United States ex rel. Ahumada v. Nish

• Decision Date: 23 June 2014
• Docket Number: No. 13–1672.,13–1672.
• Citation: 756 F.3d 268
• Parties: UNITED STATES ex rel. Mike AHUMADA, Plaintiff–Appellant, and Eric H. Holder, Jr., Attorney General, Plaintiff, v. NISH; Green Bay Packaging Inc.; International Paper Company, Inc orporated; Smurfit–Stone Container Corporation; Weyerhaeuser Company, Defendant–Appellees, and National Center for Employment of the Disabled, now known as ReadyOne Industries; Bob Jones, a/k/a Robert E. Jones; Does 1–100, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

756 F.3d 268

UNITED STATES ex rel. Mike AHUMADA, Plaintiff–Appellant,

and

Eric H. Holder, Jr., Attorney General, Plaintiff,

v.NISH; Green Bay Packaging Inc.; International Paper Company, Inc orporated; Smurfit–Stone Container Corporation; Weyerhaeuser Company, Defendant–Appellees,andNational Center for Employment of the Disabled, now known as ReadyOne Industries; Bob Jones, a/k/a Robert E. Jones; Does 1–100, Defendants.

No. 13–1672.

United States Court of Appeals,Fourth Circuit.

Argued: March 20, 2014.

Decided: June 23, 2014.

ARGUED:Martin E. Restituyo, Law Offices of Martin E. Restituyo, New York, New York, for Appellant. Robert Carton Weaver, Jr., Garvey Schubert Barer, Portland, Oregon; Matthew Allen Fitzgerald, McGuireWoods, LLP, Richmond, Virginia, for Appellees. ON BRIEF:Victor M. Glasberg, Victor M. Glasberg & Associates, Alexandria, Virginia; Mark C. Rifkin, Wolf Haldenstein Adler Freeman & Herz LLP, New York, New York, for Appellant. Charles William McIntyre, Jr., Franklin Darley Annand, Washington, D.C., Jeremy S. Byrum, McGuireWoods, LLP, Richmond, Virginia; Seth A. Rosenthal, Washington, D.C., Michael Wayne Robinson, Venable, LLP, Tysons Corner, Virginia; John Francis Henault, Jr., Perkins Coie, LLP, Washington, D.C.; Paul H. Trinchero, Benjamin J. Lambiotte, Garvey Schubert Barer, Portland, Oregon; Lynn F. Jacob, Williams Mullen, P.C., Richmond, Virginia, for Appellees.

Before NIEMEYER and DIAZ, Circuit Judges, and HAMILTON, Senior Circuit Judge.

Affirmed by published opinion. Judge DIAZ wrote the opinion, in which Judge NIEMEYER and Senior Judge HAMILTON joined.

DIAZ, Circuit Judge:

Mike Ahumada, as relator, filed this qui tam action on behalf of the United States under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq. In his first amended complaint, Ahumada alleges that his former employer, the National Center for Employment of the Disabled (“NCED”), along with other defendants, defrauded the government through various schemes in connection with contracts pursuant to the Javits–Wagner–O'Day Act, 41 U.S.C. §§ 8501 et seq. Specifically, Ahumada alleges that NCED conspired with its suppliers and an overseeing nonprofit to skirt applicable regulations and overcharge the government.

After NCED and its former CEO settled, the district court dismissed Ahumada's claims against the remaining defendants. It held that the FCA's public-disclosure bar precluded subject-matter jurisdiction and that Ahumada had not stated any viable claims. Ahumada now appeals that dismissal, as well as the district court's denial of his motion for leave to file a second amended complaint. For the reasons that follow, we affirm.

I.

A.

From February to July of 2004, NCED employed Ahumada as a Vice President and General Manager. NCED, a nonprofit corporation, produces a number of products—including military apparel and corrugated boxes—that it sells to agencies of the U.S. government. These sales occur pursuant to contracts under the Javits–Wagner–O'Day Act.

The Javits–Wagner–O'Day Act establishes a government contracting program (the “JWOD program”) to promote “employment and training opportunities for persons who are blind or have other severe disabilities.” 41 C.F.R. § 51–1.1(a). To that effect, the Act created the Committee for Purchase from People who are Blind or Severely Disabled (the “Committee”), which makes and maintains a “procurement list” of products and services eligible for purchase from “qualified nonprofit agencies.” 41 U.S.C. §§ 8502, 8503. If “[a]n entity of the Federal Government intend[s] to procure a product or service on the procurement list,” it must do so from such a nonprofit at a market price established by the Committee. Id. § 8504. To qualify for participation in the program, a nonprofit must certify, on an annual basis, that it “employs blind or other severely disabled individuals for at least 75 percent of the hours of direct labor required for the production or provision of the products and services.” Id. § 8501(6)(C).

