United States ex rel. Kirk v. Schindler Elevator Corp.

• Decision Date: 22 February 2013
• Docket Number: No. 05 Civ. 2917(SHS).,05 Civ. 2917(SHS).
• Citation: 926 F.Supp.2d 510
• Parties: UNITED STATES of America ex rel. Daniel KIRK, Plaintiff, v. SCHINDLER ELEVATOR CORP., Defendant.
• Court: U.S. District Court — Southern District of New York

926 F.Supp.2d 510

UNITED STATES of America ex rel. Daniel KIRK, Plaintiff,

v.SCHINDLER ELEVATOR CORP., Defendant.

No. 05 Civ. 2917(SHS).

United States District Court, S.D. New York.

Feb. 22, 2013.

Jonathan Allen Willens, Jonathan A. Willens, L.L.C., New York, NY, for Plaintiff.

Steven Alan Reiss, Serj Alex Khachaturian, Weil, Gotshal & Manges LLP, New York, NY, for Defendant.

OPINION & ORDER

SIDNEY H. STEIN, District Judge.

Daniel Kirk, proceeding as qui tam relator on behalf of the United States, has alleged that requests by defendant Schindler Elevator Corp. for payment from federal agencies for construction work it performed violated the False Claims Act (“FCA”), 31 U.S.C. §§ 3729–3733. Kirk does not allege that Schindler defrauded the government by requesting payments for work it did not perform. Claims to federal funds can violate the FCA for a variety of reasons, including that the submission of the claim for payment by Schindler constitutes an implied false certification of compliance with a federal law. See generally Mikes v. Straus, 274 F.3d 687 (2d Cir.2001). Here, Kirk claims that Schindler filed false reports with the U.S. Department of Labor (“DOL”) in order to conceal its failure to comply with the Vietnam Era Veterans Readjustment Assistance Act (“VEVRAA”) and continue receiving government contracts. Specifically, VEVRAA and its implementing regulations require Schindler, as a federal contractor, to file with the DOL each year a “VETS–100” report, listing the number of veterans the contractor employs. See United States ex rel. Kirk v. Schindler Elevator Corp. (“ Kirk I ”), 606 F.Supp.2d 448, 450 (S.D.N.Y.2009) (citing 38 U.S.C. § 4212; 41 C.F.R. § 61–250.10; 48 C.F.R. §§ 52.222–35 to –38). VEVRAA also conditions federal payments to contractors on their compliance with VEVRAA's reporting requirements. See31 U.S.C. § 1354(a). The focus of Kirk's claims is his allegation that Schindler knowingly filed false VETS100 reports in order to obtain federal money.

This case has traveled to the U.S. Supreme Court and back, and the sufficiency of the complaint remains at issue. Kirk originally claimed that Schindler's certifications of compliance with VEVRAA's VETS–100 reporting requirements were false for one of two different reasons: either (1) because Schindler had failed to file a VETS–100 report at all, or (2) because the reports it had filed were fabricated. See Kirk I, 606 F.Supp.2d at 450. This Court dismissed the action. It held that it lacked subject matter jurisdiction over those of Kirk's claims that were premised on Schindler's alleged failure to file VETS–100 reports pursuant to the FCA's public disclosure bar, see31 U.S.C. § 3730(e)(4)(A). Kirk I, 606 F.Supp.2d at 451.¹ It also dismissed those claims premised on Schindler's filing of false VETS100 reports on the grounds that Kirk had failed to state a valid claim. Id. On appeal, the U.S. Court of Appeals for the Second Circuit vacated both of those holdings, finding that the FCA's public disclosure bar did not apply and that Kirk had stated a valid FCA claim regarding the allegedly false reports. See United States ex rel. Kirk v. Schindler Elevator Corp. (“ Kirk II ”), 601 F.3d 94, 117 (2d Cir.2010).

The Supreme Court reversed the Second Circuit's finding that the public disclosure bar was inapplicable. Schindler Elevator Corp. v. United States ex rel. Kirk (“ Kirk III ”), ––– U.S. ––––, 131 S.Ct. 1885, 1889, 179 L.Ed.2d 825 (2011). On remand, the Second Circuit subsequently affirmed this Court's dismissal of Kirk's claims premised on Schindler's failure to file VETS–100 reports, but remanded this case for further consideration of Kirk's claims premised on Schindler's filing of false reports. See United States ex rel. Kirk v. Schindler Elevator Corp. (“ Kirk IV ”), 437 Fed.Appx. 13, 18 (2d Cir.2011). Those prior opinions set forth the history of this action in considerable detail, and the Court presumes the reader's familiarity with that history.

The Circuit has remand to this Court Kirk's claim that Schindler (1) “knowingly ma[de] ... false” VETS–100 reports, (2) which were “material to” (3) “false or fraudulent claim[s]” on its government contracts. See31 U.S.C. § 3729(a)(1)(B).²Because both this Court and the Second Circuit declined to address certain of Schindler's arguments for dismissal, this action remains at the motion to dismiss stage. SeeKirk I, 606 F.Supp.2d at 450–51 n. 3;Kirk II, 601 F.3d at 117 n. 20.

