United States District Court, N.D. Illinois, Eastern Division
United States of America ex rel. Jeffrey Berkowitz, and Jeffrey Berkowitz individually, Plaintiffs,
Automation Aids; A&E Office and Industrial Supply; Support of Microcomputers Associated; Aprisa Technology LLC; Supply Saver Corporation; United Office Solutions, Inc.; Vee Model Management Consulting; Caprice Electronics, Inc.; and Computech Data Systems, Defendants.
MEMORANDUM OPINION AND ORDER
HONORABLE EDMOND E. CHANG UNITED STATES DISTRICT JUDGE.
a qui tam action brought by relator Jeffrey
Berkowitz on behalf of the United States government.
Berkowitz is president of a company that sells office
supplies to government agencies. R. 22, Third Am. Compl.
¶¶ 10, 21. Defendants are competing vendors in
Berkowitz's industry. Id. ¶¶ 9, 22-30.
Through Berkowitz's regular business dealings, he
allegedly discovered that Defendants were violating the False
Claims Act, 31 U.S.C. §§ 3729-33, et seq.,
by making false statements about some of the products they
were selling to the General Services Administration
(“GSA”). Id. ¶¶ 1, 10, 14.
Berkowitz says Defendants certified that their products
complied with all relevant federal vendor regulations, even
though some of the listed products violated what are known as
“country of origin” restrictions. Id.
¶¶ 2, 7-9, 14. Berkowitz thus brought suit as a
relator under the False Claims Act against the Defendants,
demanding treble damages and forfeitures. Id.
¶¶ 154-171. The Defendants now move to dismiss
Berkowitz's claims. All Defendants (except Aprisa) move
to dismiss for failure to state a claim, Fed.R.Civ.P.
12(b)(6) and 9(b), arguing, among other things, that
Berkowitz has failed to plead fraud with enough
particularity. Aprisa also moves to dismiss, but solely
under Federal Rule of Civil Procedure 12(b)(1) and solely on
the ground that there is no subject matter jurisdiction for
the claims against it. See R. 132, Aprisa Mot. to
Dismiss. For the reasons discussed below, all Defendants'
motions to dismiss are granted, except Aprisa's Rule
12(b)(1) motion, which is denied.
purposes of this motion, the Court accepts as true the
allegations in the Third Amended Complaint. Erickson v.
Pardus, 551 U.S. 89, 94 (2007). Defendants are vendors
that sell products to the United States government's
General Services Administration. Third Am. Compl. ¶ 2.
To sell to the GSA, a vendor must be awarded a GSA Federal
Supply Schedule contract under a specific
“Schedule”: Schedule 70, for instance, deals with
information technology equipment; Schedule 51 deals with
hardware supplies; and so on. Id. ¶¶ 4-5,
vendors pursuing GSA Schedule contracts need to comply with
the Trade Agreements Act of 1979, 19 U.S.C. § 2501
et seq., which, according to the GSA's online
guidance on the Act, allows “only U.S. made or
designated country end products” to be “offered
and sold under Schedule contracts.” Third Am. Compl.
¶ 7 (citing guidelines page on General Services
Administration website). The list of allowed countries is
determined by “numerous multilateral and bilateral
international trade agreements and other trade
interplay between these “numerous …
agreements” and “initiatives” is
labyrinthine,  but ultimately: to determine which
countries are acceptable (“designated, ” to use
procurement parlance) for the purposes of GSA Schedule
contracts, one looks at whether a country has an official
trade agreement for that type of product with the United
States under the World Trade Organization's Government
Procurement Agreement. Third Am. Compl. ¶¶ 42-49.
So for the types of products at issue here, Great Britain (to
pick an example) is in, whereas China and Thailand are out.
Id. ¶¶ 46, 49. The Federal Acquisition
Regulations (known in the industry as “FAR”),
which the General Services Administration is bound by, make
things easier by specifically identifying the
“designated” countries, and by defining
“designated country end product” as a product
made in one of the listed designated countries. FAR
Jeffrey Berkowitz is President of Complete Packing and
Shipping Supplies, Inc. in Freeport, New York, which sells
office supplies and other things to federal government
agencies. Third Am. Compl. ¶¶ 21, 96. More
specifically, Berkowitz's company sells office supplies,
packaging and shipping supplies, information technology
products, and janitorial maintenance supplies to the General
Services Administration. Id. ¶¶ 96-97.
