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denying motion to dismiss where relator "raised the issue of 'the company's misuse of government funds'" with company executives and threatened "to take his complaints to the authorities"
Summary of this case from Krause v. Eihab Human Servs., Inc.Opinion
07 Civ. 5600 (PKC)
04-13-2011
EDWARD GARCIA, Plaintiff, v. ASPIRA OF NEW YORK, INC., Defendant.
MEMORANDUM AND ORDER
:
Plaintiff Edward Garcia brings this action against Aspira of New York, Inc., pursuant to the "whistleblower" provision of the False Claims Act, 31 U.S.C. §§ 3729 et seq. ("FAC"), and the New York False Claims Act, N.Y. STATE FIN. §§ 187 et seq. ("NYFCA") asserting that he was demoted and subsequently fired in retaliation for his complaining of submissions of allegedly false or fraudulent claims to the government. Defendant moves to dismiss the Second Amended Complaint pursuant to Rule 12(b)(6), Fed. R. Civ. P., for failure to state a claim upon which relief can be granted. For the reasons stated below, defendant's motion to dismiss is denied. BACKGROUND
This action was commenced with the filing of the Complaint on June 12, 2007. (Docket # 1.) The initial Complaint was filed under seal, as required by qui tam provisions of the FCA and the NYFCA and by Order of the Court dated June 12, 2007. By Stipulation and Order dated July 13, 2010, the qui tam claims were voluntarily discontinued and dismissed with the consent of the United States and the City of New York. On July 27, 2010 plaintiff filed, under seal, a second amended complaint against defendant Aspira in his own name asserting a retaliation claim. By Order of this Court, dated July 28, 2010, the Second Amended Complaint was unsealed and plaintiff was granted leave to serve the defendant. (Docket # 17.)
From 2002 to 2005, plaintiff Edward Garcia was the Assistant Director of Programs for defendant Aspira of New York, Inc., a not-for-profit corporation operating publicly-funded after-school programs and other youth programs in Manhattan and Bronx counties, including the Trio Programs, the Community Achievement Project in the Schools ("CAPS"), the Beacon School Programs and the 21st Century Community Learning Centers. (Sec. Am. Compl. ¶¶ 2-3, 8, 13.) Plaintiff alleges that while employed at Aspira, he "obtained information indicating that Aspira and its Executive Director, Hector Gesualdo, and its Chief Financial Officer, Sunil Annand, engaged in fraudulent conduct, primarily, but not exclusively, creating and submitting fraudulent grant applications, budgets and expense reports . . . ." (Id. ¶ 9.)
The Trio Programs, funded by the United States Department of Education, Office of Postsecondary Education, provide educational opportunities and outreach programs to motivate and support students from disadvantaged backgrounds. (Id. ¶ 10.) Plaintiff alleges that since 2002, Gesualdo and Annand have "used Trio funds to pay their own salaries, of $110,000 and $120,000 per year, respectively," and have "diverted Trio funds to cover the salaries of other central administration staff such as Public Relations officer, Executive Secretary and Human Relations officer, and Fiscal Director." (Id. ¶ 11.) Plaintiff also alleges that Aspira "falsely claimed that services, such as assistance with college admissions and financial aid applications, were performed when they were not, and it listed students as enrolled and receiving Trio services when they were not." (Id. ¶ 12.)
Similarly, plaintiff alleges that Aspira submitted fraudulent budgets in connection with its CAPS program. (Id. ¶ 13.) CAPS is funded by New York City, through its Department of Education and the budget of its City Council, as well as by the United Way, a private charity. (Id.) CAPS provides counseling and other support to at-risk students through community organizations. (Id.) As examples of Aspira's fraudulent CAPS budget submissions, plaintiff alleges that a full-time Trio program employee was also listed as a 20-hour per week program coordinator for a CAPS program and that the 2004 CAPS budget "included salaries of $3,503 for a technology specialist, and $5,885 for clerical technical support, when in fact the program did not have such personnel, and the monies were used for central office purposes." (Id. ¶¶ 14-15.)
