United States v. P.R. Dep't of Sports & Recreation

1

UNITED STATES OF AMERICA, Plaintiff v. PUERTO RICO DEPARTMENT OF SPORTS AND RECREATION and RAY QUINONES AS SECRETARY OF SPORTS AND RECREATION, in his official capacity, Defendants

CIVIL No. 21-1248 (RAM)

United States District Court, D. Puerto Rico

May 25, 2022

OPINION AND ORDER

RAUL M. ARIAS-MARXUACH UNITED STATES DISTRICT JUDGE

Pending before the Court is Defendants Department of Sports and Recreation (“DSR” or the “Department”) and Ray Quinones's (“Quinones”) (collectively “Defendants”) Motion to Dismiss (the “Motion”) at Docket No. 21. For the reasons detailed below, the Motion is GRANTED.

I. FACTUAL BACKGROUND^[1]

The Puerto Rico Department of Education (“PRDOE”) is responsible for managing the Title I funds assigned to Puerto Rico by the United States Department of Education (“USDE”). (Docket No. 6 ¶ 17).^[2] To facilitate this process, the PRDOE has a Unit for the Adjudication of Funds and Work Plans that evaluates and decides which projects receive funding. Id. ¶ 19. Parties applying for funding submit work plans to the PRDOE's “UPT System, ” a web-based platform utilized to organize funding requests. Id.

On or about April 2, 2013, the PRDOE received and approved a work plan that was submitted via the UPT System titled “Generacion Saludable: Un Proyecto para el Desarollo de destrezas academicas y estilos de vida sanos” (hereinafter the “Healthy Generation Project”). Id. ¶ 20. The PRDOE then contracted with the DSR to carry out the Healthy Generation Project. Id. ¶ 21. The contract was titled Covenant 2014-AF0247 (also referred to as the “Covenant”). Id. Covenant 2014-AF0247, which provided the DSR with $3, 998, 700, was financed with Title I funds and included a clause forbidding the DSR from subcontracting the services stipulated in the Covenant. Id. ¶ 24. To this end, the DSR represented in the Covenant that it was able to perform the activities outlined therein. Id. ¶ 26. Further, the Covenant provided that, should the DSR choose to contract personnel to assist in carrying out the services (as opposed to subcontracting the services entirely), it was required to follow the proposal and bidding process outlined in the “Guide for the Selection of Professional Services Funded with Federal Funds.” Id. ¶ 25.

Meanwhile, on or about March 13, 2014, the DSR contracted with Rosso Group, Inc. (“Rosso”), a for-profit corporation, to develop a project titled “Aprendo Saludable” Id. ¶ 22. The DSR paid Rosso $3, 198, 960. Id. The DSR did not engage in any competitive bidding process before selecting Rosso for this project. Id. The United States of America (the “Government”) alleges that the services outlined in the DSR-Rosso contract were the exact same services DSR received funding for from the PRDOE pursuant to the Covenant. Id. ¶ 23.

Thus, according to the Government, the DSR engaged in a fraudulent scheme to subcontract the Healthy Generation Project to Rosso for a profit and hide that fact through various false proposals, bids, and requests for payment. Id. ¶¶ 23; 27-32. In its own words, the Government contends the DSR “defrauded the United States when it made material and fraudulent misrepresentations and omissions to obtain federal funds” and “falsely certified that it performed the contract and knowingly submitted false certifications for payment through a fraudulent scheme to obtain federal funds.” Id. ¶ 4.

II. PROCEDURAL BACKGROUND

The Government filed the operative complaint in this action (the “Amended Complaint”) on July 13, 2021, alleging violations of the False Claims Act (“FCA” or the “Act”) against the Commonwealth of Puerto Rico (“the Commonwealth”), the DSR, and Quinones, the Secretary of the DSR, in his official capacity. (Docket No. 6). The Commonwealth filed a Motion to Dismiss on October 7, 2021. (Docket No. 15). After reviewing the Commonwealth's arguments, the Government requested that the Court dismiss the Commonwealth from this action but allow the Government to continue pursuing its claims against Defendants. (Docket No. 18 at 1). The Court granted this request. (Docket No. 40).

On December 15, 2021, Defendants filed the pending Motion. (Docket No. 21).^[3] The Government filed an Opposition, Defendants followed with a Reply, and the Government thereafter filed a Sur-Reply. (Docket Nos. 26; 33; 34).

