NOT FOR PUBLICATION
`
`UNITED STATES COURT OF APPEALS
`
`FOR THE NINTH CIRCUIT
`
`
`FILED
`
`
`AUG 23 2022
`
`MOLLY C. DWYER, CLERK
`U.S. COURT OF APPEALS
`
`
`
`
`
`
`
` Plaintiff-Appellant,
`
`
`
`
`No. 21-35905
`
`
`D.C. No. 2:17-cv-00378-RMP
`
`
`
`MEMORANDUM*
`
`UPPI LLC, qui tam as Relator,
`
`
`
` and
`
`
`UNITED STATES OF AMERICA,
`
`
`
` v.
`
`
`CARDINAL HEALTH, INC.; CARDINAL
`HEALTH 414 LLC, DBA Cardinal Health
`Nuclear Pharmacy Services; CARDINAL
`HEALTH 200 LLC; D'S VENTURES LLC,
`DBA Logmet Solutions LLC; CARING
`HANDS HEALTH EQUIPMENT &
`SUPPLIES LLC; OBIE B. BACON;
`DEMAURICE SCOTT; OTHER
`UNNAMED SMALL BUSINESS FRONT
`COMPANIES; UNNAMED
`INDIVIDUALS,
`
`
`
`
`
`
`
`
`
` Plaintiff,
`
`
`
`
`
`
`
` Defendants-Appellees.
`
`
`
`Appeal from the United States District Court
`for the Eastern District of Washington
`Rosanna Malouf Peterson, District Judge, Presiding
`
`
`
`*
` This disposition is not appropriate for publication and is not precedent
`
`
`except as provided by Ninth Circuit Rule 36-3.
`
`
`
`
`
`
`
`
`
`UNITED STATES COURT OF APPEALS
`
`FOR THE NINTH CIRCUIT
`
`
`FILED
`
`
`AUG 23 2022
`
`MOLLY C. DWYER, CLERK
`U.S. COURT OF APPEALS
`
`
`
`
`
`
`
` Plaintiff-Appellant,
`
`
`
`
`No. 21-35905
`
`
`D.C. No. 2:17-cv-00378-RMP
`
`
`
`MEMORANDUM*
`
`UPPI LLC, qui tam as Relator,
`
`
`
` and
`
`
`UNITED STATES OF AMERICA,
`
`
`
` v.
`
`
`CARDINAL HEALTH, INC.; CARDINAL
`HEALTH 414 LLC, DBA Cardinal Health
`Nuclear Pharmacy Services; CARDINAL
`HEALTH 200 LLC; D'S VENTURES LLC,
`DBA Logmet Solutions LLC; CARING
`HANDS HEALTH EQUIPMENT &
`SUPPLIES LLC; OBIE B. BACON;
`DEMAURICE SCOTT; OTHER
`UNNAMED SMALL BUSINESS FRONT
`COMPANIES; UNNAMED
`INDIVIDUALS,
`
`
`
`
`
`
`
`
`
` Plaintiff,
`
`
`
`
`
`
`
` Defendants-Appellees.
`
`
`
`Appeal from the United States District Court
`for the Eastern District of Washington
`Rosanna Malouf Peterson, District Judge, Presiding
`
`
`
`*
` This disposition is not appropriate for publication and is not precedent
`
`
`except as provided by Ninth Circuit Rule 36-3.
`
`
`
`
`
`
`
`
`
`Argued and Submitted August 9, 2022
`Anchorage, Alaska
`
`Before: S.R. THOMAS, McKEOWN, and CLIFTON, Circuit Judges.
`
`
`
`Relator UPPI LLC appeals from the district court’s order granting the
`
`motions to dismiss Relator’s qui tam complaint alleging violations of the False
`
`Claims Act (FCA). See 31 U.S.C. § 3729(a)(1). Defendants are Cardinal Health,1
`
`Caring Hands Health Equipment & Supplies LLC, its owner Obie B. Bacon,
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`Logmet Solutions LLC, and its owner DeMaurice Scott. We review de novo,
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`SmileDirectClub, LLC v. Tippins, 31 F.4th 1110, 1117 (9th Cir. 2022), and reverse.
