United States ex rel. Krawitt v. Infosys Techs. Ltd.

Citation: 372 F. Supp. 3d 1078Docket: Case No. 16-CV-04141-LHK

Court: District Court, N.D. California; March 12, 2019; Federal District Court

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Carl Krawitt, a Qui Tam plaintiff, has filed a lawsuit against Infosys Technologies, Ltd. and Apple Inc. under the False Claims Act, alleging that the companies conspired to violate immigration laws by using B-1 visas for two Indian nationals who were supposed to conduct training for Apple, when they should have obtained H-1B visas. Krawitt argues that the H-1B visas, being numerically limited and costlier, were necessary for the trainers to legally perform their duties at Apple. 

The background notes that Infosys provides foreign nationals to American clients, including Apple, under contracts such as the $50,000 Agile Contract for training services. Krawitt claims that Infosys executives were aware during contract negotiations that they did not have sufficient H-1B visa holders available and that only trainers with B-1 visas could be supplied. Specifically, trainers Sreekumar Vobugarihad and Vijay Dani were to conduct the sessions under B-1 visas. Krawitt, who started working at Apple as an independent contractor for Infosys, warned company personnel about the visa issue, yet Apple Senior Manager Marcus East approved the training curriculum despite this knowledge.

Additionally, Krawitt prepared a project memorandum for the Agile Contract, which informed Apple executives about the qualifications of the trainers and indicated that B-1 visa holders would be used. On September 24, 2014, East assisted Infosys by providing draft letters for the trainers to enter the U.S. on their existing B-1 visas. The Court has granted Apple's motion to dismiss with prejudice and denied Infosys’ motion to dismiss as moot.

The letters related to trainers did not disclose that training sessions would be conducted under the Agile Contract or that trainers would adapt existing processes for systematization. Instead, they indicated that the trainers would attend meetings to learn Agile concepts. These letters falsely stated that the trainers would not be compensated, despite the fact that their work was the reason Apple paid Infosys $50,000, with trainers receiving indirect compensation. The letters were circulated within Infosys and Apple before being finalized on Apple letterhead with East's signature. Krawitt reported these concerns to his supervisor at Infosys on September 25, 2014, but his supervisor refused to discuss it. On October 6, he informed another employee, Razab Chowdhury, about potential immigration law violations, leading Chowdhury to only caution other executives about Krawitt's concerns. Krawitt continued to address visa issues in project updates. An email on October 8 revealed plans for the trainers to return to India to avoid detection for immigration violations. Krawitt later confirmed suspicions of visa manipulation with an Infosys executive. Despite ongoing concerns, the Agile training proceeded until Apple expressed dissatisfaction on October 16, resulting in the trainers being sent back to India and the cancellation of further classes. Apple subsequently contracted a U.S.-based trainer for $250,000, with Krawitt alleging that "training" was intentionally omitted from the new agreement. Krawitt's employment at Infosys was not renewed in January 2015, allegedly as retaliation for whistleblowing. By March 2015, he began working as a contractor at Apple. In an October 2015 meeting, East urged the team to pressure vendors to make employees on temporary visas work without pay. Krawitt's contract with Apple was not renewed on October 26, 2015. He claims an internal investigation into B-1 visa misuse occurred under East's direction, leading to East's resignation.

Krawitt filed his original complaint against the Defendants on July 22, 2016, alleging a violation of the False Claims Act (FCA). The government declined to intervene on September 26, 2017. An amended complaint (FAC) was submitted on April 16, 2018, but the government did not intervene again. Both the original complaint and the FAC contained only one cause of action related to the FCA. On June 15, 2018, Infosys and Apple filed motions to dismiss the FAC. The Court granted Apple's motion to dismiss and denied Infosys' motion as moot on October 16, 2018, ruling that the trainers acted within the scope of their B-1 visas and that neither Apple nor Infosys had the required scienter to violate the FCA. Krawitt was allowed to amend his complaint and subsequently filed a second amended complaint (SAC) on November 15, 2018. Both Apple and Infosys filed separate motions to dismiss the SAC on November 29, 2018. Krawitt opposed these motions on January 4, 2019, and the defendants replied on January 18, 2019, with Infosys joining Apple's motion to dismiss.

The excerpt also outlines the legal standards for motions to dismiss under Federal Rule of Civil Procedure 12(b)(6), emphasizing that a complaint must provide a short and plain statement of the claim showing entitlement to relief, with enough factual content to make the claim plausible. The Court will accept factual allegations as true and view pleadings favorably for the nonmoving party, but will not accept allegations contradicted by judicially noticeable facts or mere legal conclusions. Additionally, claims of fraud must meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), requiring particularity in the allegations.

