Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_13-cv-04476/USCOURTS-cand-3_13-cv-04476-13/pdf.json

Nature of Suit Code: 375
Nature of Suit: False Claims Act
Cause of Action: 31:3729 False Claims Act

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

 This Order will hereinafter stop listing case numbers, with the understanding that all Cellco (i.e.

Verizon) filings are in Case No. 13-4465, all Sprint filings are in case No. 13-4476, and all AT&T

filings are in Case No. 13-4542. Additionally, all references to transcripts of proceedings will be from

the Cellco docket.

2 The Defendants in the Cellco case are Cellco Partnership, Verizon Wireless, Verizon

Communications, Inc., Verizon Business, Alltel Corporation, Verizon Federal Inc., Verizon Federal

Incorporated, Verizon Services Corp., and Vodafone. Cellco SAC ¶ 4. However, Knudsen only

includes Cellco Partnership, Verizon Wireless, Verizon Communication, and Vodafone in the case

caption. See generally Cellco SAC. The Defendants in the Sprint case are Sprint Communication

Company LP, Sprint Nextel, and Sprint Spectrum. Sprint SAC ¶ 4. Knudsen also lists in the same

paragraph Sprint Solutions, Sprint Spectrum L.P., Sprint Spectrum Limited Partnership, Nextel

Communication Incorporated, and Nextel Communications of the Mid Atlantic Incorporated, but these

entities are not expressly labeled as defendants in the SAC, nor do they appear in the caption. Id. ¶ 4.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

RICHARD KNUDSEN,

Plaintiff,

 v.

SPRINT COMMUNICATIONS CO., ET

AL.,

Defendants. /

Nos. C13-04476 CRB; C13-4465 CRB; 

 C13-4542 CRB

ORDER GRANTING MOTIONS TO

DISMISS WITH PREJUDICE

Qui tam Relator Richard Knudsen (“Knudsen” or “Relator”) alleges that the

Defendant telephone companies fraudulently overcharged the federal government in

providing cellular and data plan services, violating the False Claims Act (“FCA”). See

generally Cellco SAC (dkt. 74) in Case 13-4465; Sprint SAC (dkt. 76) in Case 13-4476;

AT&T SAC (dkt. 78) in Case 13-4542.1

 Each set of Defendants2 moves to dismiss the

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 1 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Defendants in the AT&T case are American Telephone & Telegraph Company, AT&T Inc., AT&T

Corporation, New Cingular Wireless Services, Inc., AT&T Technical Services Company, Inc., AT&T

Mobility, AT&T Wireless, AT&T Corporation (formerly Cingular, LLC). AT&T SAC ¶ 4. Knudsen

does not expressly label AT&T Corp. as a defendant in the body of the SAC, but he includes it in the

case caption. See generally id. Knudsen also lists AT&T Wireless, Inc. (formerly Cingular, LLC),

AT&T Services, Inc. (formerly SBC Services, Inc.), and Bellsouth Telecommunications Incorporated

in ¶ 4, but he does not expressly label them as defendants nor do they appear in the case caption.

Furthermore, ¶ 4 and ¶ 5 both state “Defendant AT&T, Inc. (NYSE: T), Inc., is a Delaware corporation

with a principal place of business in New York, New York. This corporation is a holding company and

the corporate parent of the following companies:” followed by a list of entities, some of which are

named “Defendants.” See id. ¶¶ 4-5. The lists that follows for ¶ 5 is different, with different named

defendants than for ¶ 4, including only AT&T Inc., AT&T Mobility, AT&T Wireless, AT&T

Corporation (formerly Cingular, LLC), and AT&T Services, Inc. (formerly SBC Services, Inc.). These

also do not match the case caption. 

3

 The United States filed the same SOI for each set of Defendants. See SOI Mot. at 2.

2

Second Amended Complaints (“SACs”) for failing to state a claim, arguing that Knudsen

does not meet the Rule 8 and Rule 9(b) pleading standards. See generally Cellco Mot. (dkt.

77); Sprint Mot. (dkt. 79); AT&T Mot. (dkt. 81). The government has also filed a Statement

of Interest in this case. See United States’ Statement of Interest on Cellco Mot. to Dismiss

(“SOI Mot.”) (dkt. 59).3

 As explained below, the Court agrees with Defendants that the

SACs are inadequate. 

I. BACKGROUND

Knudsen “worked as an outside consultant in the technical support area of private and

 public entity telecommunication rate plan optimization[] and contract compliance auditing

for ten years.” See Cellco SAC ¶ 16; Sprint SAC ¶ 15; AT&T SAC ¶ 18. In that capacity,

he “developed intimate familiarity with the ways in which defendants entered into contracts

with the Federal Government for the government employees’ use and the defendants’

management of cellular and data plan services.” See Cellco SAC ¶ 17; Sprint SAC ¶ 16;

AT&T SAC ¶ 19. Knudsen allegedly gained “direct and independent knowledge of the

[alleged] false claim[s] through direct evaluation of the Defendants’: (1) customer’s [sic]

billing data, (2) customer’s [sic] monthly usage, (3) price plan analysis (PPA) and (4)

quarterly account’s [sic] rate plans review and recommendation(s) (stewardship reports)

provided by the carrier Defendants regarding their account billing, sales and account

management support.” See Cellco SAC ¶ 17; Sprint SAC ¶ 16; AT&T SAC ¶ 19. 

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 2 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 4 Relator alleges damages in the amount of $916.16 million by Sprint, see Sprint SAC ¶¶ 24–25,

and $1.42 billion by AT&T, see AT&T SAC ¶¶ 27–28. 

3

Knudsen became aware of these alleged false claims while reviewing accounts held

by a company called eOnTheGo. See Cellco SAC ¶ 18; Sprint SAC ¶ 17; AT&T SAC ¶ 20. 

Knudsen examined wireless agreements between Defendants and the City & County of San

Francisco as well as the City of Los Angeles. See Cellco SAC ¶ 19; Sprint SAC ¶ 18; AT&T

SAC ¶ 21. He discovered that “the billing data for all three carriers was not consistent with

the contractual obligations of all three carriers.” Cellco SAC ¶ 19; Sprint SAC ¶ 18; AT&T

SAC ¶ 21. Afterward, Knudsen alleges that he became curious about the contracts these

Defendants entered into with other government entities. See Cellco SAC ¶ 20; Sprint SAC ¶

19; AT&T SAC ¶ 22. Knudsen interviewed Ed DePaoli at the General Services

Administration (“GSA”) about the federal government’s contracts with Defendants. See

Cellco SAC ¶ 21; Sprint SAC ¶ 20; AT&T SAC ¶ 22. After Knudsen represented that he

might be able to discover billions of dollars in false claims by auditing their contracts, the

GSA permitted him to conduct a report based on three months of wireless billing data. See

Cellco SAC ¶¶ 21–22; Sprint SAC ¶¶ 20–21; AT&T SAC ¶¶ 23–24 (“Knudsen confirmed to

[GSA], based on his own experience and analysis from previous projects, that there would be

substantial savings for the GSA if the carriers’ rate plans and standard practices were audited

and that there would be significant audit recoveries going all the way back to 2003 by as

much as $1 Billion, based on false claims being submitted to the government.”). Knudsen

alleges that he assessed only Cellco’s billing data, and that he then made “projections” as to

Sprint and AT&T. See Cellco SAC ¶¶ 23–24; Sprint SAC ¶¶ 22–23; AT&T SAC ¶¶ 25–26

(“Projections were made as to the other carriers . . . i.e., as to AT&T and Sprint, who were

providing the same services under similar GSA Purchase Agreements.”). 

