Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 1 of 16 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

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1 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 1 of 16 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA THE UNITED STATES DEPARTMENT OF TRANSPORTATION, ex rel. AUGUST W. ARNOLD, an individual, v. Relator, CMC ENGINEERING; ERDMAN ANTHONY ASSOCIATES, INC.; L. ROBERT KIMBALL & ASSOCIATES; M.A. BEECH; MACKIN ENGINEERING; MCTISH, KUNKEL & ASSOCIATES; MICHAEL BAKER JR., INC.; SAI CONSULTING ENGINEERS, INC.; VE ENGINEERING, INC., Defendants. Civil Action No The Honorable Gary L. Lancaster REPLY BRIEF IN SUPPORT OF L. ROBERT KIMBALL & ASSOCIATES' MOTION TO DISMISS RELATOR'S THIRD AMENDED COMPLAINT

2 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 2 of 16 TABLE OF CONTENTS I. INTRODUCTION... 4 II. STANDARD OF REVIEW APPLICABLE TO KIMBALL'S MOTION... 6 III. RELATOR IS NOT AN ORIGINAL SOURCE OF ANY INFORMATION RELATING TO KIMBALL'S DEALINGS WITH PENNDOT... 7 A. Relator has no Direct or Independent Knowledge... 8 B. Mr. Arnold Did Not Voluntarily Disclose Anything III.CONCLUSION

3 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 3 of 16 TABLE OF AUTHORITIES Cases Page(s Graham County Soil and Water Conservation District v. U.S. ex rel. Wilson 2010 WL Seal 1 v. Seal A, 255 F.3d 1154, 1157 (9th Cir ,8 U.S. ex rel Atkinson v. PA. Shipbuilding Co., 473 F.3d 506, 509 n.4 (3rd Cir U.S. ex. rel. Biddle v. Board of Trustees of the Leland Stanford, Jr. University, 161 F.3d 533, 542 (9th Cir ,13 U.S. ex. rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1007 (10th Cir ,6 U.S. ex. rel. Foust v. Group Hospitalization and Medical Services, Inc., 26 F. Supp. 2d 60, 74 (D.C.D.C U.S. ex. rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162 (10th Cir ,8 U.S. ex. rel. LeBlanc v. Raytheon Co., Inc., 913 F.2d 17, 20 (1st Cir U.S. ex rel. Mistick PBT v. Housing Authority of the City of Pittsburgh, 186 F.3d 376, 388 (3d Cir U.S. ex rel. Paranich v. Sorgnard, 396 F.3d 326, 330 (3rd Cir ,7,9,10,12 Federal Statutes 31 U.S.C et seq.7 U.S.C. 106(c(3 12 3

4 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 4 of 16 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA THE UNITED STATES DEPARTMENT OF TRANSPORTATION, ex rel. AUGUST W. ARNOLD, an individual, v. Relator, CMC ENGINEERING; ERDMAN ANTHONY ASSOCIATES, INC.; L. ROBERT KIMBALL & ASSOCIATES; M.A. BEECH; MACKIN ENGINEERING; MCTISH, KUNKEL & ASSOCIATES; MICHAEL BAKER JR., INC.; SAI CONSULTING ENGINEERS, INC.; VE ENGINEERING, INC., Defendants. Civil Action No The Honorable Gary L. Lancaster REPLY BRIEF IN SUPPORT OF L. ROBERT KIMBALL & ASSOCIATES' MOTION TO DISMISS RELATOR'S THIRD AMENDED COMPLAINT AND NOW, comes the Defendant, L. Robert Kimball & Associates, Inc. ("Kimball", incorrectly designated as L. Robert Kimball & Associates, by and through its undersigned counsel, and hereby files this Reply Brief in Support of Kimball's Motion to Dismiss Relator's Third Amended Complaint. I. INTRODUCTION Four years ago, Kimball moved for dismissal of Relator's claims, arguing that Mr. Arnold, who never investigated or audited Kimball, could not possibly have "direct" and "independent" knowledge of any alleged wrongdoing on Kimball's part, and thus, could not possibly establish subject matter jurisdiction under the False Claims Act ("FCA", which bars suits "based upon" publicly disclosed information unless brought by persons who qualify as an 4