`
`
`
`We raise the issue of appellate jurisdiction sua sponte and conclude, despite
`
`some ambiguity in the district court’s order, that the order was final and
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`appealable. See Unified Data Servs., LLC v. FTC, 39 F.4th 1200, 1207 (9th Cir.
`
`2022); Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 983 (9th Cir.
`
`2000); WMX Techs., Inc. v. Miller, 104 F.3d 1133, 1136 (9th Cir. 1997) (en banc).
`
`Turning to the merits, the district court dismissed the complaint for failure to
`
`state a claim. Fed. R. Civ. P. 12(b)(6). Under Bell Atlantic Corp. v. Twombly, 550
`
`U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), a well-pleaded
`
`complaint must be plausible. See Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.
`
`2011).
`
`
`1 We refer to several related defendants collectively as Cardinal Health:
`Cardinal Health 414, LLC, Cardinal Health 200 LLC, and Cardinal Health, Inc.
`
`
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`2
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`21-35905
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`
`
`
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`Federal Rule of Civil Procedure 9(b) also requires that the facts establishing
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`fraud be pleaded with “particularity.” “To satisfy Rule 9(b), a pleading must
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`identify ‘the who, what, when, where, and how of the misconduct charged,’ as well
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`as ‘what is false or misleading about [the purportedly fraudulent] statement, and
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`why it is false.’” Cafasso, United States ex rel. v. Gen. Dynamics C4 Sys., Inc., 637
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`F.3d 1047, 1055 (9th Cir. 2011) (alteration in original) (quoting Ebeid ex rel.
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`United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010)).
`
`The complaint in this case centers around what Relator describes as a “rent-
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`a-vet” scheme, in which a large company exploits the statutory and regulatory
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`preferences given to service-disabled veteran owned small businesses (SDVOSBs)
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`in government contracting. The defendants—large enterprise Cardinal Health and
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`SDVOSBs Caring Hands and Logmet—allegedly misled the government into
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`awarding contracts to the SDVOSBs for the supply and distribution of
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`radiopharmaceutical products to Veterans Affairs (VA) hospitals. The complaint
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`alleges that in reality, Cardinal Health performed the vast majority of the work and
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`kept the majority of the revenue, while the SDVOSBs took only a small cut for
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`doing some nominal invoicing.
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`“[T]he essential elements of False Claims Act liability are: (1) a false
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`statement or fraudulent course of conduct, (2) made with scienter, (3) that was
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`material, causing (4) the government to pay out money or forfeit moneys due.”
`
`
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`3
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`21-35905
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`
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`United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 902 (9th Cir.
`
`2017). The district court held that the first amended complaint (FAC) failed to
`
`plead (a) falsity and (b) materiality with sufficient particularity and plausibility to
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`survive dismissal. We disagree.
`
`As to falsity, the FAC presents two theories under which the defendants
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`might be liable for false statements: promissory fraud, or fraud in the inducement,
`
`and implied false certification. The FAC viably pleads falsity under either theory.
`
`Under the promissory fraud theory, “liability will attach to each claim
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`submitted to the government under a contract, when the contract or extension of
`
`government benefit was originally obtained through false statements or fraudulent
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`conduct.” United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1173
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`(9th Cir. 2006). “[I]n the context of the complaint as a whole,” the FAC
`
`“adequately allege[s] the who, what, when, where and how of the alleged fraud”
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`with sufficient particularity. United States ex rel. Swoben v. United Healthcare Ins.
