United States ex rel. PCA Integrity Assocs., LLP v. NCO Fin. Sys.

Decision Date11 February 2020
Docket NumberCivil Action No.: 15-750 (RC)
PartiesUNITED STATES ex rel. PCA INTEGRITY ASSOCIATES, LLP, Plaintiff, v. NCO FINANCIAL SYSTEMS, INC., et al., Defendants.
CourtU.S. District Court — District of Columbia

Re Document Nos.: 77, 79, 81, 85, 86, 87, 88, 89, 91, 92, 93, 98

MEMORANDUM OPINION
GRANTING JOINT MOTION TO DISMISS CLAIMS AGAINST DEFENDANT WEST CORPORATION; GRANTING DEFENDANTS' MOTIONS TO DISMISS; DENYING AS MOOT DEFENDANT CONSERVE'S MOTION FOR JUDICIAL NOTICE; DENYING AS MOOT RELATOR PCA INTEGRITY'S MOTION FOR JUDICIAL NOTICE
I. INTRODUCTION

On May 20, 2015, Relator PCA Integrity Associates, LLP ("PCA Integrity" or "Relator") filed this lawsuit pursuant to the qui tam provision of the False Claims Act ("FCA"), 31 U.S.C. § 3730(b)(1). See Compl. ECF No. 1. Relator is a limited liability partnership that consists of three unnamed partners with "personal knowledge of the false claims, statements, and concealments alleged," Am. Compl. ¶ 7, ECF No. 54, based on participation in an unidentified private collection agency ("PCA") "initiative working for certain PCAs" and Relator's "independent investigation to uncover false claims," id. ¶ 29. The alleged false claims arise from Defendants' conduct pursuant to a multi-year contract awarded by the Department of Education ("ED"). More specifically, PCA Integrity contends that three clusters of Defendants, consisting of groups of prime contractors, subcontractors, and associated entities that it labels "co-conspirator businesses," along with unnamed John Doe Defendants, defrauded the government of funds that were intended for small businesses under the terms of ED task orders awarded to PCA prime contractors. After the government declined to intervene in this suit in October 2018, Relator filed an amended complaint on March 28, 2019, in which it removed several defendants, added two new allegedly affiliated businesses as defendants, and reasserted four counts under the FCA for: (1) false presentation/false submission of a claim (31 U.S.C. § 3729(a)(1)(A)); (2) false representation (31 U.S.C. § 3729(a)(1)(B)); (3) so-called "reverse" false claims (31 U.S.C. § 3729(a)(1)(G)); and (4) conspiracy to violate the FCA (U.S.C. § 3729(a)(1)(C)). Each of the current Defendants moved to dismiss Relator's claims. For the reasons set forth below, the Court grants Defendants' motions, but gives Relator leave to file an amended complaint.1

II. BACKGROUND
A. Factual History2
1. Regulatory Background
a. ED's Debt Collection Service Contracting

This dispute arises from ED task orders issued to prime contractors as part of its debt-collection and maintenance program. See Am. Compl. ¶¶ 6, 9-13. For nearly four decades, a division of ED known as Federal Student Aid ("FSA") has relied on PCA contractors to collect and resolve defaulted student loans. Id. ¶ 6. ED contractors must comply with applicable Federal Acquisition Regulations ("FAR"), 48 C.F.R. §§ 1 et seq., and also with ED's Acquisition Regulations, 48 C.F.R. §§ 3400 et seq. Id. ¶ 47. Within ED's FSA, the Debt Collection Service("DCS") manages "collection activities, including PCA contractors." Id. ¶ 49. DCS is located in Washington, D.C. Id. Its Contract Services Branch, which "monitors the performance of the PCA contractors," is based in Atlanta, Georgia. Id. DCS contracts are issued via task orders, which serve as "ED's contract under the umbrella of the" General Services Administration's schedule contract, which permits "ED and other federal agencies . . . [to] place orders." Id. ¶ 50. These contractual task orders "contain terms, conditions and work requirements, which are defined in a Statement of Work." Id. Potential contractors submit proposals in response to ED solicitations. See id. ¶¶ 50-52 (discussing process by which "[o]ffers leading to contract awards" are evaluated). ED's contracting officers evaluate proposals based on factors that include past performance, small business participation, and pricing by "two separate panels: small business and unrestricted." Id. ¶ 51.

Once task orders are awarded, because ED PCA contracts are "performance based and highly competitive," they are subject to a rigorous "measurement and reward system designed to align" ED and PCA interests. Id. ¶ 53. The metric applied is the Competitive Performance and Continuous Surveillance ("CPCS") rankings. Id. CPSC scores matter to government contractors because the long-term scores "are used to determine past performance and award extensions," and the scores are also used to assess a particular PCA's performance relative to other PCAs and thereby allocate quarterly bonuses. Id. ¶¶ 54, 56. The CPCS score is measured out of 100 points, with 10 points allocated based on administrative resolutions, 20 points allocated based on total accounts serviced, and 70 points allocated based on dollars collected. Id. In addition, because the Small Business Act "encourages prime contractors to award subcontracts to small companies," certain ED PCA task orders—like the ones at issue in this suit—contain incentives for prime contractors to subcontract a percentage of their work to small business concerns. Id. ¶7. These incentives can take the form of additional points added to the prime contractor's CPCS ranking. Id. ¶ 55.

