. November
2001 v. Fame Jeans Inc., 525 F.3d 8, 17 (D.C. Cir. 2008)
2
The United States takes no position as to the merits of
Defendants’ Motion to Dismiss. It simply states that because the
United States “had no part in preparing the pleadings it should
not be prejudiced if [Relator] has failed to plead his
allegations sufficiently to meet the requirements of Rules 8 and
9(b), or if [] [R]elator is barred or disqualified from pursuing
the allegations under 31 U.S.C. § 3730(b)(5) or 31 U.S.C. §
3730(e)(4).” Statement of Interest at 4. The United States then
requests that “if the Court dismisses this action, that such
dismissal be without prejudice to the United States.” Id.-5-
(citations omitted) (internal quotation marks omitted). A
complaint will not suffice, however, if it “tenders ‘naked
assertion[s]’ devoid of ‘further factual enhancement.’” Ashcroft
v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S.
at 557) (alteration in Iqbal).
Where a defendant moves to dismiss under Rule 12(b)(1) for
lack of subject matter jurisdiction, plaintiff bears the burden
of proving by a preponderance of the evidence that the Court has
subject matter jurisdiction. See Shuler v. U.S., 531 F.3d 930,
932 (D.C. Cir. 2008). In reviewing a motion to dismiss for lack
of subject matter jurisdiction, the Court must accept as true
all of the factual allegations set forth in the complaint;
however, such allegations “will bear closer scrutiny in
resolving a 12(b)(1) motion than in resolving a 12(b)(6) motion
for failure to state a claim.” Wilbur v. CIA, 273 F. Supp. 2d
119, 122 (D.D.C. 2003) (internal quotation marks omitted). The
Court may consider matters outside the pleadings and may rest
its decision on its own resolution of disputed facts. See
Herbert v. Nat’l Acad. of Sciences, 974 F.2d 192, 197 (D.C. Cir.
1992).
III. ANALYSIS
The history of the FCA’s qui tam provisions “demonstrates
repeated congressional efforts to walk a fine line between
encouraging whistle-blowing and discouraging opportunistic
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behavior.” U.S. ex rel. Hampton v. Columbia/HCA Healthcare
Corp., 318 F.3d 214, 217 (D.C. Cir. 2003) (quoting U.S. ex rel.
Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 651 (D.C. Cir.
1994)). As part of that effort, Congress enacted the “first-to-
file” bar. 31 U.S.C. § 3730(b)(5); see Hampton, 318 F.3d at 217.
The first-to-file bar provides that “[w]hen a person brings
an action under this subsection, no person other than the
Government may intervene or bring a related action based on the
facts underlying the pending action.” § 3730(b)(5).
Our Court of Appeals has explained that this bar “furthers
the statute’s ‘twin goals of rejecting suits which the
government is capable of pursuing itself, while promoting those
which the government is not equipped to bring on its own.’” U.S.
ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1209 (D.C. Cir.
2011) (quoting Hampton, 318 F.3d at 217); see also U.S. ex rel.
Chovanec v. Apria Healthcare Group Inc., 606 F.3d 361, 364 (7th
Cir. 2010) (explaining that § 3730(b)(5) is intended to bar
“secondary suits that do no more than remind the United States
of what it has learned from the initial suit,” because “[t]he
author of the fraud won’t escape when the first suit (or the
ensuing federal investigation) tells the agency everything it
needs to know”); U.S. ex rel. Poteet v. Medtronic, Inc., 552
F.3d 503, 516 (6th Cir. 2009) (noting that the interpretation of
the first-to-file rule should comport with the policy of
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“ensuring that the government has notice of the essential facts
of an allegedly fraudulent scheme”) (internal citations
omitted); Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276,
1279 (10th Cir. 2004) (“Once the government is put on notice of
its potential fraud claim, the purpose behind allowing qui tam
litigation is satisfied.”).
Defendants argue that the Second Amended Complaint should
be dismissed for lack of subject matter jurisdiction 3 under the
FCA’s first-to-file bar. 4 Defendants contend that “[b]ecause the
present action [Verizon II] is ‘related’ to, and based on the
facts underlying [] the 2007 Lawsuit [Verizon I], it could be
brought only by the Government, not a private relator.” MTD at
20.