Based on those “projections,” Knudsen alleges that Defendants violated the FCA in

providing wireless services to 701+ federal agencies, costing the federal government an

estimated $2.56 billion in “single damages.” See Cellco SAC ¶¶ 25–26; Sprint SAC

¶¶ 24–25; AT&T SAC ¶¶ 27–28.4

 Knudsen attributes these damages to three different types

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 3 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

of wrongdoing: (1) Defendants failed to provide the government with the same plans and

price reductions that they provided to the “BOA/MFC,” the Basis of Award or Most Favored

Customer, (2) Defendants added state and local taxes and surcharges to the rates already

charged to the federal government, in violation of a General Services Administration

Regulation (“GSAR”) requiring that all taxes be included in the contract price, and (3)

Defendants failed to monitor any over- or under-usage and to transfer those accounts to more

appropriate rate plans, to disconnect lines unused for three consecutive months, and to apply

activation credits. See Cellco SAC ¶ 38; Sprint SAC ¶ 37; AT&T SAC ¶ 40. Knudsen also

alleges that Defendants “had to certify that their billing to the Federal Government was in

accordance with the GSAR and 48 U.S.C. [§] 552.238-75 and the obligations thereunder so

as to provide the Federal Government would receive [sic] the cost savings called for in these

regulations.” See Cellco SAC ¶ 37; Sprint SAC ¶ 36; AT&T SAC ¶ 39. 

Finally, Knudsen contends that, due to GSAR 52.203-13, Defendants were subject to

ethical standards that “imposed [on them] an affirmative obligation . . . to take action to

monitor and enforce their own contractual obligations for the benefit of the Federal

Government so that the Federal Government would benefit from the application of the

obligations which would have/should have resulted in significant reductions in the billings

submitted to the Government.” See Cellco SAC ¶ 44; Sprint SAC ¶ 43; AT&T SAC ¶ 46. 

This “code of conduct” allegedly requires Defendants to “establish a compliance program”

requiring them to identify any “improper conduct” and to disclose such conduct to the federal

government. See Cellco SAC ¶ 44; Sprint SAC ¶ 43; AT&T SAC ¶ 46. 

Knudsen alleges that his claims are based on the terms of the contracts between

Defendants and the federal government; he attaches as exhibits to each SAC excerpts of a

contract between each set of Defendants and the federal government. See Cellco SAC Ex. 3,

5, 6, 8, 10; Sprint SAC Ex. 3, 5, 6, 8, 10; AT&T SAC Ex. 3, 5, 6, 8, 10. Knudsen alleges that

these contractual violations were the basis of false claims that Defendants knowingly

submitted to the federal government for payment. See Cellco SAC ¶¶ 47–52; Sprint SAC

¶¶ 46–51; AT&T SAC ¶¶ 49–54.

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 4 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5 Knudsen cites the Conley “no set of facts” standard. See Cellco Opp’n (dkt. 79) at 11; Sprint

Opp’n (dkt. 80) at 11; AT&T Opp’n (dkt. 82) at 12; see Conley v. Gibson, 355 U.S. 41 (1957). But the

Supreme Court explicitly rejected Conley’s “incomplete, negative gloss” on the pleading standard. See

Twombly, 550 U.S. at 563–64.

5

Knudsen originally brought these FCA suits in the Fall of 2013. See generally Cellco

Compl. (dkt.1) (9/26/13); Sprint Compl. (dkt.1) (9/27/13); AT&T Compl. (dkt.1) (10/1/13). 

This Court dismissed with leave to amend on June 5, 2015. See June Hearing Tr. (dkt. 50). 

The Court explained that Knudsen needed to remedy five problems with the complaints. Id.

at 4–5. Knudsen filed the FACs on July 6, 2015. See generally Cellco FAC (dkt. 51); Sprint

FAC (dkt. 53); AT&T FAC (dkt. 54). This Court found that Knudsen had addressed some of

the problems the Court had identified with the original complaints, but that the FACs were

still lacking—particularly in regards to the Rule 9(b) specificity requirements. See FAC

Hearing (dkt. 64) Tr. at 7:1-4. The Court asked Knudsen if he could amend the complaints to

include the Basis of Award (“BOA”) customers, id. at 7:24-25, and the Cellco audit, id. at

16:24-25. Knudsen stated that he had that information but that he was prohibited from

disclosing it due to confidentiality agreements. Id. at 8:2–3, 17:3–4. This Court gave him

the opportunity to file SACs under seal. See Dec. 18 Order (dkt. 72). Knudsen filed the

SACs on January 29, 2016; he did not file them under seal. See generally Cellco SAC;

Sprint SAC; AT&T SAC. Defendants now move to dismiss the SACs under Federal Rule of

Civil Procedure 12(b)(6). See generally Cellco Mot.; Sprint Mot.; AT&T Mot. 

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss should be

granted where, “accept[ing] factual allegations in the complaint as true and constru[ing] the

pleadings in the light most favorable to the nonmoving party,” the pleadings fail to state a

claim upon which relief can be granted. Manzarek v. St. Paul Fire & Marine Ins. Co., 519

F.3d 1025, 1031 (9th Cir. 2008); see Fed. R. Civ. P. 12(b)(6). Rule 8(a) requires a complaint

to contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 570 (2007).5 

A Rule 12(b)(6) dismissal “can be based on the lack of a cognizable legal theory or

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 5 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica

Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A “complaint . . . must contain either direct

or inferential allegations respecting all the material elements necessary to sustain recovery

under some viable legal theory.” Twombly, 550 U.S. at 562. The Court is “not bound to

accept as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478

U.S. 265, 286 (1986). A “pleading that offers ‘labels and conclusions’ or ‘a formulaic

recitation of the elements of a cause of action will not do.’ Nor does a complaint suffice if it

tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555, 557). Rather, a complaint must

plead “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on

its face.’” Id. (quoting Twombly, 550 U.S. at 570). 

An FCA claim must be not only plausible, but pled with particularity under Rule 9(b). 

Cafasso ex rel. United States v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054–55 (9th

Cir. 2011). Such claims must identify “‘the who, what, when, where, and how of the

misconduct charged,’ as well as ‘what is false or misleading about [the purportedly

fraudulent] statement, and why it is false.’” Id. at 1055 (citation omitted). Rule 9(b) does

not require an FCA claim to “identify representative examples of false claims to support

every allegation.” Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir.

2010). “[I]t is sufficient to allege ‘particular details of a scheme to submit false claims paired

with reliable indicia that lead to a strong inference that claims were actually submitted.’” Id.

at 998–99. Plaintiffs alleging these fraud claims must, in addition to pleading with

particularity, also meet the Rule 8(a) plausibility standard. See Cafasso, 637 F.3d at 1055. 

Thus, not only must Knudsen plead the “who, what, when, where, and how of the

misconduct charged,” he must also plead these particulars through factual allegations that

make his claim plausible. 

III. DISCUSSION

In dismissing the original complaints in June 2015, the Court directed Knudsen to

cure five deficiencies in the pleadings by (A) including allegations beyond mere breaches of

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 6 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 6 The Court will not reach (E) the implied certification theory.

7

contract; (B) grounding the alleged violations in the actual relationship between these

Defendants and the federal government; (C) providing the “who, what, when, where, and

how” specifics required by Rule 9 and both narrowing down and differentiating between

Defendants; (D) adequately alleging scienter and materiality in light of the government

knowledge doctrine; and (E) articulating the basis for his implied certification theory. See

June Hearing Tr. at 4–5. In October 2015, the Court dismissed the FACs, finding that

Knudsen cured some of those deficiencies, but not all. See FAC Hearing at 7:1–4. 

Defendants’ motions to dismiss argue that the SACs still do not allege a false claim, contain

no basis for a false certification theory, lack particularity, and do not adequately allege

scienter or materiality. See generally Cellco Mot.; Sprint Mot.; AT&T Mot. Defendants are

largely correct. Of the five items identified by the Court in June 2015, Knudsen only

adequately addresses (A) alleging more than a mere breach of contract. Knudsen does not

adequately (B) ground the alleged violations in the actual relationship between Defendants

and the federal government, (C) provide the specifics required by Rule 9 and narrow down

and differentiate between Defendants, and (D) allege scienter and materiality.6

 Accordingly,

the Court GRANTS the Motions to Dismiss WITH PREJUDICE as to Knudsen, but

WITHOUT PREJUDICE as to the United States. 