5 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 5 of 16 "original" source of such information. 1 The past four years have brought many significant developments to this case, including multiple amendments of Relator's Complaint, opinions from this Court and the Third Circuit, newly established precedent from the Supreme Court (see, e.g., Allison Engine, and sweeping legislative amendments to the False Claims Act (in the form of the Fraud Enforcement and Recovery Act of Despite all of the change, there has remained one unavoidable constant: Relator never personally audited or investigated Kimball. That circumstance is as fatal to Relator's claims against Kimball today as it was four years ago, as none of the aforementioned amended pleadings, judicial opinions, or legislative amendments have eliminated the jurisdictional requirement that a relator, such as Mr. Arnold, must possess "direct" and "independent" knowledge of a particular defendant's defrauding of the federal government. Given that Relator now concedes, as he must, both that his claims against Kimball are "based upon" prior public disclosures and that he never personally audited or investigated Kimball's conduct, his claims against Kimball cannot possibly clear the public disclosure bar codified at Section 3730(e(4(A of the FCA. It is no coincidence that, in his most recent brief, Relator once again fails to mention, and certainly does not distinguish, the squarely applicable cases Kimball has cited in support of dismissal for four years. The fact of the matter is that Relator has no choice but to ignore the well-settled case law highlighted by Kimball 2 because that case law unequivocally establishes Relator's inability to qualify as an "original source" of the public disclosures upon which 1 Importantly, in Relator's Brief in Opposition to Defendants' Motion to Dismiss the Third Amended Complaint ("Relator's Brief", Relator concedes that his claims against Kimball are based upon prior public disclosures. See Relator's Brief, p (citing the Supreme Court's decision in Graham County Soil and Water Conservation District v. U.S. ex rel. Wilson, 2010 WL See, e.g., U.S. ex. rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1007 (10th Cir. 1996; U.S. ex. rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162 (10th Cir. 1999; Seal 1 v. Seal A, 255 F.3d 1154, 1157 (9th Cir

6 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 6 of 16 Relator's claims against Kimball are based. If there were some basis upon which to distinguish the cases cited by Kimball, the Relator surely would have highlighted the distinction(s in one of the many briefs he has filed to date. In short, Relator's silence in response to the original source jurisprudence cited by Kimball is deafening. Notably, while the Court dismissed Relator's Second Amended Complaint without reaching Kimball's "original source" argument, the Court expressly noted the following: In ruling on these motions, we assume that plaintiff s complaint survives the jurisdictional challenge against at least one defendant. However, we do not reach that or the myriad of other objections raised by defendants, some of which appear to have significant merit, because none of relator s claims fit within the parameters of a Federal False Claims Act case. 3 Kimball respectfully submits that its original source argument is one of the arguments to which this Honorable Court was alluding in the above-quoted passage, and requests that Relator's claims, as to Kimball, be dismissed with prejudice on that basis. II. STANDARD OF REVIEW APPLICABLE TO KIMBALL'S MOTION "When a court's subject matter jurisdiction depends upon the same statute that creates the substantive claims, the jurisdictional inquiry is necessarily intertwined with the merits." 4 Such is the case here, as Section 3730(e(4(A of the FCA establishes the act's jurisdictional test, providing that courts lack subject matter jurisdiction over claims "based upon" public disclosures, unless such claims are brought by an "original source" of such disclosures. Inasmuch as the FCA also defines an "original source"--one who possesses (1 direct and (2 independent knowledge of the information on which his allegations are based, and (3 voluntarily discloses such information to the federal government prior to commencing suit--the question of 3 February 6, 2007 Memorandum and Order (docketed as Document No. 193, p. 2 n.2 (emphasis added. 4 See U.S. ex rel. Paranich v. Sorgnard, 396 F.3d 326, 330 (3rd Cir