Additionally, in furtherance of the government's efforts to help "ensure the continued vitality of small businesses," id. ¶ 2, ED offers small businesses the opportunity to either subcontract with existing ED PCA contractors or to contract directly via small business set aside contracts, id. ¶ 57. Where subcontracting occurs, the subcontractor serves as a "vendor to ED PCA prime contractors to work on core collection services." Id.

On May 29, 2008, ED issued the PCA solicitation on which this case is based: Solicitation No. ED-08-R-0052. Id. ¶ 52. Interested companies submitted proposals by June 26, 2008. Id. A total of twenty-two PCAs received ED contracts (e.g., task orders). Id. Of the PCAs receiving such task orders, seventeen were "unrestricted" in size, and five were small, or "set-aside" PCAs, id., reflecting the government's efforts to provide "set-aside contracts . . . exclusively for small businesses to bid on," id. ¶ 2.3 While the task orders were active, ED provided incentives for prime contractors to subcontract "no less than 10% of their work to small business concerns" by adding a five-point bonus to the CPCS score of any such PCA. Id. ¶ 55. "The first transfer of accounts under this contract occurred in the first quarter of 2009," id. ¶ 52, and the task orders pertaining to unrestricted PCAs concluded in late April 2015, id. ¶ 60. On an unspecified date, five PCAs received a two-year extension of the original task order, including, as relevant here, Defendant Continental Service Group. Id.

Before the conclusion of the contracts that were issued in 2009, ED solicited and awarded additional task orders. First, in July 2013, seeking to develop "task orders replacing both those awarded in 2009," ED published Solicitation No. ED-FSA-13-R-0010. Id. ¶ 61. Thisprocurement was cancelled in 2018, "in part because [ED] had learned of" the "widespread small business fraud" alleged in this lawsuit. Id. ¶ 62. Separately, ED awarded new debt-collection task orders set aside specifically for small businesses in September 2014. Id. ¶ 59. Defendant "Co-Conspirator" Bass & Associates, P.C. was awarded one of these 2014 task orders. Id. Before describing the Defendants' identities in more detail, the Court will briefly summarize the relevant principles of federal small business contracting that underpin Relator's contentions.

b. Small Business Act and Federal Contracting

The Small Business Act ("SBA") aims to provide small companies with "'the maximum practicable opportunity to participate in the performance' of federal contracts." Id. ¶ 63 (quoting 15 U.S.C. § 637(d)(1)). To ensure compliance with this objective, the SBA requires that—unless otherwise specified—language concerning the federal government's goal be included in every federal prime contract. Id. ¶ 64. Each federal prime contract must also include the following clause: "[t]he contractor hereby agrees to carry out this policy in the awarding of subcontracts to the fullest extent consistent with the efficient performance of this contract." Id. (quoting 15 U.S.C. § 637(d)(3)).

Furthermore, to be eligible to receive a contract, each federal prime contractor who meets a threshold dollar amount must submit additional materials to the government. Id. ¶ 69 (citing 15 U.S.C. § 637(d)(4)(C); 49 C.F.R. § 19.702). Such prime contractors must submit a subcontracting plan to the relevant contracting agency that (1) states the prime contractor's "percentage goals for the utilization" of small businesses, id. ¶ 65 (quoting 15 U.S.C. § 637(d)(4), (d)(6)), and (2) states "the total dollars planned to be subcontracted and a statement of the total dollars planned to be subcontracted to" small businesses and other disadvantaged businesses, id. ¶ 66 (quoting 49 C.F.R. § 19.704(a)(2)). A subcontracting plan by a primecontractor whose bid is accepted is "included in and made a material part of the contract." Id. ¶ 71 (quoting 15 U.S.C. § 637(d)(4)(B) (emphasis removed)). Controlling federal regulations also require the federal prime contractor to submit semi-annual reports that detail each of its subcontracts with small businesses and "the extent of its compliance with its small business subcontracting plan." Id. ¶ 68 (citing 49 C.F.R. § 52.219-9). The "failure of any contractor or subcontractor to comply in good faith with," inter alia, "any plan required of such contractor pursuant to the authority of [15 U.S.C. § 637]," such as the previously-described subcontracting plan, is "a material breach of such contract or subcontract and may be considered in any past performance evaluation of the contractor." 15 U.S.C. § 637(d)(9); see also Am. Compl. ¶ 81 (citing 15 U.S.C. § 637(d)(9); 48 C.F.R. §...

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