United States ex rel. Cannon v. Rescare, Inc., Civ. No. 09-3068

UNITED STATES ex rel. DE'VON CANNON, Plaintiff, v. RESCARE, INC., et al., Defendants.

Civ. No. 09-3068

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

September 16, 2014

Diamond, J.

MEMORANDUM

The 2008 version of the False Claims Act requires proof that the defendant intended to defraud the United States. The 2009 Amendment does not. Having twice failed to plead a cognizable claim under the 2008 version of the FCA, Relator in this qui tarn action now adds a claim under the 2009 Amendment. Defendants argue, inter alia, that because this Amendment was enacted after their allegedly wrongful conduct, its application here would violate the Constitution's Ex Post Facto Clause. I do not agree.

STANDARDS

Defendants Rescare and its subsidiary Arbor Earn Center—the former employers of Relator, De'von Cannon—have moved to dismiss. Accordingly, I must accept as true Relator's factual allegations and make all reasonable inferences in his favor. Fed. R. Civ. P. 12(b)(6); In re Rockefeller Ctr. Props., Inc., 311 F.3d 198, 215 (3d Cir. 2002). Defendants must show that Relator has failed to allege facts sufficiently detailed to "raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Phillips v. Cnty, of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008).

FCA claims must be pleaded with particularity, as required by Rule 9(b). See Fed. R.Civ. P. 9(b); United States ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227, 234 (3d Cir. 1998); see also In re Rockefeller, 311 F.3d at 216 ("Independent of the standard applicable to Rule 12(b)(6) motions, Rule 9(b) imposes a heightened pleading requirement of factual particularity with respect to allegations of fraud."). "Rule 9(b) requires, at a minimum, that plaintiffs support their allegations of . . . fraud with all of the essential factual background . . . that is, the who, what, when, where and how of the events at issue." In re Rockefeller, 311 F.3d at 217 (quotation omitted).

BACKGROUND

I. The Alleged Scheme

Relator worked for Arbor (Rescare's wholly owned subsidiary), from November 2008 to March 2009. (Second Am. Compl., Doc. No. 41, ¶¶ 13, 54.) Defendants had contracted with the Philadelphia Workforce Development Corporation to provide employment placement and training services to those individuals who received funds from two federal programs: 1) "Temporary Assistance to Needy Families," and 2) the "Supplemental Nutritional Assistance Program." (Id. ¶ 12.) Upon placing a person in a job and training him or her, Defendants received federal TANF funds and state funds. (Id. ¶¶ 17, 57.) For each individual Defendants successfully placed, and for every day he or she was employed, Defendants received additional funds. (Id.) Penalties (including contract termination) could result if Defendants failed to meet specific goals for clients' work activities and work participation rates. (Id. ¶ 33.)

Relator alleges that Defendants: 1) submitted false data to inflate their work participation rate; 2) placed "unqualified and unemployable people" in jobs for less than a full day and then claimed that they worked the entire day; 3) listed job candidates as employed when they were nolonger employed or had not been placed at all; 4) placed unemployable candidates in job readiness classes when they should have been referred for drug, alcohol, or psychiatric treatment; and 5) improperly placed unemployable candidates into other programs for which a referral placement fee was paid to Defendants. (Id. ¶¶ 34, 43, 44, 45, 47.)

To comply with federal auditing requirements, PWDC compiled its payment information (including disbursements to Defendants) for submission to the Pennsylvania Department of Labor and Industry. (Id. ¶¶ 36, 38, 48.) This agency then aggregated all TANF information and submitted it to the Federal Government. (Id. ¶ 48.)

Relator alleges that when he learned that Defendants were making "illegal" payment requests to PWDC, he refused to take part. (Id. ¶ 43.) He complained to a Program Director, the Human Resource Director, Relator's immediate supervisor, and a ResCare Regional Vice President. (Id. ¶¶ 43, 49, 64.) Relator threatened to inform PWDC of the fraudulent activity. (Id. ¶ 49.)

In December 2008, Relator reported that he had been sexually harassed by a female coworker. (Id. ¶ 51.) After a second such incident, the coworker was fired. (Id.) On March 18, 2009, Relator was terminated for a purported conflict of interest. (Id. ¶ 54.) On July 10, 2009, Relator filed his Original Complaint, alleging Defendant's violations of the FCA, discrimination and retaliation under Title VII and the Pennsylvania Human Relations Act, and wrongful termination under Pennsylvania common law. (Doc. No. 1); 31 U.S.C. § 3730(h); 42 U.S.C. § 2000e; 43 Pa. Stat. Ann. §§ 951-63.