Plaintiff responds that the first-to-file rule does not bar
the Second Amended Complaint because: “(1) Relator Shea filed
both actions at issue – [and therefore] Verizon I only bars
someone other than Shea from filing a related action; (2)
3
The first-to-file bar is jurisdictional. See, e.g., U.S. ex
rel. Ortega v. Columbia Healthcare, Inc., 240 F. Supp. 2d 8, 11
(D.D.C. 2003) (“If an action ‘based on the facts underlying’ a
pending case comes before a court, it must dismiss the later-
filed case for lack of jurisdiction.”); Batiste, 659 F.3d at
1206-07 (affirming dismissal for “lack of subject matter
jurisdiction”).
4
Defendants also argue that the Second Amended Complaint should
be dismissed for other, independent reasons. Given the Court’s
conclusion, infra, that this action is barred by the FCA’s
first-to-file bar, it is not necessary to address the merits of
Defendants’ additional arguments.
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Verizon I was not pending when the Second Amended Complaint was
filed; and (3) Verizon I and Verizon II are not related actions
because the Second Amended Complaint alleges that Verizon
committed fraud on contracts and U.S. agencies not at issue in
Verizon I.” Opposition at 9.
A. The First-to-File Bar Applies to Successive Related
Actions Brought by the Same Relator
Plaintiff contends that Defendants’ Motion to Dismiss
“completely ignores the threshold issue of whether the first-to-
file rule applies to the same relator who later files a second
related action” and that “[e]very circuit opinion addressing the
issue . . . say[s] that it does not.” Id. Plaintiff then
discusses at length Bailey v. Shell W. E&P Inc., 609 F.3d 710(5th Cir. 2010) and U.S. ex rel. Precision Companies v. Koch
Industries, 31 F.3d 1015 (10th Cir. 1994) to support his
argument. Id. at 9-14. 5
In determining whether § 3730(b)(5) applies to the same
relator who later files a second related qui tam action, the
Court must always begin its analysis with the text of the
statute itself. See Murphy Exploration and Production Co. v.
U.S. Dept. of the Interior, 252 F.3d 473, 480 (D.C. Cir. 2001)
5
Plaintiff also cites in footnote U.S. ex rel. Taxpayers Against
Fraud v. GE, 41 F.3d 1032 (6th Cir. 1994) and Walburn v.
Lockheed Martin Corp., 431 F.3d 966 (6th Cir. 2005) to support
his position. These cases do not even purport to address the
issue presented here.
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(“As always, in interpreting a statute, we begin with the text
of the statute itself.”). “[I]n interpreting a statute a court
should always turn first to one [] cardinal canon before all
others,” that when Congress writes a statute, it “says . . .
what it means and means . . . what it says there.” Conn. Nat’l
Bank v. Germain, 503 U.S. 249, 253-54 (1992).
The plain language of § 3730(b)(5) is clear: once “a person
brings an action under this subsection, no person other than the
Government may intervene or bring a related action based on the
facts underlying the pending action.” § 3730(b)(5) (emphasis
added). This provision states without ambiguity or qualification
that “no person” other than the Government may bring successive
related actions. “The statute does not say ‘no other person
except the Government may bring an action,’ it simply says ‘no
person’ which would apply equally to the original relator as any
other person.” U.S. ex rel. Smith v. Yale-New Haven Hospital,
Inc., 411 F. Supp. 2d 64, 74-75 (D. Conn. 2005) (emphasis in the
original); see also U.S. ex rel. LaCorte v. Wagner, 185 F.3d
188, 191 (4th Cir. 1999) (holding that “no person other than the
Government” is “unequivocal language” and that because “Wagner
and Dehner are persons other than the government . . . the
statute on its face precludes them from intervening.”).
Moreover, contrary to Plaintiff’s contention, Bailey does
not support the general proposition that the first-to-file bar
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is inapplicable as “to the same relator who later files a second
related action.” Opposition at 9. The issue in Bailey was not
whether it was permissible for the same relator to bring
successive related FCA claims, but rather, whether it was
permissible for the same relator to make the same qui tam claim
in a different jurisdiction, i.e., to engage in forum shopping. 6
Plaintiff’s position also finds no support in Precision
Companies. In that case, the question before the court was
whether § 3730(b)(5)’s intervention bar prevents joinder of
closely related parties under Federal Rule of Civil Procedure 15
or forbids only intervention by unrelated parties under Federal
Rule of Civil Procedure 24. The court held that the intervention
prong of the first-to-file bar does not extend to joinder. The
court did not, however, address whether the same relator could
bring successive related qui tam actions. Plaintiff’s cited
cases are simply not on point.
