United States District Court, N.D. Illinois, Eastern Division
UNITED STATES, EX REL. MICHAEL D. BESANCON, Plaintiff,
UCHICAGO ARGONNE, LLC, Defendant.
MEMORANDUM OPINION AND ORDER
ROBERT W. GETTLEMAN, District Judge.
Relator Michael D. Besancon, on behalf of the United States and himself individually, has brought a six count second amended qui tam complaint against his former employer, UChicago Argonne, LLC. Counts I through III are brought on behalf of the United States and alleged violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33. Count I alleges that defendant violated § 3729(a)(1)(A) by knowingly presenting false or fraudulent claims for payment to the government. Count II alleges that defendant knowingly made, used, or caused to be made or used, false statements or records material to false or fraudulent claims in violation of § 3729(a)(1)(B), and Count III alleges that defendant violated § 3729(a)(1)(G) by knowingly making, or using or causing to be made or used, false records or statements material to an obligation to pay or transmit money or property to the government, or by knowingly avoiding or concealing an obligation to pay money to the government. The remaining counts are brought by Relator in his own name asserting individual claims. Count IV alleges that defendant violated § 3730(h) by terminating Relator's employment in retaliation for his efforts to stop defendant's violations of the FCA. Count V alleges a violation of the Illinois Whistleblower Act, 740 ILCS 174/1 et seq. and Count VI is a common law claim for retaliatory discharge. Defendant has moved pursuant to Fed.R.Civ.P. 12(b)(6) and (9)(b) to dismiss the entire complaint for failure to state a claim and failure to plead fraud with particularity. For the reasons described below, defendant's motion is granted in part and denied in part.
Defendant manages and operates Argonne National Laboratory (the "Lab") for the United States Department of Energy. It employs over 12, 000 scientists and engineers at the Lab, who conduct research in areas including: nuclear engineering; basic energy science; biological and environmental research; hard x-ray science; high energy physics; and computational and technological research. Much, but not all of the research conducted at the Lab is done under federally funded contracts for federal agencies including the Department of Energy ("DoE"), Department of Defense and Department of Transportation. Defendant submits bills to the federal government for sponsored work performed at the Lab.
The Lab is operated and staffed by the private sector under a Management & Operating contracts ("M&O") awarded by DoE. Defendant's contract with DoE (the "prime contract") is a "cost plus award fee" ("CPAF") arrangement. It provides for cost reimbursement and also has an "award component" consisting of additional funds the DoE can elect to award defendant as a reward for superior contract performance.
According to the complaint, M&O contracting is highly regulated. In addition to the prime contract, M&O contractors must also comply with: federal cost accounting standards ("CAS"), 48 C.F.R. 99; the American Recovery and Reinvestment Act ("ARRA") if ARRA funds are at issue; the Anti-Deficiency Act, 31 U.S.C. §§ 1341, 1352; and the FCA.
As an M&O contractor for DoE, defendant was required to: (1) comply with CAS; (2) maintain and file a written CAS disclosure statement (Form CSB-DS1) accurately describing and revealing its accounting policies and practices, including practices for accumulating, classifying, reporting, and billing all direct and indirect costs; (3) comply with the accounting policies and practices listed in its CAS disclosure statement; (4) accumulate "indirect cost pools which are homogenous" and allocate them to cost objectives in reasonable proportion to the beneficial or causal relationship of the pooled costs to the cost objectives, as required by 48 C.F.R. 99o4.418-40; and (5) file a Statement of Costs Incurred and Claimed ("SCIC") as of September 30 each year which must account for all costs claimed and incurred during the preceding year and certify that those costs were incurred and are allowable under the prime contract.
Relator served as defendant's Chief Financial Officer ("CFO") from December 2008 until his termination on November 22, 2010. He alleges that while serving in that capacity he discovered that the certifications, CAS disclosure statements, cost statements and overhead rate sheets prepared by defendant and submitted to DoE in support of invoices were false or fraudulent, resulting in overpayment to defendant by the government.
In very general terms, Relator alleges that defendant submitted false claims arising from: (1) undisclosed discounts for indirect costs that defendant granted to certain favored subcontractors; (2) billing researcher's time and efforts to cost centers for which their work was not performed; (3) misuse of overhead funds; (4) undisclosed discounted rates granted to users of large machine electricity; (5) billing federally-sponsored projects for cost of space and facilities used by outsiders not associated with defendant's projects; and (6) the undisclosed assignment of one of defendant's employees, Walt Kirchner, as a government liaison in Washington, D.C.
Relator claims to have brought some or all of these alleged improprieties to the attention of defendant's President and Director Eric Isaacs and its Chief Executive Officer Donald Levy. Relator claims that he was directed to continue to extend preferential subcontract rates to certain subcontractors. He continued to object and refused to authorize the discounted rates. Relator claims that Isaacs and/or Levy terminated him in November 2010 as a result of Relator's, (1) refusal to participate in defendant's practice of granting preferential discounted overhead rates not approved by DoE, and/or (2) Relator's opposition to discounting rates for large machine electricity.
Defendant has moved to dismiss under Fed.R.Civ.P. 12(b)(6) and 9(b) for failure to state a claim and plead fraud with particularity. A Rule 12(b)(6) motion tests the sufficiency of the complaint, not the merits of the case. Gibson v. City of Chicago , 910 F.2d 1510, 1520 (7th Cir. 1990). In evaluating the motion, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the plaintiff's favor. Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555-56 (2007). The complaint must allege sufficient facts that, if true, would raise a right to relief above the speculative level, showing that the claims is plausible on its face. Id. at 555. To be plausible on its face, the complaint must plead facts sufficient for the court to draw the reasonable inference that the defendant is liable for the alleged misconduct. Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009).
In addition, because the FCA is an anti-fraud statue, claims under it are subject to the heightened pleading requirements of Rule 9(b). U.S. ex rel. Gross v. AIDS Research Alliance-Chicago , 415 F.3d 601, 604 (7th Cir. 2005). Rule 9(b) provides that in "alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." The complaint must provide "the who, what, when, where and how." DiLeo v. Ernst & Young , 901 F.2d 624, 627 (7th Cir. 1990). Because the Rule applies to "all averments of fraud, not claims of fraud, " defendant argues that Relator's individual retaliation claims, which are premised on a course of allegedly fraudulent conduct, are subject to Rule 9(b)'s requirements. See Borsellino v. Goldman Sachs Grp., Inc. , 477 F.3d 502, 507 (7th Cir. 2007).
In Count I, Relator alleges a violation of FCA § 3729(a)(1)(A), which prohibits knowingly presenting or causing to be presented a false or fraudulent claim for payment. To state a claim under this section, Relator must allege that: (1) defendant submitted a false or fraudulent claim; (2) to the government for payment or approval; and (3) knowing that it was false or fraudulent. U.S. ex rel. Fowler v. Caremark, 496 F.2d 730, 741 ...