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`Co., 848 F.3d 1161, 1181 (9th Cir. 2016). The eight specific contracts are
`
`identified in the FAC and, indeed, are themselves in the record. The who
`
`(defendants), what (those eight contracts), where (in the locations identified in the
`
`contracts), when (at the time the contracts were bid on, negotiated, and executed),
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`and how (by falsely promising that the SDVOSBs would perform the contract) are
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`adequately discernable such that Rule 9(b)’s purposes of providing defendants’
`
`
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`4
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`21-35905
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`
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`notice of their alleged wrongdoing and deterring frivolous fraud lawsuits are
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`fulfilled. See id. at 1180.
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`The district court found irrelevant “whether the supply contracts must
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`legally have contained a subcontracting limitation . . . because contractual
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`requirements have no bearing on the truthfulness of Defendants’ statements or
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`representations.” It is true that the FCA is not designed to “punish[] garden-variety
`
`breaches of contract.” Universal Health Servs., Inc. v. United States ex rel.
`
`Escobar, 579 U.S. 176, 194 (2016). But false promises in the contract can
`
`constitute false statements under the FCA. See Hendow, 461 F.3d at 1174–75.
`
`[F]ailure to honor one’s promise is (just) breach of contract, but making
`a promise that one intends not to keep is fraud. If the [defendant] knew
`about the rule and told the [government] that it would comply, while
`planning to do otherwise, it is exposed to penalties under the False
`Claims Act.
`
`Id. at 1174 (alterations omitted) (quoting United States ex rel. Main v. Oakland
`
`City Univ., 426 F.3d 914, 917 (7th Cir. 2005)).
`
`Here, if the SDVOSBs agreed to comply with the subcontracting limitations
`
`but had no intent to do so, as the FAC alleges, the falsity element is met under a
`
`promissory fraud theory. Any dispute over the meaning of contractual terms is a
`
`question inappropriate for resolution at the motion to dismiss stage. See Hicks v.
`
`PGA Tour, Inc., 897 F.3d 1109, 1118 (9th Cir. 2018) (“If a contract is ambiguous,
`
`it presents a question of fact inappropriate for resolution on a motion to dismiss.”).
`
`
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`5
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`21-35905
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`
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`Under the false certification theory, “when a defendant submits a claim, it
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`impliedly certifies compliance with all conditions of payment. But if the claim fails
`
`to disclose the defendant’s violation of a material statutory, regulatory, or
`
`contractual requirement[,] the defendant has made a misrepresentation that renders
`
`the claim ‘false or fraudulent’ under § 3729(a)(1)(A).” Campie, 862 F.3d at 901
`
`(alterations omitted) (quoting Escobar, 579 U.S. at 180).
`
`The Supreme Court [in Escobar] held that although the implied
`certification theory can be a basis for liability, two conditions must be
`satisfied. First, the claim must not merely request payment, but also
`make specific representations about the goods or services provided.
`Second, the defendant’s failure to disclose noncompliance with
`material statutory, regulatory, or contractual requirements must make
`those representations misleading half-truths.
`
`Id. (quotation marks, citations, and alterations omitted).
`
`In this case, the thrust of Relator’s implied false certification theory is that
`
`the SDVOSB defendants submitted invoices that identified themselves (Caring
`
`Hands or Logmet) as the entity fulfilling the contract. In reality, Cardinal Health
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`supplied and distributed the radiopharmaceuticals for which the government was
`
`invoiced. This allegedly constituted a “misleading half-truth[],” id., because the
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`invoices failed to disclose noncompliance with the subcontracting limitations.
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`Relator’s false certification claim was pleaded with sufficient particularity
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`under Rule 9(b). Relator did not identify particular invoices, but it was not required
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`to do so. Ebeid, 616 F.3d at 999. Instead, it was enough “to allege particular details
`
`
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`6
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`21-35905
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`
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`of a scheme to submit false claims paired with reliable indicia that lead to a strong
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`inference that claims were actually submitted.” Id. at 998–99 (quotation marks and
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`citation omitted). The FAC identified the specific contracts at issue, alleged that
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`the fraudulently certified invoices were issued “pursuant to the relevant contracts,”
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`and contended that the government in fact paid the defendants under those
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`contracts. And Relator identified the details of a scheme under which those
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`invoices contained impliedly false certifications of compliance with contractual,
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`regulatory, and statutory requirements—that by identifying the SDVOSB
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`defendants as “authorized distributors, or something similar,” in the invoices, they
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`impliedly certified compliance with the subcontracting limitations and the
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`contractual promises that the identified SDVOSB, not a large business, would
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`perform the promised work. See Campie, 862 F.3d at 902–03.