A. Allegations Beyond Mere Breaches of Contract

The Court directed Knudsen to “include allegations beyond mere breaches of

contract.” See June Hearing Tr. 4:11–12. In the original complaints, Knudsen based his

allegations largely on speculation that Defendants breached their contract with the federal

government. See e.g., Cellco Compl.; Sprint Compl.; AT&T Compl. Knudsen now alleges

more clearly that Defendants submitted monthly billings to the federal government under

their contract, and that those billings were fraudulent. See e.g., Cellco SAC ¶ 41; Sprint

SAC ¶ 40; AT&T SAC ¶ 43 (“Defendants, did expressly certify the accuracy of those

billings and affirm that the monthly billings comported with the contract terms and the

applicable GSARs when they did not. Said certification and affirmation was done knowingly

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 7 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

with the actual knowledge of and/or in deliberate ignorance of the truth or falsity of the

information and/or a reckless disregard of the truth or falsity of the information . . .”). 

Knudsen attaches as an exhibit a blank copy of a certification form that “plaintiff is informed

and believes and thereon alleges was required to be provided by Defendants in support of

their monthly billings.” See Cellco SAC ¶ 45, Ex. 9; Sprint SAC ¶ 40, Ex. 9; AT&T SAC ¶

43, Ex. 9. Knudsen asserts both express and implied certification theories to support his

allegations that his claim is more than a breach of contract. See Cellco SAC ¶¶ 41, 43; Sprint

SAC ¶¶ 40, 42; AT&T SAC ¶¶ 43, 45.

Although Knudsen now bases his allegations more clearly on false claims, the SACs

are still insufficient. 

B. Actual Relationship Between Defendants and Federal Government

In the original complaints, Knudsen relied primarily on the wireless agreements

between Defendants and the City and County of San Francisco as well as the City of Los

Angeles, applying his analysis of those agreements quite broadly to the federal government. 

See Cellco Compl.; Sprint Compl.; AT&T Compl. The Court directed Knudsen to ground

any FCA violations in the actual relationship between Defendants and the federal

government. See June Hearing Tr. 4:3–4. Knudsen now attaches to the SACs alleged

excerpts from each Defendant’s contract with the federal government, highlighting key

provisions. See Cellco SAC Ex. 3, 5, 6, 8, 10; Sprint SAC Ex. 3, 5, 6, 8, 10; AT&T SAC Ex.

3, 5, 6, 8, 10. Three problems remain. 

First, it is not clear which federal agencies the contracts are with. See Sprint FAC

Mot. (dkt. 54) at 3–4. The SACs fail to identify any particular agency that used Defendants’

services. See Cellco SAC ¶¶ 29-37; Sprint SAC ¶¶ 28-36; AT&T SAC ¶¶ 31-39. Knudsen

alleges that these contracts involved Blanket Purchasing Agreements, allowing agencies to

purchase services through the Multiple Award Schedules negotiated through the GSA. See

Cellco SAC ¶¶ 27, 29; Sprint SAC ¶¶ 26, 28; AT&T SAC ¶¶ 29, 31. However, Knudsen’s

allegations only identify how federal agencies would purchase Defendants’ services—it does

not identify any actual relationship with any agencies. The SACs allege that there were

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 8 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 7 The Court observes that using the word “specific” does not make an allegation specific.

9

“more than 700 contracting agencies . . . authorized to purchase those services . . . .” See

Cellco SAC ¶ 29; Sprint SAC ¶ 28; AT&T SAC ¶ 31 (emphasis added). This allegation fails

to allege specifics satisfying the Rule 9(b) pleading standard. 

Second, it is not clear if the contracts incorporated the relevant terms on which

Knudsen relies for the lengthy time span in which Defendants allegedly submitted false

claims. See Sprint FAC Mot. at 3–4. Knudsen acknowledged in the FACs that he does not

actually know the terms of Defendants’ contracts with the government but speculates as to

what they are. See Cellco FAC ¶ 34; Sprint FAC ¶ 33; AT&T FAC ¶ 36 (“Plaintiff, based

upon his review of the contracts and regulations identified above, paired with his specific

knowledge of these same defendants, and their specific conduct as related to other

governmental agencies, operating under similar contracts, with almost identical regulations . .

.”).7

 Additionally, Knudsen can only estimate the overcharge by comparing the best

available rates—indicating, as discussed at greater length below, that he does not know for

any given time which customers comprise the BOA to which the government’s rates are tied. 

See Cellco SAC ¶ 56; Sprint SAC ¶ 55; AT&T SAC ¶ 58 (“Plaintiff is informed and

believes. . . . estimates on the basis of available information . . . an amount in excess of $1.4

billion.”). 

Third, Knudsen relies on blank forms. See Cellco FAC Mot. (dkt. 52) at 6. Knudsen

relies on a blank Commercial Sales Practices (“CSP”) form to substantiate conclusory

allegations that these terms were actually in the Defendants’ and government’s contract. See

Cellco SAC ¶ 28, Ex. 4; Sprint SAC ¶ 27, Ex. 4; AT&T SAC ¶ 30, Ex. 4.

Knudsen’s attempt to ground his claims in the actual relationship between Defendants

and the federal government is still insufficient. These details about the contracted terms are

the foundation of Knudsen’s claims, and it appears that he cannot add further detail. 

C. Narrowing and Differentiating Defendants, and Rule 9 Specifics

Knudsen slightly narrowed down the list of Defendants’ subsidiaries included in this

suit, however, he still largely lumps the three Defendants together in his allegations. And

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 9 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

importantly, the SACs still lack the plausibility and specificity required by Rules 8 and 9(b). 

1. Narrowing and Differentiating Defendants

Knudsen’s initial complaints included as co-defendants a number of companies held

under each of the Defendant corporate parent companies. See Cellco Compl. ¶ 6; Sprint

Compl. ¶ 9; AT&T Compl. ¶ 9. In the FACs, Knudsen failed to significantly narrow down

the subsidiary companies. See Cellco FAC ¶ 4; Sprint FAC ¶ 4; AT&T FAC ¶ 4; see also

Cellco FAC ¶ 8 (“Plaintiff alleges, on information and belief, that all of the above companies

were equally involved in the acts herein and plaintiff is unable to distinguish the acts of one,

from the acts of another.”). The FACs did not adequately address the Court’s request to

narrow down the number of Defendants. Knudsen made no changes to these paragraphs

between the FACs and SACs. See Cellco SAC ¶ 4; Sprint SAC ¶ 4; AT&T SAC ¶¶ 4-5. 

Furthermore, it remains unclear within the SACs who the actual defendants are for each set

of Defendants. See supra note 2. 

Knudsen also still fails to differentiate between Defendants. His initial complaints

were nearly identical for all three Defendants. See generally Cellco Compl.; Sprint Compl.;

AT&T Compl. These SACs differentiate between Defendants in only three ways. First,

Knudsen provides distinct excerpts of contracts. See Cellco SAC Ex. 3, 5, 6, 8, 10; Sprint

SAC Ex. 3, 5, 6, 8, 10; AT&T SAC Ex. 3, 5, 6, 8, 10. Second, although Knudsen allegedly

received three months’ worth of raw data from the GSA, see Cellco SAC ¶¶ 20–21, it seems

that Knudsen limited his audit (which he did not include in his SACs) to overcharges

stemming from only the Cellco contract, see id. ¶¶ 21–22 (“Knudsen presented . . . a detailed,

line-by-line Detail (overcharges and) Recovery Report to the GSA regarding Verizon

Wireless’s overcharges based on the information provided by the GSA. Projections were

[then] made as to the other carriers during this meeting, i.e., as to AT&T and Sprint, who

were providing the same services under similar GSA Purchase Agreements.”). And third,

Knudsen alleges (without explanation) different total damages amounts. See Cellco SAC

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 10 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8 Each SAC contains one paragraph estimating the average monthly costs for the federal

government in 2012 under each contract. See Cellco SAC ¶ 25; Sprint SAC ¶ 24; AT&T SAC ¶ 27.

But Knudsen does not connect these monthly cost estimates to the total damages he alleges. See Cellco

SAC ¶¶ 26, 56; Sprint SAC ¶¶ 25, 55; AT&T SAC ¶¶ 28, 58. Nor does a calculation of monthly costs

multiplied by the number of months in the alleged time period approximate the total damages Knudsen

alleges. Aside from showing his estimates for only 2012, Knudsen does not allege the basis for his total

damages calculations.