Accordingly, the Court concludes that the first-to-file bar
applies to successive related actions brought by the same
relator.
6
The Fifth Circuit concluded that “[relators’] attempts at forum
shopping constitute the opportunistic and parasitic behavior the
FCA seeks to preclude” and thus permitted the relators to pursue
only one FCA action. Bailey, 609 F.3d at 721 n. 3.
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B. The 2007 Lawsuit Was Pending when Relator Brought this
Action
Plaintiff next argues that, “[e]ven if this Court concludes
that the first-to-file bar applies to the same relator, the bar
still does not apply because Verizon I was not ‘pending’ when
the Second Amended Complaint was filed.” Opposition at 9.
Plaintiff contends that “[t]he plain language of the first-to-
file bar should control here” and that “[t]here is no doubt that
Verizon I was no longer pending when Shea filed his amended
complaints.” Id. at 16 (emphasis added).
Turning again to the plain language of the statute, it is
clear that the first-to-file bar refers specifically to
jurisdictional facts that exist when an “action” is brought.
Section 3730(b)(5) provides that a qui tam plaintiff may not
“bring a related action based on the facts underlying the
pending action.” § 3730(b)(5) (emphasis added). As the Seventh
Circuit noted when analyzing the text of the first-to-file bar,
“[o]ne ‘brings’ an action by commencing suit.” Chovanec, 606
F.3d at 362 (emphasis added); see also Black’s Law Dictionary
(9th ed. 2009) (defining “bring an action” as “[t]o sue” or
“institute legal proceedings”) (emphasis added).
This interpretation of the statute is consistent with the
fundamental rule that “the jurisdiction of the court depends
upon the state of things at the time of the action brought.”
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Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570
(2004) (internal quotation marks omitted). The amendment process
“cannot be used to create jurisdiction retroactively where it
did not previously exist.” U.S. ex rel. Jamison v. McKesson
Corp., 649 F.3d 322, 328 (5th Cir. 2011) (internal quotation
marks omitted). Accordingly, the relevant inquiry turns on when
a successive action is commenced, not when a complaint is
amended. See U.S. ex rel. Branch Consultants, L.L.C., v.
Allstate Ins. Co., 782 F. Supp. 2d 248, 259 (E.D. La. 2011)
(“The use of the term ‘action’ in [§§ 3730(b)(5) and (e)(4)(b)]
indicates that the Court should look to the jurisdictional facts
that existed at the time the action was filed, as opposed to
facts that existed when the relator later filed an amended
complaint.”).
Plaintiff commenced Verizon II on June 5, 2009. [Dkt. No.
1]. At that time, Verizon I was an active lawsuit, and was not
dismissed until February 28, 2011. See [Verizon I Dkt. No. 41].
Therefore, Verizon I was pending when Plaintiff brought this
current action.
C. This Action Is Related to the 2007 Lawsuit
The only question left is whether Verizon I and Verizon II
are related actions. Plaintiff argues that Verizon I and Verizon
II are not related because Verizon II alleges that Verizon
committed fraud on contracts and agencies not at issue in
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Verizon I. Opposition at 17. Plaintiff contends that “[t]he
different contracts, different U.S. agencies, and different
surcharges make Verizon II materially distinct from Verizon I.”
Id. at 19. 7
Section 3730(b)(5) serves to bar “‘actions alleging the
same material elements of fraud’ as an earlier suit, even if the
allegations [of the later-filed complaint] ‘incorporate somewhat
different details.’” Hampton, 318 F.3d at 217 (quoting U.S. ex
rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1189 (9th Cir.
2001)) (emphasis added). In adopting this “material elements”
standard, our Court of Appeals rejected “another possible test,
one barring claims based on ‘identical facts.’” Hampton, 318
F.3d at 218. “Acknowledging that there is no bright line rule
for determining whether differences between complaints are
‘material,’ the D.C. Circuit held that § 3730(b)(5) bars a
subsequent action if it contains ‘merely variations’ of the
fraudulent scheme described in the first action.” U.S. ex rel.
7
Plaintiff contends that the United States supports its position
on this relatedness issue, citing to a Statement of Interest
that the United States filed on May 24, 2010 in a different
case. Opposition at 24-25. This contention has no merit. As
noted, supra, on October 25, 2012, the United States filed a
Statement of Interest in this case, taking no position as to the
merits of the issues presented here. See Statement of Interest
[Dkt. No. 56]. The United States simply requested that “if the
Court dismisses this action, that such dismissal be without
prejudice to the United States.” Id. at 4.
