United States ex rel. Bid Solve, Inc. v. CWS Mktg. Grp., Inc.

• Decision Date: 15 October 2021
• Docket Number: Case No. 1:19-cv-01861-TNM
• Citation: 567 F.Supp.3d 59
• Parties: UNITED STATES EX REL. BID SOLVE, INC., Plaintiff/Relator, v. CWS MARKETING GROUP, INC., et al., Defendants.
• Court: U.S. District Court — District of Columbia

567 F.Supp.3d 59

UNITED STATES EX REL. BID SOLVE, INC., Plaintiff/Relator,

v.CWS MARKETING GROUP, INC., et al., Defendants.

Case No. 1:19-cv-01861-TNM

United States District Court, District of Columbia.

Signed October 15, 2021

Jonathan K. Tycko, Tycko & Zavareei, LLP, Brianne E. Murphy, Washington, DC, for Plaintiff/Relator.

Anthony J. Burba, Barnes & Thornburg LLP, Chicago, IL, Michelle Nicole Bradford, Barnes & Thornburg LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

TREVOR N. McFADDEN, U.S.D.J.

Bid Solve, Inc. sues CWS Marketing Group, Inc. and its president, C. William Stearman, and CEO, Jennifer Stearman (collectively, "Defendants"), alleging that they violated the False Claims Act. Bid Solve argues that Defendants are liable under both a fraudulent inducement and an implied false certification theory of liability. Defendants move to dismiss, contending that Bid Solve failed to allege with particularity the existence of false statements. They argue also that even if Bid Solve did properly allege that they made false statements, it failed to adequately plead materiality, causation, and knowledge.

Because Bid Solve's Complaint makes only the barest of allegations about the Stearmans, the Court agrees that both counts against them should be dismissed. The Court also agrees that Bid Solve's Complaint fails to allege with particularity the existence of any false claim under the implied false certification theory of liability. But because the Court finds that Bid Solve pled its fraudulent inducement theory with the requisite particularity and established materiality, causation, and knowledge as to that theory, the Court will deny the motion to dismiss that count against CWS Marketing Group, Inc.

I.

A.

The Small Business Act, 15 U.S.C. §§ 631 – 657, requires federal agencies to award at least 23% of federal contract dollars to small businesses. Compl. ¶¶ 17–18, ECF No. 1. To achieve this goal, the U.S. Small Business Administration ("SBA") runs a government contracting program "whereby certain federal government contracts are set aside for companies that fall below certain [revenue] thresholds." Id. ¶ 17 (cleaned up). The SBA determines the revenue thresholds applicable to a given set-aside contract by assigning the contract a North America Industry Classification System ("NAICS") code. Id. ¶ 19. A NAICS code sets the maximum average revenue a company can have for the preceding three years to qualify as "small." If, for example, the applicable NAICS code sets a revenue threshold of $10 million, then only companies with cumulative revenues of $30 million or less in the three most recent fiscal years qualify as "small" for the contract and may bid on it.

The SBA's small business government contracting program is self-certifying. The SBA does not review a company's eligibility for a set-aside contract unless a losing bidder files a protest, triggering a so-called "size determination" by the SBA. Id. ¶ 25. The SBA requires the winning bidder to submit tax returns proving that it falls below the applicable revenue threshold. Id. If the SBA determines that the protested company does not qualify as small, "the government must cancel the contract award to the protested company and award the contract to the company next in line for the award." Id.

B.

In March 2017, the Internal Revenue Service, Office of Treasury Procurement Services ("IRS OTPS") solicited bids for property auction services. Compl. ¶ 2. The applicable NAICS code carried a $7.5 million revenue threshold. Id. ¶ 20. So, to compete for this contract, a company's cumulative revenue for the three prior fiscal years could not exceed $22.5 million ($7.5 million multiplied by 3). Id.

Bid Solve and CWS Marketing Group, Inc. ("CWS") both submitted bids and self-certified that they were small. Id. ¶ 30. In February 2018, IRS OTPS issued a pre-award letter informing both bidders that it had selected CWS. Id. ¶ 32. The next day, Bid Solve filed a protest with the SBA claiming that CWS was not "small" for this contract and that its certification was false. Id. ¶ 35. CWS submitted additional financial information to the SBA, which issued a decision several weeks later in its favor. Id. ¶ 37–38. CWS is now performing under the contract. Id. ¶ 6.

