United States ex rel. Hubert v. Bd. of Educ. of Chi., Corp.
| Decision Date | 29 November 2018 |
| Docket Number | Case No. 16 C 4336 |
| Parties | THE UNITED STATES OF AMERICA ex rel. JEFFREY HUBERT; THE STATE OF ILLINOIS ex rel. JEFFREY HUBERT, Plaintiffs, v. THE BOARD OF EDUCATION OF THE CITY OF CHICAGO, a Municipal Corporation, et al., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Defendants Chicago School Transit, Inc., Illinois Student Transportation, Inc., Caravan School Bus Company, Illinois Central School Bus, Inc., First Student, Inc., Falcon Transportation, Inc., Alltown Bus Service, Inc., Latino Express, Inc., United Quick Transportation, Inc., A.M. Bus Company, and the Board of Education of the City of Chicago (collectively "Defendants") each file a Motion to Dismiss Plaintiff-Relator Jeffrey Hubert's Third Amended Complaint ("Complaint"). (Dkt. No. 99.) For the reasons stated herein, Defendants' Motions (Dkt. Nos. 113, 115, 116, 117, 119, 121, 123, 124, 126, 132) are granted, and Plaintiff's Complaint is dismissed with prejudice.
This case arises from an alleged Medicaid reimbursement scheme to defraud the State of Illinois and the United States (collectively the "Government"). The specific details of the scheme will be discussed at relevant points throughout this opinion, but for now the Court provides a brief overview.
From January 2013 to February 2015, Plaintiff-Relator Jeffrey Hubert served as the Director for Student Transportation Services ("STS"), an arm of the Chicago Public Schools system ("CPS"). During that time, Hubert allegedly uncovered evidence of widespread fraudulent practices by numerous yellow bus companies (the "Vendors") with which the Board of Education of the City of Chicago (the "Board") contracts to provide services to special needs students within CPS. (Compl. ¶ 1.) Apparently, the Vendors colluded on contract prices for their services during the competitive bidding process. Based on those prices, the Vendors then submitted false invoices to the Board which included charges for so-called "ghost buses"—bus services never actually rendered—and for "ghost riders"—students who never actually rode the bus. (Compl. ¶¶ 1, 36-38, 77, 79, 92.) The Vendors employed several tactics to ensure their scheme went undetected; most notably, concealing newly developed bus routes that deviated from the Board's predetermined ones andtampering with the Board's GPS tracking system used to corroborate invoices with services provided. (Compl. ¶¶ 57, 60, 63, 66-69.) And yet, the Board nevertheless knew the invoices were false and relied on them anyway to support their reimbursement claims to the Government. (Compl. ¶ 77.) In other words, and in sum, the Board enabled a handful of vendors to overcharge for their school bus services by submitting false claims to Medicaid for partial reimbursement. These findings led Hubert to bring this qui tam action.
On the Government's behalf, Hubert seeks to recover damages and civil penalties under the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and the Illinois False Claims Act ("IFCA"), 740 ILCS 175/1 et seq., for Defendants' alleged fraudulent reimbursement scheme. (Compl. ¶ 2.) Hubert presents three theories in asserting Defendants violated the FCA: (1) Defendants participated in a bid-rigging scheme; (2) the Vendors submitted false or misleading invoices to the Board, which the Board then used to submit false claims to the Government; and (3) Defendants illegally induced the Government to reimburse false claims. (See generally Compl.) All three will be discussed when necessary throughout this opinion.
The Board and ten of the Vendors—Chicago School Transit, Inc., Illinois Student Transportation, Inc., Caravan School Bus Company,Illinois Central School Bus, Inc., First Student, Inc., Falcon Transportation, Inc., Alltown Bus Service, Inc., Latino Express, Inc., United Quick Transportation, Inc., and A.M. Bus Company—move individually to dismiss Hubert's Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Defendants argue that Hubert's Complaint fails to satisfy the particularity requirement of Federal Rule of Civil Procedure 9(b) both generally and individually as against the Board and each of the Vendors. Because the separate Motions overlap and pertain to the same issues, the Court will consider them all together.
