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Cain v. Salish Kootenai College, Inc.

United States District Court, D. Montana, Missoula Division

April 16, 2019

FAWN CAIN, TANYA ARCHER, and SANDI OVITT, Relators and Plaintiffs,
SALISH KOOTENAI COLLEGE, INC., et al., Defendants,



         The Court addresses two motions. Defendants Robert Fouty, Jim Durglo, Renee Pierre, Ellen Swaney, Linden Plant, Tom Acevedo, Zane Kelly, Ernest Moran, Luana Ross, Carmen Taylor, Elaine Frank, Lisa Harmon, Rebekkah Hulen, and Dawn Benson (collectively “Individual Defendants”), move the Court to Certify its May 17, 2018, Order as a final judgement for purposes of appeal. (Doc. 109). The Individual Defendants further move the Court to dismiss this matter for failure to state a claim under the False Claims Act (“FCA”) and for lack of subject matter jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). (Doc. 111).

         I. Background

         This Court entered an order in 2014 dismissing Salish Kootenai College (“the College”) from this action based on its status as a sovereign tribal entity and therefore not being a “person” subject to suit under the False Claims Act. (Doc. 39). The Court also dismissed Plaintiffs' original complaint against Defendants Salish Kootenai College Board of Directors-the Individual Defendants. The Court allowed Plaintiffs to file an amended complaint in which Plaintiffs were directed to state with particularity the circumstances that constitute fraud or mistake, pursuant to Rule 9(b). (Doc. 39).

         Plaintiffs appealed the ruling. The Ninth Circuit remanded the dismissal of the College so that this Court could analyze different factors to determine whether the College qualified as an arm-of-the-tribe. (Doc. 78 at 13). The Ninth Circuit further ordered this Court to allow Plaintiffs to conduct additional jurisdictional discovery. (Doc. 78). This Court again dismissed the College based on its renewed determination that the College qualified as an arm-of-the-tribe and thus stood as a sovereign entity not subject to suit under the False Claims Act 31 U.S.C. § 3729 (“FCA”). (Doc. 108).

         Plaintiffs, as relators in this qui tam action, currently seek to hold the Individual Defendants personally liable, pursuant to the FCA, for their alleged individual fraudulent conduct. Plaintiffs further claim that the Individual Defendants stand personally liable, pursuant to 31 U.S.C. § 3730(h), for their alleged retaliatory actions against Plaintiffs.

         II. Motion to Dismiss

         A motion to dismiss tests the legal sufficiency of the claims asserted in the complaint. Fed.R.Civ.P. 12(b)(6). The standard for dismissal under Rule 12(b) remains well established. “All allegations of material fact are taken as true and construed in the light most favorable to the non-moving party.” Hicks v. Small, 69 F.3d 967, 969 (9th Cir. 1995). The complaint will not be dismissed unless it appears beyond doubt that the plaintiff can prove no facts sufficient to support a claim that entitles the plaintiff to relief. Id.

         A party must plead adequately claims under § 3729 of the FCA to satisfy the standards of both Rule 8 and Rule 9 of the Federal Rules of Civil Procedure. Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S.Ct. 1989, 2003-04 n. 6 (2016). Rule 8(a)(2) requires that a plaintiff's complaint make a short and plain statement. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rule 8 similarly requires that the complaint contain “sufficient factual matter” that, taken as true, “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim appears plausible when the pleading raises factual content sufficient to allow the court to draw a “reasonable inference that the defendant is liable for the misconduct alleged.” Id.

         An assertion of fraud or mistake requires a plaintiff to state “with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b). Courts recognize, however, that “knowledge, and other conditions of a person's mind may be alleged generally.” Id. Plaintiffs may not “lump multiple defendants together.” United States v. Corinthian Colleges, 655 F.3d 984, 997-98 (9th Cir. 2011). Plaintiffs instead must “differentiate their allegations . . . and inform each defendant separately of the allegations surrounding his alleged participation in the fraud.” Id. Plaintiffs must also “identify the role of each defendant in the alleged fraudulent scheme, ” Swartz v. KPMG LLP, 476 F.3d 756, 764-65 (9th Cir. 2007). This identification requirement forces Plaintiffs to set out the “who, what, when, where, and how” as to each defendant. Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010).

