United States District Court, S.D. West Virginia, Charleston
CITYNET, LLC, on behalf of the United States of America, Plaintiff/Relator,
FRONTIER WEST VIRGINIA INC., a West Virginia Corporation, and KENNETH ARNDT, individually, and DANA WALDO, individually, and MARK McKENZIE, individually, and KELLY GOES, individually, and JIMMY GIANATO, individually, and GALE GIVEN, individually, Defendants.
MEMORANDUM OPINION AND ORDER
T. COPENHAVER, JR. UNITED STATES DISTRICT JUDGE.
are two motions to dismiss the complaint, one filed by
defendants Frontier West Virginia Inc.
(“Frontier”), Kenneth Arndt, Dana Waldo, and Mark
McKenzie (collectively, “the Frontier
Defendants”) on August 23, 2016, and the other filed by
Kelley Goes, Jimmy Gianato, and Gale Given (collectively,
“the State Employees”) on August 23, 2016.
Citynet, LLC (“Citynet”), a West Virginia limited
liability company with its principal place of business in
West Virginia, instituted this action by filing a Qui Tam
complaint on behalf of the United States on May 7, 2014,
under seal. On June 17, 2016, the United States declined to
intervene in the case, which was then placed on the active
docket. Citynet thereafter filed the first amended Qui Tam
complaint, which is the operative complaint and will be
referred to herein simply as the complaint.
times relevant herein, Frontier was a West Virginia
corporation with its principal place of business in West
Virginia; Kenneth Arndt was a citizen of West Virginia and
General Manager and Senior Vice President of Southeast Region
at Frontier Communications Corporation; Dana Waldo was a
citizen of West Virginia and Senior Vice President and
General Manager of Frontier; Mark McKenzie was a citizen of
West Virginia and employee of Frontier; Kelly Goes was a
citizen of West Virginia and Secretary of the West Virginia
Department of Commerce (“DOC”); and Jimmy Gianato
was a citizen of West Virginia and Director of the West
Virginia Division of Homeland Security and Emergency
Management. First Amended (“Am.”) Qui Tam
Complaint (“Compl.”) at ¶¶ 8-11, 13-14.
Gale Given was employed as Regional President of Verizon
covering the state of West Virginia from July 1, 2010, to
July 1, 2012, when she became the West Virginia State
Technology Officer. Id. at ¶ 12.
complaint, Citynet alleges nine counts under the False Claims
Act (“FCA”), 31 U.S.C. § 3729 et.
seq. Counts I through IV allege the presentation of
false claims, § 3729(a)(1)(A); Counts V through VIII
allege the making of false records, § 3729(a)(1)(B); and
Count IX alleges a conspiracy to present false claims and
make false records, § 3729(a)(1)(C). Counts I through
III, V through VII, and IX are against all defendants, while
Counts IV and VIII are against only Frontier and Mr.
alleges that under the American Recovery and Reinvestment Act
(“ARRA”), which became law in February 2009, $4,
700, 000, 000 in federal funds were appropriated to the
Broadband Technology Opportunities Program
(“BTOP”) in order to expand broadband technology.
First Am. Qui Tam Compl. at ¶ 1. Citynet claims that the
grant program “was designed to allow for the
construction of open access middle-mile broadband
contends that Frontier, Mr. Arndt, Mr. Waldo, Mr. McKenzie,
Ms. Goes, and Mr. Gianato assisted the West Virginia
Executive Office (“the WVEO”) in the submission
of its application for $126, 323, 296 in funds from the BTOP
grant for a project titled “West Virginia Statewide
Broadband Infrastructure Project - Middle-mile.”
Id. at ¶¶ 2, 27. According to Citynet, the
WVEO grant application contained numerous misrepresentations,
some of which were based on information provided to WVEO by
Frontier and its representatives. Id. at ¶ 2.
During the application process, thirty-four proposals,
including one from Citynet, were submitted to the National
Telecommunications and Information Administration (“the
NTIA”) for consideration under BTOP. Id. at
¶ 22. In addition, Frontier as well as its subsidiary,
Citizens Telecommunications Company of West Virginia
(“CTC”), submitted proposals to fund last mile
projects, which would provide broadband fiber to Community
Anchor Institutions (“CAIs”). Id. at
¶¶ 24, 26.
WVEO proposal contained three parts: “1) the provision
of 1, 064 Cisco routers to each of the CAIs; 2) the
construction of, and upgrade to, the State's emergency
microwave tower system; and 3) the construction of a 2, 429
mile ‘open-access' Middle-Mile network that would
provide broadband service to the 1, 064 CAIs throughout the
state.” Id. at ¶ 28. According to
Citynet, the WVEO application, at Ms. Goes' direction,
took Frontier's and CTC's last mile applications,
with Frontier's knowledge, and simply “regenerated
them as its own Middle-Mile project in order to make it more
attractive to the NTIA.” Id. at ¶ 30.
Specifically, Citynet alleges that Frontier, Mr. McKenzie,
Ms. Goes, Mr. Gianato, and others, helped to prepare the WVEO
grant application with the intent that Frontier would receive
the grant funds, if awarded to the WVEO. Id. at
addition, Frontier and Verizon also helped the state
determine the amount of new fiber to be constructed if the
grant was awarded to the WVEO. Id. at ¶ 32;
see Ex. 5 to First Am. Qui Tam Compl. (Emails
between Mark Luker and Jimmy Gianato regarding the amount of
fiber to be constructed, stating, in part, “Based on
the estimates from Verizon and Frontier, the fiber is new
fiber that does not exist today”). While the grant
applications were being submitted, Frontier was in merger
negotiations with Verizon, and both Frontier and Verizon
further assisted the State in drafting its application by
providing construction plans and engineering information to
the WVEO. First Am. Qui Tam Compl. at ¶ 35. In fact,
during the merger negotiations between Verizon and Frontier,
Frontier and the state had contemplated that it would receive
a grant, and that a considerable portion of it would go to
Frontier. Id. at ¶ 36. On January 14, 2010, the
State informed Frontier that it would be required to make a
capital investment of $250-$300 million in West Virginia if
the merger were to be approved by the West Virginia Public
Service Commission. Id. at ¶ 37; see
also Ex. 7 to First Am. Qui Tam Compl. (Email from Dan
McCarthy to Kelley Goes regarding the capital planned when
Frontier takes control of Verizon's West Virginia
alleges that the WVEO application contained false statements
that were included to insure that the state would receive the
grant and that Frontier, Mr. Arndt, Mr. McKenzie, Ms. Goes
and Mr. Gianato and others caused the false statements in the
WVEO grant application. First Am. Qui Tam Compl. at ¶
38. Citynet first alleges that the WVEO grant application
misrepresented that “the fiber would comprise a single
interconnected network by connecting each CAI to
Frontier's local central offices, which in turn would
allow other service providers to connect at the Frontier
Central Office to provide their Last-Mile services to
consumers.” Id. at ¶ 39. By connecting
the fiber from CAIs to central offices, which are the
locations that Frontier maintains equipment to route calls to
and from end users, other service providers would have been
able to connect at the central office to provide last mile
services to consumers. Id. at ¶ 40. Citynet
also alleges that the WVEO application misrepresented that no
part of the “‘service layer' (i.e.
Last-Mile)” would be funded from the grant.
Id. at ¶ 41.
next alleges that the WVEO application misrepresented that
the 1, 064 CAIs in the application did not already have fiber
service when in fact 416 of the CAIs “already had
existing fiber, no longer were in existence or had received
other stimulus, ” meaning that only 648 CAIs needed new
fiber. Id. at ¶¶ 43-44. Because only 648
CAIs needed new fiber, the amount of new fiber miles to be
built decreased from 2, 429 in the application to 915 and
then was decreased again to 536. Id. at ¶ 45.
also contends that the decreased figure of 536 miles of fiber
to be built was inflated because miles were “double
counted” and the application also misrepresented the
distances of fiber necessary to reach many of the CAIs.
Id. at ¶ 45. Specifically, Citynet states that
the estimation of fiber to be built on “hundreds
of” CAIs were grossly inflated. Id. at ¶
46. For example, Citynet contends that the WVEO application
estimated that 73, 250 feet of new fiber would be required to
provide broadband service to the CAI “Hygenia
Facilities Foundation” in Boone County, but that the
pertinent location construction request (“LCR”)
indicates that only 1, 201 feet of fiber was constructed.
Id. The double-counting of miles that Citynet
alleges refers to the fact that the miles of fiber was
inflated in the application by including the miles to connect
the Central Office to two CAIs, when only one CAI was
directly connected to the Central Office. Id. at
¶ 47. For example, while the Martinsburg Correctional
Center in Berkeley County is located next to the Eastern
Regional Jail, Frontier estimated to the state that it would
take 10, 000 feet of fiber to connect to the Correctional
Center and 10, 000 additional feet of fiber to connect to the
Eastern Regional Jail. Id. at ¶ 48. Instead,
Citynet alleges that it only took 6, 650 feet of fiber to
connect to the Correctional Center and 794 feet of fiber to
connect the Eastern Regional Jail to the Correctional Center.
Id. “By double-counting the build back to the
Central Office for both jobs, ” Citynet alleges that
“Frontier inflated the estimated mileage by 10, 000
feet on this job alone.” Id. Citynet contends
that the amount of new fiber needed was double-counted on at
least fifty-eight projects. Id. at ¶ 50.
Citynet contends that the proposed fiber distances for the
CAIs were also misrepresented in the WVEO application by
“simply inputting the same number for several
projects.” Id. at ¶ 51. For example,
Citynet alleges that the WVEO application had thirty-six CAIs
that required the same 4, 390 feet of new fiber, with five
new poles, 3, 882 feet of aerial fiber and 508 feet of buried
fiber. Id. at ¶¶ 51-52.
also alleges that defendants misrepresented that a middle
mile network did not exist in West Virginia, when in
actuality, Mr. Arndt had informed the state representatives
that “90% of the stimulus project either existed or
would be completed shortly after the Frontier acquisition of
Verizon.” See Ex. 11 to First Am. Qui Tam
Compl. (Email from Kenneth Arndt to Kelley Goes, Jimmy
Gianato and others stating that “90% of the stimulus
project either exists or will be completed shortly after the
acquisition is closed”). Additionally, defendants
certified that the project complied with the “Notice of
Funds Availability and Solicitation of Applications”
(“NOFA”) requirements because no private entity
could afford to build the $42, 000, 000 proposed network and
that it would not be built but for the grant. First Am. Qui
Tam Compl. at ¶ 54. Despite this certification,
defendants knew that Frontier had already committed to spend
$279, 000, 000 in West Virginia to upgrade facilities and
infrastructure so that the Verizon merger would be approved.
misrepresentations that Citynet claims defendants made in the
WVEO application include the statement that the broadband
services could be resold by the state to businesses and
individuals when they could not be resold, meaning that
“the CAIs that received broadband under the WVEO
project would be the ultimate end-user of only Frontier/
Verizon services which in turn made the project a Last-Mile
project.” Id. at ¶ 55. Also, while
defendants stated that the WVEO application was a middle mile
solution, Ms. Goes advised Citynet that $40 million of the
grant funds would be given to Frontier “to construct
‘tails' to government facilities from the nearest
Frontier hub or similar facility and that the construction of
the ‘Last-Mile' tails would constitute the full
extent of fiber construction under the WVEO's
plan.” Id. at ¶ 56. Citynet claims that
“the overall effect of the misrepresentations in the
WVEO grant application led to the grant being awarded to the
WVEO for the sole benefit of Frontier.” Id. at
February 12, 2010, the WVEO was awarded $126, 323, 296 from
the BTOP Grant for the WVEO grant application entitled
“West Virginia Statewide Broadband Infrastructure
Project - ‘Middle-Mile.'” Id. at
¶ 58. By accepting the grant, the recipient (here, the
WVEO) agreed to comply with certain terms and conditions,
including: “1) the [DOC] Financial Assistance Standard
Terms and Conditions; 2) Award Specific Special Award
Conditions; 3) Line Item Budget; 4) 15 C.F.R. Part 24,
Uniform Administrative Requirements for Grants and Agreements
to States and Local Governments; 5) OMB Circular A-87, Cost
Principals for State, Local and Indian Tribal Governments; 6)
OMB Circular A-133, Audits of States, Local Governments, and
Non-Profit Organizations; 7) [DOC] Pre-Award Notification
Requirements for Grants and Cooperative Agreements; and 8)
DOC American Recovery and Reinvestment Act Award
Terms.” Id. at ¶ 59. The Special Award
Conditions stated “This award supports the work
described in the recipients proposal entitled West
Virginia Statewide Broadband Infrastructure Project -
‘Middle Mile' dated 8-20-09 and revision dated
2/5/10 for budget narrative which is incorporated into the
award by reference.” Id. at ¶ 60.
to Citynet, the proposed budget narrative contained potential
categories of costs of the project to be identified by the
applicant, with a summary of the items in each category.
Id. at ¶ 61. The addendum to the Budget
Narrative provided that, “If indirect costs . . .
and/or fringe benefits are included in the budget, please
provide a copy of your existing Negotiated Indirect Cost
Recovery Agreement (NICRA), if available. If the NICRA is not
available or is not consistent with the rates/calculations in
the budget, please provide an explanation of how the amounts
were calculated. Please clearly list the manner in which
indirect costs are calculated in the budget.”
Id. at ¶ 62. No indirect costs were identified
in the WVEO grant application. Id. at ¶ 63.
addition, other terms and conditions that the WVEO agreed to
comply with upon receipt of the grant funds, including the
DOC Financial Assistance Standard Terms and Conditions, the
ARRA Award Terms, 74 FR 33104, and the DOC Pre-Award
Notification Requirements for Grants and Cooperative
Agreements, did not permit payment of indirect costs not
included in a line-item budget. Id. at ¶¶
64-66. Citynet alleges that Frontier was a sub-recipient of
the grant pursuant to a Memorandum of Understanding
(“MOU”) entered between the parties on October 1,
2010. Id. at ¶¶ 69-70. The MOU stated that
if awarded the grant, Frontier as a sub-recipient of the
grant would construct 915 miles of fiber contemplated in the
WVEO application, and would “establish a middle-mile
broadband network to over 1, 000 points of interest
throughout West Virginia.” Id. at ¶¶
70-71. As a sub-recipient of the grant, Frontier also agreed
to comply with the Special Award Conditions, all other laws,
rules and regulations that governed the grant award and with
all accounting requirements in the NOFA, as well as to ensure
that the WVEO would be invoiced for eligible grant costs and
that costs not eligible under the grant would be billed to
the WVEO separately. Id. at ¶¶ 72-74.
alleges that Frontier did not construct the middle mile
network proposed in the WVEO application and that it agreed
to construct in the MOU, but instead it began to build the
last mile project it proposed in its joint application with
CTC, which was not given funds under the BTOP grant.
Id. at ¶ 75. According to Citynet, Frontier did
not need to build the 915-mile network that was proposed in
the WVEO application because a “vast majority of the
proposed Middle-Mile network already existed.”
Id. at ¶ 76. Because Frontier did not build the
existing middle mile network with funds from the grant, the
“open access” requirement did not apply to it,
meaning that Frontier could deny its competitors access to
the existing network. Id. at ¶ 76. Citynet
further alleges that Frontier did not want to build an
open-access middle mile network because “it would allow
competition from other broadband services providers”
which “would be catastrophic to Frontier's
business.” Id. at ¶ 77. Instead of
constructing fiber from one of its Central Offices to another
Central Office, or from the CAI back to the Central Office,
as provided for in the WVEO application, Citynet alleges that
Frontier “merely constructed fiber from the CAI to
Frontier's nearest utility pole (i.e., driveways
to local streets).” Id. at ¶ 78. Citynet
alleges that the decision to do this was “unilaterally
made by [Mr.] Gianato.” Id. at ¶ 79.
support of the contention that the WVEO grant application
proposed building fiber from Central Office to each CAI,
Citynet alleges that “areas of potential affect
maps” (“APE maps”) were provided to the
NTIA that identified the routes for the fiber to be built to
each CAI and the footage of fiber that would be required for
each CAI. Id. at ¶ 80. The APE maps showed that
fiber would be built from the Central Office to the CAI.
Id. at ¶ 81. After the construction was
completed, Frontier submitted “as-built” maps
that were not typically used in the industry, which showed
that the fiber was not built back to the Central Office, as
proposed, but instead, a “‘service drop' was
installed from the CAI to the nearest utility pole.”
Id. at ¶¶ 82-83. By using the
“service drop” method instead of building the
fiber back to the Central Office, “the fiber built [was
rendered] useless to third parties thus defeating the open
access conditions set forth in the grant award.”
Id. at ¶ 84.
contends that Frontier admitted to the Federal Communications
Commission that the facilities constructed with the grant
funds were last mile and not middle mile facilities.
Id. at ¶ 85; see Ex. 14 to First Am.
Qui Tam Compl. (Comments of Frontier before the Federal
also alleges that Frontier “billed the . . . grant for
material and labor it did not provide, and for fiber lengths
that were not constructed.” First Am. Qui Tam Compl. at
¶ 86. One way Frontier did this was by using excessive
maintenance coils to conceal the fact that it did not
construct the fiber it alleged it did. Id. at ¶
87. For example, for one CAI, Frontier billed the state for
constructing 1, 380 feet of fiber, but its engineering map
shows that it only built 735 feet of fiber and placed an
additional 600 feet of fiber in maintenance coils.
Id. at ¶ 88. Citynet alleges that Frontier
routinely placed excessive amounts of fiber in maintenance
coils in order to “inflate its invoices in an attempt
to draw down the surplus BTOP funds.” Id. at
¶ 90. As a result, Frontier used the WVEO grant funds to
“1) expand its existing network within its service
territory; 2) ensure that its competitors would not have
access to the network; and 3) lock the State (the CAIs) into
doing business with Frontier in perpetuity.”
Id. at ¶ 91.
total, Frontier submitted invoices totaling $41, 531, 832.25
to the state. Id. Although Frontier only built 590
miles of fiber, the total cost was $856, 939 more than the
amount Frontier represented it would cost to build the 1, 793
miles of fiber contemplated in the grant application.
Id. at p. 18 n.1. In their own grant applications,
Frontier and CTC estimated that fiber construction would cost
$24, 816 per mile, but Frontier received triple that amount
for the 536 miles of fiber it built. Id. at ¶
93. According to Citynet, Frontier “devised a plan to
expend all of the $42, 000, 000 of the budgeted BTOP funds
by: 1) charging for impermissible ‘loadings' that
were nothing more than prohibited indirect costs; 2)
fabricating the amount of fiber built by utilizing
maintenance coils; 3) fabricating the amount of fiber built
after the length of the maintenance coils had already been
considered in total; 4) double-billing for ‘Facility
Build-Outs' that were already contemplated as part of the
original construction estimate; and 5) billing for
inappropriate ‘invoicing fees' that were not
allowed under the grant.” Id. at ¶ 92.
Given and Mr. Gianato allegedly assisted Frontier in this
plan by: “1) knowingly approving improper
‘loading' and ‘invoice processing fee'
charges; 2) failing to verify Frontier's invoices and the
corresponding charges; 3) failing to verify that Frontier
completed the work billed for; and 4) purposefully holding
Frontier's invoices for up to eighteen (18) months at a
time before processing them so that the other service
providers would not be able to determine whether there would
be surplus BTOP funds available.” Id. at
¶ 94. According to Citynet, most of these events
occurred after Ms. Given became the State Technology Officer.
alleges that Frontier “caused the federal government to
pay 365 Frontier invoices that included prohibited indirect
costs.” Id. at ¶ 95. Citynet contends
that because the WVEO application did not include indirect
costs on the line item budget, it was prohibited from
collecting it under the NOFA, ARRA Award Terms, 74 FR 33104
and the Special Award Conditions. Id. at ¶ 101.
Frontier allegedly attempted to obtain reimbursement for
indirect costs before Ms. Given became the Chief Technology
Officer, but these requests were denied by Col. Michael
Todorovich. Id. at ¶ 96. He advised the Grant
Implementation Team and the West Virginia Office of
Technology (“WVOT”) that indirect costs were not
reimbursable under the grant. Id.; see Ex.
17 to First Am. Qui Tam Compl. (Memorandum from Michael
Todorovich, PI/PD, regarding Reimbursement Process dated
February 14, 2012). Col. Todorovich additionally refused
access to the grant funds except for payment of construction
that was already completed. First Am. Qui Tam Compl. at
to Citynet, the WVOT developed a protocol that was used to
process the vendor invoices that were submitted for payment
from the grant funds. Id. at ¶ 98. The process
provided that the vendor would first submit the invoice for
review by the WVOT, where a WVOT employee would match it
against the original LCR and approve it. Id. Next,
the invoice was sent to Col. Todorovich, who would ensure
that the invoice was properly approved by the WVOT and that
there were sufficient grant funds to pay the invoice.
Id. The invoice was sent to the Governor's
accountant for review and then was entered into the
Department of Treasury's Automated Standard Application
for Payments (“ASAP”). Id. Once the
invoice is entered into ASAP, the funds were dispersed to the
WVOT, and it then forwarded the funds to Frontier.
1, 2012, Ms. Given, the former Regional President of Verizon
for the area covering West Virginia, was appointed as the new
State Technology Officer. Id. at ¶¶ 12,
99. She immediately took control of approving Frontier's
invoices for the grant project. Id. After Ms. Given
became the State Technology Officer, Citynet alleges that
Frontier began submitting invoices with a
“Loadings” charge. Id. at ¶ 100.
According to Frontier's invoices, the loadings charge was
for “allocated indirect costs such as vehicles,
accounting, administration, etc.” Id. at
¶ 101 (emphasis omitted). Citynet contends that the
loadings charge was an indirect cost, which was in violation
of the various award conditions previously mentioned.
Id. Despite being an indirect charge unauthorized
under the grant, Ms. Given approved the Frontier invoices
containing the loading fee, which in some instances was
higher than the original cost estimate for the entire build.
Id. at ¶¶ 102-103. In total, Frontier
submitted 365 invoices containing the improper loadings fee,
totaling $4, 553, 387.31. Id. at ¶ 104. The
state budget and the budget narrative provided by the state
did not include indirect costs and the grant award was not
amended to permit indirect costs to be reimbursed by the
grant. Id. at ¶ 106.
also contends that Frontier submitted 327 invoices for
payment from grant funds that included facility build out
fees and invoice processing fees that were unlawful.
Id. at ¶ 107. The facility build out
(“FBO”) fees included on the Frontier invoice
allegedly “consisted of the cost of construction inside
the CAI to allow the facility to accept the newly placed
fiber.” Id. at ¶ 108. Citynet alleges
that once Ms. Given was hired as the State Technology
Officer, Frontier began submitting invoices with the FBO
charge. Id. at ¶ 109. While Frontier claims
that the FBO charge was not part of the original grant
estimate because “the need for the FBO was not
discovered until the project was under way, ” Citynet
contends that the WVEO listed “DMARC Const. Cost”
in the original grant proposal, with a unit cost of $9, 750
for 250 units, which was the equivalent of FBO costs, and
therefore was part of the original estimate in the WVEO
proposal. Id. at ¶¶ 109-10. Citynet
contends that Frontier “created the fiction” that
the charge was not originally part of the estimate so that
they could be double-billed for the “DMARC Const.
Cost” and the FBO costs. Id. at ¶ 111.
also allegedly added “significant ‘invoice
processing fees'” to the FBO invoices after Ms.
Given became the State Technology Officer. Id. at
¶ 112. Mr. McKenzie allegedly provided the state with a
list of the costs associated with processing a FBO invoice.
Id. at ¶ 113. In the breakdown of costs, Mr.
McKenzie claimed it took sixteen employees four hours to
process one FBO invoice, at a cost of $1, 808 or $452 per
hour to Frontier. Id.; see also Ex. 20 to
First Am. Qui Tam Compl. (Letter from Mark McKenzie to Gale
Given dated January 29, 2013 regarding “Frontier
Incremental Processing Costs - FBO Invoices”). On
February 25, 2013, Mr. Waldo advised Ms. Given that it would
cost Frontier $596, 640 to process 330 FBO invoices. First
Am. Quit Tam Compl. at ¶ 114. Since the state had paid
the full amount for 27 invoices, Mr. Waldo additionally
advised Ms. Given that it would only charge $1, 340.20 per
invoice, or $335.05 per hour, for the remaining invoices.
Id.; see also Ex. 21 to First Am. Qui Tam
Compl. (Letter from Dana Waldo to Gale Given dated February
25, 2013 regarding “invoicing for BTOP Projects
Including Facilities Build-Out Work”). Frontier charged
the invoice fee in several instances when it performed no
work. First Am. Qui Tam Compl. at ¶ 115. In total,
Frontier submitted 84 invoices with a 1, 808 invoice fee and
243 invoices with a $1, 340 invoice fee, totaling $593,
888.20, despite the fact that the processing fee is an
indirect cost that was prohibited under the terms of the
grant award. Id. at ¶¶ 116-119.
also alleges that Frontier “and/or” Ms. Given and
Mr. Gianato held hundreds of invoices for months, which
caused other service providers to be unsure whether surplus
BTOP funds would be available. Id. at ¶ 120.
Once Ms. Given began working at the WVOT, the WVOT held the
invoices “until it could rush the processing and
approval of a large number of the invoices at one
time.” Id. at ¶ 121. Additionally, the
state began to pay a $5.00 processing fee per invoice so that
each of Frontier's invoices would be paid within
twenty-four hours of its approval by Ms. Given's office.
Id. at ¶ 122.
also alleges that “mitigation plan” fraud took
place during the course of construction. Id. at
¶ 123. According to it, the NTIA asked the WVEO and
Frontier to develop a “mitigation plan” so that
the project construction would be completed on schedule.
Id. at ¶ 124. Frontier drafted the mitigation
plan, which Citynet alleges falsely misrepresented that the
construction to the CAIs was delayed because of environmental
issues and because of a fiber shortage from the 2011 tsunami
in Japan. Id. at ¶ 125. As a result, the
mitigation plan stated that due to environmental issues and
fiber shortage, a reduction of CAIs receiving fiber was
necessary, thereby reducing the 1, 064 CAIs to 668 and the
915 miles of fiber to 590. Id. In reality, the
reduction in the number of CAIs and the miles of fiber to be
built was not a result of delays, but because the CAIs
already had fiber when the WVEO grant application was
submitted. Id. at ¶ 126.
finally contends that Mr. Waldo made misrepresentations about
the grant award. First, he stated that West Virginia's
national ranking for broadband connectivity would rise from
being one of the bottom five states to one of the top five
states after the project was completed. Id. at
¶ 127. Instead, West Virginia was ranked 48th in
broadband access by the FCC prior to the grant award, and
53rd after the completion of the grant project, behind every
other state, the District of Columbia, Guam and Puerto Rico.
Id. at ¶ 131. Mr. Waldo also misrepresented to
the West Virginia Legislature that Frontier had constructed a
middle mile network and that it had negotiated several
interconnection agreements with broadband wholesalers and
last mile providers for them to use the middle mile network.
Id. at ¶ 128. In its quarterly BTOP report, it
was revealed that no agreements were being negotiated or were
ever entered into with broadband wholesalers or last mile
providers. Id. at ¶ 129.
on the foregoing facts, Citynet's complaint alleges nine
violations of the False Claims Act. Count I alleges that
defendants violated 31 U.S.C. § 3729(a)(1)(A) by
“knowingly present[ing], or caus[ing] to be presented,
to the United States Government, at least 646 false or
fraudulent claims for payment or approval by seeking payment
from funds restricted to an approved NTIA grant award for
construction of a . . . middle-mile network for work that
Frontier provided constructing a non-approved Last-Mile
project.” Id. at ¶ 134. It additionally
alleges that Frontier “authorized, ratified and
benefited from all of the violations of the False Claims Act
committed by its various officers, agents and
employees.” Id. at ¶ 135. As a result,
Citynet alleges that the government and the public have been
damaged in an amount not less than $41, 531, 832.25.
Id. at ¶ 136.
II through IV also allege violations of § 3729(a)(1)(A).
Count II alleges a violation for defendants “knowingly
present[ing], or caus[ing] to be presented, to the United
States Government, at least 365 false or fraudulent claims
for payment or approval by seeking payment of no less than
$4, 553, 387.31 in prohibited Loadings and Indirect Costs
under the BTOP award grant.” Id. at ¶
141. Due to the violation, Citynet alleges that the
government and the public have been damaged in the amount of
$4, 553, 387.31. Id. at ¶ 143. Count III
alleges that defendants violated § 3729(a)(1)(A) by
knowingly presenting or causing to be presented to the
government, 327 false and fraudulent claims for payment by
seeking $593, 888.20 in prohibited FBO Invoice Fees and
Indirect Costs under the grant award. