Siebert v. Gene Sec. Network, Inc.

• Decision Date: 16 October 2013
• Docket Number: Case No. 11-cv-01987-JST
• Parties: GARY SIEBERT, Plaintiff, v. GENE SECURITY NETWORK, INC, Defendant.
• Court: U.S. District Court — Northern District of California

GARY SIEBERT, Plaintiff, v. GENE SECURITY NETWORK, INC, Defendant.

Case No. 11-cv-01987-JST

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

Dated: October 16, 2013

ORDER GRANTING IN PART,DENYING IN PART MOTION TO

DISMISS COUNTERCLAIMS FOR

FAILURE TO STATE A CLAIM AND

DENYING MOTION TO DISMISS FOR

LACK OF JURISDICTION

Re: ECF Nos. 54, 55

Before the Court are Plaintiff-relator's Motions to Dismiss Defendant's Counterclaims. ECF Nos. 54, 55. The Court will grant in part and deny in part the motion to dismiss for failure to state a claim, and deny the motion for lack of subject matter jurisdiction.

I. BACKGROUND

Plaintiff-relator and Defendant-in-counterclaim Gary Siebert filed this qui tam action against Defendant Gene Security Network, Inc., now known as Natera, Inc.,¹ on April 22, 2011 for violations of the federal False Claims Act, 31 U.S.C. § 3729, et seq. ("FCA"). ECF No. 1. The operative First Amended Complaint was filed March 21, 2013. ECF No. 22 ("FAC"). The Court previously denied Defendant's motion to dismiss the First Amended Complaint. ECF No. 41 (June 17, 2013). Defendant answered and counterclaimed on July 1, 2013. ECF No. 44. The operative Amended Answer was filed pursuant to stipulation on August 6, 2013. Am. Answer, ECF No. 50. Relator filed the instant motions to dismiss the counterclaims pursuant to FederalRules of Civil Procedure 12(b)(1) and 12(b)(6 ) on August 20, 2013. 12(b)(1) Mot., ECF No. 55; 12(b)(6) Mot., ECF No. 54. The matter is fully briefed, and the Court held a hearing on October 10, 2013.

Natera is a privately-held, for-profit biotechnology corporation that studies and conducts molecular diagnostic tests for in vitro fertilization. FAC ¶ 15. From 2007 to 2010, Natera applied to receive three research grants from the National Institutes of Health ("NIH") and was awarded a total of $3,494,750. Id. ¶ 19-25. Siebert alleges that the NIH grant awards were conditioned on compliance with financial management system requirements, addressed in the NIH Grants Policy Statement and the Uniform Administrative Requirements for Awards and Subawards to Institutions of Higher Education, Hospitals, Other Nonprofit Organizations, and Commercial Organizations, 45 C.F.R. 74 ("UAR"). Id. ¶ 18, 28. The NIH Grants Policy Statement and UAR are intended to ensure that the rate and type of expenditures are consistent with the approved project. Id. ¶ 17.

Siebert alleges that Natera's affirmative statements in its applications for NIH grants and its consent to program requirements contained in NIH award letters were fraudulent because Natera was not in compliance with the mandatory financial monitoring provisions for organizations receiving NIH grants. Id. ¶ 28-31. Siebert alleges that at the time of each grant award, Natera was aware of its failure to monitor its finances in accordance with NIH requirements ? in particular, its failure to track the time employees spent on specific projects and failing to track expenditures by project. Id. ¶ 28, 32.

Natera asserts six counterclaims against Siebert: breach of fiduciary duty, fraud in the inducement, breach of a confidentiality agreement, breach of a separation agreement, violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, and violation of the California Computer Crimes Act, Cal. Pen. Code § 502.