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`Under either theory, the allegations of falsity were sufficiently plausible.
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`The district court concluded that the complaint was insufficiently plausible because
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`“the VA was aware of Cardinal Health’s involvement at the time that the VA
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`awarded and paid claims on the contract.” That is not the fair import of the
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`Relator’s complaint, which alleges that even if the defendants disclosed, at least
`
`implicitly, that Cardinal Health would somehow be involved, they failed to disclose
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`the extent of its involvement and “the extremely limited role [the SDVOSBs]
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`intended to play.” Concluding the VA had actual knowledge of Cardinal Health’s
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`
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`7
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`21-35905
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`
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`performance on the contract required the district court to make inferences in the
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`movants’ favor, which is impermissible at the motion to dismiss stage. See Gregg
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`v. Hawaii, Dep’t of Pub. Safety, 870 F.3d 883, 887 (9th Cir. 2017).
`
`As to materiality, “the term ‘material’ means having a natural tendency to
`
`influence, or be capable of influencing, the payment or receipt of money or
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`property.” 31 U.S.C. § 3729(b)(4). Materiality is “demanding.” Escobar, 579 U.S.
`
`at 194. We have interpreted Escobar as “creating a ‘gloss’ on the analysis of
`
`materiality” that requires a court to consider three factors: (1) whether the
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`government’s “payment was conditioned on compliance with the [statutory,
`
`regulatory, or contractual requirement],” (2) the government’s “past enforcement
`
`activities,” i.e., “how [it] has treated similar violations,” and (3) the magnitude of
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`the violation. United States ex rel. Rose v. Stephens Inst., 909 F.3d 1012, 1020 (9th
`
`Cir. 2018).
`
`
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`In concluding that any falsities were immaterial, the district court again
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`relied on a purported concession by Relator that the VA had actual knowledge of
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`Cardinal Health’s involvement, and as a result, it did not apply the other Escobar
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`factors. But, as explained above, the Relator made no such concession. Although
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`the evidence might ultimately show that the VA was well aware of the defendants’
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`arrangement, that is not clear from the face of the complaint.
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`
`
`
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`Applying the Escobar factors, the complaint pleads materiality with
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`8
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`21-35905
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`
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`sufficient particularity and plausibility. First, as to whether the government
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`conditions payment on compliance with the subcontracting limitations, set-aside
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`contracts are allegedly conditioned on SDVOSB qualifications, which we think is
`
`enough for this factor to weigh toward materiality. Second, as to whether the
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`government “regularly pays a particular type of claim in full despite actual
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`knowledge that certain requirements were violated,” Rose, 909 F.3d at 1022 (citing
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`Escobar, 579 U.S. at 195), again, the complaint does not concede the VA had
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`actual knowledge. And the FAC included allegations that the government has
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`terminated contracts or prosecuted these kinds of violations in the past, including
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`against Logmet, providing at least modest support for materiality under this factor.
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`Finally, as to magnitude, if the allegations in the complaint are true, the SDVOSBs
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`did far less than the required 51% of the work on the contracts (playing only a “de
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`minimis role” per the FAC), and noncompliance was likely not “minor or
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`insubstantial.” Id. (quoting Escobar, 579 U.S. at 194).
`
`
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`For the above reasons, the complaint adequately pleads falsity and
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`materiality to survive Rule 12(b)(6) dismissal. The alternative grounds presented
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`by defendants on appeal in support of affirming dismissal should be considered by
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`the district court in the first instance.
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`REVERSED and REMANDED.
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`
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`9
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`21-35905
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`
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