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, if accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). We "must accept as true all of the allegations contained in the complaint" that are not legal conclusions. Id. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.
Claims of fraud, however, must be pled under a heightened pleading standard, which requires stating with particularity the circumstances constituting fraud. FED. R. CIV. P. 9(b); Toulon v. Cont'l Cas. Co., 877 F.3d 725, 734 (7th Cir. 2017). This"ordinarily requires describing the who, what, when, where, and how of the fraud." Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736-37 (7th Cir. 2014). In other words, the complaint must state "the identity of the person making the misrepresentation, the time, place, and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff." U.S. ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014) (internal quotation marks and citation omitted).
Rule 9(b) has three main purposes: (1) to protect defendants' reputation from harm; (2) to minimize "strike suits" and "fishing expeditions"; and (3) to provide adequate notice of the claim to defendants. Vicom, Inc. v. Harbridge Merchant Servs., Inc., 20 F.3d 771, 776 (7th Cir. 1994) (citation omitted); see also Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 441 (7th Cir. 2011) (). Moreover, complying with Rule 9(b) is especially important in FCA cases involving multiple defendants. "Where there are allegations of a fraudulent scheme with more than one defendant, the complaint should inform each defendant of the specific fraudulent acts that constitute the basis of the action against the particulardefendant." Balabanos v. N. Am. Inv. Group, Ltd., 708 F. Supp. 1488, 1493 (N.D. Ill. 1988) (citations omitted).
The FCA imposes civil liability for a series of actions under 31 U.S.C. § 3729(a)(1). Hubert brings three separate claims under the FCA: § 3729(a)(1)(A), (B), and (C). Section 3729(a)(1)(A) prohibits "knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval" by the Government. 31 U.S.C. § 3729(a)(1)(A). Section 3729(a)(1)(B) prohibits "knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim" to the Government. 31 U.S.C. § 3729(a)(1)(B). To plead adequately a violation of either, Hubert must allege that (1) Defendants made a statement in order to receive money from the Government; (2) the statement was false; and (3) Defendants knew the statement was false. U.S. ex rel. Yannacopoulos v. Gen. Dynamics, 652 F.3d 818, 822 (7th Cir. 2011); see also Grenadyor, 772 F.3d at 1105 . Finally, section 3729(a)(1)(C)prohibits conspiring with others to commit either of the above violations. 31 U.S.C. § 3729(a)(1)(C).
Stated broadly, Defendants—the Board and the Vendors—argue that the allegations in Hubert's Complaint are not sufficiently particular under Rule 9(b) and fail to state claims for which relief may be granted under Rule 12(b)(6).
As a preliminary matter, the Court notes that Hubert brings this action based on personal knowledge—"as to himself and his own acts." (Compl. ¶ 6.) Absent from his current (third) Complaint but provided for in his Second Amended Complaint was language that anything else asserted outside of his personal knowledge was asserted "upon information and belief." .) Whether this remains true is unclear since Hubert reasserts the same allegations—this time, in more detail—but omits any indication of how he derived such allegations other than from his personal knowledge. Generally, allegations based on information and belief are insufficient to meet Rule 9(b)'s particularity requirement. Pirelli, 631 F.3d at 443 (citation omitted). But an exception applies if Hubert can show that (1) the facts constituting fraud are not accessible to him, and (2) he provides grounds for his suspicion. Grenadyor, 772 F.3d at 1108.
As to the first prong, Hubert argues that Defendants are in control of the documents needed to support his claims. These documents include:
monthly vendor-specific GPS reports; monthly driver payroll records of each vendor, Illinois Department of Transportation Safety Lane inspection reports for every vendor Defendant bus; monthly Edulog run and route details allegedly run by each vendor Defendant; dozens of reversed and manipulated run map illustrations in Edulog; and the Board's bus routing and planning software
.) Hubert relies on Corley v. Rosewood Care Center, Inc., 142 F.3d 1041, 1051 (7th Cir. 1998), which found "that the particularity requirement of Rule 9(b) must be relaxed where the plaintiff lacks access to all facts...
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