Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-03881/USCOURTS-cand-5_06-cv-03881-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 31:3729 False Claims Act

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1 According to defendants, plaintiff's complaint names the wrong Northrop entity. The

parties do not dispute that the correct defendant should be the Northrop entity for which plaintiff

worked, Northrop Grumman Systems Corp., a Delaware corporation with its principal place of

business in California. Order Granting Transfer at 3.

ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC

E-FILED on 10/10/06 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

UNITED STATES OF AMERICA, ex rel

SCARLETT MCMASTERS,

Plaintiff,

v.

NORTHROP GRUMMAN SHIP SYSTEMS,

INC., PHIL LOVLIEN,

Defendants.

No. C-06-03881 RMW

ORDER GRANTING MOTION TO DISMISS

COMPLAINT

[Re: Docket No. 4] 

Defendants Northrop Grumman Ship Systems, Inc.1

 ("Northrop") and Phil Lovlien

(collectively "defendants") move to dismiss plaintiff Scarlett McMasters' ("McMasters") complaint

for failure to state a claim. Plaintiff opposes the motion. The motion was heard on September 22,

2006. The court has read the moving and responding papers and considered the argument of

counsel. For the reasons set forth below, the court grants defendants' motion to dismiss plaintiff's

complaint. Plaintiff's claims against defendant Lovlien are dismissed with prejudice and Lovlien is

Case 5:06-cv-03881-RMW Document 14 Filed 10/10/06 Page 1 of 8
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2 At oral argument, the parties stipulated that Lovlien's alleged acts were performed in

the course of his employment. With this stipulation, plaintiff agreed to dismiss Lovlien from the

case. 

3 It is unclear from the complaint whether Lovlien is currently an engineering manager

at Northrop. Compl. ¶¶ 3, 11.

ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC 2

dismissed from this action.2 Plaintiff has forty-five days from the date of this order to amend her

other claims. The court resets the case management conference to Friday, December 1, 2006 at

10:30 a.m. 

I. BACKGROUND

Defendant Northrop makes parts for Navy submarines at its facility in Sunnyvale, California,

and defendant Lovlien is an engineering manager employed by Northrop.3 Compl. ¶¶ 3, 9, 11. 

Plaintiff worked at Northrop's Sunnyvale, California facility from August 2001 to January 2003. 

Order Granting Transfer at 3. On July 12, 2005, McMasters filed this qui tam action against

Northrop pursuant to the False Claims Act, 31 U.S.C. § 3729, et seq. ("FCA"). Plaintiff claims that

Northrop and Lovlien violated the FCA by: (1) "falsely bill[ing]" for submarine parts it builds for

the Navy, and (2) retaliating against and wrongfully terminating plaintiff's employment. Compl. ¶¶

8, 9, 14. 

Specifically, plaintiff alleges that during a departmental staff meeting which she attended

Lovlien announced that Northrop had shipped "a Virginia class nuclear submarine with faulty

propulsion system parts." Compl. ¶ 11. Northrop is "expected to build these submarines to the

specifications provided to them by the United States government." Compl. ¶ 10. Lovlien allegedly

said that Northrop would fix the problem later, but that Northrop would never tell the Navy of the

"fraud." Compl. ¶ 12. Plaintiff also alleges that Northrop "likely . . . engaged in this shoddy

workmanship" in its other contracts, and in so doing "conspir[ed] to defraud . . . and to engage in

false claims against the government." Compl. ¶¶ 15, 16. Plaintiff further contends that, in violation

of § 3730(h) of the FCA, defendants discriminated against and wrongfully terminated her

employment because of her "knowledge of the illegal actions and because [d]efendants feared

disclosure." Compl. ¶ 14. Plaintiff seeks civil penalties, special and punitive damages, and back

pay. Compl. at 5-6. 

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ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC 3

The United States filed an election not to intervene in plaintiff's qui tam action on December

5, 2005. Defendants filed their motion to dismiss on March 7, 2006 ("Mot."). On June 9, 2006, the

District Court of Hawaii granted defendants' motion to transfer the case to this district court ("Order

Granting Transfer").

