Judy Wood ex rel. United States V. Applied Research Associates, Inc.
Docket: No. 08-3799-cv
Court: Court of Appeals for the Second Circuit; July 16, 2009; Federal Appellate Court
Dr. Judy Wood appeals the District Court for the Southern District of New York's June 26, 2008 dismissal of her qui tam suit under the False Claims Act (FCA) against Applied Research Associates, Inc. and related defendants, which provided services related to the World Trade Center collapse investigation. The district court dismissed her claims on two grounds: lack of subject matter jurisdiction under 31 U.S.C. § 3730(e)(4)(A) and failure to state a claim or plead fraud with particularity per Fed. R. Civ. P. 12(b)(6) and 9(b). On appeal, Wood challenges both dismissals. The appellate court assumes hypothetical jurisdiction, allowing it to address the merits without resolving jurisdictional complexities. It affirms the district court's decision, agreeing that Wood’s claims do not meet the pleading standards set forth by the Supreme Court, which requires sufficient factual content for a plausible claim. The court notes that a complaint must do more than suggest the possibility of misconduct; it must allow for a reasonable inference of liability. The appellate court also finds no abuse of discretion in the district court’s denial of Wood’s leave to amend her complaint and thus does not address the jurisdictional issue further.
Wood's Amended Complaint must adhere to the heightened pleading standard of Fed. R. Civ. P. 9(b) due to the nature of claims brought under the False Claims Act (FCA), which is an anti-fraud statute. Rule 9(b) mandates that allegations of fraud specify the fraudulent statements, identify the speaker, state the time and place of the statements, and explain the fraudulent nature of those statements. The rule aims to provide defendants with fair notice, protect their reputation, and deter speculative claims. Although knowledge can be averred generally, plaintiffs must provide a factual basis for claims of fraudulent intent, avoiding reliance on mere speculation or conclusory assertions.
Wood alleges that the Contractor Defendants submitted false claims and used false records or statements, violating 31 U.S.C. § 3729. The FCA allows the government or private citizens to sue for fraudulent claims presented to the government, including false records used to conceal obligations to pay money to the government. However, the district court noted that Wood's Amended Complaint fails to mention any specific financial obligations owed by the Contractor Defendants to the government, nor does it identify any false records or statements aimed at reducing such obligations. Consequently, Wood's 'reverse false claims' action was appropriately dismissed for not meeting Rule 9(b) standards.
Wood's claims against the Contractor Defendants assert they submitted false claims and statements to the United States, particularly regarding their work for the National Institute of Standards and Technology (NIST). However, the Amended Complaint lacks the specificity required by Rule 9(b), failing to detail the time, place, speaker, and content of the alleged misrepresentations. Wood alleges that the defendants were aware that their documentation was fraudulent and designed to mislead NIST, particularly in the context of the 9/11 attacks and the destruction of WTC 1 and 2. The Complaint suggests that the defendants' actions aimed to obscure the true causes of the destruction, purportedly involving directed energy weapons, thereby misleading the public and NIST. Wood contends that as a result of these fraudulent activities, the defendants wrongfully received payments for services they were not entitled to. Despite the introductory section of the Amended Complaint being the most detailed, it still fails to provide specific allegations regarding each Contractor Defendant's involvement. Generalized allegations describe the actions of various defendants, with some defendants allegedly manipulating NIST officials and withholding or misrepresenting information. The allegations against defendants, including GeoStats, Inc. and Gilsanz Murray Steficek, LLP, suggest they participated in fraud through improper documentation practices while receiving payment. However, the overall lack of particularity remains a significant issue in the Complaint.
The Amended Complaint alleges violations of the False Claims Act (FCA) by the Contractor Defendants, claiming they submitted false reimbursement requests to NIST from 2002 to at least September 2005. It contends these actions were driven by the defendants' collective manipulation and aimed to mislead NIST regarding the cause of the WTC complex's destruction. However, the court found these allegations insufficient under Rule 9(b) because they lacked specific details, such as identifiable false claims or instances of fraudulent submissions. The court emphasized that while scienter can be inferred, it cannot be based solely on speculation or vague assertions. Wood's belief that the Contractor Defendants' analysis was incorrect does not substantiate a fraud claim. Consequently, the district court dismissed the Amended Complaint for failing to meet the specificity required by Rule 9(b).
Regarding Wood's request for leave to amend the complaint, the court retains discretion to deny such requests, particularly if they would be futile. Although the district court dismissed the Amended Complaint with prejudice without addressing the leave to amend request, it can be implied that the denial was within the court's discretion. The appellate review supported the district court's decision, affirming that Wood did not demonstrate good reason for the amendment, leading to the conclusion that the dismissal was appropriate.
Wood has requested permission to amend her Amended Complaint, arguing that her affidavits indicate she could provide more detailed allegations if needed. However, she fails to specify what additional details would be included, merely stating that the Contractor Defendants ignored fraud related to the destruction of the WTC. This lack of specificity is deemed inadequate to overturn the district court’s discretionary denial of her motion to amend, consistent with case law (Brandt v. Davis and Doe v. Howe Military School) where similar motions were rejected for not detailing proposed amendments. Wood’s late suggestions in her reply brief are also disregarded, as they do not sufficiently address the fraud claims required by Rule 9(b). The district court did not abuse its discretion in dismissing Wood’s Amended Complaint with prejudice.
The Contractor Defendants (SGH and CAEA) seek attorney’s fees under 31 U.S.C. § 3730(d)(4) but have not formally appealed the district court’s decision. The court has discretion in awarding fees and opted to issue a warning to Wood and her counsel rather than impose sanctions, as SGH and CAEA did not file a cross-appeal.
Wood's arguments regarding the adequacy of her pleadings and requests for a relaxed pleading standard are found to lack merit. While fraud claims may be based on information and belief when facts are within the opposing party's knowledge, Wood does not present specific facts beyond those available in the NCSTAR I report. Additionally, recent changes to 31 U.S.C. § 3729 do not affect the analysis of her case. The court affirms the dismissal of Wood’s claim with prejudice and dismisses her motion to strike as moot.