9 Knudsen’s reliance on Rivera is misplaced because Rivera is a breach of contract case not

governed by Rule 9(b). See generally Rivera, 735 F.3d 892; Fed. R. Civ. P. 9. 

11

¶¶ 25-26, 56; Sprint SAC ¶¶ 24-25, 55; AT&T SAC ¶¶ 27-28, 58.8 Otherwise, the three

SACs are nearly identical. 

Knudsen’s assurances that “[t]he nature and extent of involvement of the various

Defendants will be determined over the course of discovery in this matter” is insufficient. 

See AT&T SAC ¶ 12. “Rule 9(b) does not allow a complaint to merely lump multiple

defendants together but requires plaintiffs to differentiate their allegations when suing more

than one defendant and inform each defendant separately of the allegations surrounding his

alleged participation in the fraud.” See United States ex rel. Lee v. Corinthian Colls., 655

F.3d 984, 997–98 (9th Cir. 2011) (quoting Swartz v. KPMG LLP, 476 F.3d 756, 764–65 (9th

Cir. 2007). 

2. Rule 9 Specifics and Rule 8 Plausibility

Knudsen acknowledges that he is required to provide facts sufficient to satisfy Rule

9(b), including the “who, what, when, where, and how” of a scheme to submit false claims. 

See, e.g., Cellco Opp’n at 12. However, he maintains that, according to the Ninth Circuit,

“allegations regarding contract terms and a defendant’s breach of those terms ‘generally

require[] only a plausible short and plain statement of the plaintiff’s claim, not an exposition

of his legal argument’ so as to ‘give the defendant fair notice of the basis for [the plaintiff’s]

claims.’” See id. at 14 (citing Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 899–900 (9th

Cir. 2013)).9

 Knudsen argues that he set forth 

specific terms and conditions disclosures, price lists, price reductions, discount

increases, Contract modifications to keep current which Defendants were

required to meet, many of which were mandated by federal law and the

incorporation of federal regulations and standard clauses regarding such

regulations as the basis of award comparisons between the commercial

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 11 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10 At the motion hearing, Knudsen’s counsel again asserted that his pleadings were adequate and

that the Court should not hold him to a summary judgment standard. See SAC Hearing Tr. (dkt. 96) at

36:6–12 (“What we have pled, which is what I’m required to do, not prove . . .”). The Court is mindful

that this case is at—and has been unable to progress beyond—the motion to dismiss stage. 

12

standard practices applied to Defendants’ identified customers or category of

customers and the contract at issue here, as well as the price reduction clause

(“PRC”) mandate and the bar to imposing additional taxes provisions included

in the Contract Clause Document for this agreement.

See Cellco Opp’n at 14.10 

Knudsen’s SACs still lack the necessary specificity as to all three sets of alleged

violations: (a) price reductions to the Basis of Award (“BOA”) customers not extended to the

government; (b) charging taxes and surcharges allegedly required to be included in the

standard rates; and (c) other pricing and discount practices promised under contract

(including transfer to appropriate plan rates, disconnecting unused lines, applying new

activation credits). See Cellco SAC ¶ 38; Sprint SAC ¶ 37; AT&T SAC ¶ 40. Additionally,

while it is conceivable that Defendants participated in a fraudulent scheme, Knudsen failed to

allege the specifics of such a scheme with plausibility. The Court will address each

allegation in turn. 

(a) Price Reductions Provided to Basis of Award Customers

Knudsen does not allege with specificity that Defendants fraudulently provided

discounts to their BOAs but not to the federal government. 

As addressed in Part III.C.1 of this Order, Knudsen failed to adequately narrow down

or differentiate between Defendants. Knudsen further conceded his inability to “distinguish

the acts of one [defendant], from the acts of the other.” See Cellco SAC ¶ 8; Sprint SAC ¶ 7;

AT&T SAC ¶ 10. Additionally, as addressed in Part III.B of this Order, Knudsen cannot

identify which government agencies purchased services under the government contracts with

Defendants. Moreover, all of the SACs are nearly identical. See generally Cellco SAC;

Sprint SAC; AT&T SAC. Although Knudsen claims to be the “ultimate insider,” see Cellco

Opp’n at 2, he still cannot allege with particularity the Defendant subsidiaries involved, the

governmental agencies using their services, or distinctions between the acts of the different

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 12 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11 Knudsen argues in his Oppositions that he pled with specificity because his SACs identified

how the companies under each corporate parent came to be known as the named Defendants. See Cellco

Opp’n at 1 (citing Cellco SAC ¶¶ 4–5). He further argues that because of the timing of these corporate

evolutions, he will be able to identify the specific acts of each subsidiary only after discovery. See id.

at 1–2. This does not overcome his concession that he cannot distinguish between the individual acts

of the subsidiaries. Knudsen should be able to allege how each of these named subsidiaries uniquely

participated in the alleged fraudulent scheme. 

12 This regulation provides in part: “Before award of a contract, the Contracting Officer and the

Offeror will agree upon (1) the customer (or category of customers) which will be the basis of award,

and (2) the Government’s price or discount relationship to the identified customer (or category of

customers). . . . Any change in the Contractor’s commercial pricing or discount arrangement applicable

to the identified customer (or category of customers) which disturbs this relationship shall constitute a

price reduction.” 48 C.F.R. § 552.238-75(a).

13 This regulation provides in part: “(a) The Government will seek to obtain the offeror’s best

price (the best price given to the most favored customer). However, the Government recognizes that

the terms and conditions of commercial sales vary and there may be legitimate reasons why the best

price is not achieved.” 48 C.F.R. § 538.270(a).

13

sets of Defendants. He thus fails to allege the “who” with specificity.11

As to the “what” and “how,” Knudsen alleges that government contracts identify a

customer or category of customers as the BOA, basing the government’s pricing on that

customer or customers’ pricing. See Cellco SAC ¶ 33; Sprint SAC ¶ 32; AT&T SAC ¶ 35

(citing 48 C.F.R. § 552.238-7512). But Knudsen does not allege a specific customer or even a

specific category of customers comprising the BOA. Instead he alleges a long “and/or” list

of public and private entities that the BOA “and/or MFC” “include[s],” which is exactly the

same for each set of Defendants. See Cellco SAC ¶ 33; Sprint SAC ¶ 32; AT&T SAC ¶ 35

(“The BOA and/or MFC under the AT&T contract is/was not a single entity but . . . a

customer or class of customers. . . . AT&T’s BOA consisted of a number of Fortune 500

companies and/or states or multi state alliances. More specifically, the BOA/MFC included .

. . and/or . . .”). As Cellco noted in its motion to dismiss, the alleged potential BOA could be

any one of over 2,000 combinations of private and public customers. See Cellco Mot. at 2. 

Knudsen also cites to 48 C.F.R. § 538.27013 in alleging that government contracts rely

on a category of customer that receives the best pricing. See Cellco SAC ¶ 33; Sprint SAC

¶ 32; AT&T SAC ¶ 35. At the motion hearing, Knudsen asserted more clearly his theory of a

dynamic pricing scheme in which, at any given time, if any one of the customers included in

the “category of customers”—assuming that he had identified the complete universe of such

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 13 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14 At the motion hearing, the Court asked Knudsen to point to the contracts at issue in connection

with the BOA/MFC. See SAC Hearing Tr. at 28:10–11. Knudsen identified only Exhibits 3 and 4 to

the Cellco SAC, which are a “Contract Clause Document,” which recites the language from 48 U.S.C.

§ 552.238-75 about what happens before the award of a contract, and a blank “Commercial Sales

Practices Format,” which contains no specific information about the contracts at issue. See id. at

30:9–10; Cellco SAC Ex. 3, 4. Knudsen did not identify anything containing the actual terms of the

parties’ contracts, or anything that would have prevented Verizon, for example, from negotiating a rate

with the government other than most favored pricing. See SAC Hearing at 32:10–20; see also id. at 35

(Knudsen’s counsel conceding that “[P]erhaps it can” be negotiated).