Relator alleges that he filed his retaliation claim with the Pennsylvania Human Relations Commission, and has thus cross-filed with the Equal Employment Opportunities Commission. (Id. ¶¶ 77, 78.) Although the PHRC issued a right to sue letter in October 2009, Relator has notreceived a right to sue letter from the EEOC. (Id. ¶ 78.)

At the Government's request, I unsealed the Complaint only as to Defendants on April 7, 2011. (Doc. No. 12.) The Government then declined to intervene. (Doc. No. 15.)

II. The Original Complaint

Relator brought his FCA claim under "31 U.S.C. § 3729, et seq." (Doc. No. 1.) Relator also alleged: 1) that he was illegally fired because he complained to Defendants of the FCA violations; 2) state law wrongful termination; and 3) federal and state law employment discrimination and retaliation. (Id.)

Because Relator did not invoke a specific subsection of the FCA, I assumed that he was proceeding under the first subsection—§ 3729(a)(1)—which provides:

Any person who . . . knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval . . . is liable to the United States Government for a civil penalty.

Id. Because Relator had failed to allege that Defendants had "knowingly presented" their false claims to the United States, I dismissed without prejudice. (Doc. No. 36.) I also found that Relator had failed to state claims for FCA retaliation and Title VII discrimination and retaliation. (Id.) Accordingly, I also dismissed those claims without prejudice.

III. The Amended Complaint

Relator pled that he was proceeding under "§ 3729(a)(1), et seq." (Doc. No. 37.) I ruled that Relator again had "not alleged that the PWDC presented Defendants' allegedly false claims to the Government for payment." (Doc. No. 40.) I thus granted Defendants' Motion to Dismiss in part, and gave Relator a final opportunity to allege a cognizable FCA claim and to clarify thesubsection or subsections under which he sought to proceed.

IV. The Second Amended Complaint

In addition to bringing a claim under § 3729(a)(1), Relator has, for the first time, also invoked a second subsection—§ 3729(a)(1)(B). This provision was previously numbered § 3729(a)(2). In 2009, Congress amended it, renumbered it to § 3729(a)(1)(B), and explicitly required its retroactive application. Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4(f)(1), 123 Stat. 1617, 1625. The Supreme Court held that in the provision's 2008 version (when it was numbered § 3729(a)(2)), it required proof that the Relator intended to defraud the United States. Allison Engine, Co., Inc. v. United States ex rel. Sanders, 553 U.S. 662, 668-69 (2008) ("[A] person must have the purpose of getting a false or fraudulent claim 'paid or approved by the Government' in order to be liable under § 3729(a)(2).") Dismayed by Allison Engine, in 2009 Congress eliminated this intent requirement and renumbered the provision to § 3729(a)(1)(B):

Any person who . . . knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . is liable to the United States Government for a civil penalty . . . .

§ 3729(a)(1)(B). In addition to invoking this 2009 Amendment, Relator has again alleged: 1) retaliation under the FCA; 2) state law wrongful termination, and 3) federal and state law employment discrimination and retaliation.

Defendants have filed a Third Motion to Dismiss, arguing, inter alia, that retroactive application of the 2009 Amendment would violate the ex post facto principle. At my request, the Parties have submitted supplemental briefs on the retroactivity question, and the Government has also addressed the question in its "Statement of Interest." (Doc. Nos. 51, 52, 53.)

DISCUSSION

I. False Claims Act

The False Claims Act's "primary purpose . . . is to indemnify the government—through its restitutionary penalty provisions—against losses caused by a defendant's fraud." United States ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295, 304 (3d Cir. 2011) (internal citation omitted). A private individual (the relator) may bring a civil action to enforce the FCA on behalf of the Government. 31 U.S.C. § 3730(b). After it has had the opportunity to investigate, the Government may elect to intervene in the litigation. Id. Each violation of the FCA could result in a civil penalty of $5,000-$ 10,000, plus "three times the amount of damages which the Government sustains . . . ." § 3729(a). The relator may receive a portion of any recovery. § 3730(d).

As I have discussed, before May 2009, the Act imposed liability on any individual who, inter alia, "(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval; (2) knowingly makes, uses or causes to be made or used, a false record or statement to get a false claim or fraudulent claim paid or approved by the Government." 31 U.S.C. § 3729(a)(1), (2) (1994) (emphasis added).

In the 2009 Amendment, Congress...