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holding that the "elements of a claim under § 3729 are: that the defendant made, used, or caused to be made or used, a record or statement to get a claim against the United States paid or approved; the record or statement and the claim were false or fraudulent; and the defendant knew that the record or statement and the claim were false or fraudulent."
Summary of this case from United States ex rel. Oliver v. Parsons Corp.Opinion
No. 98C5551.
May 25, 2000
MEMORANDUM OPINION AND ORDER
Before this Court is defendant United Way/Crusade of Mercy, Inc.'s ("UW" or "United Way") motion to dismiss plaintiff Juan Bustamante's four-count complaint. Juan Bustamante filed a complaint on behalf of himself and the United States Government pursuant to the qui tam provision of the False Claims Act ("FCA"), 31 U.S.C. § 3729(a)(1). Counts I and II of the complaint allege that the United Way made false claims to the United States Government for payment. Count III alleges that the United Way wrongfully terminated Bustamante's employment in retaliation for his pursuit of and investigation into the United Way's allegedly false claims, in violation of § 3730(h). Count IV alleges that the United Way wrongfully terminated Bustamante's employment in retaliation for his investigation, in violation of the public policies of the State of Illinois as reflected in its statutes and case law. For the following reasons, United Way's motion to dismiss is GRANTED as to all counts of Bustamante's complaint.
I. FACTS
Juan Bustamante was a United Way employee for approximately fourteen years. (Plaintiff's Complaint at ¶ 30). During his last year of employment there, Bustamante was transferred to the position of Combined Federal Campaign Director. ( Id. at ¶ 28). It was his activity as Director during that final year that gives rise to this cause of action.
In 1982, President Reagan, by Executive Order No. 12353 ("Order"), provided for the on-the-job solicitation of federal employees and members of the uniformed services for fundraising by voluntary agencies. (Plaintiff's Response at 2). To that end, the Office of Personnel Management was authorized to establish a national voluntary program for soliciting charitable contributions from federal employees and members of the uniformed services by eligible national voluntary health and welfare agencies. (Plaintiff's Complaint at ¶ 9). Pursuant to this Executive Order and as established by the Office of Personnel Management, this program takes the form of an annual Combined Federal Campaign ("Campaign") in which eligible voluntary agencies are authorized to take part. ( Id. at ¶ 10). Federal employees and members of the uniformed services contribute money through payroll deductions. ( Id. at ¶ 12). The executive order states that, when authorized by the Director of the Office of Personnel Management ("Director"), the campaign is managed on a local level by a local principal combined fund organization ("PCFO"). The local PCFO operates subject to the direction and control of the Director and such local federal coordinating entities as he or she may establish. ( Id. at ¶ 14).
In Chicago, the local federal coordinating entity established by the Director is the Local Federal Coordinating Committee ("LFCC"). ( Id. at ¶ 15). The United Way is a health and welfare agency that operates as a not-for-profit corporation. ( Id. at ¶ 8, 16). Each year, the LFCC selects one of the voluntary organizations involved in the combined federal campaign to manage the local campaign and serve as its fiscal agent under contract with the government. ( Id. at ¶ 17). For more than ten years the LFCC has selected the United Way to manage the local campaign and serve as its fiscal agent. ( Id. at ¶ 18).
As manager of the Chicagoland area campaign, the United Way was the local principal combined fund organization. ( Id. at ¶ 19). As manager of the local campaign and as the government's fiscal agent for the campaign, the United Way would yearly receive, manage and disburse to the recipient agencies contributions of up to $4,200,000.00. ( Id. at ¶ 20). As the Chicago area local PCFO, the United Way billed the federal government and was paid approximately $460,000.00 per year for the management of the Chicago area campaign and for services as the fiscal agent of the campaign. ( Id. at ¶ 21).
For purposes of the campaign, agencies can combine in federations. ( Id. at ¶ 22). A federation is established for the purpose of supplying fund raising, administrative and management services to its member agencies. ( Id. at ¶ 23). Federal employees and uniformed services personnel may designate federations to receive contributions solicited from them during a campaign. ( Id. at ¶ 24). Such contributions are then shared among the federation member agencies in accordance with the federation's policy. ( Id.)