14

customers—received a price reduction, then the government should receive the same price

reduction. SAC Hearing Tr. at 9:20–14:19 (“Every day it could change because it’s the

lowest price offered at any moment in time directly to any of these folks.”); see also AT&T

SAC ¶ 39 (alleging this theory in less clear terms). Knudsen’s allegation is that Defendants

violated the FCA when they “provided price reductions to the category of BOA/MFC” but

failed both to notify the government and to provide the same price reductions to the

government. See, e.g., AT&T SAC ¶ 38(a). 

However, the very regulation that Knudsen cites in support of his assertion that the

“government entities had the right to receive, and the Defendants had the obligation to

provide, the best rate [the defendants] provided to [their] BOA or MFC clients,” see id. ¶ 35,

only states that the government “seeks” the best rate but that there may be “legitimate

reasons why the best price is not achieved,” see 48 C.F.R. § 538.270(c). Moreover,

Knudsen’s own pleadings concede that “Basis of Award” and “Most Favored Customer” are

distinct terms. See Cellco SAC ¶ 33; Sprint SAC ¶ 32; AT&T SAC ¶ 35. Thus, Knudsen’s

claims must allege with specificity either that the contracts were in fact tied to best pricing or

they must specifically allege which customer(s) served as the BOA for each set of

Defendants.14 Instead, these SACs assume that the BOAs must have been tied to best pricing

and that any “information” that another customer received better pricing necessarily means

that there were overcharges. See generally Cellco SAC ¶¶ 29–37; Sprint SAC ¶¶ 28–36;

AT&T SAC ¶¶ 31–39. This kind of surmise is insufficient to specifically allege that there

were price reductions to the BOA customers not extended to the government.

Furthermore, Knudsen did not allege with specificity a discount Defendants in fact

gave to a BOA customer that they did not award to the government. See SAC Hearing Tr. at

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 14 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15

18:19–19:1 (“What he’s also failed to do, Your Honor, is failed to identify even one instance

in which this supposed Basis of Award customer clause was — was triggered.”); id. at

22:17–21 (“He admitted that plaintiff does not know on any particular date who the Basis of

Award customer is; what rate was in effect for that customer; or if and when or how that rate

was not given to the federal government.”). Although Knudsen is not required to present a

representative example of a false claim, Ebeid, 616 F.3d at 998, he must still allege

“particular details of a scheme to submit false claims . . .” see id. at 998–99. The discounts

and rates offered to the BOA are such particulars of a fraudulent scheme that Knudsen must

plead under Rule 9(b). Thus, Knudsen did not sufficiently plead “what” the government

contracted for with each Defendant or “how” each Defendant in fact overcharged the

government.

Knudsen’s Opposition argues that he adequately alleged the “what” because he

evaluated data about charges from Verizon from a cross-section of agencies (which he does

not name) in order to assess whether the government received the lowest possible pricing. 

See Cellco Opp’n at 5 (citing Cellco SAC ¶ 23). He also argues that his “and/or” list of the

BOA is sufficiently particular. See id. at 5. He claims that he “knew at the time of his

analysis and report to the GSA[] the terms of Defendant’s contracts with these BOA

customers including as they formed the BOA for the Cities of San Francisco and Los

Angeles.” See id. at 5–6 (citing Cellco SAC ¶ 19). Knudsen must provide more than an

unadorned assertion that he knew the BOA customers “at the time” for the identical “and/or”

list for each set of Defendants to be particular. This is especially important as the BOA is the

comparison point for determining pricing.

Additionally, Knudsen fails to plead with specificity “when” Defendants submitted

these alleged false claims. Knudsen alleges that Defendants “over the course of time since

the inception of the contract . . . submitted false claims for payment, failed to provide the

promised services required under the contract and violated the various statutes and

regulations identified below . . . .” See Cellco SAC ¶ 10; Sprint SAC ¶ 9; AT&T SAC ¶ 12. 

He also alleges a different “105-month period” in which Defendants submitted false claims

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 15 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15 Alternatively, if this conclusory assertion that every monthly billing since the contract’s

inception satisfies the “when” of the Rule 9(b) specificity requirement, it is not plausible. 

16 Even if Knudsen provided the Cellco audit, it would not have made his claim plausible.

Because Knudsen did not allege with specificity or plausibility the actual BOA or the actual pricing

terms, he cannot plausibly allege an overcharge. Without a BOA and pricing terms, he has no point of

16

every month. See Cellco SAC ¶ 56; Sprint SAC ¶ 55; AT&T SAC ¶ 58. To support his

assertion that the fraudulent scheme persisted for the duration of the contract, he cites an

audit that he performed on three months’ worth of Cellco services from 2012—which he also

uses to support his allegations against Sprint and AT&T. See Cellco SAC ¶¶ 23–24; Sprint

SAC ¶¶ 22–23; AT&T SAC ¶¶ 25–26. Importantly, Knudsen created the 2012 audit twelve

years after the contract formed—which Knudsen alleges was “[o]n or about April 1, 2000”

for each set of defendants. See Cellco SAC ¶ 29; Sprint SAC ¶ 28; AT&T SAC ¶ 31. Based

on this small sample, Knudsen asserts that the violations took place over the life of the

contracts, or a 105-month period, for all sets of Defendants.15 In addition to lacking

specificity as to each set of Defendants, this audit has no factual significance as to the

conduct of the Sprint and AT&T defendants. See Levitt v. Yelp! Inc., 765 F.3d 1123, 1135

(9th Cir. 2014) (the complaint “must allege factual content that allows the court to draw the

reasonable inference that the Defendant is liable for the misconduct alleged.”) (internal

quotation and citation omitted).

Moreover, for much the same reason that Knudsen did not plead with specificity, he

also did not plead plausibly. “When considering plausibility, courts must also consider an

‘obvious alternative explanation’ for [the] defendant’s behavior.” Eclectic Props. E., LLC v.

Marcus & Millichap Co., 751 F.3d 990, 996 (9th Cir. 2014) (quoting Iqbal, 556 U.S. at 682). 

As noted above, the regulations on which Knudsen relies only indicate that the government

“seeks” best pricing but that it is not always achieved because “terms and conditions of

commercial sales vary . . . .” See 48 C.F.R. § 538.270(c). Because the BOA is a designated

customer or category of customers and not necessarily the customer with the best pricing, an

“obvious alternative explanation” is that the BOA for each Defendant was not receiving best

pricing.16 Further making Knudsen’s claim implausible is that he alleges the exact same

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 16 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

comparison—other than best available pricing. However, the obvious alternative explanation, that a

BOA was not receiving the lowest rates, makes best pricing an inconclusive basis for comparison to

allege an overcharge. It is especially inconclusive in extrapolating potential overcharges spanning over

a decade and for companies not included in the audit. 

17

“and/or” list of possible BOAs for all three sets of Defendants. See Cellco SAC ¶ 33; Sprint

SAC ¶ 32; AT&T SAC ¶ 35. He also alleges the same contract start date with the same

period of false claims submissions for all sets of Defendants. See Cellco SAC ¶¶ 10, 56;

Sprint SAC ¶¶ 9, 55; AT&T SAC ¶¶ 12, 58. Because Knudsen alleges that Defendants

submitted false claims for the entire duration of their contracts, all Defendants would have

needed to award discounts to their BOA, but not the government, immediately after forming

the government contracts to make those allegations plausible. However, the factual

allegation Knudsen uses to justify this, the Cellco audit for three months of 2012 data, does

not make plausible such an expansive time span. It is certainly conceivable that each

Defendant’s BOA customer or category of customers was within the “and/or” list Knudsen

alleged, that each BOA did have a Defendant’s best pricing, and that each Defendant gave

pricing discounts to that BOA that it did not give to the government over the entire life of the

contracts. But Knudsen did not plausibly plead each of these occurrences. 

In conclusion, the SACs lack “details of a scheme” in conjunction with “reliable

indicia that lead to a strong inference” that Defendants submitted false claims to the

government. See Ebeid, 616 F. 3d at 999 (citation omitted). 