2005, Berkowitz allegedly became aware that various vendors
were selling items to the General Services Administration
that were not from the United States or from
“designated” countries. Third Am. Compl.
¶¶ 10, 98. He determined this by comparing product
lists that he received in the course of his business (the
lists reflected the products' country of origin) with
data on products being sold to the government by other
vendors. Id. ¶ 99. While he made sure that his
business “carefully screened” out non-compliant
products, he found that some of his competitors were
allegedly not doing the same. Id. ¶¶
99-100. Berkowitz recorded these comparisons in reports,
merging country-of-origin data with vendor sales data.
Id. ¶ 101. He acknowledges that there are some
narrow exceptions to the GSA's bar on buying products
from countries not on the list, but argues that none of those
exceptions applies to Defendants. Id. ¶¶
claims that Defendants have violated the False Claims Act, 31
U.S.C. §§ 3729 et seq., by “making
material false statements and presenting false claims to the
United States.” Third. Am. Compl. ¶¶ 12, 14.
More specifically, he contends that he “discovered that
Defendants certified these products [from undesignated
countries] as having been manufactured in designated
countries.” Id. ¶ 11. He arrives at that
allegation through a chain of inferences, starting with the
fact that each contract between the government and a vendor
should incorporate a Trade Agreements Certificate.
Id. ¶¶ 52-55. On that certificate, either
the vendor affirms that all of the listed products meet the
United States or designated-country manufacturing
requirement, or the vendor provides, in a separate
subsection, a list of products that do not meet the
requirement. Id. ¶ 54.
argues that the Defendants must not have identified
non-compliant products' true origins on the relevant
certificate before selling those goods to the government,
because if Defendants had done so, then according to the
Federal Acquisition Regulations, either the entire offer
would have to have been rejected by the government or the
offer would have been subjected to an analysis by the
government under one of the narrow “open market”
exceptions. Third. Am. Compl. ¶¶ 71-74. Berkowitz
argues that because neither of these things ostensibly
happened, the Defendants must not have been truthful in their
representations to the General Services Administration, and
are thus liable under the False Claims Act. Id.
lists each alleged non-compliant product category sold by
Defendants in a series of exhibits. See Third Am.
Compl., Exhs. E, I-K, M-X. The summed-up values are presented
in the body of the Complaint. Automation Aids allegedly sold
19, 697 non-compliant products worth $1, 015, 448 from April
2010 to June 2013 and an additional $60, 214 worth up to
February 19, 2014. Id. ¶ 106. A&E allegedly
sold 16, 751 non-compliant products worth $590, 645 from
April 2010 to June 2013 and an additional $1, 378, 808 worth
up to September 30, 2015. Id. ¶ 112. Support of
Microcomputers Associated allegedly sold 15, 525
non-compliant products worth $1, 333, 343 from April 2010 to
June 2013 and an additional $2, 754, 099 worth up to October
6, 2015. Id. ¶ 116. Aprisa allegedly sold 18,
431 non-compliant products worth $537, 622 from April 2010 to
June 2013 and an undisclosed additional amount between August
23, 2007 and December 30, 2014. Id. ¶ 120.
Supply Saver allegedly sold 5, 087 non-compliant products
worth $922, 843 from April 2010 to June 2013 and an
additional $6, 620, 911 worth between January 5, 2010 and
March 31, 2015. Id. ¶ 124. United Office
Solutions allegedly sold 12, 216 non-compliant products worth
$597, 971 from April 2010 to June 2013. Id. ¶
127. Vee Model Management Consulting allegedly sold 1, 743
non-compliant products worth $381, 935 from April 2010 to
June 2013 and an additional $1, 672, 513 worth up to April 1,
2015. Id. ¶ 130. Caprice Electronics, Inc.
allegedly sold 39, 621 non-compliant products worth $687, 047
from April 2010 to June 2013 and an additional $1, 364, 189
worth between January 1, 2014 and December 31, 2015.
Id. ¶ 133. Computech allegedly sold 7, 987
non-compliant products worth $603, 668 from July 1, 2013 to
October 29, 2014 and an additional $747, 428 worth since
January 1, 2009. Id. ¶ 137.
asserts that he meets the conditions to be an “original
source” under 31 U.S.C. § 3730(e)(4), as he has
independent knowledge of Defendants' violations that did
not come from any previous public disclosure. Third Am.