After losing the bid protest, Bid Solve filed this lawsuit under the False Claims Act ("FCA"), 31 U.S.C. § 3729, et seq. , which allows a private plaintiff to act as a qui tam relator on behalf of the government to recover damages and civil penalties. Compl. ¶ 1; see also United States ex rel. Hood v. Satory Glob., Inc. , 946 F. Supp. 2d 69, 80 (D.D.C. 2013). "A person violates the FCA ... if he ‘knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval’ by the government or ‘knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.’ " United States ex rel. Cimino v. Int'l Bus. Machines Corp. , 3 F.4th 412, 415 (D.C. Cir. 2021) (quoting 31 U.S.C. § 3729(a)(1)(A) and (B) ). When a plaintiff files an FCA complaint, the complaint is sealed for sixty days while the United States decides whether to intervene. Hood , 946 F. Supp. 2d at 80. If the government investigates and declines to intervene, then the complaint is unsealed, and the plaintiff may proceed with the case. Id.

The United States declined to intervene here, leaving Bid Solve to pursue the lawsuit alone. See Notice of Election to Decline Intervention, ECF No. 8. Bid Solve maintains that CWS's self-certification at the initial bidding stage was false and that, after Bid Solve filed its protest, CWS submitted to the SBA tax returns with false revenues. Bid Solve argues that these false statements constitute implied false certification and fraudulent inducement in violation of §§ 3729(a)(1)(A) and (B). CWS seeks dismissal under Federal Rules of Civil Procedure 9(b), 12(b)(1), and 12(b)(6). The motion is now ripe.

II.

Rule 9(b) states that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). In the FCA context, Rule 9(b) means that "the pleader [must] state the time, place[,] and content of the false misrepresentations, the fact misrepresented and what was retained or given up as a consequence of the fraud." United States ex rel. Williams v. Martin-Baker Aircraft Co. , 389 F.3d 1251, 1256 (D.C. Cir. 2004) (cleaned up). Courts have sometimes characterized a plaintiff's burden as providing "the who, what, when, and where with respect to the circumstances of the fraud." United States ex rel. Brady Folliard v. Comstor Corp. , 308 F. Supp. 3d 56, 68 (D.D.C. 2018) (cleaned up).

To avoid dismissal under Rule 12(b)(1), the plaintiff bears the burden of proving that the Court has subject matter jurisdiction to hear its claims. See Arpaio v. Obama , 797 F.3d 11, 19 (D.C. Cir. 2015). In evaluating a motion to dismiss under Rule 12(b)(1), the Court must "treat the complaint's factual allegations as true ... and must grant plaintiff[s] the benefit of all inferences that can be derived from the facts alleged." Sparrow v. United Air Lines, Inc. , 216 F.3d 1111, 1113 (D.C. Cir. 2000) (cleaned up).

To survive Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Hurd v. District of Columbia , 864 F.3d 671, 678 (D.C. Cir. 2017) (cleaned up). A plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The Court accepts the complaint's factual allegations as true and grants the plaintiff "all inferences that can be derived from the facts alleged." L. Xia v. Tillerson , 865 F.3d 643, 649 (D.C. Cir. 2017) (cleaned up). The Court need not, however, credit "a legal conclusion couched as a factual allegation." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (cleaned up). The Court considers "only the facts alleged in the complaint, any documents either attached to or incorporated in the complaint[,] and matters of which [it] may take judicial notice." Hurd , 864 F.3d at 678 (cleaned up).

III.

Bid Solve argues that the Court has subject matter jurisdiction over this action under 28 U.S.C. § 1331.¹ CWS responds that the FCA's so-called Tax Bar precludes jurisdiction. The Tax Bar arises from a provision of the FCA which states that the FCA "does not apply to claims, records, or statements made under the Internal Revenue Code of 1986." 31 U.S.C. § 3729(d). Courts in this district have addressed the Tax Bar only rarely, and these cases involved plaintiffs seeking to recover unpaid taxes. See, e.g. , Canen v. Wells Fargo Bank, N.A. , 118 F. Supp. 3d 164, 170 (D.D.C. 2015) (denying recovery under the FCA because "Plaintiffs root their FCA claims in lost ‘income tax revenue’ "); Ananiev v. Freitas , 37 F. Supp. 3d 297, 307 (D.D.C.) (same), aff'd , 587 F. App'x 661 (D.C. Cir. 2014). As Bid Solve does not seek to recoup taxes, these cases provide little guidance.

The Court will not apply the Tax Bar here because Bid Solve's arguments do not arise under the Internal Revenue Code ("Tax Code"). The Tax Bar applies to claims "made under" the Tax Code. 31 U.S.C. § 3729(d). But Bid Solve's claims are governed by the Small Business Act, 15 U.S.C. §§ 631 – 657. The contract CWS and Bid Solve sought was classified as a small business set-aside contract under SBA regulations. Compl. ¶¶ 17–29. CWS and Bid Solve had to self-certify as small because of these regulations. Id. ¶¶ 25, 29–30. And when IRS OTPS selected CWS and Bid Solve filed a protest, the SBA adjudicated that protest and issued a size determination, not the IRS. Id. ¶¶ 35, 38.

True, the Complaint relies heavily on CWS's tax returns. But this is not fatal for three reasons. First , the Complaint alleges that CWS...