(b) Violation of Tax Surcharges 

Knudsen also alleges that Defendants fraudulently taxed the federal government. See

Cellco SAC ¶¶ 38(b), 40, 42, 48; Sprint SAC ¶¶ 37(b), 39, 41, 47; AT&T SAC ¶¶ 40(b), 42,

44, 50. Knudsen alleges that Defendants “improperly, and deliberately, or with reckless

disregard, added additional state and local taxes and surcharges to the rates charged to the

Federal Government and submitted those claims for payment knowingly, as defined by 31

U.S.C. section 3729, [and] that they constituted a false claim.” See Cellco SAC ¶ 38(b);

Sprint SAC ¶ 37(b); AT&T SAC ¶ 40(b). All other paragraphs referencing these taxes and

surcharges are conclusory, containing only bare assertions that Defendants wrongfully

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 17 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

18

charged them. See Cellco SAC ¶¶ 40, 42, 48; Sprint SAC ¶¶ 39, 41, 47; AT&T SAC ¶¶ 42,

44, 50. Knudsen does not allege which surcharges or taxes Defendants charged or when. 

Knudsen only alleges that certain regulations require their inclusion in standard rates

charged. See Cellco SAC ¶ 38(b); Sprint SAC ¶ 37(b); AT&T SAC ¶ 40(b). This does not

satisfy either the Rule 8 plausibility or the Rule 9 specificity standards. Furthermore,

Knudsen did not even address this issue in his Oppositions. See generally Cellco Opp’n;

Sprint Opp’n; AT&T Opp’n. Accordingly, the Court considers the claim waived. See City

of Arcadia v. EPA, 265 F. Supp. 2d 1142, 1154 n.16 (N.D. Cal. 2003) (“[t]he implication of

this lack of response is that any opposition to the argument is waived.”); see also Qureshi v.

Countrywide Home Loans, Inc., No. 09–4198, 2010 WL 841669, at *6 n.2 (N.D. Cal. Mar.

10, 2010) (deeming plaintiff’s failure to address, in opposition brief, claims challenged in a

motion to dismiss, an “abandonment of those claims”) (citing Jenkins v. City of Riverside,

398 F.3d 1093, 1095 n.4 (9th Cir. 2005)).

(c) Violations of Pricing and Discount Practices

Knudsen’s third set of allegations is that Defendants failed to “(1) transfer accounts

that were over-utilized or under-utilized to more appropriate rate plans; (2) monitor and

disconnect lines that had been unused for three consecutive months (‘zero usage lines’); and

(3) apply new activation credits.” See Cellco SAC ¶ 38(c); Sprint SAC ¶ 37(c); AT&T SAC

¶ 40(c). These allegations suffer from the same problems as the previous two sets because

they lack the “particular details” of the fraudulent scheme. See Ebeid, 616 F. 3d at 998. 

Generally, Knudsen’s allegations that Defendants submitted false claims throughout

the contractual period, see Cellco SAC ¶¶ 38–39; Sprint SAC ¶¶ 37–38; AT&T SAC

¶¶ 40–41, lack specifics regarding a contractual term actually included in any particular

contract with the federal government, dates, or actual discounts that Defendants offered to

the BOA but not to the government. These allegations, made on “information and belief,”

see, e.g., Cellco SAC ¶ 26, are not sufficient for Rule 9(b) pleading because they are not

“accompan[ied] [by] a statement of facts on which the belief is founded,” see Moore v.

Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989) (stating that “[i]n order to

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 18 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

19

plead fraud with particularity, the complaint must allege the time, place, and content of the

fraudulent representation; conclusory allegations do not suffice.”). Knudsen failed to allege

fraud with particularity because he failed to include facts showing that these contract terms

existed in a particular government contract as well as other “details of a scheme.” 

D. Scienter & Materiality

Because the SACs did not adequately plead that the contracts between each Defendant

and the federal government incorporated terms ensuring best pricing, they also do not

adequately plead scienter. Furthermore, Knudsen’s materiality allegations remain conclusory

and inadequate. 

1. Scienter

FCA liability requires that a defendant “knowingly presents, or caused to be

presented, a false or fraudulent claim for payment or approval” or “knowingly makes, uses,

or causes to be made or used, a false record or statement material to a false or fraudulent

claim.” See 31 U.S.C. § 3729(a)(1). Knudsen is correct that under Rule 9(b), “malice,

intent, knowledge, and other conditions of a persons [sic] mind, including scienter, can be

alleged generally.” See United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 996 (9th

Cir. 2011) (internal quotations omitted). However, “‘innocent mistakes, mere negligent

misrepresentations and differences in interpretations’ will not suffice to create liability.” Id.

(citing United States ex rel. Hendow v. University of Phoenix, 461 F.3d 1166, 1174 (9th Cir.

2006)) (internal quotations omitted). Allegations of knowledge must still meet the Rule 8

standard requiring plausibility. 

Under the FCA, “knowingly” does not require specific intent to defraud. See 31

U.S.C. § 3729(b)(1)(B). Instead, the FCA defines knowledge to include “actual knowledge,”

“deliberate ignorance of the truth or falsity of the information,” or “reckless disregard of the

truth or falsity of the information.” 31 U.S.C. § 3729(b)(1)(A). “[A]n inference of scienter

must be more than merely plausible or reasonable—it must be cogent and at least as

compelling as any opposing inference or nonfraudulent intent.” Tellabs, Inc. v. Makor Issues

& Rights, Ltd., 551 U.S. 308, 314 (2007). 

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 19 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

20

Similar to Lee, Knudsen alleges that Defendants acted “knowingly” insofar as they

allegedly knew that they violated their disclosure obligations, “thereby consciously and

willfully perpetrating fraud on the Federal Government.” See Cellco SAC ¶ 52; Sprint SAC

¶ 51; AT&T SAC ¶ 54. Also similar to Lee, Knudsen’s SACs do not allege sufficient facts

to support this claim. 

Knudsen argues that scienter can be inferred from the existence of ethical obligations

in the contracts between Defendants and the federal government. See, e.g., Cellco ¶¶ 47–52;

Sprint SAC ¶¶ 46–51; AT&T SAC ¶¶ 49–54. He asserts that Defendants “did knowingly

violate GSAR 552.212-715, GSAR 552.215.72, and 48 C.F.R. § 512.301, by denying the

government the price reductions, discounts, concessions, and terms and conditions afforded

to the designated category of customers (BOA/MFC) as required by law and contract.” 

Cellco SAC ¶ 47; Sprint SAC ¶ 46; AT&T SAC ¶ 49. Knudsen also alleges that Defendants

“knowingly” violated the GSARs by “impermissibly charging the government taxes and

surcharges.” See Cellco SAC ¶ 48; Sprint SAC ¶ 47; AT&T SAC ¶ 50. These are

conclusory assertions insufficient to support his allegations of knowledge. 

Knudsen has not adequately alleged scienter by pointing to Defendants’ duty to

establish compliance programs, which included a duty to periodically review practices,

procedures, policies and internal controls. See Cellco SAC ¶ 49; Sprint SAC ¶ 48; AT&T

SAC ¶ 51. Knudsen cannot reverse-engineer scienter in this way. To accept his argument

would turn every bill sent by every entity that has business with the government, and that has

a compliance program, into a false claim. 

The closest Knudsen comes to adequately pleading scienter is his allegation that he is

aware that Defendants provided discounts and optimization for other customers that

Defendants chose not to provide to the government. See Cellco SAC ¶¶ 50–51; Sprint SAC

¶¶ 49–50; AT&T SAC ¶¶ 52–53. Knudsen alleges on “information and belief” that

Defendants chose not to optimize rates for the government. See Cellco SAC ¶ 51; Sprint

SAC ¶ 50; AT&T SAC ¶ 53. He surmises that there must have been scienter because

Defendants could have used a “simple computer algorithm” to ensure that no pricing or

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 20 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

21

optimization breaches occurred. See Cellco SAC ¶ 49; Sprint SAC ¶ 48; AT&T SAC ¶ 51. 