The United Way was and is the managing member of a federation. ( Id. at ¶ 25). As the managing member of a federation, the United Way is responsible for annually certifying to the government that members of the federation meet federal requirements for an agency which is qualified and eligible to receive contributions from federal employees and uniformed service personnel. ( Id. at ¶ 26). As managing member of a federation, the United Way represented to the federal government that as many as 450 members of its federation were qualified and eligible to receive contributions from federal employees and uniformed service personnel. ( Id. at ¶ 27). On the basis of such certification, a list of qualified recipient organizations is published for distribution to federal employees and uniformed service personnel. (Pl. Resp. at 5). It is from this list that federal employees choose agencies to which their contributions are directed. ( Id.) This publication provides:
How do Federal employees decide which charities to list in the catalog?
Local charities that help residents in this area or adjacent counties applied to the LFCC, the "board of directors" of our campaign. The local charities listed under the heading "Local Agencies" have met OPM requirements for local eligibility.
After the applicable organization(s) and amounts are selected, deductions are withheld from federal employees' paychecks and distributed to the PCFO from government payment centers around the country. ( Id. at 6).
In March, 1998, Bustamante was transferred from his position of West Regional Director for United Way to the position of Combined Federal Campaign Director. (Plaintiff's Complaint at ¶ 28). As Combined Federal Campaign Director, Bustamante managed the local Chicago area campaign for the United Way in its capacity as the government's local principal combined fund organization. ( Id. at ¶ 29).
Shortly after beginning his job as Campaign Director, Bustamante began an investigation to determine whether the federation members managed by the United Way met the federal requirements for charities. ( Id. at ¶ 31). He discovered that a majority of these agencies were not eligible to participate in the campaign and could not be certified by the United Way as eligible charitable organizations. ( Id. at ¶ 32). Bustamante then began an investigation to determine whether in past years, agencies had been improperly certified by the United Way as eligible charities. ( Id. at ¶ 33).
As part of his investigation, Bustamante consulted with a former Campaign Director who was then an ex-employee of the United Way. ( Id. at ¶ 34). This individual told Bustamante that the United Way had certified to the LFCC that agencies were eligible charities, when United Way knew that they were ineligible. ( Id. at ¶ 35). This individual also told Bustamante that the United Way had instructed him as Campaign Director to keep this fact from the LFCC. ( Id. at ¶ 36). Bustamante also discovered that United Way was receiving contributions from federal employees and uniformed service personnel on the basis of these false certifications. ( Id. at ¶ 37). Bustamante found out that the United Way was disbursing portions of these contributions to agencies that it knew did not qualify as charities. ( Id. at ¶ 38). Finally, as a result of his investigation, Bustamante learned that the United Way, as the local PCFO, had been billing the government for fees in connection with the receipt and disbursement of these contributions. ( Id. at ¶ 39).
Bustamante informed the United Way about his investigations. ( Id. at ¶ 40). Immediately thereafter, the United Way placed Bustamante on paid leave of absence for five days. ( Id. at ¶ 41). At the end of those five days, on June 1, 1998, the United Way fired Bustamante, citing poor performance as the reason. ( Id. at ¶ 42).
II. STANDARD FOR MOTION TO DISMISS
A motion to dismiss pursuant to Rule 12(b)(6) does not test whether the plaintiff will prevail on the merits, but instead whether the plaintiff has properly stated a claim upon which relief may be granted. Pickrel v. City of Springfield, Ill., 45 F.3d 1115 (7 th Cir. 1995). The court must accept as true all of the plaintiff's well-pleaded factual allegations, as well as all reasonable inferences. Id. Thus, the court will dismiss a complaint under Rule 12(b)(6) only "if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Ledford v. Sullivan, 105 F.3d 354, 357 (7 th Cir. 1997) (quoting Hishon v. King Spalding, 467 U.S. 69, 78, 104 S.Ct. 2229, 2232 (1984)). The complaint must state either direct or inferential allegations concerning all material elements necessary for recovery under the chosen legal theory. Glatt v. Chicago Park District, 847 F. Supp. 101, 103 (N .D. Ill. 1994). Any ambiguities are construed in favor of the plaintiff. Curtis v. Bembeneck, 48 F.3d 281, 283 (7 th Cir. 1995). The court, however, need not "strain to find inferences favorable to the plaintiffs which are not apparent on the face of the complaint." Coates v. Illinois State Bd. Of Ed., 559 F.2d 445, 447 (7 th Cir. 1997). It is with these principles in mind that we turn to the motion before us.