         Individual Defendants argue that Plaintiffs' Amended Complaint fails to match the pleading requirements contemplated by Rule 9(b). The Individual Defendants first argue that the Amended Complaint continues to sue the Board Members “because of” their official capacities. (Doc. 112 at 10). The Individual Defendants contend that Plaintiffs cannot subject the Board Members to the “FCA's punitive liability regime merely because they served on the College's Board.” Id. Individual Defendants insist further that Plaintiffs have failed to state allegations sufficient to notify each Individual Defendant of the specific conduct with which he or she may be held liable. Id. at 2-3. Individual Defendants allege that this lack of specificity effectively lumps all the Individual Defendants together and fails to identify the role that each Individual Defendant played in the alleged scheme. Id.

         A. Plaintiffs May Sue the Individual Defendants Despite their Official Capacities

         Individual Defendants rely on the Ninth Circuit's decision in Maxwell v. Cnty of San Diego, 708 F.3d 1075, 1088 (9th Cir. 2013), to support their argument that the Board Members may not be sued “because of” their official capacities. Maxwell provides this Court with the appropriate “remedy-focused analysis” similar to the analysis developed in Stoner v. Santa Clara Cnty Office of Educ., 502 F.3d 1116, 1123-24 (9th Cir. 2007). Namely, an individual capacity suit against a government official presents the ultimate question of who stands as the real party in interest? Id.

         A claim pursuant to the FCA subjects to liability “any person” who, among other things, knowingly submits a false claim or causes a claim to be submitted to the United States. 31 U.S.C. § 3729. The Ninth Circuit reviewed a district court's dismissal of FCA claims against three state government employees in Stoner. The district court wrongly had determined that state sovereign immunity had shielded the government employees from suit. The Ninth Circuit determined that “state employees sued in their personal capacities are ‘persons' who may be subject to liability for submitting false claims to the United States.” Stoner, 502 F.3d at 1123-24. The Ninth Circuit reasoned that to hold otherwise effectively would grant state officials absolute immunity for any actions taken in the course of their governmental responsibilities. Id. at 1125; see Hafer v. Melo, 502 U.S. 21, 27-29 (1991).

         The Ninth Circuit explained that an “individual capacity suit for damages against state officials alleged to have personally violated § 3729 does not implicate the principles of sovereignty . . . because such action seeks damages from the individual defendants rather than the state treasury.” Stoner, 502 F.3d at 1125 (emphasis in original). “Nor does the fact that a state may choose to indemnify the employees for any judgement rendered against them” bring sovereignty into the issue. Id. When a plaintiff holds an individual government employee personally liable for their “knowing participation in the submission of false or fraudulent claims to the United States government, the state is not the real party in interest . . . and [sovereignty] poses no barrier to such a suit.” Id. (emphasis added) (citing Hafer, 502 U.S. 21).

         The Supreme Court similarly determined that “[a] government official in the role of personal-capacity defendant . . . fits comfortably within the statutory term ‘person.'” Hafer, 502 U.S. at 27. The plaintiffs in Hafer brought a personal capacity suit against Hafer in which they alleged that Hafer had terminated their employment due to the plaintiffs' contrary political affiliations. Id. at 23. Hafer raised sovereign immunity as a defense based on the fact that “she acted in her official capacity.” Id. at 26. The Supreme Court found no reason to extend absolute immunity to a government official's action simply because of one's status as a government official. As a result, damage awards against individual defendants who serve as government officials in federal courts “are a permissible remedy in some circumstances notwithstanding the fact that they hold public office.” Id. at 30 (citing Ex parte Young, 209 U.S. 123 (1908)).