Allegations of fraud must be specific enough to inform defendants of the misconduct alleged, allowing them to adequately defend against the charges. This includes detailing the time, place, content of false representations, and identities of the parties involved. Plaintiffs must also explain why the statements were false at the time they were made. If a complaint grounded in fraud does not meet the heightened pleading standards set by Rule 9(b), it may be dismissed by the district court. Dismissals for failure to meet these standards are recognized by the Ninth Circuit as appropriate, despite no explicit provision in federal rules for such dismissals. A motion to dismiss under Rule 9(b) for lack of particularity functions similarly to a motion under Rule 12(b)(6) for failure to state a claim.

If a complaint is dismissed, the court must consider whether to allow leave to amend under Rule 15(a), which favors granting amendments to promote justice and decisions on the merits. Leave to amend should generally be granted unless it would unduly prejudice the opposing party, cause undue delay, be futile, or result from bad faith.

In the case discussed, Apple and Infosys presented different reasons for dismissing the Second Amended Complaint (SAC). The court granted Apple's motion—joined by Infosys—based on four arguments: the trainers' activities were permissible under their B-1 visas; Krawitt could not establish scienter; Krawitt failed to plead materiality of the invitation letters; and the SAC was deficient regarding Apple. The court found the first two arguments sufficient to resolve the matter, rendering the other points unnecessary to address.

Apple contends that the activities of two trainers in the U.S. were permissible under B-1 visas, a position the Court supports. The Court referenced a three-prong test from the Board of Immigration Appeals (BIA) to determine qualifying business activities for B-1 visas: (1) the individual must intend to maintain a foreign residence; (2) the principal place of business and profit must predominantly accrue in a foreign country; and (3) each business entry must be temporary. The Court noted that the law surrounding "business" is ambiguous but highlighted the importance of a consistent interpretation that balances the prohibition on ordinary labor with the needs of international business. 

The trainers' intent to maintain their residence in India and the temporary nature of their entry satisfied the first and third prongs of the BIA test. The second prong was addressed by establishing that the trainers' principal place of business and where profits predominantly accrued was India, similar to the precedent set in Matter of Hira. In that case, a Hong Kong manufacturer sent an employee to the U.S. for customer measurements, with payments remitted to the manufacturer rather than directly to the employee. Similarly, while Apple paid Infosys $50,000 for training sessions, the funds went to Infosys, not directly to the trainers, who were compensated in India. Although the initial allegations mentioned continued salary benefits, these were later omitted, but the trainers' compensation from Infosys as continuing employees in India was sufficient to demonstrate compliance with the B-1 visa requirements.

The court evaluates prior allegations to determine if the Third Amended Complaint adequately suggests entitlement to relief per the Iqbal standard. Infosys' and trainers' profits generated overseas meet the second prong of the BIA test. Krawitt raises several points: (1) a federal regulation restricts trainers on B-1 visas due to their contractual obligations; (2) the Matter of Hira ruling is not relevant to this case; (3) a Northern District of California decision previously dismissed Matter of Hira's reasoning; and (4) the Second Amended Complaint (SAC) elaborates on "paired training" that involves coding activities previously deemed unacceptable for B-1 visa holders.

The court finds Krawitt's arguments unconvincing. Krawitt suggests that the Code of Federal Regulations prohibits the trainers' activities under B-1 visas, citing that "business" activities do not include local employment or labor for hire, and asserts that contractual engagements disqualify the trainers. However, the court concludes that Krawitt misinterprets the regulation, as the BIA has consistently allowed B-1 visas even for those entering under contracts. Examples include a Canadian truck driver and a railroad clerk who were permitted entry under B-1 visas due to their engagements in international trade and interchange agreements, respectively. Furthermore, USCIS guidelines support that B-1 visas can be granted for training U.S. workers if specified in a contract of sale.

Krawitt argues that the Matter of Hira case does not apply to the current situation, asserting that it would only be relevant if Apple were paying for services performed in India rather than in the U.S. Krawitt claims that the training course provided by Dani and Vobugari was incidental and not compensated under the Agile Contract, implying that Apple’s payments were for U.S. services. However, the facts of Matter of Hira, where a Hong Kong suit manufacturer sent Hira to the U.S. to take measurements for which he was paid abroad, are analogous to this case. In the current scenario, trainers were not directly paid by the Agile Contract; instead, Infosys, located in India, received payment, and the trainers were compensated as employees in India.