7 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 7 of 16 whether Relator is an original source is also properly the subject of a motion to dismiss. Thus, Relator is incorrect in contending that Kimball bears a "heavy burden" in connection with its instant Motion. 5 Contrary to the usual rule, in an FCA action, "the norm is not to accord the party whose burden it is to plead jurisdiction the presumption of truth as to facts pleaded that must be resolved in answering that question." 6 In sum, to survive Kimball's instant challenge, Relator must plead "facts essential to show jurisdiction under the [FCA] as well as [substantiate] those allegations [with] competent proof. 7 Relator has not and cannot do either with respect to Kimball. III. RELATOR IS NOT AN ORIGINAL SOURCE OF ANY INFORMATION RELATING TO KIMBALL'S DEALINGS WITH PENNDOT The facts implicated by Kimball's Motion to Dismiss have been briefed ad nauseum, and thus, Kimball will not belabor them here. In deciding Kimball's instant motion, this Court need only consider three admissions made by Relator. First, Relator admits that the allegations upon which his claims are based were publicly disclosed prior to his commencement of this action. 8 Second, Relator concedes, as he must, that he never personally discovered any wrongdoing on the part of Kimball, a concession based on the fact that he never audited or investigated Kimball. 9 Finally, in his Second Amended Complaint, Relator admitted that, during the relevant 5 See Relator's Brief at p U.S. ex rel Atkinson v. PA. Shipbuilding Co., 473 F.3d 506, 509 n.4 (3rd Cir U.S. ex rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1004 (10th Cir See Relator's Brief, p (citing the Supreme Court's recent decision in Graham County Soil and Water Conservation District v. U.S. ex rel. Wilson, 2010 WL See Relator's Brief, p. 20 (acknowledging that several defendants "were not included in his own review". 7

8 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 8 of 16 time period, his job responsibilities at PennDOT "included the making of field audits of consultants hired by [PennDOT]." 10 A. Relator has no Direct or Independent Knowledge The FCA's public disclosure bar, codified at 31 U.S.C. 3730(e(4(A, precludes any suit "based upon" public disclosures--and Relator admits that his suit against Kimball qualifies as such-- unless the suit is brought by an "original source" of the public disclosures. Accordingly, to survive Kimball's instant challenge, Relator must demonstrate himself to be an "original source," which the FCA defines as one who "has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing his lawsuit. 11 The Third Circuit has explained that the "direct" and "independent" knowledge components of the original source test require that a relator s information and/or knowledge be marked by an absence of an intervening agency, instrumentality, or influence: immediate. 12 Stated otherwise, the relevant information must be obtained by the relator s own efforts, and not by the labors of others," and be "seen by relator's own eyes." 13 In sum, to qualify as an original source under the FCA, a relator must have direct and independent knowledge of "the most critical elements of its claim." See Second Amended Complaint (docketed as Document No. 146, 5. In an obvious but ineffective attempt to skirt Kimball's original source argument, Relator conveniently omitted this averment from his Third Amended Complaint. Clearly, however, this averment is still binding on Relator as a judicial admission U.S.C. 3730(e(4(B. 12 United States ex. rel. Paranich v. Sorgnard, 396 F.3d 326, 335 (3d Cir (citing United States ex rel. Stinson v. Prudential Ins. Co., 944 F.2d 1149, Id. at 336 (quoting United States ex. rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162 (10th Cir See United States ex rel. Mistick PBT v. Housing Authority of the City of Pittsburgh, 186 F.3d 376, 388 (3d Cir