The Beacon Programs, funded in part by New York City and the United States Department of Health and Human Services, provide educational, cultural and social programs and services to youths and families on evenings, weekends, school holidays and vacations. (Id. ¶ 16.) Aspira was awarded Beacon funds for programs at MS 222 in Mott Haven and PS 86x in Kingsbridge. (Id. ¶ 17.) In connection with these programs, plaintiff alleges that Aspira "included in budgets submitted to the Beacon program monies for equipment, computers, rent and utilities for that program, when in fact it did not incur such expenses for the programs, and Aspira secretly allocated these funds to its central administrative costs and overhead." (Id. ¶ 18.)
Finally, in connection with Aspira's work with the 21st Century Community Learning Centers, plaintiff alleges that Aspira "misrepresented the allocation of funds" in budget and expense reports submitted to funding agencies. (Id. ¶ 22.) The 21st Century Community Learning Centers, funded by grants to states from the Office of Elementary and Secondary Education of the United States Department of Education, provides programs in community centers for academic enrichment. (Id. ¶ 20.) Examples of misallocations alleged by plaintiff include (1) directing that the "$14,400 salary for the Program Aide in the 2004 [budget] be used as central funds," (2) diverting award funds to pay a portion of Aspira's overhead allocable to the project, (3) charging for items, "such as space rental, telephone, office maintenance, postage and copier equipment rental, when in fact it did not incur such expenses for the program," and (4) charging the program with "the salary of personnel that either did not exist, or were in fact assigned to Aspira's central office or other projects." (Id. ¶ 23.)
The plaintiff alleges that in or about September 2005, he and another employee, Renan Morales, attended a budget meeting and complained to Gesualdo and Annand "about the company's misuse of government funds," stating specifically "that the budget and other information that Aspira was submitting to public agencies to obtain funding was fraudulent." (Id. ¶¶ 24, 26.) According to the Second Amended Complaint, Annand responded: "we know where to put things so they don't look for it," "the organization could not pay its staff 'on what they give use,'" and "[l]ook, they will not check these programs . . . we know what we're doing; we've been doing this a long time, trust me." (Id. ¶¶ 27-29.) Plaintiff alleges that "shortly after" the September 2005 meeting, Morales was fired and given a severance payment by Annand to "stay quiet" and plaintiff was replaced as Program Director and reassigned to Evander Childs High School in the north Bronx. (Id. ¶¶ 29-31.) Plaintiff claims that the reassignment was a "demotion" and "an attempt to limit [plaintiff's] access to information in the central office about the budgets and the improper practices he was complaining to management about." (Id. ¶ 31.)
On or about October 31, 2005, plaintiff asked Marc Merino, a managing director at Aspria who reported directly to Gesualdo, to set up a meeting between plaintiff and Gesualdo and Annand to discuss the budget discrepancies. (Id. ¶ 32.) Plaintiff told Merino that "he had documents demonstrating [the budget discrepancies] and knew enough about the fraud to take his complaints to the authorities." (Id.) Plaintiff alleges that "within a few minutes after asking for the meeting," he was fired. (Id. ¶ 33.) DISCUSSION
I. Motion to Dismiss Standard
To survive a motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P., "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "'Labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do,'" rather, a plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (quoting Twombly, 550 U.S. at 555). In considering a Rule 12(b)(6) motion to dismiss, all non-conclusory factual allegations are accepted as true, see id. at 1949-50, and all reasonable inferences are drawn in favor of the plaintiffs. See In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (per curiam).
The heightened pleading requirements of Rule 9(b), Fed. R. Civ. P., do not apply to a retaliation claim under 31 U.S.C. § 3730(h) because it does not require a showing of fraud. See U.S. ex rel. Karvelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 238 n.23 (1st Cir. 2004).
II. Retaliation Claim under the FCA
Plaintiff alleges that defendant retaliated against him in violation of the so-called "whistleblower" provision of the FCA, 31 U.S.C. § 3730(h). Section 3730(h), as in effect at the time plaintiff filed his Complaint, provides:
Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an
action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole . . . .31 U.S.C. § 3730(h) (subsequently amended in 2009).
