United States ex rel. Daugherty v. Tiversa Holding Corp.
| Decision Date | 17 October 2018 |
| Docket Number | 14cv4548(DLC) |
| Citation | 342 F.Supp.3d 418 |
| Parties | UNITED STATES of America EX REL. Michael J. DAUGHERTY, Plaintiff, v. TIVERSA HOLDING CORP., Tiversa Inc., Tiversa Government Inc., and Robert Boback, Defendants. |
| Court | U.S. District Court — Southern District of New York |
For the relator: James W. Hawkins, James W. Hawkins, LLC, 11339 Musette Circle, Alpharetta, Georgia 30009.
For defendants Tiversa Holding Corp., Tiversa Inc., and Tiversa Government Inc.: Steven W. Zoffer, Dickie, McCamey & Chilcote, Two PPG Place, Suite 400, Pittsburgh, Pennsylvania 15222.
For defendant Robert Boback: Brandon J. Verdream, Robert J. Ridge, Jonathan D. Klein, Clark Hill PLC, 830 Third Avenue, Suite 200, New York, New York 10022.
Michael J. Daugherty, relator, brings this qui tam action under the False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA") against Tiversa Holding Corporation, Tiversa Inc., and Tiversa Government Inc. (collectively "Tiversa") and against Robert Boback, a former Tiversa executive. The defendants have moved to dismiss the Amended Complaint ("FAC") for lack of jurisdiction under Rule 12(b)(1); for failure to state a claim under Rule 12(b)(6); and for failure to state fraud with particularity under Rule 9(b). For the reasons given below, the motions are granted in part.
In 1996, Daugherty founded a urology health center, LabMD, Inc. ("LabMD"). Tiversa uses peer-to-peer file sharing applications to find leaked files, and offers cybersecurity services to prevent leaks. Daugherty claims that the defendants targeted LabMD and that, when LabMD declined to pay for Tiversa's services, the defendants caused an FTC administrative action against LabMD that resulted in LabMD shutting down.
The following facts are taken from the FAC and documents attached to it. Broadly, the FAC alleges that Tiversa found digital files with sensitive information on domestic computers through Internet file-sharing applications, doctored those files to make them appear to have been found on computers in foreign countries, falsely claimed to the Government that the files were found on foreign computers, and thereby obtained (1) a contract from the Transportation Security Administration ("TSA") for cybersecurity protection services, and (2) grant payments from the Department of Homeland Security ("DHS").
The FAC alleges that in 2011, Tiversa found sensitive information related to aircraft computers on a computer of a TSA employee in Denver, Colorado. Boback instructed an employee of Tiversa to create a report falsely making it "appear that the sensitive information was spreading through peer-to-peer networks."
In late spring or summer of 2011, Boback met with representatives of DHS and TSA in Arlington, Virginia. The FAC pleads "[o]n information and belief" that "one of the individuals with whom Boback met was Greg Maier, Chief Information Technology Security Operations for DHS." "Boback showed Maier and others" the false report and stated falsely that "sensitive search procedures for aircraft computers had been found on computers in foreign countries." The defendants then entered into a contract between Tiversa and TSA for "a monitoring service to detect sensitive information inadvertently or intentionally disclosed or posted on a network" (the "TSA Contract"). The contract was signed on August 3, 2011 and provided for payment of $324,000 to Tiversa for services over one year. The contract was extended for another year in August 2012, with an additional payment to Tiversa of $324,000.
In September 2006, DHS awarded a grant (the "DHS Grant") to Dartmouth College ("Dartmouth"). Professor M. Eric Johnson, then a director of a center at Dartmouth's business school, engaged Tiversa to partner with him in implementing Dartmouth's work on the DHS Grant.
Johnson published a paper in February 2009 using money from the DHS Grant (the "Johnson Paper"). The FAC alleges that the Johnson Paper falsely states that a LabMD file was found on a computer where Johnson "had found other dangerous data" (the "LabMD File"). On April 29, 2008, Johnson sent an email (the "April 2008 Email") to a Tiversa employee that included the following:
We are coming well on the medical files -- finished going through all the files. We are working on the report now. We turned up some interesting stuff -- not as rich as the banks, but I guess that could be expected. Any chance you could share a couple other of your recent medical finds that we could use to spice up the report? You told me about the one database you[ ] found that could really boost the impact of the report. Certainly will coordinate with you on the report and release.