9 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 9 of 16 The fact that Relator did not participate in any audit of Kimball makes it impossible for him to establish his possession of direct and independent knowledge of the factual foundation of his claim(s against Kimball; he simply has no direct and independent knowledge of any critical element of his claim(s against Kimball. The proof of this point is unquestionably in the pudding: Relator has attached the results of his "audit(s" as an exhibit to his various complaints, and not a single line of the exhibit, which consists of 216 pages, references Kimball (let alone its billing practices. 15 As noted above, Kimball has repeatedly cited cases from the Ninth and Tenth circuits, among others, in which relators attempted to attain original source status on the theory that they uncovered information which led others to conduct investigations which ultimately revealed conduct proscribed by the FCA. 16 Remarkably, Relator's Brief makes no mention of such cases, despite the fact that each of them employ a rationale that precludes Relator's claims against Kimball. Unable to distinguish the well-settled case law that dooms his Third Amended Complaint, Relator desperately attempts to couch his "got-the-ball-rolling" theory as one of first impression in the Third Circuit. Specifically, pointing to the Third Circuit's decision in Paranich, Relator posits that the Third Circuit has yet to decide whether a relator, like Mr. Arnold, who allegedly has knowledge of a scheme to defraud the federal government qualifies as an original source with respect to all participants in the scheme, even if he has no direct or 15 See Third Amended Complaint (docketed as Document No. 210, 47, n See, e.g., Seal 1 v. Seal A, 255 F.3d 1154, 1157 (9th Cir. 2001; United States ex. rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162 (10th Cir. 1999; U.S. ex. rel. Fine v. Advanced Sciences, Inc., 99 F.3d 1000, 1007 (10th Cir

10 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 10 of 16 independent knowledge of the participants' identities. 17 This misguided effort to survive Kimball's jurisdictional challenge is unavailing for two reasons. First, Relator fails to recognize that the Relator in Paranich had actual, firsthand knowledge of the at-issue fraudulent claims. In Paranich, the Relator was a chiropractor who had financed the acquisition of certain medical equipment by executing lease agreements with one of the defendants, Irwin Leasing Corporation ("Irwin". Shortly after acquiring said equipment, Dr. Paranich began using it to treat his patients, and frequently submitted corresponding claims for reimbursement to Medicare. After Dr. Paranich's Medicare bills were subpoenaed, the FBI determined that the billing code used by Dr. Paranich in connection with his claims for reimbursement was improper, with the result that Medicare had overpaid Dr. Paranich for treatments in which the equipment was used. Dr. Paranich later brought an FCA action against several defendants, including the manufacturer of the medical equipment and Irwin. Ultimately, the Third Circuit concluded that Dr. Paranich's response to the government's subpoena constituted an involuntarily public disclosure--he obviously had a legal obligation to respond to the aforementioned subpoena--such that Dr. Paranich could not qualify as an "original source" of the information gleaned from his document production. Relator seizes on an excerpt of the Third Circuit's opinion that is unrelated to its holding, and then tortures the context in an effort to fabricate an issue of first impression. The excerpt reads as follows: Paranich did not have "direct" knowledge of whatever role Irwin may have played in the scheme. But is that necessary in order for the relator who has direct knowledge of the overall scheme to state a claim against one who, as part of the scheme, may have played a 17 See Relator's Brief, p , n.26 (citing United States ex. rel. Paranich v. Sorgnard, 396 F.3d 326, 332 (3d Cir