III. MOTION TO DISMISS STANDARD

When ruling on a Rule 12(b)(6) motion, “[t]he sole inquiry . . . is whether, construing the well-pleaded facts of the complaint in the light most favorable to the plaintiffs, the complaint states a claim for which relief can be granted.” Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 7 (1st Cir. 2011). The Court must first “isolate and ignore statements in the complaint that simply offer legal labels and conclusions or merely rehash cause-of-action elements.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012) (citations omitted). Then, the Court takes “the complaint's well-pled (i.e., non-conclusory, non-speculative) facts as true, drawing all reasonable inferences in the pleader's favor, ” to determine “if they plausibly narrate a claim for relief.” Id. (citations omitted). The analysis for a Rule 12(b)(1) motion “is essentially the same as a Rule 12(b)(6) analysis: we accept the well-pleaded facts alleged in the complaint as true and ask whether the plaintiff has stated a plausible claim that the court has subject matter jurisdiction.” Cebollero-Bertran v. Puerto Rico Aqueduct & Sewer Auth., 4 F.4th 63, 69 (1st Cir. 2021) (citation omitted). “If a Rule 12(b)(1) motion contests factual allegations of the complaint, the court must engage in judicial factfinding to resolve the merits of the jurisdictional claim.” Id.

IV. ANALYSIS

A. The United States May Not Bring a FCA Action Against a State Agency

The FCA subjects to liability “any person” who, inter alia, submits a false claim to the government “for payment or approval” or “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). The Act authorizes the government to bring a civil action against anyone who violates the statute. Id. § 3730(a).

Alternatively, a private party, known as a “relator, ” may bring a qui tam action in the name of the government. Id. § 3730(b)(1); see also Borzilleri v. Bayer Healthcare Pharms., Inc., 24 F.4th 32, 36 (1st Cir. 2022).

While the statute itself does not define “person, ” the Supreme Court has held that “‘person' does not include the sovereign.” Vermont Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 780 (2000). Therefore, states are not subject to liability in actions brought by private parties under the FCA. Id. at 787-88. By the same token, a state agency cannot be sued under the FCA. Id.^[4] “Though the Court did not explain how to determine whether an entity is a state agency for FCA purposes, ” courts in the First Circuit use “the same test as that used for determining whether an entity is an arm of the state entitled to share in Eleventh Amendment immunity.” United States v. Univ. of Massachusetts, Worcester, 812 F.3d 35, 39 (1st Cir. 2016).

Importantly, however, the Stevens case involved a FCA claim brought by a private party. It did not explicitly address the situation at bar where the Government is pursuing a FCA claim against a potential state entity. In her concurring opinion, Justice Ginsburg noted this potential gap in the Stevens holding, writing, “I read the Court's decision to leave open the question whether the word ‘person' encompasses States when the United States itself sues under the False Claims Act.” Stevens, 529 U.S. at 789 (Ginsburg, J., concurring).

Courts have disagreed as to the scope of the Stevens decision. Some courts have determined that the United States should be treated the same as private parties when pursuing FCA claims, and thus “the United States may not bring an FCA action against an arm of the state[.]” United States ex rel. Doughty v. Oregon Health & Scis. Univ., 2017 WL 1364208, at *5 (D. Or. 2017); see also Donald v. Univ. of California Bd. of Regents, 329 F.3d 1040, 1042 n.3 (9th Cir. 2003) (“Nothing in the Court's [Stevens] opinion purports to limit its scope solely to qui tam suits brought by private parties.”); United States v. Menominee Tribal Enterprises, 601 F.Supp.2d 1061, 1069 (E.D. Wis. 2009). Other courts have conversely held “that in an action by the United States against a state, claiming a violation of the False Claims Act, the state is a ‘person.'” United States v. Univ. Hosp. at Stony Brook, 2001 WL 1548797, at *3 (E.D.N.Y. 2001). The parties did not cite, and this Court did not find, any binding authority on this issue.

Having reviewed the diverging case law on the issue, the Court determines that the Stevens holding applies in full force to FCA actions brought by the Government.^[5] As an initial matter, nothing in the Supreme Court's analysis in Stevens suggests that the outcome would have differed had the United States intervened in the matter or brought the suit on its own. The Court simply analyzed the statutory scheme and history of the FCA and applied its “longstanding interpretive presumption that ‘person' does not include the sovereign.” Stevens, 529 U.S. at 780-87. While Justice Ginsburg's concurrence, quoted in part above, suggests the Stevens holding is limited to suits by private parties, that concurrence is not the opinion of the majority, and this Court “is required to follow the majority opinion in Stevens[.]” Doughty, 2017 WL 1364208, at *4.

Additionally the fundamental and peculiar nature of qui tam actions also supports this conclusion. As noted above, the FCA allows private parties to bring a qui tam action “for the person and for...