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United States ex rel. Potter v. Casa De Maryland

United States District Court, D. Maryland

March 6, 2018

CASA DE MARYLAND, et al., Defendants.


          Paula Xinis, United States District Judge.

         Pending before the Court in this qui tam action is the Motion to Dismiss filed by Defendants CASA de Maryland, CASA in Action, Gustavo Torres, and Virginia Kase (collectively, “Defendants”) (ECF No. 14). The matter has been fully briefed, and no hearing is necessary. See D. Md. Loc. R. 105.6. Upon consideration of the parties' arguments, the Court GRANTS Defendants' motion.

         I. Background

         Defendant CASA de Maryland, Inc. and its affiliate, Defendant CASA in Action, Inc. (collectively, “CASA”) are nonprofit organizations that provide advocacy and assistance to Latino and immigrant communities in Maryland. ECF No. 1 ¶¶ 4, 27. Plaintiff-relator Amalia Potter was employed as CASA's Human Resources Manager from May 20, 2013, to August 20, 2014. ECF No. 1 ¶¶ 3, 26. Defendant Gustavo Torres is CASA's Executive Director and Defendant Virginia Kase is its Chief Operations Officer. ECF No. 1 ¶ 27. Potter reported to Kase. ECF No. 1 ¶ 38.

         CASA receives federal funds through the U.S. Department of Education's (“DOE”) Fund for the Improvement of Education, the DOE's Investment in Innovation Fund, and the U.S. Department of Labor's (“DOL”) Occupational Safety and Health Susan Harwood Training Grants (collectively “government” or “government funds”). ECF No. 1 ¶ 29. As a condition to receiving these funds, CASA must complete Program Participation Assurances (“PPAs”) on Office of Management and Budget (“OMB”) Form SF 424B. CASA must also provide annual financial status reports (“FSPs”) using OMB Form SF 270. ECF No. 1 ¶¶ 5, 6. Because CASA expended more than $500, 000 in federal awards in 2014, CASA was required to undergo an audit for that fiscal year pursuant to OMB Circular A-133 (the “A-133 audit”). ECF No. 1 ¶ 55.

         In CASA's PPAs, FSPs, and in the Data Collection Form submitted as part of the A-133 audit, CASA must certify that it complies with “applicable requirements” of federal law and regulations. ECF No. 1 ¶ 6. In particular, the A-133 audit required CASA to identify the federal funds that it received and expended, and to provide “reasonable assurance” through internal controls that “the auditee is managing Federal awards in compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a material effect” on the federal program under which funds are received. CASA was also required to acknowledge that it complied with laws, regulations, and other agreements related to the government funds, and to otherwise assure that the audit was properly performed and any audit findings are corrected. ECF No. 1 ¶¶ 56, 57.

         Potter alleges that during an internal audit conducted in advance of the A-133 audit, she discovered that CASA's I-9 forms[1] for a number of its employees dating back to the 1980s appeared deficient. ECF No. 1 ¶¶ 41-43. Potter alerted Kase to the problems with the I-9 forms, and Kase instructed Potter to fix the issue going forward as to new employees, but to do nothing with respect to the historic deficiencies. ECF No. 1 ¶ 49.

         In June 2014, Potter was informed that CASA would be subject to an A-133 audit for the preceding fiscal year. Potter thereafter learned that employees' I-9 forms would be one of the categories of employee records reviewed as part of the A-133 audit. ECF No. 1 ¶¶ 53, 60. To prepare for the A-133 audit, Potter engaged in a “self-audit” which revealed that 95-97% of all of the I-9s CASA had on file, going back to the 1980s, were incomplete, and many copies of identification documents attached to the I-9s were either illegible or expired. ECF No. 1 ¶¶ 60- 64. Potter asserts that she discussed these deficiencies again with Kase and was instructed to fill out the I-9s herself. ECF No. 1 ¶¶ 64-66. When Potter refused, Potter and Kase then agreed that Potter would work with CASA management to update the I-9s of CASA's current employees to ensure that their I-9s were brought into compliance. ECF No. 1 ¶¶ 67-73. Despite Potter's repeated attempts, the I-9s were never updated. ECF No. 1 ¶¶ 74-80.

         Potter alleges that during her final attempt to address I-9 noncompliance, Kase “became irate” and accused Potter of “overcomplicating matters.” ECF No. 1 ¶ 78. Potter subsequently attempted to address the I-9 issue by sending an email to all CASA managers, requesting the managers to direct their employees to bring I-9 documentation for recertification to an all-staff meeting. Kase “chastised” Potter for this email because Kase “did not want this to be a mass recertification at open enrollment.” ECF No. 1 ¶¶ 79-80. Potter was then fired. ECF No. 1 ¶¶ 82-83.