11 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 11 of 16 role in defrauding the government? We choose not to answer [this question]." 18 In his brief, Relator is careful to avoid any discussion of the context in which the Third Circuit's above-quoted comments were made, because that context highlights the distinction between the Paranich case and this one. Stated simply, Dr. Paranich knew that allegedly fraudulent claims had been submitted to Medicare, because he submitted them. Here, Relator acknowledges that (1 he never investigated Kimball, (2 does not possess any "claim" submitted by Kimball, and (3 learned of Kimball's participation in the alleged scheme only through public disclosures. Accordingly, even if the dicta from Paranich were controlling, that case is obviously distinguishable from this one inasmuch as Mr. Arnold has no firsthand knowledge of a single allegedly fraudulent claim made by Kimball. Regardless, nothing in Paranich can logically be construed to eliminate the most basic tenets of original source jurisprudence: "direct" and "independent" knowledge. Relator never personally audited Kimball, and thus, could not possibly have seen any alleged fraud, by Kimball, with "relator's own eyes." Paranich is distinguishable for at least one other reason. In Paranich, the relator had actually interacted and done business with the defendant; four separate equipment leases were executed by and between Dr. Paranich and Irwin. Accordingly, Dr. Paranich knew that Irwin had participated in the alleged scheme, although he may not have known the details of Irwin's precise role in it. In this case, Mr. Arnold concedes that he only learned of Kimball's participation in the alleged scheme through public disclosures. In other words, far from possessing the requisite direct and independent knowledge of the most critical elements of his 18 Paranich, 396 F.3d at 336. As a preliminary matter, it is notable that Relator relies on a passage in which the Paranich Court discusses a fraudulent "scheme." Despite repeatedly referring to a fraudulent scheme among the Defendants and PennDOT in his Third Amended Complaint, Relator does not describe a single communication or interaction between Kimball and any Co-Defendant or PennDOT. That circumstance implicates Rule 9(b as certain of the Co-Defendants have explained in their various briefs, which briefs are incorporated herein by reference. 11

12 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 12 of 16 claim(s against Kimball, Relator did not even directly and/or independently discover Kimball's identity. In the absence of public disclosures, Relator would have no idea that Kimball was allegedly involved in whatever scheme Relator is asserting. In sum, Relator claims to be an original source because he "got-the-ball-rolling," but that theory has already been considered and rejected by the Ninth and Tenth Circuits. Moreover, in order to qualify as an "original source" under longstanding Third Circuit precedent, Mr. Arnold must have both direct and independent knowledge of all material elements of his claims against Kimball. Relator, who admits he learned of Kimball's alleged involvement in the "scheme" only through public disclosures, has no direct or independent knowledge of any such element(s. And Paranich does not eliminate the statutorily-prescribed components of original source jurisprudence: direct and independent knowledge. B. Mr. Arnold Did Not Voluntarily Disclose Anything As explained above, the fact that Relator never personally audited or otherwise investigated Kimball precludes him from qualifying as an original source. But even if Mr. Arnold possessed the requisite degree of direct and independent knowledge, Relator would still fail the FCA's jurisdictional test because he cannot demonstrate that his disclosure of information to the government was voluntary. It is well-settled that a would-be relator fails the "voluntariness" prong of the FCA's jurisdictional test where he or she is obligated to provide the federal government with the relevant information at the time such disclosure is made. 19 To be sure, the federal courts have consistently dismissed FCA claims brought by relators whose employment responsibilities required them to alert the government of fraudulent activity Paranich, 396 F.3d at 342, 340 n See U.S. ex. rel. Foust v. Group Hospitalization and Medical Services, Inc., 26 F. Supp. 2d 60, 74 (D.C.D.C. 1998; U.S. ex. rel. LeBlanc v. Raytheon Co., Inc., 913 F.2d 17, 20 (1st Cir. 1990; U.S. ex. rel. Biddle v. Board of 12

