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U.S. v. GABELLI

United States District Court, S.D. New York


July 29, 2004.

U.S. EX REL. R.C. TAYLOR III, Plaintiffs,
v.
MARIO GABELLI, LYNCH CORP., LYNCH INTERACTIVE CORP., LYNCH PCS COMMUNICATIONS CORP., LYNCH PCS CORPORATION A, LYNCH PCS CORPORATION B, LYNCH PCS CORPORATION C, LYNCH PCS CORPORATION D, LYNCH PCS CORPORATION E, LYNCH PCS CORPORATION F, LYNCH PCS CORPORATION H, LYNCH PAGING CORP., FORTUNET WIRELESS COMMUNICATIONS CORP., AER FORCE COMMUNICATIONS, INC., AER FORCE COMMUNICATIONS LP, NEW ENGLAND WIRELESS COMMUNICATIONS, LP, NEW ENGLAND WIRELESS COMMUNICATIONS, CORP., SOUTHEAST WIRELESS COMMUNICATIONS, LP, SOUTHEAST WIRELESS COMMUNICATIONS CORP., FORTUNET WIRELESS COMMUNICATIONS, LP, FORTUNET COMMUNICATIONS LP, HIGH COUNTRY COMMUNICATIONS, LP, HIGH COUNTRY COMMUNICATIONS CORP., AER FORCE COMMUNICATIONS B, LP, AER FORCE COMMUNICATIONS II, LP, RIVGAM COMMUNICATORS, INC., GAMCO INVESTORS, INC., GABELLI FUNDS, INC., BAL/RIVGAM LLC, RIVGAM COMMUNICATORS, LLC, GABELLI GROUP CAPITAL PARTNERS, INC., ARF COMMUNICATIONS B, INC., EAST/WEST COMMUNICATIONS INC., ABC-LMDS LLC, BCDJMS LLC, BCK/RIVGAM LLC, RIVGAM LMDS LLC, BETA COMMUNICATIONS LLC, THETA COMMUNICATIONS LLC, THETA COMMUNICATIONS I, LLC, THETA COMMUNICATIONS II, LLC, THETA COMMUNICATIONS IA LLC, PTPMS COMMUNICATIONS LLC, PTMPS II COMMUNICATIONS LLC, BETAPAGE COMMUNICATIONS LLC, SUNSHINE PCS CORP., ALFRED ANGELO, KAREN JOHNSON, VICTORIA KANE, JAMES BALITSOS, MARIE BALITSOS, T. GIBBS KANE, NARA CADORIN, CLARENCE DAVIS, KATHLEEN SUGARMAN, GARY SUGARMAN, KATHERINE STAFFORD, TRENT TUCKER, KEITH MANTLE, KUNI NAKAMURA, JENNIFER CAIATI, NANCY VANNECK, and THOMAS WILSON, Defendants.

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

R.C. Taylor brings this qui tam action pursuant to the federal False Claims Act ("FCA" or the "Act"),*fn1 alleging a conspiracy to defraud the United States (the "Government") through abuse of the Federal Communication Commission's ("FCC") public bidding procedure for wireless telecommunications licenses.*fn2 Defendants are accused of participating in a scheme whereby numerous "sham entities [] held themselves out as legitimate `small' telecommunications businesses," but were actually "fronts for [] Gabelli and Gabelli-related entities, and vehicles for them to acquire valuable spectrum licenses at substantial federal discounts."*fn3 Various corporate and individual defendants*fn4 now move to dismiss the action against them for failure to state a claim and/or plead fraud with the requisite particularity.*fn5 The "Rivgam defendants" and Mario Gabelli join in that motion.*fn6 For the reasons set forth below, the CWT defendants' motion to dismiss is granted in part and denied in part; and the Rivgam defendants' and Gabelli's motions to dismiss are denied.

  I. BACKGROUND*fn7

  A. The Moving Parties

  1. The Individual Defendants

  Gabelli is (or was) an officer of several of the corporate defendants, and the alleged mastermind of the fraudulent scheme underlying this action.*fn8 He drew friends, family members, and social and professional acquaintances into this fraud to pose as the "owners" of the sham entities.*fn9 In some cases, playing this part required them to certify "false" information about these companies to the FCC.*fn10 Other defendants were recruited to serve as officers in the various sham companies.*fn11

  2. The Corporate Defendants

  At the center of the fraudulent scheme are Gabelli and the so-called Gabelli-related entities, which are alleged to have created "sham" bidding entities as well as direct and indirect owners of these bidders.*fn12 The following entities were purportedly established to participate in the FCC auctions as "bidders": (1) Fortunet Wireless, (2) High Country, (3) New England Wireless, (4) Southeast Wireless, (5) Aer Force, (6) Aer Force B, (7) BAL/Rivgam, (8) BCK/Rivgam, (9) Rivgam Communicators, (10) Beta, (11) BCDJMS, (12) ABC-LMDS, (13) Betapage, (14) PTPMS, (15) PTPMS II, and (16) Theta.*fn13