To coordinate the participation of nonprofits, the Committee appointed the NationalIndustries for the Severely Handicapped (“NISH”) to serve as the JWOD program's “central nonprofit agency.” See id. § 8503(c). In this role, NISH was responsible for “[e]valuat[ing] the qualifications” of other nonprofits that sought to participate in the program, and for assigning them contracts “in a fair and equitable manner.” 41 C.F.R. §§ 51–3.2(b), 51–3.4. NISH was also charged with “monitor[ing]” the participating nonprofits to ensure their compliance with “the statutory and regulatory requirements [of] the program.” Id. § 51–3.2(j).

Beginning in October 2005—about eight months before Ahumada filed his initial complaint in this case— The Oregonian, a Portland-based newspaper, published a series of articles describing questionable practices within the JWOD program. Among other issues, the articles alleged that NCED was receiving payment on JWOD contracts despite failing to employ the requisite percentage of disabled workers. The articles attributed at least some of the problems in the program to lax oversight by NISH.

The El Paso Times published the first in a similar series of articles that November. Its articles reported that the Committee had begun investigating NCED for its perceived lack of compliance with JWOD labor requirements. The articles further alleged that certain NCED suppliers, including International Paper Co. (“IPC”), Green Bay Packaging, Inc., and Smurfit–Stone Container Corp., helped NCED skirt JWOD regulations by providing NCED with finished products rather than component parts. See41 C.F.R. § 51–4.4(d) (prohibiting JWOD-participating nonprofits from “subcontract[ing] the entire production process for all or a portion of an order without the Committee's prior approval”). The articles reported that NCED then resold these products to the government under the pretense that they were produced entirely by disabled NCED employees. The allegations reported in the two newspapers were also the subject of a television documentary.

In the wake of this publicity, the FBI launched a criminal investigation that resulted in the indictments of three NCED executives. Bob Jones and Patrick Woods—NCED's former CEO and former Board President—ultimately pleaded guilty to various fraud and embezzlement charges. In 2010, a jury convicted NCED's former COO, Ernie Lopez, of making false statements and conspiracy to defraud the government.

B.

On June 20, 2006, Ahumada filed this qui tam suit under the FCA against NCED, Jones, and one-hundred John Doe defendants in the U.S. District Court for the Eastern District of Virginia. The complaint alleged that, between 1999 and 2006, Jones and NCED engaged in a series of schemes to defraud the government, primarily by receiving payments on JWOD contracts despite failing to comply with JWOD regulations. Ahumada later filed a first amended complaint alleging that NCED: (1) falsely represented its compliance with JWOD's disabled-labor requirements; (2) falsely represented that it produced certain products it sold to the government; and (3) overcharged the government.

The first amended complaint also named several additional defendants, including NISH and four NCED suppliers: IPC, Green Bay, Smurfit, and Weyerhaeuser Co. (collectively, the “supplier defendants”). Ahumada alleged that NISH knew that NCED was not complying with JWOD requirements but continued to assign it contracts to improve NISH's own bottom line. He also alleged that the supplierdefendants conspired with NCED and facilitated its fraud by issuing artificially inflated invoices, and, later, providing rebates; falsely billing NCED for raw materials despite actually providing finished or nearly finished products; and falsely stamping finished products with NCED's box manufacturing certificate. According to Ahumada, the supplier defendants engaged in this conduct while knowing—and attempting to conceal—that NCED was not complying with JWOD regulations.

Per its statutory mandate, the United States intervened in Ahumada's suit with respect to defendants NCED and Jones. See31 U.S.C. § 3730(b)(2). Both eventually settled with the government and Ahumada. The United States chose not to intervene with respect to the claims against NISH and the supplier defendants, and those parties moved to dismiss Ahumada's suit.

In support of their motions to dismiss, NISH and the supplier defendants advanced two primary arguments. First, they argued that the district court lacked subject-matter jurisdiction pursuant to the FCA's “public-disclosure bar.” See31 U.S.C. § 3730(e)(4)(A) (2006). This provision precludes subject-matter jurisdiction over claims “based upon” publicly disclosed allegations unless the relator is an “original source.” Id. Second, they argued that the first amended complaint suffered from various pleading defects. In response, Ahumada moved for leave to file a proposed second amended complaint.

The district court granted the defendants' motions to dismiss. See United States ex rel. Ahumada v. Nat'l Ctr. for Emp't of the Disabled, No. 1:06–cv–713, 2013 WL 2322836 (E.D.Va. May 22, 2013). The court held that the first amended complaint was “devoid of any particularized facts” and therefore failed to plead fraud with the particularity required by Federal Rule of Civil Procedure 9(b). Id. at *3–*4. Specifically, it did not identify the “who, what, when, where and how” of the alleged false claims. Id. at *3 (internal quotation marks omitted). The court also held that the first amended complaint's “general[ ]” and “conclusory” allegations were insufficient because they adequately alleged neither scienter—“an essential element of any FCA claim”—nor the specific elements of a conspiracy. Id. at *4.

As an alternative basis for dismissal, the court held that the public-disclosure bar deprived it of subject-matter jurisdiction. In the court's view, “[t]he allegations [in the first amended...