II. ANALYSIS

Defendants seek to dismiss the complaint for failure to state a claim pursuant to Federal

Rules of Civil Procedure 12(b)(6) and 9(b). Defendants contend that plaintiff (1) has not alleged

facts sufficient to state a FCA claim under 31 U.S.C. § 3729, (2) has not alleged facts with sufficient

specificity for her fraud allegations as required by Fed. R. Civ. P. 9(b), and (3) has not alleged facts

sufficient to state a retaliation claim under 31 U.S.C. § 3730(h). Because the parties stipulated that

Lovlien's alleged acts were performed in the course of his employment and plaintiff agreed to

dismiss Lovlien from this action, the court addresses only defendant Northrop's arguments below. 

A. Legal Standard

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint.

Dismissal can be based on the "lack of a cognizable legal theory" or "the absence of sufficient facts

alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th

Cir. 1988). The issue is not whether the non-moving party will ultimately prevail but whether it is

entitled to offer evidence to support the claims asserted. Gilligan v. Jamco Dev. Corp., 108 F.3d

246, 249 (9th Cir. 1997). When evaluating a Rule 12(b)(6) motion, the court must accept all

material allegations in the complaint as true and construe them in the light most favorable to the

non-moving party. Barron v. Reich, 13 F.3d 1370, 1374 (9th Cir. 1994). However, the court is not

required to accept conclusory legal allegations "cast in the form of factual allegations if those

conclusions cannot reasonably be drawn from the facts alleged." Clegg v. Cult Awareness Network,

18 F.3d 752, 754-55 (9th Cir. 1994). 

B. FCA Qui Tam Claim

The FCA enables an individual to sue an employer for presenting a fraudulent claim to the

government. 31 U.S.C. § 3729. The individual brings the action in the name of the government and

the government may take over the prosecution. 31 U.S.C. § 3730(b)(1)-(2). The rationale of FCA's

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4 Defendant also imposes a materiality requirement on FCA claims. Mot. at 3. 

However, because the court finds that plaintiff has not alleged facts sufficient to satisfy the elements

of a FCA claim either under the qui tam or retaliation provisions, it does not reach defendant's

contention that the complaint fails to allege materiality of the claims.

ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC 4

qui tam provisions is to encourage individuals who are aware of fraud being perpetrated against the

government to disclose that information. U.S. ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir.

1996); see also U.S. ex rel. Fine v. Chevron, U.S.A., Inc., 72 F.3d 740, 742 (9th Cir. 1995) (en banc),

cert. denied, 517 U.S. 1233 (1996).

A claim under the FCA's qui tam provisions requires allegations that (1) defendant made a

claim against the United States government, (2) that was false or fraudulent, and (3) with knowledge

of the falsity or fraud. U.S. ex rel. Aflatooni v. Kitsap Physicians Serv., 314 F.3d 995, 1000 (9th Cir.

2002); Green v. City of Eugene, 72 Fed. Appx. 607, 608 (9th Cir. 2003). 

As defendant correctly argues, "[c]omplaints brought under the FCA must fulfill the

requirements of Rule 9(b)."4 See U.S. ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051

(9th Cir. 2001) (citing Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001)). Rule 9(b) of

the Federal Rules of Civil Procedure that "the circumstances constituting fraud or mistake . . . be

stated with particularity." Fed. R. Civ. P. 9(b). "[W]hen averments of fraud are made, the

circumstances constituting the alleged fraud be specific enough to give defendants notice of the

particular misconduct so that they can defend against the charge and not just deny that they have

done anything wrong." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)

(internal quotations and citations omitted). The allegations "must be accompanied by 'the who,

what, when, where, and how' of the misconduct charged." Id. For a complaint to satisfy the

heightened pleading requirements of Rule 9(b), a "plaintiff must set forth more than the neutral facts

necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a

statement, and why it is false." Id. (citing In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th

Cir. 1994)). 