III. ANALYSIS
A. Qui Tam Action Under the False Claims Act
The False Claims Act was intended to be a weapon to ferret out fraud against the federal government. Lamers v. City of Green Bay, 998 F. Supp. 971, 977 (E.D.Wis. 1998). The FCA has made integral use of the qui tam provision since the Act's passage during the Civil War. Id. The basic qui tam idea is that private citizens with personal knowledge of fraud against the government may bring suit on the government's behalf in return for a cut of the judgment proceeds should they prevail. Id. Where, as here, the government elects not to intervene, the qui tam plaintiff may proceed with the action as the government's assignee. Wilkins ex rel. United States v. State of Ohio, 885 F. Supp. 1055 (S.D.Oh. 1995).
Plaintiff Bustamante has alleged in his complaint that defendant the United Way has committed acts within the purview of 31 U.S.C. § 3729(a)(1) and (2).
Section 3729 creates liability for the following conduct:
§ 3729. False Claims
(a) Liability for certain acts. — Any person who
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval.
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government.
The elements of a claim under § 3729(a)(1) are: (1) that the defendant presented or caused to be presented to an agent of the United States a claim for payment; (2) that the claim was false or fraudulent; and (3) that the defendant knew that the claim was false or fraudulent. Id. at 1059; United States ex rel. Stinson, Lyons, Gerlin Bustamante, P.A. v. Provident Life Accident Ins. Co., 721 F. Supp. 1247, 1258-59 (S.D.Fla. 1989).
The elements of a claim under § 3729(a)(2) are: (1) that the defendant made, used, or caused to be made or used, a record or statement to get a claim against the United States paid or approved; (2) the record or statement and the claim were false or fraudulent; and (3) the defendant knew that the record or statement and the claim were false or fraudulent. Stinson, 721 F. Supp. at 1259.
Although courts differ as to whether damage to the government is an element in a successful FCA claim, the Seventh Circuit appears not to require that the government suffer damage from the false claim. See Luckey v. Baxter Healthcare Corp., 2 F. Supp.2d 1034, 1044 (N.D.Ill. 1998); United States v. Hughes, 585 F.2d 284, 286 n. 1 (7 th Cir. 1978); United States v. First Nat'l Bank of Cicero, 957 F.2d 1362 (7 th Cir. 1992).
Defendant United Way contends that Counts I, II and III should be dismissed pursuant to F.R.C.P. 12(b)(1) for lack of subject matter jurisdiction.
As to Count I and II of his complaint, Bustamante asserts an action pursuant to § 3729(a)(1) and § 3729(a)(2), respectively, of the FCA. Bustamante alleges that "the false claims being made here are upon government employees for solicitation of charitable contributions to agencies falsely certified as eligible to participate in the CFC. This is a fraud perpetrated on recipients of federal funds to gain access to a portion of those funds. This is precisely the type of `claim' the False Claims Act is designed to remedy." (Plaintiff's Response at 7-8).
Thus, Bustamante contends that this allegedly fraudulent solicitation of contributions involves "claims" as required by the FCA. Section 3729(c) of the False Claims Act defines "claim" as follows:
(c) Claim defined. — For purposes of this section, "claim" includes any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded. . . .
The definition of "claim" provided by the FCA does not specify that federal employees or members of the uniformed services should be considered "recipient [s]" of federal funds. It is the definition of "claim" and "recipient" with which the UW takes issue.