However, because Knudsen did not plead the specifics of the BOA and each Defendant’s

pricing relationships to their BOA, the plausibility of his scienter allegations is also lacking. 

“[T]he Government recognizes that the terms and conditions of commercial sales vary and

there may be legitimate reasons why the best price is not achieved.” See 48 C.F.R.

§ 538.270(c). Thus, there is an obvious alternative explanation as to why Knudsen might be

aware of lower prices for Defendants’ non-government customers, weakening the chain of

inferences he uses to allege scienter. This alternative explanation also undermines his

assertion that a “simple computer algorithm” would optimize the prices and rates each

Defendant provided to the government. 

Because 48 CFR § 538.270(c) states that the government “seeks” the best prices

available, and because Knudsen does not sufficiently allege that best pricing was in fact a

term of each Defendant’s contract with the federal government, Knudsen cannot plausibly

allege that Defendants failed to comply with the ethics programs in a manner amounting to

scienter under 31 U.S.C. § 3729(b)(1)(A).

2. Materiality

Knudsen also did not adequately plead materiality in the SACs. Under the FCA, a

false statement “must be material to the government’s decision to pay out moneys to the

claimant.” Hendow, 461 F.3d at 1172; see also 31 U.S.C. § 3729(a)(1)(B). In this context,

“material” means “having a natural tendency to influence, or be capable of influencing, the

payment or receipt of money or property.” See 31 U.S.C. § 3729(b)(4). “[M]ateriality is

satisfied under [either express or implied certification theories] only where compliance is ‘a

sine qua non of receipt of state funding.’” Ebeid, 616 F.3d at 998; see also Maa v. Ostroff,

No. 12-cv-00200-JCS, 2013 WL 1703377,*18 (N.D. Cal. Apr. 19, 2013) (whether payment

is expressly conditioned on compliance “is evidence of what the government considers to be

material when making its decision to pay . . . .”). In assessing materiality, certification itself

is not essential; instead, “the question is merely whether the false certification—or assertion,

or statement—was relevant to the government’s decision to confer a benefit.” Ebied, 616

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 21 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

22

F.3d at 997 (quoting Hendow, 461 F.3d at 1173). 

Knudsen alleges simply that “[a]s reflected in the disclosures and representations

mandated by the Federal Government in the Commercial Sales Practice (CSP-1) from [sic]

Defendants were required to provide, and as mandated by GSAR [provisions], the price

reductions, discounts and terms and conditions afforded to the designated category of

customers were material to the agreement of the Federal Government to enter into the

contract with Defendants for the provisions of cellular services and data plans.” See Cellco

SAC ¶ 46; Sprint SAC ¶ 45; AT&T SAC ¶ 48. This conclusory statement is Knudsen’s only

allegation regarding materiality. It is insufficient. 

The United States, in a Statement of Interest, argues that materiality is easily met

because a price reduction clause dictates how much the government pays, which has a natural

tendency to affect the government’s decision to pay a claim. See U.S. Recent Decision SOI

(dkt. 89) at 4. Although the government might be correct that a PRC violation is material to

the government’s decision to pay, the issue here is the adequacy of Knudsen’s pleading. The

Supreme Court recently concluded that materiality is not too fact intensive an issue upon

which courts may base an FCA dismissal. See Universal Health Services v. United States ex

rel. Escobar, No. 15-7, 16-17 n.6 (Jun. 16, 2016). The Court further stated that the standard

for pleading materiality is “rigorous” and that FCA plaintiffs must “plead their claims with

plausibility and particularity under Federal Rules of Civil Procedure 8 and 9(b) by, for

instance, pleading facts to support allegations of materiality.” See id. (emphasis added). 

Thus, the government is incorrect in its assertion that this is an “easy” standard—and

Knudsen does not meet it. His single, conclusory paragraph seems to allege that because

there were regulations requiring the same price reductions given to BOA customers, those

terms were per se material to the government’s decision to contract with Defendants. See

Cellco SAC ¶ 46; Sprint SAC ¶ 45; AT&T SAC ¶ 48. The Escobar Court rejected a theory

of materiality that any statutory, regulatory, or contractual violation is material just because it

can result in the government’s decision not to pay a claim. See Escobar, No. 15-7 at 17. The

Court gave examples as to how an FCA plaintiff might adequately plead a term’s materiality,

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 22 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

17 Knudsen argues in the same Supplemental Briefings that the PRC was material because “[t]he

Government paid its bills thinking that the mandated compliance programs would prevent the very fraud

that Defendant’s [sic] perpetrated.” Knudsen Suppl. Br. at 5. This assertion that the government

assumed compliance did not appear in the SACs. “In determining the propriety of a Rule 12(b)(6)

dismissal, a court may not look beyond the complaint to a plaintiff’s moving papers, such as a

memorandum in opposition to a defendant’s motion to dismiss.” Schneider v. Cal. Dep’t. of Corr., 151

F.3d 1194, 1197 n.1 (9th Cir. 1998) (emphasis in original).

23

such as alleging that the government consistently refuses to pay claims that violate the

allegedly material term. See id. at 16. Knudsen’s SACs only point to the regulations. See

Cellco SAC ¶ 46; Sprint SAC ¶ 45; AT&T SAC ¶ 48. This is not sufficient to meet the

rigorous standard for pleading materiality. Knudsen’s supplemental briefing regarding

Escobar again points to the regulation’s wording as evidence of the materiality of the terms. 

See Knudsen Suppl. Br. (dkt. 91) at 5.17 Under Escobar, this is not sufficient to meet the

“rigorous” standard necessary to adequately allege materiality plausibly and with

particularity. 

Lastly, Knudsen does not address the government knowledge doctrine in the SACs. 

See generally Cellco SAC; Sprint SAC; AT&T SAC; see also June Hearing Tr. 5:2–4 (“And

in light of the government’s knowledge, I think you have to adequately allege scienter and

materiality, which, again, I don’t think you’ve done.”). The United States contends in its

Statement of Interest that “Defendants [wrongly] assert that the government’s knowledge of a

defendant’s conduct precludes FCA action.” See SOI Mot. at 9. The government asserts that

“it is well settled that government knowledge is not an absolute defense to FCA liability, but

is only relevant insofar as it sheds light on the defendant’s state of mind . . . At most, any

government knowledge is relevant only to the question of whether defendant acted

knowingly under the FCA.” Id. What the government knew is “highly relevant” because it

can show “that the defendant did not submit its claim in deliberate ignorance or reckless

disregard for the truth.” See United States ex rel. Hagood v. Sonoma County Water Agency,

929 F.2d 1416, 1421 (9th Cir. 1991). After Escobar, it appears that government knowledge

of noncompliance also bears on whether such violations were actually material to the

government’s decision to pay a claim. See Escobar, No. 15-7 at 16. The government’s

payment of a claim in full despite knowledge of noncompliance with particular contractual

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 23 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

18 Knudsen did address this argument in his supplemental briefing on Escobar and insinuated

that the government did not have knowledge of Defendants’ non-compliance. See Knudsen Suppl. Br.

at 5. However, as addressed above, the Court may not look at facts beyond the complaint to determine

the propriety of a Rule 12(b)(6) dismissal. Schneider v. Cal. Dep’t. of Corr., 151 F.3d 1194, 1197 n.1

(9th Cir. 1998) 

19 The parties and United States all agree that the Court does not need to reach the implied

certification theory of liability in order to decide these motions to dismiss, and the Court will not do so.

See Cellco Suppl. Br. at 1-2; Sprint Suppl. Br. at 3; AT&T Suppl. Br. at 2; Knudsen Suppl. Br. at 1; U.S.

Recent Decision SOI at 3-4. 

24

requirements “is very strong evidence that those requirements are not material.” See id.

Knudsen’s single, conclusory paragraph alleging materiality is insufficient on this ground as

well because it did not further allege that the government was unaware of the alleged PRC

violations. Knudsen does not address materiality in his oppositions. See generally Cellco

Opp’n; Sprint Opp’n; AT&T Opp’n.18 

Without further details, such as allegations that the government consistently refuses to

pay claims that violate PRC terms or that the government did not know that it was not

receiving the required price reductions, Knudsen fails to adequately plead materiality. 