Krawitt also references the Bricklayers case to support his argument, claiming it emphasizes the need to focus on the language and intent of the Immigration and Nationality Act. However, Bricklayers does not reject the reasoning of Matter of Hira and, in fact, supports Apple's position. It dealt with an INS Operating Instruction regarding foreign workers coming to the U.S. for specific purposes, which was deemed a violation of the Act. Following this, the INS amended regulations to permit B-1 visas for supervising and training others, acknowledging training as a legitimate activity under certain conditions. The State Department further supports the issuance of B-1 visas for participation in training programs not primarily aimed at employment. Thus, finding that the trainers in this case entered the U.S. on B-1 visas aligns with the legislative intent of the Immigration and Naturalization Act.

Krawitt's arguments center on Congress's intent to protect American workers from unnecessary foreign competition, as established in Bricklayers, which determined that only unnecessary foreign competition is restricted. Following the Bricklayers case, the Operations Instruction was revised to disallow B-1 visas for foreign workers performing construction but permits them for those supervising or training in construction, thus promoting American employment opportunities. This suggests Congress did not aim to eliminate all foreign competition, as evidenced by the Matter of Cortez-Vasquez case, where a Mexican national's activities were deemed permissible commercial intercourse despite potential competition.

Krawitt's Second Amended Complaint (SAC) elaborates on training methods, specifically "paired training," but fails to differentiate between actual job performance and training, which is allowed under B-1 regulations. The Bricklayers decision prohibits construction work by foreigners on B-1 visas but allows for supervision and training. Consequently, the Court concludes that the trainers' activities fell within permissible training under the B-1 visa regulations.

Regarding scienter, Apple contends that the defendants lack the necessary knowledge to be liable under the False Claims Act (FCA). The Court agrees, noting that the FCA demands actual knowledge or deliberate ignorance and that innocent errors or differing interpretations do not establish liability. A good-faith interpretation of regulations does not satisfy the FCA’s stringent scienter criteria, making it challenging to prove liability when the alleged falsity relates to interpretive disputes.

B-1 visas lack a clear definition of permissible business activities, leading to challenges in distinguishing between acceptable business conduct and skilled or unskilled labor, which is not permitted under this visa classification. The ambiguity in the regulations operates in favor of Apple and Infosys, as there is no comprehensive list or case law clarifying allowable activities under B-1 status. The term "business" encompasses legitimate commercial activities, including conventions and consultations, but does not explicitly prohibit training. Krawitt's claims that he informed Apple and Infosys of potential illegality regarding B-1 visa usage for trainers do not establish that these entities had knowledge or were willfully blind to any violations, as the regulations do not clearly indicate that such training is impermissible. Krawitt's allegations regarding false statements in invitation letters and strategic travel by trainers to circumvent suspicion do not demonstrate that Apple and Infosys knowingly violated immigration laws. The subjective intentions of Apple and Infosys are irrelevant for assessing their liability under the False Claims Act (FCA), as mere differences in legal interpretation do not suffice for liability. Krawitt fails to provide authoritative guidance showing that training is disallowed under a B-1 visa, relying instead on his warnings to assert that Apple and Infosys were aware of their purported violations.

Krawitt's warnings do not establish liability for Apple and Infosys under the False Claims Act (FCA). The law requires that an FCA plaintiff demonstrate sufficient evidence of clear guidance from appellate courts or relevant agencies that would have alerted the defendants to their legal misinterpretation. Krawitt does not qualify as an authoritative source for the statutory interpretation of U.S. visa policy as envisioned in the Supreme Court case Safeco. Due to the ambiguity surrounding B-1 visa regulations, Apple and Infosys lacked the necessary intent to commit fraud under the FCA.

The court granted Apple's motion to dismiss Krawitt's second amended complaint, concluding that Krawitt's failure to adequately plead an FCA claim is a legal deficiency that cannot be remedied through further factual amendments. The court previously indicated that failure to address these deficiencies would result in dismissal with prejudice. Krawitt's third complaint similarly fails to cure the identified issues, leading to the denial of leave to amend, as further amendments would be futile and prejudicial to Apple and Infosys.

Additionally, Infosys previously settled allegations of immigration law violations in 2013, where it was accused of improperly utilizing B-1 visas. Krawitt requested leave to amend his complaint due to new documents and facts emerging, but the court reiterated that legal deficiencies cannot be remedied merely with new facts. Courts have ruled that qui tam relators must provide specific details of false claims rather than relying on general allegations that may be clarified through discovery. Rule 9(b) requires particularity in pleadings, which cannot be satisfied by conclusory statements followed by discovery.