         Following Potter's termination, CASA engaged an outside audit firm to conduct the required A-133 audit for the fiscal year ending on June 30, 2014. ECF No. 1 ¶¶ 92, 93. The 2014 Data Collection Form submitted pursuant to the audit was signed by an authorized representative of CASA who certified that “the information including in Parts I, II, and III of this data collection form, in its entirety, are accurate and complete.” ECF No. 1 ¶ 93. Potter asserts that as part of this A-133 audit, CASA failed to “disclose its widespread noncompliance with federal employee eligibility regulations” (i.e., failure to properly complete employees' I-9s), and thus the certification in the 2014 Data Collection Form was false. ECF No. 1 ¶ 94; see ECF No. 1 ¶¶ 7, 9 (CASA falsely certified compliance with applicable laws and requirements and employed individuals without completing required I-9 forms). Potter avers that the government approved CASA's 2014 expenditures based on CASA's representations in the Data Collection Form, and subsequently approved additional awards. ECF No. 1 ¶ 96. Potter also alleges that certifications made in PPAs on SF 424Bs and FSPs on SF 270s similarly were false. ECF No. 1 ¶ 5.

         Based on CASA's assertions in the Data Collection Form, PPAs, and FSAs, Potter filed suit alleging violations of the False Claims Act (“FCA”) (Count I), conspiracy to violate the FCA (Count II), and retaliation in violation of the FCA (Count III). Potter also alleges that she was wrongfully terminated in violation of Maryland public policy (Count IV) because she was fired in retaliation for urging CASA to fix the deficient 1-9s, and for refusing to improperly fill in I-9s. Potter also asserts that Defendants retaliated against her by “defaming” and “antagonizing” her, specifically by opposing her application for unemployment insurance and providing negative information about her to a prospective new employer. ECF No. 1 ¶ 88.

         Defendants moved to dismiss, arguing that Potter did not allege adequately that any employees with deficient I-9s worked on government-funded programs, that CASA violated any rules governing the relevant programs, or that she made reports of false or fraudulent claims to CASA. See ECF No. 14-1 at 1-2. Defendants further argue that Potter has not stated a claim for wrongful termination in violation of Maryland public policy because the FCA already provides for civil remedies for the same alleged violations. For the reasons below, the Court will dismiss Counts I, II, and III without prejudice and with leave to amend the Complaint consistent with this opinion. Count IV will be dismissed with prejudice.

         II. Standard of Review

         When reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must determine whether the complaint includes facts sufficient to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). A plaintiff must plead facts to support each element of the claim to satisfy the standard. See McCleary-Evans v. Maryland Dep't of Transp., State Highway Admin., 780 F.3d 582, 585 (4th Cir. 2015). In so assessing, the Court takes as true all well-pleaded factual allegations and makes all reasonable inferences in the plaintiff's favor. Philips v. Pitt Cty. Mem. Hosp., 572 F.3d 176, 180 (4th Cir. 2009). The Court does not credit conclusory statements or legal conclusions, even when couched as allegations of fact. See Iqbal, 556 U.S. 678-79; Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). Actions brought under the FCA must meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). See U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 456 (4th Cir. 2013). This requires the plaintiff to “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b).

         In ruling on a Rule 12(b)(6) motion, the Court generally may not consider extrinsic evidence. However, when a defendant attaches a document to its motion to dismiss, the Court may consider that document if it is “integral to and explicitly relied on in the complaint” and the plaintiff does not challenge its authenticity. Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004); see also Philips, 572 F.3d at 180; Walker v. S.W.I.F.T. SCRL, 517 F.Supp.2d 801, 806 (E.D. Va. 2007) (“[W]here a complaint in a fraud action references a document containing the alleged material misrepresentations, the referenced document may be considered part of the complaint.”). This rule seeks to prevent a “situation in which a plaintiff is able to maintain a claim of fraud by extracting an isolated statement from a document . . . even though if the statement were examined in the full context of the document, it would be clear that the statement was not fraudulent.” Am. Chiropractic Ass'n, 367 F.3d at 234 (internal marks and citation omitted).

         III. Discussion

         A. Count I, Substantive Violation of the FCA

         The FCA allows private litigants to bring actions on behalf of the United States against any entity that makes false representations to the government to secure government funding. 31 U.S.C. § 3730(b). To state a claim under the FCA, a plaintiff must allege (1) that there was a false statement or fraudulent course of conduct; (2) that was made or carried out with the requisite knowledge; (3) that was material; and (4) that caused the government to pay out money or to forfeit monies due. U.S. ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 700 (4th Cir. 2014). For an FCA claim to survive, the false or fraudulent statement must be material to the government's decision to provide funding. See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785 (4th Cir. 1999) (“Liability under each of the provisions of the False Claims Act is subject to the further, judicially-imposed, requirement that the false statement or claim be material.”). A statement is material if it “has a natural tendency to influence agency action or is capable of influencing agency action.” Id. (internal quotation marks and citation omitted). In the context of FCA claims, the materiality requirement is a demanding one; it is “intended to keep FCA liability from attaching to noncompliance with any of potentially hundreds of legal requirements in a contract.” United States v. Triple Canopy, Inc., 857 F.3d 174, 178 (4th Cir. 2017), cert. dismissed, 138 S.Ct. 370 (2017) (internal quotation marks and citation omitted).

         Defendants argue that Potter fails to state a claim as to both the falsity and the materiality prongs of an FCA violation. ECF No. 14-1 at 7-8.[2] The ...

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