E. Certification 

Knudsen did not plead with specificity that Defendants submitted false claims. Even

if he had, he did not plausibly allege his express certification theory of liability.19

Knudsen “believes” that Defendants were required to and did submit a Certificate of

Current Cost or Pricing Data with each monthly billing. See Cellco SAC ¶ 45; Sprint SAC

¶ 40; AT&T SAC ¶ 43. He asserts in conclusory fashion that “Defendants did expressly

certify the accuracy of those billings and affirm that the monthly billings comported with the

contract terms . . . when they did not.” See Cellco FAC ¶ 41; Sprint FAC ¶ 40; AT&T FAC

¶ 43. However the only support Knudsen includes for this assertion is a blank copy of a form

that he “believes” is required for all Defendants. See Cellco SAC Ex. 9; Sprint SAC Ex. 9;

AT&T SAC Ex. 9. Knudsen does not adequately allege that these certifications were in fact

required, or that Defendants submitted them, and nothing about the form raises Knudsen’s

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 24 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

20 The blank form in Exhibit 9, “Certificate of Current Cost of Pricing Data,” is exactly the same

across the sets of defendants. See Cellco SAC ¶ 45; Sprint SAC ¶ 40; AT&T SAC ¶ 43. It states in

part: “This is to certify that, to the best of my knowledge and belief, the cost or pricing data . . .

submitted, either actually or by specific identification in writing, to the Company in support of ___* are

accurate, complete, and current as of ___ **. This certification includes the cost or pricing data

supporting any advance agreements and forward pricing rate agreements between the offeror and the

Government that are part of the proposal.” Id. Knudsen has not explained this form in any detail,

including why if it is an example of the kind of certification the Defendants would have made to the

government, it is phrased such that “the cost or pricing data” is submitted “to the Company”—here,

presumably, Defendants, rather than to the government. 

21 The Court has already noted that Knudsen makes completely unsupported allegations—like

Defendants failing to provide rate optimization—on “information and belief.” See Cellco SAC ¶ 51;

Sprint SAC ¶ 50; AT&T SAC ¶ 53. 

25

belief beyond mere speculation.20 

F. Discovery

Knudsen asserts that he needs discovery to reveal some of the very specifics Rule 9(b)

and this Court require of him. See Cellco SAC ¶ 10; Sprint SAC ¶ 9; AT&T SAC ¶ 12 (“The

nature and extent of involvement of the various Defendants will be determined over the

course of discovery in this matter.”); see also Cellco Opp’n at 11 (“[I]t is evident that a set of

facts exists that entitle the plaintiff to proceed and develop, through discovery, the FCA

claim which will entitle . . . the Relator . . . to significant relief . . . .”).21

“Rule 9(b) serves not only to give notice to defendants of the specific fraudulent

conduct against which they must defend, but also to deter the filing of complaints as a pretext

of the discovery of unknown wrongs, to protect defendants from the harm that comes from

being subject to fraud charges, and to prohibit plaintiffs from unilaterally imposing upon the

court, the parties and society enormous social and economic costs absent some factual basis.” 

Cafasso, 637 F.3d at 1057 (internal quotations omitted). Discovery is inappropriate here

because Knudsen cannot allege sufficient factual detail about the BOA customers, about

Defendants impermissibly applying taxes and surcharges, or about any rate reductions

Defendants wrongfully did not offer to the government. See id. (“In light of Cafasso’s

failure to identify any particular false claims or their attendant circumstances, as well as the

‘obvious alternative explanation’ that no false claims occurred, we will not draw the

unwarranted and implausible inference that discovery will reveal evidence of such false

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 25 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

22 Knudsen’s Opposition spends a great deal of time trying to convince the Court of his insider

status. See Cellco Opp’n at 2-4. The SACs do make a number of allegations as to the inside

information Knudsen has from his work as an outside consultant for telecommunication rate plan

optimization. See, e.g., Cellco SAC ¶ 16; Sprint SAC ¶ 15; AT&T SAC ¶ 18. In this role, he performed

audits for all sets of Defendant companies regarding price plans and billings. See Cellco SAC ¶ 17;

Sprint SAC ¶ 16; AT&T SAC ¶ 19. These Defendants hired him to review contracts for clients and

prospective clients and evaluate their current billing and usage. See Cellco SAC ¶ 19; Sprint SAC ¶ 18;

AT&T SAC ¶ 21. In his work for Defendants, Knudsen examined rates, prices, discounts, and

concessions. See Cellco SAC ¶ 18; Sprint SAC ¶ 17; AT&T SAC ¶ 20. Although Knudsen does have

some inside information, he does not have the insider information, or true insider status, to adequately

allege FCA violations. Despite his claim of being an insider, he cannot allege the most important

particulars to support his claim—the actual BOA for each Defendant and the price term serving as the

comparison point. 

26

claims.”). 

Although it might be true that any evidence of fraud is in Defendants’ exclusive

possession, this does not justify discovery for an otherwise deficient pleading under Rule

9(b). In cases involving securities fraud there is a limited exception which allows a court to

relax the 9(b) pleading standard to permit discovery, but the Ninth Circuit expressly declined

to extend this exception to FCA pleading. See Ebeid, 616 F.3d at 999. The court explained

that the “FCA is geared primarily to encourage insiders to disclose information,” not to

“facilitate a claim by an outsider.” Id. at 999. Knudsen’s assertion that he is the “ultimate

insider,” see Cellco Opp’n at 2, is not self-legitimizing.22 Thus, Knudsen’s assertion that the

Court should relax the 9(b) pleading standard when the evidence is in the sole possession of a

defendant is incorrect in this context.

Because Knudsen has not met the pleading standards for Rules 8 and 9(b), see Part

III.C, discovery is an inappropriate avenue to cure the deficient pleadings. 

G. Leave to Amend

Knudsen urges that “leave to amend should be granted unless this Court determines

that the pleading ‘could not possibly be cured by allegations of other facts.’” See Sprint

Opp’n at 23 (citing Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000)). However, this

Court has “particularly broad” discretion to deny amendment because it has previously given

leave to amend. See Miller v. Yokohama Tire Corp., 358 F.3d 616, 622 (9th Cir. 2004)

(citation omitted). Furthermore, “[f]utility of amendment can . . . justify the denial of a

motion for leave to amend.” Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). This

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 26 of 27
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

27

Court already granted Knudsen two opportunities to amend his complaints. In arguing for

leave to amend his FACs, Knudsen promised this Court that he could provide more specifics

to satisfy the Rule 9 requirement. See FAC Hearing Tr. at 7:5-10. Knudsen further

represented that he could adequately amend but that he was bound by confidentiality

agreements preventing public disclosure of the necessary information. See id. at 8:2-4. 

Knudsen also represented that, but for these confidentiality agreements, he could provide the

Cellco audit that he allegedly performed, see id. at 16-17, as well as the identity of the

category of customers comprising the BOA. See id. at 7–8. This Court allowed Knudsen to

file under seal. See Sprint Status Conference Tr. at 5:3–6. Knudsen did not file any

documents under seal. Knudsen did not provide the Cellco audit. And Knudsen did not

allege a particular category of customers comprising each Defendant’s BOA, but a long

“and/or” list of companies or entities that was identical for each set of Defendants. See

Cellco SAC ¶ 33; Sprint SAC ¶ 32; AT&T SAC ¶ 35. Knudsen’s inability to produce the

Cellco audit or to adequately allege a BOA for any Defendant indicates that he does not have

this information. These failures, combined with Knudsen’s repeated failure to allege FCA

violations with specificity in accordance with the Court’s explicit instructions, demonstrate

that he cannot meet the pleading standard. This Court therefore DENIES leave to amend as

it seems that amendment would be futile. 

IV. CONCLUSION

For the foregoing reasons, the Court GRANTS the Motions to Dismiss WITH

PREJUDICE to Knudsen but WITHOUT PREJUDICE to the United States.

IT IS SO ORDERED.

Dated: September 1, 2016 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

Case 3:13-cv-04476-CRB Document 95 Filed 09/01/16 Page 27 of 27