13 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 13 of 16 Not surprisingly, the Third Circuit has also concluded that government employees are generally incapable of voluntarily disclosing information concerning fraud against the government. In fact, the Third Circuit has cautioned that permitting government employees to pursue such claims could have the additional consequence of decreasing government employee job performance and/or reliability. 21 Specifically, the Paranich court explained that an expansive interpretation of the category of persons capable of prosecuting a claim under the FCA would have the negative consequence of encouraging government employees to perform their fraud-reporting duties less vigorously in order to obtain additional compensation through qui tam lawsuits. Here, Mr. Arnold was not an employee of the federal government, but he was employed by PennDOT to conduct "field audits of consultants hired by [PennDOT]" to assist with federally-funded highway projects. 22 As such, he was contractually bound to report his suspicions of fraud to the federal government. For example, pursuant to statute, PennDOT must execute a project agreement with USDOT in order to receive federal funds for a given highway construction project. 23 Such project agreements must contain certain provisions, including one that obligates employees of the state transportation agency, overseeing the project, to report suspicions of fraudulent activity. 24 The above-cited statutory provisions, regulations and forms unequivocally establish a duty, on the part of PennDOT employees working on federally-funded Trustees of the Leland Stanford, Jr. University, 161 F.3d 533, 542 (9th Cir. 1998; see also Paranich, 396 F.3d at 340 n.14 (discussing policy problems associated with permitting government agents employed to detect fraud or otherwise investigate suspected fraudulent activity to maintain qui tam actions. 21 See Paranich, 396 F.3d at 340 n See Second Amended Complaint (docketed as Document No. 146, See 23 U.S.C. 106(c(3. 24 See, e.g., Federal Highway Administration (FHWA Form 1273 at Section 9, attached hereto as Exhibit A; see also FHWA-IF , attached hereto as Exhibit B (stating that State transportation agencies have a responsibility to report suspicions of fraudulent activity in highway construction projects.. 13

14 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 14 of 16 highway projects, to report their suspicions of fraud to USDOT, an agency of the federal government. Accordingly, Relator could not possibly have voluntarily disclosed information concerning Defendants alleged fraud to the federal government. Relator alleges that his initial reporting of the suspected fraudulent activity was ignored by his superiors, but that fact is of no relevance to the instant motion. 25 A government employee is not relieved of his obligation to report suspected fraud simply because his superior ignores or fails to act upon the employee s report. In fact, the federal government has established a hot line specifically designed to facilitate an employee s reporting of suspected fraud when the employee s supervisors do not adequately address the reporting. 26 In sum, assuming arguendo that Relator s supervisors ignored his initial reports, he was still obligated to communicate such information to the federal government, thus precluding him from voluntarily disclosing such information to the federal government. For this reason, too, Relator is incapable of qualifying as an original source of the relevant information. III. CONCLUSION No matter how many times Relator amends his Complaint to recast his factual averments, he cannot alter history. Mr. Arnold never audited Kimball, and that circumstance is fatal to his claims against Kimball (and to his claims against any other Defendant that Relator did not audit. Additionally, Mr. Arnold was obligated to report his suspicions of fraud to the federal government, thus precluding a "voluntary" disclosure on his part. That circumstance, too, requires dismissal of Relator's claims. Accordingly, Kimball respectfully requests that this Honorable Court dismiss Relator's claims, with prejudice. 25 See, e.g., Exhibit B; see also U.S. ex. rel. Biddle v. Board of Trustees of the Leland Stanford, Jr. University, 161 F.3d 533, 542 (9th Cir (finding that a government employee did not make a voluntary disclosure even though his immediate supervisors opposed his initial reports of fraud. 26 See Exhibit B. 14

15 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 15 of 16 Respectfully submitted, BUCHANAN INGERSOLL & ROONEY PC By /s/john G. Ebken Eugene A. Giotto, Esquire PA58286 John G. Ebken, Esquire PA91031 One Oxford Centre, 20 th Floor Pittsburgh, PA ( ( Attorneys for Defendant, L. Robert Kimball & Associates, Inc. 15

16 Case 2:03-cv GLL Document 295 Filed 06/21/10 Page 16 of 16 CERTIFICATE OF SERVICE I hereby certify that true and correct copies of Reply Brief in Support of L. Robert Kimball & Associates' Motion to Dismiss Relator's Third Amended Complaint were served upon all counsel of record via electronic submission facilitated by the District Court's electronic filing system on this 21st day of June, BUCHANAN INGERSOLL & ROONEY, PC By /s/john G. Ebken Eugene A. Giotto, Esquire PA#58286 John G. Ebken, Esquire PA#91031 john.ebken@bipc.com 16