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Folliard v. CDW Tech. Services Inc., 722 F. Supp. 2d 37, 39-40
(D.D.C. 2010) (quoting Hampton, 318 F.3d at 218).
In this Circuit, the relevant inquiry is “whether the
[later-filed] [c]omplaint alleges a fraudulent scheme the
government already would be equipped to investigate based on the
[earlier-filed] [c]omplaint.” Batiste, 659 F.3d at 1209.
Accordingly, complaints are related where the earlier-filed
complaint gives the government sufficient notice to discover the
fraud in the later-filed complaint. See U.S. ex rel. Folliard v.
Synnex Corp., 798 F. Supp. 2d 66, 73 (D.D.C. 2011); CDW, 722 F.
Supp. 2d at 43.
When evaluating a § 3730(b)(5) first-to-file motion to
dismiss, “‘[t]he only evidence needed to determine if a
complaint is barred . . . is the complaints themselves.’”
Synnex, 798 F. Supp. 2d at 72 (quoting U.S. ex rel. Ortega v.
Columbia Healthcare, Inc., 240 F. Supp. 2d 8, 15 (D.D.C. 2003)).
“Hampton . . . counsels that this Court must compare [the
complaints] at a sufficiently high level of generality[.]” CDW,
722 F. Supp. 2d at 41.
In this litigation, a comparison of the 2007 Complaint in
Verizon I with the Second Amended Complaint in Verizon II
clearly demonstrates that the allegations in Verizon II are
based on the same material facts alleged in Verizon I. Both
complaints allege: (1) that Relator discovered that Verizon had
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a custom and practice of billing clients for certain surcharges
based on his experience as a private telecommunications
consultant, see 2007 Complaint ¶ 12 and SAC ¶ 3; (2) that in
2004 Relator received an MCI document indicating that Verizon
was charging the U.S. government for certain surcharges, see
2007 Complaint ¶ 70 and SAC ¶ 4; (3) that Verizon did not have a
separate billing system for the U.S. government and commercial
customers, see 2007 Complaint ¶ 81 and SAC ¶ 27; (4) that
Verizon was prohibited from charging the U.S. government for
these particular surcharges under the Federal Acquisition
Regulations (“FAR”) and the provisions of the contracts, see
2007 Complaint ¶¶ 4, 20 and SAC ¶¶ 17-26, 29; and (5) that
Verizon did bill the U.S. government for certain non-allowable
surcharges on telecommunications contracts. See 2007 Complaint
¶¶ 2, 4 and SAC ¶ 1.
Plaintiff’s argument that his two lawsuits are not related
because they involve different contracts with different agencies
has no merit. In fact, Plaintiff concedes that “[t]wo D.C.
district courts have held that complaints which allege similar
fraudulent schemes on different contracts with different federal
agencies do not materially differ under the first-to-file rule.”
Id. at 20; see Synnex, 798 F. Supp. 2d at 73 (“[T]he fact that
[Relator] alleges that defendants made false claims to different
agencies under different contracts does not mean that the
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complaints incorporate different material elements.”); CDW, 722
F. Supp. 2d at 41 (rejecting the argument that “the different
procurement contracts and contracting agencies are relevant” to
a determination of similarity “as the text of § 3730 and the
statute’s underlying policies do not support the creation of a
distinction between the two complaints on this basis.”).
The side-by-side comparison of the complaints has persuaded
the Court that, although the complaints allege “somewhat
different details” (which is not surprising), Plaintiff’s 2007
Complaint in Verizon I “suffices to put the U.S. government on
notice” as to Verizon’s allegedly fraudulent billing practices
with respect to surcharges on government contracts, and that the
Second Amended Complaint in Verizon II “alleges the same
material elements of the same fraud.” Batiste, 659 F.3d at 1208-
09.
Accordingly, Plaintiff’s action is “based on the facts
underlying” his previously filed qui tam action in 2007, and it
is therefore barred under § 3730(b)(5).
IV. CONCLUSION
Upon consideration of the Motion, Opposition, Reply, and
the entire record herein, and for the reasons set forth in this
Memorandum Opinion, Defendants’ Motion to Dismiss is granted for
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lack of jurisdiction as to Relator and granted without prejudice
as to the United States.
/s/________________________
November 15, 2012 Gladys Kessler
United States District Judge
Copies to: attorneys on record via ECF
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