(1) "Claim": The UW asserts that the undisputed evidence shows that United Way presented no claims to the United States Government for payment or approval. The UW states that Bustamante's failure to identify any federal funds at issue in this case prevents him from stating a cognizable claim under the FCA. The UW points out that the parties agree that the CFC's purpose is to solicit federal employees to make charitable contributions, and that the PCFO is compensated for its efforts by receiving a portion of the charitable contributions raised. The United Way argues that therefore, since it does not receive funds from the federal government, but rather from government employees, there can be no federal jurisdiction to support a FCA claim.
The UW also points out that the 1997 CFC Donor Guide states that "All Federal employees have the right to contribute or not to contribute to the CFC." Thus, UW argues, not only does each federal employee decide whether or not to contribute, but the money donated is the employee's personal funds. The UW cites the affidavit of the Chair of the Local Federal Coordinating Committee, who is also a federal employee, who confirms that his own CFC donation is made with personal, post-tax, non-federal money.
(2) "Recipient": The UW argues that federal employees are not "recipients" of federal funds for purposes of False Claims Act jurisdiction. It points out that as PCFO, the UW solicits federal employees to make personal donations to a variety of certified charities, and that therefore the money that they donate is their own, not the federal governments. The UW, in its role as PCFO, does not receive federal funds. The federal government only pays the PCFO for its administrative costs. The administrative costs identified in the PCFO's budget are deducted from the pooled employees' donations prior to the disbursement of the charitable contributions. All of the money applied to administrative expenses comes from the money raised by the employees' personal donations. No federal funds are used; only federal employees' personal funds are at issue.
This court is persuaded that although the federal government, as the employer, is responsible for deducting the designated contribution from an employee's paycheck, this does not convert the employee's personally paid charitable contribution into federal money. The court agrees with the UW that it would indeed be an illogical result if any time a federal employee spent her federal wages, she was considered to be expending federal funds and therefore protected from fraud by the FCA.
Plaintiff Bustamante asks this court to stretch the understanding of who can be termed a "recipient of federal funds." The court finds that to accept Bustamante's classification of federal employees as recipients of federal funds for purposes of the FCA, would be a significant expansion of the FCA which this Court is not persuaded it should undertake. Bustamante has not cited, nor has the court discovered, any legal authority which supports the position that federal employees are "recipients" of federal funds for purposes of FCA jurisdiction. Nothing in the FCA's language or the 1986 amendments to the FCA implies that the FCA's reference to federal grantees, contractors, or other recipients of federal funds was intended to include federal employees within its purview.
Even when read liberally, Plaintiff Bustamante's allegations do not provide sufficient facts, inferentially or otherwise, that suggest to this court that he has a colorable claim against the United Way for violations of the FCA. Ricketts v. Midwest Nat'l Bank, 874 F.2d 1177, 1185 (7 th Cir. 1989). As Bustamante has not presented a federal question for adjudication, this Court does not have subject matter jurisdiction over Counts I and II.
B. The Retaliatory Discharge Claim
In Count III, Bustamante claims that he was discharged in retaliation for his investigation of the alleged FCA violations, in violation of 31 U.S.C. § 3730(h). Section 3730(h), known as the "whistleblower" provision, protects an employee who has been retaliated against for participating in an "investigation . . . in an action filed or to be filed" pursuant to the FCA against her employer. 31 U.S.C. § 3703(h). The courts have articulated three elements necessary to establishing a § 3730(h) claim: (1) the employee must be engaged in conduct protected by the statute; (2) the employer must know the employee was engaging in such protected conduct; and (3) the employer must have discriminated against the employee because of this protected conduct. See Luckey v. Baxter Healthcare Corp., 2 F. Supp.2d 1034, 1050 (N.D.Ill. 1998) (citing Sahodnick v. Int'l Bus. Machines Corp., 135 F.3d 911, 913-14 (4th Cir. 1997)). Bustamante has alleged that (1) he was "engaged in an investigation which disclosed that the United Way was knowingly presenting false claims to the government and knowingly making false statements to the government to get false claims paid by the government"; (2) that the "Defendants knew of the Plaintiff's investigation;" and (3) that the United Way "fired him because of it." See Plaintiff's Complaint ¶ 47-49. On its face, Bustamante's complaint appears to satisfy his pleading burden. Nevertheless, the court finds that Bustamante's retaliation claim must be dismissed.
