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U.S. EX. REL. AHUMADA v. NISH, NO. 13-1672

Decided: June 23, 2014

The Fourth Circuit affirmed the district court’s decision to dismiss Mike Ahumada’s False Claims Act (FCA) claim on behalf of the United States against the defendants, National Industries for the Severely Handicapped (NISH), Green Bay Packaging (Green Bay), International Paper Company (IPC), and Smurfit-Stone Container (Smurfit), for lack of subject-matter jurisdiction.  The Court also affirmed the district court’s decision to dismiss Ahumada’s FCA claim against defendant Weyerhaeuser because Ahumada failed to plead his claim with particularity, as required by Federal Rule of Civil Procedure (F.R.C.P.) 9(b).

Ahumada worked for the National Center for Employment of the Disabled (NCED) over a six-month period in 2004.  NCED produced and sold products to the U.S. Government in accordance with the Javits-Wagner-O’Day Act (the Act), which was created to promote the employment of disabled people.  NISH ensured that participating businesses, such as NCED, actually followed the Act’s rules.  In late 2005, The Oregonian and El Paso Times published articles that alleged NCED suppliers IPC, Green Bay, Smurfit, and Weyerhaeuser (the Suppliers) helped NCED violate this Act.  The Suppliers allegedly helped NCED violate the Act by selling to NCED finished products, despite the Act’s mandate that NCED manufacture the products on its own.  Allegedly, the Suppliers also intentionally overcharged NCED in order to get rebates that were then paid to their management.  NCED, and its CEO, settled with the Government, and Ahumada pursued his FCA claims against NISH and the Suppliers separately.

The Court reasoned that the district court lacked subject-matter jurisdiction to hear Ahumada’s claims against NISH and all of the Suppliers except Weyerhaeuser because of the FCA’s public-disclosure bar.  The “public-disclosure bar provide[s] that ‘[n]o court shall have jurisdiction over an action under [the FCA] based upon the public disclosure of allegations or transactions . . . unless . . . the person bringing the action is an original source of the information.’”  However, a FCA claim can overcome the public disclosure bar if the plaintiff is the “original source” of the public disclosure.  A plaintiff is the original source if he: (1) has “direct and independent knowledge” of the publicly disclosed allegations; and (2) “voluntarily provided the information to the Government before filing [the] action.”

The Court reasoned that Ahumada was unable to prove his direct and independent knowledge of the publicly disclosed allegations against defendants NISH, Green Bay, and Smurfit by way of his employment at NCED because he had been terminated by NCED when the illegal activity took place.  Further, the majority of his allegations against the three Suppliers cited testimony from an earlier trial, which “strongly suggest[ed] that this public disclosure was in fact the source of Ahumada’s knowledge.”

In regard to Ahumada’s FCA claim against IPC, he failed to prove how he had direct knowledge that IPC “unquestionably knew”—the necessary scienter element of an FCA claim—that NCED was violating the Act.  The transactions between NCED and IPC, without more, were not enough to prove IPC’s scienter, and Ahumada was unable to provide specific details except that “someone” told him IPC knew NCED was violating the Act.

Finally, the Court reasoned that the district court had subject-matter jurisdiction to hear Ahumada’s FCA claim against Weyerhaeuser because Ahumada satisfied the original source exception to the public disclosure bar by showing that he personally witnessed, and confirmed, illegal transactions between NCED and Weyerhaeuser, and that he voluntarily provided this information to the Government prior to filing suit.  However, Ahumada’s claim still failed to satisfy F.R.C.P. 9(b)’s particularity requirement because it did not “allege ‘the who, what, when, where and how of the alleged fraud.’”  His claim that Weyerhaeuser sold pre-manufactured products to NCED was not particular enough, without more, to support an FCA claim.  Neither was his allegation that Weyerhaeuser “provided [NCED with] inflated invoices” for its products.  Therefore, the district court had properly dismissed Ahumada’s claims against Weyerhaeuser, as well as the other defendants.

Full Opinion

James Bull Sterling