  These bidders were organized as limited partnerships, held by "indirect" (49.9%) and "direct" (50.1%) owners. The "indirect" owners include: Lynch PCS A (holds or held interests in Aer Force, Fortunet Wireless, High Country, New England Wireless, Southeast Wireless, and Fortunet); Lynch PCS B (New England Wireless); Lynch PCS C (High Country); Lynch PCS D (Southeast Wireless); Lynch PCS E (Fortunet Wireless); Lynch PCS F (Aer Force B); Lynch Paging (Betapage, PTPMS, and PTPMS II); Rivgam LLC (BAL/Rivgam); Rivgam LMDS (BCK/Rivgam); and Theta II (Theta). Among the "direct" owners are: Aer Force, Inc. (owns or owned Aer Force and Aer Force B and is co-owner of Theta I and Theta); FWCC (Fortunet Wireless); HCCC (High Country); NEWC (New England Wireless); SWCC (Southeast Wireless); Theta I (Theta); and Theta IA (co-owner of Theta I and Theta).*fn14

  B. The FCC Auction Process

  The Omnibus Budget Reconciliation Act of 1993,*fn15 amending the Communications Act of 1934, granted the FCC authority to award spectrum licenses "through a system of competitive bidding."*fn16 Notably, Congress directed the FCC, in designing auction procedures, to "promot[e] economic opportunity and competition and ensur[e] that [] innovative technologies are readily accessible to the American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses."*fn17

  Pursuant to this congressional mandate, the FCC established a multiple-round auction process to award broadband personal communications services ("PCS") licenses.*fn18 To promote the distribution of licenses among a diverse group of businesses, auction procedures provide various incentives for small business participation. For instance, bidding in some auction blocks (e.g., Blocks "C" and "F") is restricted to "small businesses and other designated entities with total assets and revenues below certain levels."*fn19 In addition, certain small and very small businesses are eligible to receive "bidding credits" in the form of "percentage discount[s] applied to the high bid amount[s] for a license."*fn20

  Although both the percentage discounts offered and definition of "small business" vary by auction, the FCC uses substantially similar procedures for all auctions. First, the potential bidder must file a "short-form" application ("Form 175"), certifying, among other items, the applicant's eligibility for a federal discount and status as a qualified entity.*fn21 The WTB then determines whether each application is "`accepted,' thereby entitling the applicant to participate in the auction, `rejected,' such that the applicant is not eligible to bid in the auction, or `incomplete.'"*fn22 Second, following the close of each auction, winning bidders are notified and have ten days to submit a "long-form" application — the Form 600 series. This form requires applicants to provide detailed information, including their entitlement to bidding credits and any agreements into which they have entered relating to the licenses.*fn23 Any applicant who fails to submit a timely long form or is otherwise defaulted or disqualified from receiving the license is subject to penalties under section 24.704(a)(2) of the federal regulations.*fn24

  For purposes of both forms, applicants must comply with the disclosure requirements set forth under section 1.2112 of the federal regulations, directing applicants to list:

(1) [T]he real party or parties in interest in the applicant or application, including a complete disclosure of the identity and relationship of those persons or entities directly or indirectly owning or controlling (or both) the applicant;
* * *
(3) [I]n the case of a limited partnership, the name, address and citizenship of each limited partner whose interest in the applicant is 10 percent or greater . . .;
(4) [I]n the case of a general partnership, the name, address and citizenship of each partner, and the share or interest participation in the partnership;
(5) [I]n the case of a limited liability company, the name, address, and citizenship of each of its members whose interest in the applicant is 10 percent or greater;
(6) [A]ll parties holding indirect ownership interests in the applicant as determined by successive multiplication of the ownership percentages for each link in the vertical ownership chain, that equals 10 percent or more of the applicant, except that if the ownership percentage for an interest in any link in the chain exceeds 50 percent or represents actual control, it shall be treated and reported as if it were a 100 percent interest; and
(7) [A]ny FCC-regulated entity or applicant for an FCC license, in which the applicant or any of the parties identified in paragraphs [(1) through (5)], owns 10 percent or more of stock. . . . This list must include a description of each such entity's principal business and a description of each such entity's relationship to the applicant. . . .*fn25
A bidder seeking the benefits associated with "small business" status must also provide the following information:
(i) [T]he names, addresses, and citizenship of all officers, directors, affiliates, and other controlling interests of the applicant. . . .;
(ii) [A]ny FCC-regulated entity or applicant for an FCC license, in which any controlling interest of the applicant owns a 10 percent or greater interest or a total of 10 percent or more of any class of stock, warrants, options or debt securities. This list must include a description of each such entity's principal business and a description of each such entity's relationship to the applicant; and
(iii) [S]eparately and in the aggregate the gross revenues . . . for . . . The applicant, its affiliates, its controlling interests, and affiliates of its controlling interests; and if a consortium of small businesses, the members comprising the consortium.*fn26 C. Defendants' Alleged Fraud
  Taylor alleges that, beginning in 1995, Gabelli and the Gabelli-related entities created several dozen companies to bid on licenses and/or to serve as owners of these bidders. These organizations were purportedly established for the purpose of "acquir[ing] federally discounted licenses as investments to be later sold for profit in the after-market," and not for the legitimate objective of "develop[ing] or offer[ing] spectrum services under the acquired licenses, or to operate actual business operations."*fn27