Compl. ¶¶ 16-17. Defendants now move to dismiss
Berkowitz's suit for, among other things, failure to
state a claim. The exception is Aprisa, which moves only on
the ground that there is no subject matter jurisdiction over
the claims against it.
Standard of Review
Defendants except Aprisa bring their motions under Federal
Rule of Civil Procedure 12(b)(6). A Rule 12(b)(6) motion
tests the sufficiency of the complaint, Hallinan v.
Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d
811, 820 (7th Cir. 2009); Gibson v. City of Chicago,
910 F.2d 1510, 1520 (7th Cir. 1990). When reviewing a motion
to dismiss under either rule, the Court accepts as true all
factual allegations in the complaint and draws all reasonable
inferences in the plaintiff's favor. Killingsworth v.
HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007).
Federal Rule of Civil Procedure 8(a)(2), any complaint must
“give the defendant fair notice of what the ... claim
is and the grounds upon which it rests.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration
in original) (internal quotation marks and citation omitted).
These allegations “must be enough to raise a right to
relief above the speculative level, ” id., and
must “contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on
its face, '” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
The allegations entitled to the assumption of truth are those
that are factual, rather than mere legal conclusions.
Iqbal, 556 U.S. at 678-79.
under Federal Rule of Civil Procedure 8(a)(2), a complaint
generally need only include “a short and plain
statement of the claim showing that the pleader is entitled
to relief.” Fed.R.Civ.P. 8(a)(2). But claims alleging
fraud must also satisfy the heightened pleading requirement
of Federal Rule of Civil Procedure Rule 9(b), requiring that,
“[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting
fraud or mistake.” Fed.R.Civ.P. 9(b) (emphasis added).
So Rule 9(b) requires complainants to go further than the
usual claim: fraud claims should “state the identity of
the person making the misrepresentation, the time, place, and
content of the misrepresentation, and the method by which the
misrepresentation was communicated to the plaintiff.”
Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918,
923 (7th Cir. 1992) (internal quotation marks omitted). In
other words, fraud claims “must describe the who, what,
when, where, and how of the fraud.” Pirelli
Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen
Co., 631 F.3d 436, 441-42 (7th Cir. 2011) (internal
quotation marks and citation omitted).
Aprisa brings a 12(b)(1) motion. A Rule 12(b)(1) motion tests
whether the Court has subject-matter jurisdiction,
Hallinan, 570 F.3d at 820; Long v. Shorebank
Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). The
plaintiff bears the burden of establishing subject matter
jurisdiction. Ctr. for Dermatology & Skin Cancer, Ltd. v.
Burwell, 770 F.3d 586, 588-89 (7th Cir. 2014).
“When ruling on a motion to dismiss for lack of subject
matter jurisdiction under Federal Rule of Civil Procedure
12(b)(1), the district court must accept as true all
well-pleaded factual allegations, and draw reasonable
inferences in favor of the plaintiff.” Ezekiel v.
Michel, 66 F.3d 894, 897 (7th Cir. 1995). “[A]
factual challenge lies where the complaint is formally
sufficient but the contention is that there is in fact no
subject matter jurisdiction. … [W]hen considering a
motion that launches a factual attack against jurisdiction,
the district court may properly look beyond the
jurisdictional allegations of the complaint and view whatever
evidence has been submitted on the issue to determine whether
in fact subject matter jurisdiction exists.” Apex
Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444
(7th Cir. 2009) (internal quotation marks omitted).
brings four False Claims Act counts against the Defendants,
contending that they made material false statements when
certifying various goods to sell to the General Services
Administration. Third Am. Compl. ¶¶ 154-171. As
relevant to Berkowitz's counts, the False Claims Act, 31
U.S.C. §§ 3729 et seq., holds liable
anyone who “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or
approval” or who “knowingly makes, uses, or
causes to be made or used, a false record or statement
material to a false or fraudulent claim.” 31 U.S.C.