Natera alleges that Siebert formerly served as Chief Operating Officer and Senior Vice President of Research at Natera. In connection with his employment as COO, Siebert signed a "Proprietary Information and Inventions Agreement" in which he "expressly acknowledged that the confidential business, technical and financial information of Natera constituted 'ProprietaryInformation' that he was obligated to hold in confidence, and not use or disclose for any purpose outside of the scope of his employment." Counterclaim ¶ 12. According to Natera, Siebert was responsible for the "development and administration of Natera's accounting and recordkeeping policies and procedures," and was aware of Natera's accounting and recordkeeping policies and procedures, including as they pertain to grant applications. Counterclaim ¶¶ 11, 13-15. Natera also alleges that Siebert was aware of the certifications Natera made on its grant applications that form the basis of the qui tam action. Counterclaim ¶ 16.

Natera alleges that Siebert also executed a separation agreement on March 27, 2011, pursuant to which Natera agreed to pay Siebert "valuable consideration including, without limitation, separation pay and an unearned partial milestone payment." Counterclaim ¶ 19. As part of that separation agreement, Natera alleges: "Siebert represented in the Separation Agreement that he had returned to Natera all property that belongs to Natera, including documents and computer files belonging to the Company, and further agreed to abide and be bound by the confidentiality obligations set forth in the [confidentiality agreement]." Counterclaim ¶ 20. The separation agreement included a release of "all claims and causes of action of any kind that he might have against Natera." Counterclaim ¶ 21.

Natera alleges that Siebert failed to inform the Board of Directors "that he understood that Natera had made false or fraudulent claims in violation of the False Claims Act." Counterclaim ¶ 22. Less than a month after executing the separation agreement, Siebert filed this action. Natera asserts Siebert fraudulently induced Natera's execution of the separation agreement.

In addition, Natera alleges Siebert breached his obligations under the confidentiality agreement by filing this action, in which he has filed publicly documents Natera argues are covered by the agreement.

Finally, Natera asserts claims for violation of federal computer crime laws, alleging that Siebert obtained confidential records from Natera by accessing Natera's computer system without authorization for purposes unrelated to the fulfillment of his duties as COO.

II. LEGAL STANDARDS

"A Rule 12(b)(1) jurisdictional attack may be facial or factual. In a facial attack, thechallenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004) (citation omitted). In resolving a facial attack, courts assume that the allegations are true, and draw all reasonable inferences in the plaintiff's favor. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004) (citations omitted). "In resolving a factual attack on jurisdiction, the district court may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment. The court need not presume the truthfulness of the plaintiff's allegations. Once the moving party has converted the motion to dismiss into a factual motion by presenting affidavits or other evidence properly brought before the court, the party opposing the motion must furnish affidavits or other evidence necessary to satisfy its burden of establishing subject matter jurisdiction." Safe Air, 373 F.3d at 1039 (citations omitted).

On a Rule 12(b)(6) motion to dismiss, the Court accepts the material facts alleged by the non-moving party together with all reasonable inferences to be drawn from those facts, as true. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). However, "the tenet that a court must accept a complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, the party asserting a claim must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Plausibility does not mean probability, but it requires "more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 687.

In addition, fraud claims are subject to a heightened pleading standard. "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). The allegations must be specific enough to give a defendant notice of the particular misconduct alleged to constitute the fraud such that the defendant may defend against the charge. Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). In general, allegations sounding in fraud must contain "an account of the time, place, and specific content of the falserepresentations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b).

III. MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

Siebert moves to dismiss each counterclaim for lack of subject matter jurisdiction because Natera's counterclaims have the purpose and effect of indemnifying or contributing to a qui tam defendant's damages and therefore cannot be adjudicated until after Natera prevails in the underlying action. Siebert's argument is that the claims are not ripe, citing Allen v. Wright, 468 U.S. 737 (1984).

While Allen does stand for the general principle that ripeness is a requirement of Article III jurisdiction, its facts bear no resemblance to the ones in this case. Allen involved a challenge by parents of African-American public school children to the Internal Revenue Service's alleged failure to adopt standards and procedures to deny tax-exempt status to racially discriminatory private schools. 468 U.S. at 739-40. Thus, Allen is not helpful on the question presented here: whether counterclaims for contribution or indemnity are "ripe" for adjudication before the underlying litigation is resolved.

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