  A "cornerstone" of this fraudulent scheme was Gabelli's use of various individual defendants — "all of whom had ties of loyalty to [him]" to serve as "owners" and/or officers of these bidding entities.*fn28 These bidders began participating in the auction process in the mid-1990s — taking part in Auctions 5 and 11, during which they are alleged to have established a "template" for their future fraudulent conduct.*fn29 1. Auctions 5 and 11 (1995-1996)

  a. Auction 5

  In Auction 5, the FCC conducted bidding for broadband PCS Block C licenses among bidders with gross revenues and total assets of less than $125 million and $500 million, respectively. The FCC offered a 25% discount to qualified "small" businesses with gross annual revenues not exceeding "$40 million averaged over the preceding three years."*fn30

  The first step in the fraudulent bidding scheme involved the creation of a series of indirect owners in June and July of 1995.*fn31 To that end, Gabelli, Gabelli-related entities, and/or their agents prepared and submitted the legal documents necessary to incorporate these corporations under Delaware law. Next, a few days before the submission deadline, various partnerships were created to serve as bidders — Fortunet Wireless, New England Wireless, Southeast Wireless, and High Country. A fifth Gabelli-related bidder, Aer Force, also filed a short-form application for this acution.*fn32

  Gabelli and Gabelli-related entities helped to prepare and file the short and long-form applications on which the sham bidders "made numerous fraudulent statements and omissions to the FCC."*fn33 For instance, these applications: (1) certified that the applicants were qualified to "participate in the restricted-eligibility auctions" and to receive the federal discounts for small businesses; (2) provided "dummy addresses" corresponding to the private residences of the various individual defendants; (3) "knowingly" failed to "attribute the assets and revenues of [] Gabelli and Gabelli-related entities," which exercised de facto control over the bidders; and (4) presented individuals as "owners" of the bidding partnerships who lacked "experience or ability to contribute meaningfully to the [] application or bidding process."*fn34

  On September 17, 1996, the PCS licenses from Auction 5 were awarded. Each of the Gabelli bidders acquired discounted Block C licenses. The total value of these licenses and discounts is about $285 million and $65 million, respectively.*fn35 Within a year, the licenses were transferred to Fortunet, a successor to the assets and liabilities of Fortunet Wireless, High Country, New England Wireless, Southeast Wireless, and Aer Force; 49.9% owners NEWC, SEWC, and HCCC merged into and with FWCC; and 50.1% owners Lynch PCS B, Lynch PCS C, Lynch PCS D, Lynch PCS E, and Lynch PCS F merged into and with Lynch PCS A.*fn36

  b. Auction 11

  In 1996, the FCC conducted Auction 11, offering Broadband PCS licenses in Blocks D, E, and F. Two levels of federal discounts were made available to qualifying "very small" and "small" businesses. Applicants claiming "gross annual revenues of not more than $15 million averaged over the preceding three years," qualified for the "very small" business discount of 25%.*fn37 "Small" businesses, or companies "with gross annual revenues of not more than $40 million averaged over the preceding three years," were entitled to a 15% discount.*fn38

  The Gabelli company involved in this auction, Aer Force B, was 50.1% owned by Aer Force Inc. (which was, in turn, wholly owned by Victoria Kane) and 49.9% owned by Lynch PCS F.*fn39 Aer Force B was a thinly capitalized company that derived its financing as debt from Gabelli Funds Inc.*fn40 and "fraudulently claimed and certified that it was a `very small' business."*fn41 Aer Force B successfully bid for licenses in various markets and because it qualified as a "very small" business, was given a 25% discount on these licenses. Within approximately one year, Aer Force B was merged into East/West Communications Inc. (previously named ARF Communications B, Inc.), which was later acquired by Omnipoint Corp.*fn42

  2. Auctions 14, 17, 22, 23, 26, 30, 33, and 35 (1997-2000)

  a. Requirements for Participation

  Auctions 14 (Wireless Communications Services licenses) and 30 (39 Gigahertz Band licenses) permitted "small" and "very small" businesses to receive a 25% and 35% discount, respectively.*fn43 In Auction 17 (Local Multipoint Distribution Service licenses), the FCC provided 45% "`very small['] business discounts for entities with average gross annual revenues of not more than $15 million for each of the preceding three years, and `small business' [discounts for applicants] with gross annual revenues of not more than $40 million for each of the preceding three years were entitled to 35 [%] discounts."*fn44 The definitions of "small" and "very small" businesses used in Auction 11 applied to Auctions 22 (Broadband PCS C, D, E, and F Block licenses) and 33 (Upper 700 Megahertz Guardband licenses). For purposes of Auction 26 (929 and 931 Megahertz Paging Service licenses), "very small" businesses (i.e., businesses with average gross revenues not in excess of $3 million for the preceding three years) were entitled to a 35% discount," and "small" businesses (i.e., businesses with average gross revenues in excess of $15 million for the preceding three years) were entitled to a 25% discount.*fn45

  b. Gabelli Auction Participation

  Taylor avers that Gabelli and Gabelli-related entities followed the pattern of fraud established in Auctions 5 and 11. First, they created sham bidders and owners just before or after the auction deadline.*fn46 Second, the bidders falsely certified on their short and long forms that they were "very small businesses," eligible for federal discounts. Third, the bidders failed to disclose to the FCC that Gabelli and Gabelli-related businesses provided financial backing and exercised managerial control over the bidders.