§§ 3729(a)(1)(A)-(B). To account for various
amendments to the False Claims Act, Berkowitz brings four
counts altogether: (i) “knowingly submitt[ing], and
caus[ing] to be submitted, false or fraudulent claims for
payment and reimbursement” before May 20,
2009, Third Am. Compl. ¶¶ 154-157; (ii)
“knowingly submitt[ing], and caus[ing] to be submitted,
false or fraudulent claims for payment and
reimbursement” after May 20, 2009, Third Am.
Compl. ¶¶ 158-161; (iii) “knowingly ma[king],
us[ing], or caus[ing] to be made or used, material false
statements to obtain Federal Government payment for false or
fraudulent claims” before June 7, 2008, Third
Am. Compl. ¶¶ 162-166; and (iv) “knowingly
ma[king], us[ing], or caus[ing] to be made or used, material
false statements to obtain Federal Government payment for
false or fraudulent claims” after June 7,
2008, Third Am. Compl. ¶¶ 167-171. For purposes of
the Act, a “claim” is “any request or
demand … for money” that “is presented to
an officer, employee, or agent of the United States.”
31 U.S.C. § 3729 (b)(2)(A). Berkowitz alleges (and for
now there is no dispute) that when the Defendants requested
to be paid by the government for products tendered, they made
claims covered by the Act. Third Am. Compl. ¶ 38.
question is whether Berkowitz's allegations of fraud are
specific enough to satisfy Federal Rule of Civil Procedure
9(b). The Seventh Circuit has consistently described what a
plaintiff needs to do in order to satisfy Rule 9(b).
Generally speaking, a suit alleging fraud should give
“the who, what, when, where, and how: the first
paragraph of any newspaper story.” E.g.,
DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.
1990). Writing that first newspaper paragraph entails giving
“the identity of the person making the
misrepresentation, the time, place, and content of the
misrepresentation, and the method by which the
misrepresentation was communicated to the plaintiff.”
United States ex rel. Grenadyor v. Ukrainian Vill.
Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014)
(internal quotation marks omitted); see also United
States ex rel. Hanna v. City of Chicago, 834 F.3d 775,
778- 79 (7th Cir. 2016) (citing the same standards from
DiLeo and Grenadyor); United States ex
rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th
Cir. 2009); United States ex rel. Garst v.
Lockheed-Martin Corp., 328 F.3d 374, 377-378 (7th Cir.
2003) (demanding evidence of specific statements rather than
blanket allegations); United States ex rel.
Grant v. Thorek Hosp. & Med. Ctr., 2007 WL 2484333, at
*2 (N.D.Ill. Aug. 29, 2007); United States ex rel. Swift
v. DeliverCareRx, Inc., 2015 WL 10521636, at *4
(N.D.Ill. Oct. 26, 2015); United States ex rel. Bragg v.
SCR Med. Transp., Inc., 2012 WL 2072860, at *1 (N.D.Ill.
June 8, 2012); United States ex rel. Ceas v. Chrysler
Grp. LLC, 78 F.Supp.3d 869, 883 (N.D.Ill. 2015). The
reason that Rule 9(b) requires more than the usual case is
that “a public accusation of fraud can do great damage
to a firm before the firm is exonerated in litigation (should
the accusation prove baseless).” United States ex
rel. Bogina v. Medline Indus., 809 F.3d 365, 370 (7th
with the specificity requirement, conclusory allegations in
relator cases are not enough; particular details of a fraud
scheme must be pled. United States ex rel. Gross v. AIDS
Research All.-Chicago, 415 F.3d 601, 605 (7th Cir.
2005); United States ex rel. Dolan v. Long Grove Manor,
Inc., 2014 WL 3583980, at *6 (N.D.Ill. July 18, 2014)
(the complaint “is peppered with allegations that
clinical and patient records and data were
‘manipulated, ' ‘fabricated, ' or
‘falsified, ' but nowhere does relator tell us what
any particular record contained”). A fraudulent claim
should not be pled from a broad aerial view, but instead must
allege that a defendant made a false claim “at an
individualized transaction level.” United States ex
rel. Wildhirt v. AARS Forever, Inc., 2011 WL 1303390, at
*5 (N.D.Ill. Apr. 6, 2011) (citing United States ex rel.
Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 741-42 (7th
Cir. 2007), overruled on other grounds by Glaser v. Wound
Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009)).
And voluminous exhibits by themselves do not automatically
satisfy Rule 9(b) and will not otherwise save a complaint
that never arrives at ...