"In response to Johnson's request" in the April 2008 Email, Tiversa sent Johnson the LabMD File. Johnson and Dartmouth did not notify DHS that the Johnson Paper included false statements about the source of the LabMD File.
Dartmouth received $29,650,000 from the DHS Grant between 2006 and 2014. Recipients of grant money from DHS are required to submit "timely, complete and accurate quarterly progress reports to DHS." Dartmouth and Johnson submitted progress reports without disclosing the false statements regarding the LabMD File.
The Complaint in this action was filed under seal on June 24, 2014. The case remained sealed pending the determination of the United States regarding whether to intervene. See 31 U.S.C. §§ 3730(b)(2)-(4). The United States declined to intervene by notice dated March 20, 2018. The docket and the Complaint were unsealed in April 2018.
Defendants filed motions to dismiss the Complaint on July 3, 2018. An Order filed July 5 directed Daugherty to file an amended complaint or to oppose the motions to dismiss by July 27, and noted that "[i]t is unlikely that [Daugherty] will have a further opportunity to amend." Daugherty responded to the motions to dismiss by filing the FAC on July 27. New motions to dismiss were filed on August 10, and became fully submitted on September 14.
To survive a motion to dismiss for failure to state a claim, a complaint "must plead sufficient factual content to allow a factfinder to draw the reasonable inference that the defendant is liable for the misconduct alleged." Allen v. Credit Suisse Sec. (USA) LLC, 895 F.3d 214, 222 (2d Cir. 2018) (citation omitted). A court may "consider only those facts alleged in the complaint, and must draw all reasonable inferences in favor of the plaintiff." Wilson v. Dynatone Publ'g Co., 892 F.3d 112, 117 (2d Cir. 2018). "A complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference." Nicosia v. Amazon.com, Inc., 834 F.3d 220, 230 (2d Cir. 2016) (citation omitted). A court may also consider "matters of which judicial notice may be taken." Kalyanaram v. Am. Ass'n of Univ. Professors at N.Y. Inst. of Tech., Inc., 742 F.3d 42, 44 n.1 (2d Cir. 2014) (citation omitted).
In addition, because the FCA "is an anti-fraud statute," Daugherty "must plead fraud with particularity pursuant to Federal Rule of Civil Procedure 9(b)." U.S. ex rel. Polansky v. Pfizer, Inc., 822 F.3d 613, 617-18 (2d Cir. 2016). "To satisfy this Rule, a complaint alleging fraud must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 25 (2d Cir. 2016) (citation omitted).
Counts Three and Four of the FAC assert that the defendants violated the FCA when they obtained the TSA Contract. The defendants have moved to dismiss these claims for a variety of reasons. For the following reasons, the motions are denied.
The FCA imposes liability on "any person who," inter alia, "knowingly presents, or causes to be presented, a false or fraudulent claim 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). To state a claim under the FCA, a relator must allege that the "defendants (1) made a claim, (2) to the United States government, (3) that is false or fraudulent, (4) knowing of its falsity, and (5) seeking payment from the federal treasury." United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94, 113 (2d Cir. 2010) (citation omitted), rev'd on other grounds, 563 U.S. 401, 131 S.Ct. 1885, 179 L.Ed.2d 825 (2011). The term "claim" is defined in the statute as, inter alia, "any request ... for money ... that ... is presented to an officer, employee, or agent of the United States." 31 U.S.C. § 3729(b)(2)(A).
There are two theories of fraud cognizable under the FCA: factual falsity and legal falsity. See Mikes v. Straus, 274 F.3d 687, 696-97 (2d Cir. 2001), abrogated in part on other grounds by Universal Health Servs., Inc. v. United States ex rel. Escobar, ––– U.S. ––––, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016) (" Escobar"). Factually falsity involves "an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided." Mikes, 274 F.3d at 697. Legal falsity is where a claim is "predicated upon a false representation of compliance with a federal statute or regulation or a prescribed contractual term." Id. at 696.
Daugherty brings two FCA claims arising out of the TSA Contract, based respectively on § 3729(a)(1)(A) and § 3729(a)(1)(B). The FAC contains adequate allegations of a factual falsity in the defendants' procurement of the TSA Contract. The FAC alleges that Boback sought to obtain money from the Government in exchange for Tiversa's services. The FAC further alleges that Boback presented a document to the TSA that he knew was false, namely a report prepared at Boback's direction...
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