         The Ninth Circuit's decision in Pistor v. Garcia, 791 F.3d 1104 (9th Cir. 2015), likewise aids the Court's analysis. The Plaintiffs in Pistor filed an individual capacity suit against tribal officers and tribal casino employees. The tribal defendants argued that sovereign immunity shielded their unlawful actions as they accomplished their actions in furtherance of their official duties and within the scope of official authority. Id. at 1109. The Ninth Circuit determined that a tribal officer sued in his individual capacity cannot hide behind sovereign immunity from suit so long as the plaintiff seeks relief from the officer personally and not from the government treasury. Id.

         The Ninth Circuit explained that the general rule against official capacity claims “does not mean that tribal officials are immunized from individual capacity suits arising out of actions they took in their official capacities. Rather, it means that tribal officials are immunized from suits brought against them because of their official capacities-that is, because the powers they possess in those capacities enable them to grant the plaintiffs relief on behalf of the tribe.” Id. at 1112-13. (emphasis in original). Tribal sovereign immunity derives from the same common law immunity principles that shape state and federal sovereign immunity. Id. at 1113; Maxwell 708 F.3d at 1087-88. An individual capacity suit proves proper, therefore, when a plaintiff seeks to hold a government official or employee personally liable for their own unlawful choice or action.

         The Court acknowledges that the claims against the Individual Defendants differ from a state-official claim as the claims here implicate the irrefutable importance of protecting tribal sovereignty. The respect and care that a court must afford to tribal sovereignty remains emphatically respected. A court accordingly must be sensitive to whether the plaintiff seeks a judgment against the tribe or the individual person. Maxwell, 708 F.3d at 1088. This Court understands, however, that the reasoning presented in Stoner, Garcia, and Hafer guides this Court to determine that the Tribe does not stand as the real party in interest here. Plaintiffs seek to hold the Individual Defendants, who serve as tribal employees, personally liable for their alleged fraudulent conduct “arising out of actions they took in their official capacities.” Garcia, 791 F.3d at 1112.

         The Supreme Court similarly determined in Lewis v. Clarke, U.S., 137 S.Ct. 1285, 1291 (2017), that when a party brings a suit against a tribal employee in their individual capacity, the employee, not the tribe, stands as the real party in interest and the tribe's sovereign immunity is not implicated. This conclusion parallels the Ninth Circuit's reasoning in both Stoner and in Garcia. If the Court were to adopt the Individual Defendants' argument and prevent an action against a tribal official in his personal capacity, the Court effectively would grant absolute immunity to tribal officials under the FCA for any actions taken in the course of, or because of, their governmental responsibilities. The allegations presented by Plaintiffs prove serious, however, and this Court cannot ignore the fact that fraud equals fraud, regardless of one's position and duties in any governmental capacity.

         A tribal government employee sued in his or her personal capacity stands, therefore, as a person who may be subject to liability for knowingly submitting false information to the United States for purposes of FCA liability. Stoner, 502 F.3d at 1125. This Court agrees that when a plaintiff seeks to hold a tribal government employee personally liable for their “knowing participation in the submission of false or fraudulent claims to the United States government, the [tribe] is not the real party in interest . . . and [sovereign immunity] poses no barrier to such a suit.” Id. (emphasis added). It is of no consideration that the Individual Defendants made the alleged fraudulent decision ‘because of' their official tribal duties. See Hafer, 502 U.S. 21.

         B. The Amended Complaint Proves Sufficient for Rule 9(b)'s Particularized Standards The Court considers next whether the facts presented in the Amended Complaint sufficiently allege fraudulent conduct to satisfy Rule 9(b)'s particularized pleading standards. The FCA makes liable any person who knowingly presents or causes to be presented, who uses or causes to be made or used, a false record or statement material to a false or fraudulent claim. 31 U.S.C. § 3729(a)(1). A claim pursuant to the FCA may be based on the allegation that ...

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