  Fourth, some of the bidders made "additional fraudulent representations and omissions" to the FCC.*fn47 For instance, BCK/Rivgam made various false statements when questioned by an FCC staff engineer about its "supermajority approvals and borrower covenants contained in [its] financing and limited liability company agreements with [its] 49.9% owner, Rivgam LMDS."*fn48 These misrepresentations included the following: (1) "BCK/Rivgam was formed to develop LMDS licenses for the provision of services"; (2) "Marie Balitsos and [] Cadorin exercised both de jure and de facto control over the company"; and (3) "its `minority' 49.9 [%] investor [Rivgam LMDS] was primarily a financial [] and [] not an operational investor."*fn49

  Of the nine bidders, only two — ABC-LMDS and BCDJMS — were not granted licenses.*fn50 The other seven applicants won spectrum licenses and claimed attendant federal "very small" business discounts. 3. Resale of Various Spectrum Licenses in the After-Market

  Taylor avers that defendants acquired the licenses "as arbitrage opportunities, and not as assets to develop for the provision of telecommunications services."*fn51 Gabelli and/or Gabelli-related entities "functioned as the broker or `finder' of the purchasing party and received substantial `fees' as a result."*fn52 On at least three occasions, the discounted licenses were sold for profit.*fn53 In the process of transferring the licenses, the original license-holders (Aer Force B, BCK/Rivgam, and Beta) purportedly made various misrepresentations to the FCC relating to the assets and revenues of the license-recipients.

  4. The Sunshine Fraud

  Sunshine, as the successor to Fortunet's assets, received various PCS broadband licenses from its predecessor company. Sunshine allegedly made "numerous fraudulent statements and omissions to the FCC on its application Form 603 and related submissions, particularly with regard to stock ownership."*fn54 For instance, in its disclosures to the FCC, Sunshine failed to state that "Gabelli and Gabelli-related entities are affiliates, with assets and revenues attributable to the applicant and power to control the applicant directly or indirectly."*fn55 Sunshine also "falsely represented that it qualified as both an entrepreneur and a small business, and that no unjust enrichment payments are due or owing."*fn56 Further, Sunshine purportedly misled the FCC by constructing a "bare-bones" wireless system that appeared to, but did not, comport with the requirement that it build a PCS network by September 17, 2001.*fn57

  II. APPLICABLE LAW

  A. Legal Standards

  1. Dismissal for Failure to State a Claim

  At the motion to dismiss stage, the issue "`is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleading that a recovery is very remote and unlikely but that is not the test.'"*fn58 The task of the court in ruling on a Rule 12(b)(6) motion is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof."*fn59

  When deciding a motion to dismiss pursuant to Rule 12(b)(6), courts must accept all factual allegations in the complaint as true and draw all reasonable inferences in plaintiff's favor.*fn60 In general, courts may not consider matters outside the pleadings. For purposes of Rule 12(b), the complaint includes "`any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.'"*fn61 Courts can, however, take into account "matters of which judicial notice may be taken."*fn62 2. Dismissal for Failure to Plead Fraud with Particularity

  Because general accusations of fraud are thought to be too amorphous to provide a defendant with sufficient notice to permit a response, fraud claims are subject to the heightened pleading standard of Rule 9(b), which requires that "the circumstances constituting fraud or mistake shall be stated with particularity."*fn63 The pleading requirements set forth in Rule 9(b), which apply to claims brought under the FCA,*fn64 require a complaint to: "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent."*fn65 The Second Circuit has further explained, "[a]lthough scienter need not be alleged with great specificity, there must be some factual basis for conclusory allegations of intent. Allegations of scienter are sufficient if supported by facts giving rise to a strong inference of fraudulent intent."*fn66 A "strong inference of fraudulent intent," in turn, can be pled in one of two ways:

First, the plaintiff may allege a motive for committing fraud and a clear opportunity for doing so. Second, where motive is not apparent, it is still possible to plead scienter by identifying circumstances indicating conscious behavior by the defendant, though the strength of the circumstantial allegations must be correspondingly greater.*fn67
"Ordinarily, allegations of fraud cannot be founded solely upon information and belief, except as to those matters particularly within the opposing party's knowledge; in the latter instance, allegations must be accompanied by statements of facts upon which such belief is reasonably founded."*fn68

  Notably, where a case involves complex or extensive fraudulent schemes, courts have "relaxed" Rule 9(b)'s pleading requirements.*fn69 Additionally, where the fraudulent conduct is alleged to have taken place over a number of years, "the requirements of Rule 9(b) are less stringently applied."*fn70 "To approach the issue otherwise would allow the more sophisticated to escape liability . . . due to the complexity of their scheme and their deviousness in escaping detection."*fn71

  B. Qui Tam Actions Under the FCA

  The FCA was enacted at the height of the Civil War in response to the disclosure of "widespread fraud" perpetrated against the Government.*fn72 Since its inception, the "FCA scheme" has included qui tam suits, premised on the "basic idea [] that a private citizen with personal knowledge of [] fraud may bring suit on the government's behalf in return for a cut of the proceeds should the suit prevail."*fn73 To that end, the Act authorizes an individual to "bring a civil action for a violation of section 3729 for the [plaintiff, known as the qui tam "relator"] and for the [] Government."*fn74 The Government then has the option of either intervening in and prosecuting the action or allowing the relator to proceed pursuant to section 3730(b)(4)(B).*fn75

  Under the FCA, "[a]ny person" who, inter alia:

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
may be liable to the Government for civil penalties and/or treble damages, and costs.*fn76 The FCA also contains a cause of action for so-called "reverse false claims," where the person "knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government."*fn77

  1. Section 3729(a)(1)-(2)

  To state a claim under section 3729(a)(1), a plaintiff must allege that the defendant: "(1) made a claim [] to the [Government], [(2)] that is false or fraudulent, [(3)] knowing of its falsity, [(4)] seeking payment from the federal treasury."*fn78 A few courts have found that, to prevail, a plaintiff must ultimately prove that the Government sustained actual damages as a result of the defendant's conduct; however, the weight of authority suggests that there is no damages element.*fn79 Even where courts permit recovery absent specific proof of damages, most still require "some direct impact on the Federal Treasury,"*fn80 which is consistent with the primary purpose of the Act — to return ill-gotten federal monies from the defendant to the Government.

  To allege a violation of section 3729(a)(2), a plaintiff must aver that the defendant: (1) created, used, or caused to be used, a record or statement to the Government; (2) that is false or fraudulent, (3) knowing of its falsity, (4) to get a false or fraudulent claim paid or approved by the government.*fn81 The objective of this provision is to "remove any defense that the defendant did not personally submit a false claim directly to the government. Obviously, many violations of this section may also be considered violations of [section 3729(a)(1)] under the `causes to be presented' language."*fn82 Thus, stating a claim under this provision requires a relator or plaintiff to plead elements similar to those set forth under section 3729(a)(1). However, pleading a claim under section 3729(a)(2) is more difficult — the relator must allege not only that the claim was knowingly false, but that the "record supporting the claim is false" and that the "record is made or used for the purpose of causing the false claim to be paid."*fn83

  a. Made a Claim to the Government

  Under the FCA, a "claim" covers:

Any request or demand . . . for money or property which is made to a contractor, grantee, or other recipient if the [] Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.*fn84
The Supreme Court has counseled that the term "claim" should be construed broadly, explaining that the FCA "reaches beyond `claims' which might be legally enforced to all fraudulent attempts to cause the Government to pay out sums of money."*fn85 This expansive reading is consistent with the legislative history, which suggests that the Act was intended to cover "`each and every claim submitted . . . by means of false statements, or other corrupt or fraudulent conduct, or in violation of any statute or applicable regulation.'"*fn86

  b. That is False or Fraudulent

  "Because the Supreme Court has held that the FCA is `intended to reach all types of fraud, without qualification, that might result in financial loss to the Government,' a number of courts have interpreted the phrase `false or fraudulent' broadly."*fn87 But even liberally construed, "false or fraudulent" is subject to some limitations. The Second Circuit has observed that "[t]he juxtaposition of the word `false' with the word `fraudulent,' plus the meanings of the words comprising the phrase `false claim,' suggest an improper claim is aimed at extracting money the government otherwise would not have paid."*fn88 That is, the defendant's misconduct must be linked to the government's decision to pay.*fn89 Courts have found, however, that "errors based simply on faulty calculations or flawed reasoning," "imprecise statements or differences in interpretation growing out of disputed legal question," and scientific judgments are not false under the FCA.*fn90

  Courts in this Circuit recognize that a statement may be false or fraudulent under the so-called "certification theory" of liability whereby a statement may be: "[(1)] factually false, [(2)] legally false under an `express false certification' theory, or [(3)] legally false under an `implied certification' theory."*fn91 "`Factually false' certification involves an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided."*fn92 By contrast, "[a]n implied false certification claim is based on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment."*fn93 Finally, under the "express false certification theory" of liability, a plaintiff may bring an FCA action premised on defendant's "false representation of compliance with a federal statute or regulation."*fn94 However, such liability cannot be predicated on a defendant's failure to comply with the mandates of a statue or regulation "that is only tangential to the service for which reimbursement is sought."*fn95 In other words, "a claim under the Act is legally false only where a party certifies compliance with a statute or regulation as a condition to governmental payment."*fn96

  c. Knowing of Its Falsity

  For purposes of the FCA, "knowing" and "knowingly" do not require proof of a "specific intent" to defraud. Indeed, in amending the Act in 1986, Congress explained that "specific intent to defraud would no longer be required to satisfy the scienter element of the Act," noting that:

its purpose in lowering the threshold was to impose upon individuals and contractors receiving public funds "some duty to make a limited inquiry so as to be reasonably certain they are entitled to the money they seek," and to "preclude `ostrich' type situations where an individual has `buried his head in the sand' and failed to make any inquiry that would have revealed the false claim."*fn97
Accordingly, "knowing" and "knowingly" are given special meaning by the FCA as: "(1) ha[ving] actual knowledge of the information; (2) act[ing] in deliberate ignorance of the truth or falsity of the information; or (3) act[ing] in reckless disregard of the truth or falsity of the information."*fn98 The Ninth Circuit has explained this concept, noting that:
Innocent mistake is a defense to the [] civil complaint. So is mere negligence. The statutory definition of "knowingly" requires at least "deliberate ignorance" or "reckless disregard" . . . [W]hat constitutes the offense is not intent to deceive but knowing presentation of a claim that is either "fraudulent" or simply "false." The requisite intent is the knowing presentation of what is known to be false.*fn99
d. Seeking Payment from the Federal Treasury
  This element "further supports the conclusion that the statute reaches only those claims with the potential wrongfully to cause the government to disburse money."*fn100 The Supreme Court "has further indicated that the Act's primary purpose is to indemnify the government — through its restitutionary penalty provisions — against losses caused by a defendant's fraud."*fn101

  2. Section 3729(a)(3)

  Section 3729(a)(3) creates liability for civil conspiracies under the FCA, requiring a plaintiff to aver that: "(1) the defendant conspired with one or more persons to get a false or fraudulent claim allowed or paid by the United States [and] (2) one or more conspirators performed any act to effect the object of the conspiracy."*fn102 In other words, there must be an agreement to defraud the government between two or more persons coupled with "any act to get a false or fraudulent claim allowed or paid."*fn103 The district court in Mikes suggests that the relator must also allege that the Government "has suffered damages as a result of the false or fraudulent claim."*fn104 General civil conspiracy principles apply to claims brought under section 3729(a)(3).*fn105 3. Section 3729(a)(7)

  Section 3729(a)(7) imposes liability for "reverse false claims," providing that "an individual who makes a material misrepresentation to avoid paying money owed the Government would be equally liable under the act as if he had submitted a false claim to receive money."*fn106 To state a claim under this provision, a plaintiff must allege that the defendant: (1) made a false statement or created and used a false record, (2) with knowledge of its falsity, (3) for the purpose of decreasing, concealing, or avoiding an obligation to pay the Government.*fn107 Although the Act does not define the word "obligation," courts have found that a defendant's obligation must be a "present duty to pay money or property that was created by a statute, regulation, contract, judgment, or acknowledgment of indebtedness," as contrasted with a "potential liability" or penalty.*fn108

  III. DISCUSSION

  As an initial matter, defendants argue that the Act does not apply to a false statement presented in an FCC auction application.*fn109 Specifically, defendants contend that because "Congress has empowered the FCC with the ability to promulgate its own remedial scheme for violations of FCC regulations," courts should leave the FCC to "enforce its own regulatory scheme to determine whether a violation [has] occurred and how it should be addressed and punished."*fn110 Defendants further contend that the FCC's significant involvement in and approval of the process now challenged in the Complaint demonstrates the very reason the FCA should be held not to apply here, as the Relator . . . should not be permitted to second-guess the FCC's determination of its own rules after such an extensive information[-]gathering process where Defendants' competitors had the right [], but declined, to object.*fn111

 This argument could be construed at least three different ways — either Taylor cannot state a claim under the FCA because: (1) the Act is "preempted" by the FCC's remedial scheme;*fn112 (2) false statements made to the FCC in auction applications are not legally cognizable under the Act;*fn113 or (3) that the FCC (not this Court) should resolve those issues peculiarly within its expertise.*fn114 It is "well-established" that the "preclusion of one federal statute by another [is strongly disfavored,] absent express manifestations of preclusive intent."*fn115 "Courts `are not at liberty to pick and choose among congressional enactments, and when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.'"*fn116 This is consistent with the "`principle of statutory construction that repeals by implication are not favored.'"*fn117 Thus, it has been observed that "[r]edundancies across statutes are not unusual events in drafting, and so long as there is no `positive repugnancy' between two laws . . . a court must give effect to both."*fn118 At the same time, federal statutory claims may be "unavailable because another more detailed statute evidences Congressional intent to pre-empt the more general claim which relates to conduct for which the other statute provides a detailed remedy."*fn119

  Notably, courts have been "reluctant to find pre-emption of the [FCA] even where other laws provided closely related regulation and remedies."*fn120 Indeed, the legislative history indicates that Congress specifically contemplated the use of the Act to address regulatory violations.*fn121

  It is thus not surprising that defendants fail to demonstrate that Congress, by granting the FCC the authority to construct a remedial scheme to address violations of FCC regulations, intended to "preempt" remedies under the FCA.*fn122 Defendants' argument is premised primarily upon those provisions of the Federal Communications Act of 1934 authorizing the FCC to (1) grant and deny license applications and (2) impose administrative sanctions for "false statements knowingly made either in the application or in any statement of fact which may be required . . . [under] this title."*fn123 Defendants offer nothing from the legislative history to suggest that Congress meant for the FCC regulations to supersede the FCA. Moreover, defendants have not shown that the FCC's "remedies" for the submission of fraudulent statements (and the omission of information in contravention of its regulations) are more "detailed" than those provided for in the FCA. But even if the FCC's remedial scheme provides for a more "specific" remedy than does the FCA, there is no apparent conflict between the federal regulations and the Act. As such, there is no basis upon which to conclude that Congress intended to preclude FCA claims by authorizing the FCC to grant relief for violations of FCC regulations. Accordingly, claims under the FCA are not "preempted" by the FCC's remedial scheme.

  A. Motion to Dismiss for Failure to State a Claim

  1. Action Against Unsuccessful Bidders

  Defendants argue that Taylor cannot bring an FCA action against those entities who unsuccessfully bid for FCC licenses in the various auctions. They reason that the mere submission of a short-form application, without more, does not constitute "making a claim," seeking payment from the Government. Taylor counters that the word "claim" should be construed liberally to encompass the bidders' fraudulent conduct.*fn124 It has long been observed that the FCA was not intended to redress "every kind of fraud practiced on the Government."*fn125 In accordance with this notion, a defendant's false certification of adherence to a statute or regulation, standing alone, cannot form the basis for an FCA claim. Rather, such certification of statutory/regulatory compliance must be a prerequisite to governmental payment.*fn126 In other words, where a defendant's "alleged noncompliance would not have influenced the government's decision to pay," the failure to comport with the regulations cannot serve as the basis for an FCA claim.*fn127

  Taylor's assertion that the term "claim" is interpreted broadly to reach fraudulent conduct in addition to false statements is consistent with these observations. Whether a defendant's conduct falls within the ambit of a "claim" depends on whether these actions are linked to a demand for some form of payment from the Government.*fn128 This is evident from the language of the Act, which specifically defines a "claim" to cover any "request or demand . . . for money."*fn129 But it does not follow that "claims" cover false certifications made in connection with mere bids presented to the FCC. A bid, by its very nature, does not request or demand monetary compensation.*fn130 It is one step removed from a request or demand for money — an offer made in the hope of acceptance.*fn131 Thus, even assuming that the unsuccessful bidders falsely certified compliance with FCC regulations on their short-form applications, they did not "make" (or cause or conspire to be presented) a "claim" within the meaning of the FCA.

  Accordingly, Taylor has not pled actionable claims under sections 3729(a)(1)-(2) against the unsuccessful bidders and those defendants named solely due to their alleged relationship to these bidders. Because "[a] claim for civil conspiracy is generally not viable without the commission of an underlying wrongful act," Taylor's conspiracy allegations under section 3729(a)(3) also fail.*fn132 Finally, because these defendants never incurred an obligation to the Government and thus had no payment to avoid, conceal, or decrease, Taylor has not pled facts sufficient to support a reverse false claim under section 3729(a)(7).

  2. Action Against All Other Defendants

  For the reasons set forth in Part III.A.1, the unsuccessful bidders and defendants sued only because of their relationship to those bidders are dismissed from this action. Accordingly, the discussion that follows relates only to those bidders awarded licenses in Auctions 5, 11, 14, 17, 22, 23, 26, 30, 33, and 35 and the defendants connected by to those successful bidders. a. Count One — Sections 3729(a)(1)-(2)

  Defendants argue that the Complaint does not state a claim under sections 3729(a)(1)-(2) because Taylor has not alleged that defendants made any "false or fraudulent statements."*fn133 In particular, defendants contend that: (1) at best, Taylor's allegations amount to a disagreement with defendants' "legal determination . . . as to the issue of de facto control for purposes of whether the Bidding Parties qualified for `small' and `very small' business status" and (2) because they "made all required disclosures of objective facts at issue in the Complaint . . . there is no false or fraudulent statement supporting an FCA claim."*fn134

  Although it is true that "[e]xpressions of opinion, scientific judgments, or statements as to conclusions about which reasonable minds may differ cannot be false" under the FCA, defendants' conduct, as pled, amounts to more than just "bad math" or "faulty calculations."*fn135 Accepting the factual allegations contained in the Complaint as true, defendants deliberately violated FCC regulations by concealing relevant financial relationships and falsely certifying that they were eligible for federal monies.*fn136 The FCC regulations mandate that auction participants make detailed disclosures relating to their eligibility to both (1) participate in auctions in which licenses reserved for small businesses will be awarded and (2) receive federal discounts because of their status as small businesses.*fn137 Taylor asserts that defendants purposefully sidestepped these regulations in an effort to induce the Government to give them money. At this early stage in the proceedings, these allegations are sufficient to satisfy the "false or fraudulent statement" element of FCA claims.

  Defendants' second argument — that the bidders made all of the required disclosures on their application forms and therefore made no false statements — similarly fails. It is enough, at this point, that Taylor alleges that defendant bidders falsely certified (or caused/conspired with others to falsely certify) that they were small or very small businesses, entitled to federal discounts. This certification is a false or fraudulent statement sufficient to sustain a claim under the Act. Thus, even if defendant bidders otherwise truthfully disclosed the information required by the FCC regulations (which Taylor claims that they did not), they are still alleged to have proffered (or caused/conspired to be proffered) fraudulent statements in contravention of the regulations. Defendants may ultimately disprove these allegations; however, for purposes of this motion, Taylor's allegations are sufficient.

  In sum, Taylor has adequately pled the elements necessary to state a claim under sections 3729(a)(1) and (a)(2). He has averred that defendants: (1) made or caused others to make a claim to the Government (false statements in their applications claiming eligibility for federal bidding credits),*fn138 (2) that is false or fraudulent (in contravention of the FCC's certification and disclosure requirements), (3) knowing of its falsity, (4) seeking payment from the federal treasury (bidding credits).*fn139 In the alternative, Taylor has alleged that defendants: (1) created, used, or caused to be used, a record or statement to the Government (documentation submitted in support of the claims); (2) that is false or fraudulent, (3) knowing of its falsity, (4) to get a false or fraudulent claim paid or approved by the government.

  b. Count Two — Section 3729(a)(3)

  Defendants contend that Taylor's civil conspiracy claims must also be dismissed due to his failure to allege that defendants made a false or fraudulent statement. However, for the reasons discussed in Part III.A.2.a, this argument fails. In all other respects, Taylor has adequately alleged that defendants conspired to get fraudulent claims allowed by the Government. Additionally, the bidder defendants affirmatively acted to get false claims paid by certifying that they were eligible to receive discounts.

  c. Count Three — Section 3729(a)(7)

  A defendant who makes a false statement to avoid or decrease a preexisting obligation to pay money to the Government may be liable under section 3729(a)(7). Taylor contends that defendants made or caused to be made false statements, reports, and material omissions that decreased their obligation to pay for their spectrum licenses.*fn140 Specifically, he asserts that the winning bidders' obligation to pay attached at the close of the spectrum auctions. Thus, when the successful bidders falsely certified in their long-form applications that they were eligible for federal discounts, they had a preexisting duty to pay for the licenses.*fn141 Their false statements thus reduced their obligation to pay. The problem with this argument is that the reduction in money owed to the Government in this scenario is the very same money that the defendants will procure from the U.S. Treasury (as a government payment), according to Taylor's claims under either section 3729(a)(1) and (a)(2).*fn142 In other words, Taylor seeks to recover under two theories, that defendants falsely certified eligibility to: (1) receive federal monies and (2) decrease their contractual obligations. Close examination of these claims leads to the inescapable conclusion that they are redundant — two ways of describing the same transaction. Because Taylor's allegations state a claim under sections 3729(a)(1) and (2), they cannot also form the basis for a claim under subsection (a)(7). Accordingly, Count Three of the Complaint is dismissed.

  B. Motion to Dismiss for Failure to Plead Fraud with Particularity

  Defendants urge dismissal of this action for what they characterize as Taylor's failure to comport with the heightened pleading requirements of Rule 9. Defendants argue that Taylor has not identified those statements that he contends were fraudulent. But for the reasons set forth in Part III.A.2.a, Taylor has identified the false or fraudulent statements with sufficient particularity. This is not "a situation where only a general scheme of fraud was alleged that might have resulted in the submission of false claims. Here, the fraudulent scheme was the submission of the claims themselves."*fn143 That is, Taylor has alleged that defendants fraudulently submitted (or caused or conspired to present) false claims or records (in the bidding applications).

  Defendants further object to the manner in which the Complaint indiscriminately groups defendants together "into one wrongdoing monolith, without specifying the alleged wrongdoing of each Defendant."*fn144 I note that courts have suggested that Rule 9 may be relaxed where the fraudulent scheme is so complex that offering detailed accounts of each individual's role in the fraud is virtually impossible.*fn145 But even setting this aside, Taylor's Complaint adequately provides defendants with notice as to the claims asserted against them.*fn146 It satisfies the "who," "what," "where," "when," and "how" requirements for pleading fraud in this circuit and puts each defendant on notice as to the claims asserted against it.

  The "who" are the successful bidders and those defendants connected to them (as owners; related, predecessor, or successor entities; officers; or Gabelli-related entities) who presented (or caused or conspired to present) the false records or claims. The "what" is the false certifications of eligibility for federal monies submitted in connection with auction applications. The "where" and "when" is the place/time where/when these claims and records were filed. The "how" is addressed by those allegations relating to defendant bidders' certification and submission of false records/claims of small business status and eligibility for federal bidding credits.

  IV. CONCLUSION

  For the foregoing reasons, the CWT defendants' motion to dismiss is granted in part and denied in part. The action is dismissed against those defendants named only by virtue of their relationship to, or status as, bidders who were not granted licenses. Count Three of the Complaint, alleging reverse false claims, is also dismissed. The Rivgam defendants' and Gabelli's motions to dismiss are denied. The Clerk of the Court is directed to close these motions [Nos. 24, 25, 26, 27, and 28 on the docket sheet].

  SO ORDERED.


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