First, a FCA qui tam claim must allege facts to support the proposition that defendant made a

false "claim for payment or approval" to the federal government. 31 U.S.C. § 3729(a)(1); Aflatooni,

314 F.3d at 1000. However, conclusory statements do not suffice as factual allegations "if those

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ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC 5

conclusions cannot reasonably be drawn from the facts alleged." Cholla Ready Mix, Inc. v. Civish,

382 F.3d 969, 973 (9th Cir. 2004). Here, plaintiff's sole references to claims for payment are too

vague or conclusory to satisfy even Rule 8's liberal pleading requirements. For example, plaintiff

alleges Northrop "made false claims for payment" and "bills for goods that it builds for Navy

submarines." Compl. at 1, ¶ 8. However, plaintiff does not allege facts that support the inference

that the bills to the Navy were false and were made with knowledge of falsity. Therefore, even

accepting these allegations as true, they are insufficient to state the existence of a false claim. 

Moreover, plaintiff has not pled this element with the particularity required by Rule 9(b), including

who made the purported false claims, when such claims were made, and why the claims are false.

A plaintiff must also allege that the claim was "false or fraudulent." 31 U.S.C. § 3729(a)(1);

Aflatooni, 314 F.3d at 1000. Defendant argues that plaintiff is required to allege "actionable false

certifications upon which funding is conditioned." Opp. at 5; Hopper, 91 F.3d at 1267. However,

the Ninth Circuit in Hopper appeared to impose this requirement only on FCA claims based on a

theory of false certification. See Hopper at 1266-67 (distinguishing FCA actions based on a theory

of supplying substandard products from those based on false certification). A FCA action may be

based on a theory of supplying substandard products to the government. A plaintiff alleging a FCA

claim based on fraudulent provision of goods need not allege false certification. U.S. ex rel. Lee v.

SmithKline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir. 2001) (holding that "[i]n an appropriate

case, knowingly billing for worthless services . . . may be actionable under § 3729, regardless of any

false certification conduct," and allowing plaintiff to amend his complaint which, "vague as it is,

may be construed to allege . . . a theory based on worthless services"). 

Nevertheless, plaintiff's complaint is unclear whether the basis of her FCA claim is false

certification or fraudulent provision of goods. See, e.g., Compl. at 1 (alleging that Northrop "made

and used false records and statements in support of their false claims for payment"); see also Compl.

¶¶ 8, 11 (alleging Northrop "falsely bills for goods that it builds" and that the parts Northrop shipped

were "faulty"); Compl. ¶¶ 1-16 (alleging provision of defective system). In any event, plaintiff's

allegations are too vague and conclusory to satisfy the false claim element on either basis.

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ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC 6

Finally, a FCA claim must also allege facts showing that defendant made the false claim

"knowingly." 31 U.S.C. § 3729(a)(1). The FCA defines "knowingly" as having "actual knowledge

of the information," or acting in "deliberate ignorance" or "reckless disregard" of the truth of falsity

of the information. 31 U.S.C. § 3729(b). The Ninth Circuit requires "knowing presentation of a

false or fraudulent claim." U.S. ex rel. Anderson v. Northern Telecom, Inc., 52 F.3d 810, 816 (9th

Cir. 1995). It is not enough to show that a product was "not as good as it should have been" because

"the qui tam action does not lie for the ordinary failings of engineers." Id. For FCA claims based on

a fraudulent provision of goods, the Ninth Circuit has found that "knowingly billing for worthless

services or recklessly doing so with deliberate ignorance may be actionable under § 3729, regardless

of any false certification conduct." U.S. ex rel. Lee, 245 F.3d at 105.

Here, plaintiff has not alleged that Northrop sent the Navy faulty parts knowing that they

were faulty when they sent them. Nor does plaintiff allege that Northrop billed for the parts

knowing that they were "faulty." Plaintiff's allegation that Lovlien announced that Northrop had

shipped a "faulty" part does not give rise to an inference that Northrop knew the allegedly faulty part

was faulty when it was billed for or shipped. See Compl. ¶ 11. 

Because plaintiff has not alleged the requisite elements of a FCA qui tam action, the court

dismisses plaintiff's FCA claim.