Now before the Court are two related motions: (1) Schindler's renewed motion to dismiss the First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6); and (2) Kirk's motion for leave to file a second amended complaint (the “SAC”) pursuant to Rule 15(a)(2). The Court grants Kirk's motion for leave to amend because Schindler has not shown that any delay by him or prejudice to Schindler is undue, and because the Court finds that the SAC would withstand a motion to dismiss and therefore is not futile. Accordingly, the Court dismisses as moot Schindler's renewed motion to dismiss the First Amended Complaint.

I. The Proposed Second Amended Complaint

Save for the excision of the claims that have been previously dismissed and not reinstated, the substance of Kirk's allegations remains largely unchanged. He “alleges that Schindler, while entering into numerous contracts with the federal government that were subject to the requirements of VEVRAA,” certified its compliance with VEVRAA despite having violated VEVRAA by submitting false VETS–100 reports. See Kirk II, 601 F.3d at 100. Schindler allegedly masked its non-compliance with VEVRAA by filing false reports in order to influence the government's consideration of Schindler's claims to payments on its government contracts. Thus, Kirk contends, each claim to payment submitted in the twelve months following a false VETS–100 report is fraudulent within the meaning of the FCA. See id. at 116–17. These allegations constitute the core of the claims that the Second Circuit reinstated, and they form the core of the SAC. ( See SAC ¶¶ 2–11, Ex. A to Decl. of Jonathan A. Willens dated Nov. 22, 2011, Dkt. No. 48.)

The substantive amendments that Kirk proposes take three forms: (1); adding specificity to overcome certain of Schindler's arguments that the First Amended Complaint does not state the alleged fraud with the particularity required by Federal Rule of Civil Procedure 9(b); (2) buttressing his allegations with two documents; and (3) restating certain claims that had been premised on a failure to file VETS–100 reports to reflect newly discovered facts that indicate that Schindler did in fact file reports for those years.

First, Kirk adds to the specificity of his fraud allegations. He describes why each VETS–100 report was false. ( See SAC ¶¶ 59–74.) He also adds detail to his allegation that Schindler acted with the scienter needed to support his FCA claims. Schindler, he alleges, submitted its claims to the government knowing that it was ineligible for payment because it was aware that it had not gathered the information VEVRAA required; it did so to save the cost of compliance. ( See SAC ¶ 9.)

Second, Kirk supplements his allegations with two pieces of evidence previously absent from the complaint. One, Kirk alleges that notes taken by DOL staff during their interview with Annette Selvaggio, Schindler's human resources manager for Equal Employment and Opportunity, state that Selvaggio told the DOL that there was no “process in place for employees to self-identify their veteran status.” ( See SAC ¶ 28; Ex. G to Decl. of Steven A. Reiss dated Dec. 16, 2011 (“Reiss Dec. 16, 2011 Decl.”), Dkt. No. 53.) Two, Kirk alleges that although Schindler hired a consultant to prepare a draft affirmative action plan, contrary to VEVRAA regulations Schindler never implemented or distributed it. ( See SAC ¶¶ 7, 31.) Kirk points to the plan as evidence that Schindler knew of the VEVRAA requirements that it then knowingly disregarded. ( See id.; Ex. F to Reiss Dec. 16, 2011 Decl.)

Third, and most significantly, whereas Kirk previously alleged that Schindler had failed to file any VETS–100 reports before 2004 except for a late-filed report for the 2002 fiscal year, he now alleges that Schindler in fact filed reports for 1999, 2000, and 2003, but that they were false. ( See SAC ¶¶ 59–64.) Kirk thus seeks to recast his prior claims premised on Schindler's failure to file VETS–100 reports—which are not actionable due to the FCA's public disclosure bar, see Kirk III, 131 S.Ct. at 1889—as potentially viable false-report claims.³

II. Discussion

Leave to amend should be “freely give[n] ... [when] justice so requires.” Fed.R.Civ.P. 15(a)(2). Courts, however, may deny leave in cases of “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.” Ruotolo v. City of N.Y., 514 F.3d 184, 191 (2d Cir.2008) (quoting Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). Here, Schindler contends that Kirk's amendments are offered in bad faith; that they are offered only after unreasonable delay that has resulted in undue prejudice to Schindler; and that, in any event, these amendments are futile because the proposed SAC is subject to dismissal as a matter of law pursuant to Rule 12(b)(6). The Court now addresses each contention in turn.

A. Schindler has Not Demonstrated Bad Faith.

Schindler asserts that the entire SAC is offered in bad faith because Kirk possesses documents that belie the factual predicate of his claims. The heart of this contention is Schindler's reading of Kirk II as finding the materiality element of section 3729(a)(1)(B) adequately pled only because “Schindler failed to take any steps whatsoever to monitor the number of covered veterans in its workforce and instead...