Section 3730(h) provides in full:
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.
The dismissal of Bustamante's fraud action does not necessarily destroy the viability of his § 3730(h) retaliatory discharge claim. See United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 739 (D.C. Cir. 1998) ("[T]he protected conduct element of [a § 3730(h)] claim does not require the plaintiff to have developed a winning qui tam action before he is retaliated against."). See also Luckey, 2 F. Supp.2d at 1050 (noting that a § 3730(h) claim may proceed even if neither governmental action is taken nor any qui tam action is filed or ultimately successful). To qualify under § 3730(h), however, the plaintiff must be "investigating matters which are calculated, or reasonably could lead, to a viable FCA action." Hopper v. Anton, 91 F.3d 1261, 1269 (9th Cir. 1996). See also Yesudian, 153 F.3d at 740 (citing Childree v. UAP/GA AG CHEM, Inc., 92 F.3d 1140, 1146 (11th Cir. 1996) (requiring "distinct possibility" of suit); Neal v. Honeywell, 33 F.3d 860, 864 (7th Cir. 1994) (finding that § 3730(h) protects plaintiff where litigation was "a distinct possibility")). The Seventh Circuit's pronouncement in Neal is instructive in determining whether, in light of the fact that Bustamante's qui tam claim is precluded as a matter of law, his investigative efforts can be deemed to fall within the purview of § 3730(h). Discussing the scope of § 3730(h), the Seventh Circuit indicated that the retaliation provision extends to "situations in which litigation could be filed legitimately-that is, consistently with Fed.R.Civ.P. 11." Neal, 33 F.3d at 864. That court added:
In Neal, the court addressed the issue of whether a plaintiff could maintain her retaliation claim even though she had not filed a fraud action under the FCA.
Then an employee who fabricates a tale of fraud to extract concessions from the employer, or who just imagines fraud but lacks proof, legitimately may be sacked. . . . [because] employees who use reports of fraud to better their own position, or who behave like Chicken Little, impose costs on employers without advancing any of the goals of the False Claims Act.Id.
As discussed previously, Bustamante's fraud claim cannot stand because § 3729 does not contemplate the inclusion of federal employees within the definition of "recipients" of federal funds. The court finds that since Bustamante's fraud claim was unwarranted as a matter of law even upon its inception, his investigatory efforts could not reasonably lead to a viable FCA action. See Hopper, 91 F.3d at 1269. Thus, his actions did not constitute protected conduct and do not qualify under § 3730(h). This result is consistent with the Seventh Circuit's interest in foreclosing the application of the retaliation provision to those cases which do not advance the goals of the FCA. Count III is therefore dismissed.
In Yesudian, the plaintiff brought a qui tam claim against the defendant for submitting a false claim to Howard University. A judgment was rendered against the plaintiff on his qui tam claim. The D.C. Circuit determined that even if resubmission of a false claim to the federal government was required for a successful qui tam action, the plaintiff's § 3730(h) claim was not defeated because he had a "good faith basis for going forward [with his investigation] at the time of the retaliation." 153 F.3d at 740. Although this approach seems to embrace a broader scope for § 3730(h), Yesudian is distinguishable from the case before this court. The plaintiff in Yesudian merely needed to gather more evidence and once that was done, he would have established a viable fraud claim. On the other hand, the instant case, from its commencement, was not grounded in a legally viable theory. No amount of further investigation would have lead Bustamante to a colorable qui tam claim.
C. Remaining State Law Claim
In light of the dismissal of Counts I, II, and III, this court declines to exercise supplemental jurisdiction over the remaining state claim. See 28 U.S.C. § 1367.
IV. CONCLUSION
For the foregoing reasons, defendant United Way's motion to dismiss is GRANTED.