C. Retaliation Claim

The FCA provides relief to "[a]ny employee who is discharged . . . or in any other manner

discriminated against . . . by his or her employer because of lawful acts done by the employee . . . in

furtherance of an action under this section." 31 U.S.C. § 3730(h). The purpose of the retaliation

claim under the FCA is to protect "whistleblowers," namely those who come forward with evidence

their employer is defrauding the government, from retaliation by their employer. See 31 U.S.C. §

3730(h); S. Rep. No. 345, 99th Cong., 2d Sess. 34 (1986), reprinted in 1986 U.S.C.C.A.N. 5266,

5299. To state a viable FCA retaliation claim under 31 U.S.C. § 3730(h), the plaintiff must allege

that: (1) the employee was engaging in conduct protected under the Act; (2) the employer must have

known that the employee was engaging in such conduct; and (3) the employer discriminated against

the employee because of her protected conduct. See Hopper, 91 F.3d at 1269. 

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ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC 7

The FCA provides examples of actions that satisfy the first element of "conduct protected

under the Act," including "investigation for, initiation of, testimony for, or assistance in an [FCA]

action." 31 U.S.C. § 3730(h); Hopper, 91 F.3d at 1269. Courts have defined "investigation" to

involve more than mere knowledge of alleged fraud. See, e.g., 91 F.3d at 1264, 1269 (holding that

although plaintiff had complained to her superiors and reported her allegations to both state and

federal agencies, she was not engaging in "protected conduct" because she "was not trying to recover

money for the government . . . [s]he was not investigating fraud"). As Northrop argues, plaintiff

does not allege any investigatory activity on her part. Compl. ¶¶ 1-16. She only alleges that

defendant retaliated against her "[a]s a result of [her] having knowledge of the illegal actions."

Compl. ¶ 14. Since plaintiff does not allege that she was "whistleblowing" or looking for evidence

of her employer's fraud, plaintiff's complaint cannot satisfy the first element of a FCA retaliation

claim. Thus, plaintiff's FCA retaliation claim fails.

D. Leave to Amend

Leave to amend is to be freely granted when justice so requires. See Fed. R. Civ. P. 15(a). 

"A party may amend the party's pleading once as a matter of course at any time before a responsive

pleading is served . . . . Otherwise a party may amend the party's pleading only by leave of court or

by written consent of the adverse party." Fed. R. Civ. P. 15(a). A motion to dismiss is not a

"responsive pleading" within the meaning of Fed. R. Civ. P. 15(a). Breier v. N. Cal. Bowling

Proprietors' Ass'n, 316 F.2d 787, 789-90 (9th Cir. 1963). No responsive pleading has been served in

this action.

III. ORDER

For the foregoing reasons, the court grants defendants' motion to dismiss plaintiff's

complaint. Plaintiff's claims against defendant Lovlien are dismissed with prejudice and Lovlien is

dismissed from this action. Plaintiff has forty-five days from the date of this order to amend her

other claims. The court resets the case management conference to Friday, December 1, 2006 at

10:30 a.m.

DATED: 10/6/06

RONALD M. WHYTE

United States District Judge

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ORDER GRANTING MOTION TO DISMISS COMPLAINT—C-06-03881 RMW

SC 8

Notice of this document has been sent to:

Counsel for Plaintiff:

William Fenton Sink

Law Offices of William Fenton Sink

Dillingham Transportation Building

735 Bishop Street, Ste. 420

Honolulu, HI 96813

Scarlett McMasters (plaintiff)

2379 Halekoa Drive

Honolulu, Hawai'i 96821

Counsel for Defendants:

Brad D. Brian BrianBD@mto.com

Robert G. Klein

McCorriston Miller Mukai MacKinnon LLP

Five Waterfront Plaza, Ste. 400

500 Ala Moana Blvd.

Honolulu, HI 96813

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Dated: 10/10/06 SPT

Chambers of Judge Whyte

Case 5:06-cv-03881-RMW Document 14 Filed 10/10/06 Page 8 of 8