The New York False Claims Act, N.Y. STATE FIN. §§ 187 et seq., closely tracks the federal False Claims Act. See U.S. ex rel. Pervez v. Beth Israel Med. Ctr., 736 F.Supp.2d 804, 816 (S.D.N.Y. 2010). Section 191 of the New York statute, as in effect at the time plaintiff filed his Complaint, provides in relevant part:
Any employee of any private or public employer who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment, by his or her employer because of lawful acts done by the employee on behalf of the employer, or others in furtherance of an action brought under this article, including the investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole . . . .
"This 'whistleblower' provision was intended to protect persons who assist in the discovery and prosecution of fraud, because few individuals will expose fraud if they fear their disclosures will lead to harassment, demotion, loss of employment or any other form of retaliation." Faldetta v. Lockheed Martin Corp., 98 Civ. 2614 (RCC), 2000 WL 1682759, *11 (S.D.N.Y. Nov. 9, 2000) (internal quotation marks omitted) (citations omitted). To state a claim for retaliation under the FCA, plaintiff must plead that "(1) the employee engaged in conduct protected under the FCA; (2) the employer knew that the employee was engaged in such conduct; and (3) the employer discharged, discriminated against or otherwise retaliated against the employee because of the protected conduct." McAllan v. Von Essen, 517 F.Supp.2d 672, 685 (S.D.N.Y. 2007) (internal quotation marks omitted). While the allegations in the Second Amended Complaint are not fulsome, if the facts alleged therein were proven at trial, a reasonable jury could conclude that plaintiff engaged in protected activity, that defendant was aware of his protected activity and that he was terminated in retaliation for it.
In order to assert an FCA retaliation claim, an employee must engage in protected conduct. To qualify as protected conduct an employee's actions must have been "in furtherance of an action under the FCA," that is, an employee "must have been investigating matters that were calculated, or reasonably could have lead [sic], to a viable FCA action." Faldetta, 2000 WL 1682759 at *12 (internal quotation marks omitted); see McAllen, 517 F.Supp.2d at 685. "Protected activity" is interpreted broadly. See Faldetta, 2000 WL 1682759 at *12 (citing S. Rep. No. 345, 99th Cong., 2d Sess. 34 (1986), reprinted in, 1986 U.S.C.C.A.N. 5266, 5299). Thus, "an employee's activities may be protected even where an FCA suit has not been filed." Id.; see Moor-Jankowski v. Bd. of Trs. of N.Y. Univ., 96 Civ. 5997 (JFK), 1998 WL 474084, *10 (S.D.N.Y. Aug. 10, 1998). Although the types of activities covered are broad, "the employee's purpose must not be detached from the [FCA] in order for the employee to receive the FCA's whistle blower protections." Luckey v. Baxter Healthcare Corp., 2 F.Supp.2d 1034, 1051 (N.D. Ill. 1998). "[E]ven under the broadest reading of the 'in furtherance of an [FCA] action,' an employee's activities that are not related to exposing or deterring fraud, are not 'whistle blowing as envisioned in the paradigm qui tam FCA action.'" Id. at 1052 (quoting Hopper v. Anton, 91 F.3d 1261, 1269 (9th Cir. 1996)).
Plaintiff alleges that while employed as the Assistant Director of Programs for Aspira he "obtained information indicating that in budget and expense reports submitted to [government] funding agencies, Aspira misrepresented the allocation of funds" and he "investigated Aspira's illicit budget practices and complained to Aspira's management that the budget and other information that Aspira was submitting to public agencies to obtain funding was fraudulent." (Sec. Am. Compl. ¶¶ 22, 24.) At a September 2005 budget meeting plaintiff raised the issue of "the company's misuse of government funds" with Gesualdo and Annand, the Executive Director and CFO of defendant Aspira respectively, citing specific examples of the alleged fraudulent conduct. (Id. ¶¶ 26-28.) Additionally, on October 31, 2005, plaintiff asked Marc Merino, a managing director of Aspira who reports directly to Gesualdo, to set up a meeting with Gesualdo and Annand stating that "he had documents demonstrating [the budget discrepancies] and knew enough about the fraud to take his complaints to the authorities." (Id. ¶ 32.) Accepting plaintiff's allegations as true, evidence that the defendant included false expenses in budgets utilized in connection with government grant applications would form a reasonable basis for bringing a qui tam action under the FCA. Therefore, for purposes of this motion to dismiss, plaintiff's observations and his confrontations with defendant establish that he has engaged in protected conduct. See U.S. ex rel. Ellis v. Sheikh, 583 F.Supp.2d 434, 439 (W.D.N.Y. 2008) (finding plaintiff sufficiently alleged an action for retaliation under section 3730(h) where she "investigated defendants' activities, notified her supervisor that she suspected defendants to be engaged in fraud, and discussed her concerns with investigators from the Government"); see also Mikes v. Strauss, 889 F.Supp. 746, 752-53 (S.D.N.Y. 1995) ("[P]laintiff has established that she engaged in protected conduct by observing the misuse of spirometry tests, investigating the medical histories of patients she treated indicating that spirometry and MRI tests were overutilized, and confronting defendants with her observations.").
Although the connection between the budgets and the grant applications is not fully developed, at the motion to dismiss stage, the plaintiff has pled sufficient facts from which a reasonable jury could conclude that the alleged fraudulent budgets were utilized in connection with grant applications to obtain funding from government sources. In fact, the defendant states in its brief in support of dismissal that bids submitted in connection with the grant programs referenced in the Second Amended Complaint "may request a hypothetical budget, along with other materials." (Am. Mem. of Law in Supp. of Def.'s Mot. to Dismiss at p.9 n.8.)
Moreover, if the facts alleged were proven, a reasonable jury could conclude that plaintiff had informed Aspira that he was concerned about possible fraud and was contemplating bringing a qui tam action to expose the alleged fraud. To satisfy the second element of the FCA retaliation claim, the plaintiff must "supply sufficient facts from which a reasonable jury could conclude that the employee was discharged because of activities which gave the employer reason to believe that the employee was contemplating a qui tam action against it." Mikes, 889 F.Supp. at 753. Plaintiff alleges that on October 31, 2005, he told Marc Merino, a managing director at Aspira who reported directly to Gesualdo, that he "had documents demonstrating [the budget discrepancies] and knew enough about the fraud to take his complaints to the authorities." (Sec. Am. Compl. ¶ 32.) This statement should be placed in context. Plaintiff had one month earlier complained to Gesauldo and Annand that "the budget and other information that Aspira was submitting to public agencies to obtain funding was fraudulent" (id. ¶ 24) and Annand responded "we know where to put things so they don't look for it," "the organization could not pay its staff 'on what they give use,'" and "[l]ook, they will not check these programs . . . we know what we're doing; we've been doing this a long time, trust me." (Id. ¶¶ 27-29). If these facts were proven, a reasonable jury could conclude that Aspira had reason to believe that plaintiff was contemplating a qui tam action against it. See Mikes, 889 F.Supp. at 753-54 (finding plaintiff pled sufficient facts to satisfy the second prong of section 3730(h) where, although stopping short of accusing defendant of fraud, plaintiff informed defendant that its incomplete billing practices precluded charging certain tests to Medicare and defendant reacted in an allegedly enraged manner to plaintiff's investigations).
Finally, drawing all reasonable inferences in favor of the plaintiff, he has alleged facts that, if proven, would permit a reasonable jury to conclude that he was terminated in retaliation for his conduct. Plaintiff alleges that "shortly after" his September meeting with the defendant where he raised the alleged budget frauds he was replaced as Program Director and reassigned to Evander Childs High School in the north Bronx. (Sec. Am. Compl. ¶¶ 29-31.) Plaintiff claims that the reassignment was a "demotion" and "an attempt to limit [his] access to information in the central office about the budgets and the improper practices he was complaining to management about." (Id. ¶ 31.) Moreover, plaintiff alleges that "within a few minutes" of informing Marc Merino that he had sufficient evidence of the alleged fraud to go to the authorities, he was fired. (Id. ¶¶ 32-33.) At the motion to dismiss stage, the temporal proximity between plaintiff's statement, which could be construed as a statement of intent to report the fraud to government authorities, and the firing is a sufficient basis to permit the claim to go forward. CONCLUSION
For the reasons set forth above, defendant's motion to dismiss is DENIED.
SO ORDERED.
/s/_________
P. Kevin Castel
United States District Judge Dated: New York, New York
April 13, 2011