U.S. ex rel. Gagne v. City of Worcester

• Citation: 565 F.3d 40
• Decision Date: 08 May 2009
• Docket Number: No. 08-1904.,08-1904.
• Parties: UNITED STATES of America ex rel. Edward L. GAGNE and Linda Jeneski, Plaintiffs, Appellants, v. CITY OF WORCESTER; Stephen Willand, Defendants, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

565 F.3d 40

UNITED STATES of America ex rel. Edward L. GAGNE and Linda Jeneski, Plaintiffs, Appellants, v. CITY OF WORCESTER; Stephen Willand, Defendants, Appellees.

No. 08-1904.

United States Court of Appeals, First Circuit.

Heard April 9, 2009.

Decided May 8, 2009.

Daniel Joseph Shea with whom Daniel J. Shea, P.C. was on brief for appellants.

Janet J. McGuiggan, Assistant City Solicitor, City of Worcester Law Department, for appellees.

Before LYNCH, Chief Judge, FARRIS^* and BOUDIN, Circuit Judges.

LYNCH, Chief Judge.

This appeal involves the standards for pleading with particularity fraud claims brought under two subsections of the False Claims Act ("FCA") concerned with making false records or statements to get false claims paid and conspiring to defraud the government by getting false claims paid. 31 U.S.C. § 3729(a)(2) and (a)(3).

Plaintiffs mistakenly read the Supreme Court's 2008 opinion in Allison Engine Co. v. United States ex rel. Sanders, ___ U.S. ___, 128 S.Ct. 2123, 170 L.Ed.2d 1030 (2008), as having altered the requirements of pleading fraud with particularity set forth in United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720 (1st Cir.2007), and United States ex rel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220 (1st Cir. 2004). Allison Engine concerns a different issue and does not alter those fraud with particularity requirements, which apply as well to the conspiracy claim. The complaint was properly dismissed for failing to meet those standards. The district court also acted properly within its discretion in not allowing plaintiffs to amend their complaint yet a third time.

Edward L. Gagne and Linda Jeneski, a present and a former employee of the Worcester City Manager's Office of Employment and Training ("CMOET"), filed a qui tam action on behalf of the federal government against the defendant City of Worcester and a former City official. The United States declined to enter the case. Plaintiffs alleged federal grant funds meant for one purpose were fraudulently diverted to improper expenditures. They alleged the defendants were liable under the FCA for violations of provisions requiring defendants to have: "knowingly present[ed], or cause[d] to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval," 31 U.S.C. § 3729(a)(1); "knowingly ma[de], use[d], or cause[d] to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government," id. § 3729(a)(2); and "conspire[d] to defraud the Government by getting a false or fraudulent claim allowed or paid," id. § 3729(a)(3). Despite their having twice amended their complaint, relators failed to provide details on any particular false or fraudulent statement made to get a false claim paid by the federal government.

The district court granted defendants' motion to dismiss for failure to comply with Fed.R.Civ.P. 9(b) and denied relators leave to amend a third time. United States ex. rel. Gagne v. City of Worcester, No. 06-40241, 2008 WL 2510143 (D.Mass. June 20, 2008). The court later denied a Rule 59(e) motion and said relators had mischaracterized its earlier order as resting on a need to make a presentment claim under subsections (a)(2) and (a)(3). On appeal, relators argue that the court applied the "presentment" requirement of § 3729(a)(1) to their subsection (a)(2) and (a)(3) claims and that this, along with the court's reliance on Rost and Karvelas, was error in light of the Supreme Court's decision in Allison Engine. They also challenge the court's denial of leave to amend. We affirm for the reasons which follow.

I.

The facts as alleged in the complaint are set forth without crediting unsupported conclusions or assertions. Universal Commc'n Sys., Inc. v. Lycos, Inc., 478 F.3d 413, 415 (1st Cir.2007).

Gagne worked for the CMOET; Jeneski was a former CMOET employee. Defendant Stephen Willand was the head of CMOET and also served as Executive Director of the Central Massachusetts Regional Employment Board ("CMREB") and the Director of the City's "One Stop Provider," also known as "Workforce Central," which was established under the Workforce Investment Act ("WIA"), 29 U.S.C. §§ 2801-2945.

Under the WIA, the federal government provides grants to states to fund job training programs. See generally id. § 2811; see also Santana v. Calderon, 342 F.3d 18, 20 (1st Cir.2003). One stop providers, such as Workforce Central, provide training, adult education, literacy programs, and support services. 29 U.S.C. §§ 2841, 2864.

The gist of the relators' complaint is that the City improperly used WIA grant funds to pay Willand and other CMOET employees for performing very little work or for work unrelated to WIA projects, to provide City cars to Willand and others, and to pay out $130,000 to settle a state employment discrimination lawsuit that plaintiff Gagne had brought, alleging sexual orientation discrimination. Primarily, the complaint alleged that City employees falsely categorized hours on their time sheets as time spent on WIA projects.

Relators filed suit on November 9, 2006 naming the City as defendant.¹ The central allegations of their Second Amended Complaint, filed on January 4, 2008, were as follows:

During Workforce Central and CMREB Fiscal Year 2004 (FY2004), and before and after FY2004, Defendant City's Agents STEPHEN WILLAND, BRUCE DAHLQUIST, DONALD ANDERSON, KEVIN CROWLEY, and CARLENE BULL, among others, with the full knowledge and acquiescence of Defendant City's upper management statutorily responsible for the integrity of WIA federal funds . . ., made and caused to be made false, misleading and fraudulent pretenses and representations through periodic reports and requests for funds to the U.S. Department of Labor, U.S. Department of Health and Human Services, and State of Massachusetts based on the allocation of Workforce Central and CMREB employees' time which were not based on after-the-fact actual activities of the employees charged to the various programs, contracts, grants or awards of the [WIA]. . . . In order to accomplish the unlawful funding of WILLAND and DAHLQUIST, capitated funds earned from the welfare activities of Workforce Central were "loaned" to various Workforce Central time accounts to which ANDERSON, CROWLEY, BULL, and others would bill their time to free-up Wagner-Peyser² funds so that WILLAND and DAHLQUIST could bill to Wagner-Peyser as specifically prohibited by law. The loans from welfare program earnings were loaned to Department 31S account numbers 224, 228 and 231 and were never repaid. Accounts 31S224, 31S228, and 31S231 appear on Anderson and Crowley's time sheets while Wagner-Peyser, which is their legitimate One-Stop overhead, does not. CARLENE BULL is the person responsible for the accounting manipulation.

Second Amended Complaint ¶ 30. Plaintiffs also alleged that:

Beginning on or before June 28, 2003 and continuing on and after June 25, 2004 . . . [Willand and other City employees] did knowingly and willfully combine, conspire, and agree with each other, and with others known and unknown to the Relators, to commit offenses against the United States, to wit, fraud or misapplication concerning Federal funds under the [WIA], in violation of [18 U.S.C. § 665] and fraud or misapplication concerning a program receiving Federal funds in violation of [18 U.S.C. § 666]; and did further so combine, conspire and agree to defraud the United States by impeding, impairing, obstructing and defeating the lawful government functions of the U.S. Department of Labor through deceit, trickery and dishonest means.

Id. ¶ 22.

Other paragraphs of the complaint alleged that defendants engaged in a conspiracy to defraud the government, by "caus[ing] false, misleading and fraudulent pretenses and representations to be made to WIA funding sources . . . to allow [City employees] to receive excessive and unreasonable compensation through unlawful, dishonest and deceitful means by misapplication or obtaining by fraud of funds from the [WIA]." Id. ¶ 23. The complaint also alleged defendants violated the WIA because Willand and others worked for the CMOET while at the same time holding official roles in Workforce Central and the CMREB.³ Id. ¶¶ 9-10. Defendants moved to dismiss on January 28, 2008, arguing that the Second Amended Complaint still failed to allege fraud with the particularity required under Rule 9(b).⁴

On June 20, 2008, the district court entered an order dismissing the Second Amended Complaint, as we have described. The court noted that relators' opposition incorporated by reference their earlier opposition to the first motion to dismiss, in which they had sought leave to amend. The court said it was unclear whether relators intended to request leave to amend their complaint again, but held that even if they did, it would not allow further amendment. Gagne, 2008 WL 2510143, at *5 n. 5.

Relators filed a motion to alter or amend judgment purportedly under Rule 59(e), arguing that the court had committed a manifest error of law by relying on Karvelas, which they said dealt only with "presentment" cases, or cases brought under subsection (a)(1) of the FCA in which the allegation is that the defendant actually presented a false claim to the government.⁵ They argued Karvelas did not apply to subsection (a)(2) or (a)(3) cases. The court denied plaintiffs' motion, stating relators erred in arguing it based its holding on a presentment requirement, and saying it "ha[d] considered the sufficiency of relators' complaint with regard to Rule 9(b) only," which it held applies with equal force to subsections (a)(1) through (a)(3). Relators appealed.

II.

A. The Dismissal of Relators' Complaint

We review de novo the district court's dismissal order for failure to comply with Rule 9(b). See SBT Holdings, LLC v. Town of Westminster, 547 F.3d 28, 33 (1st Cir.2008).

We have previously...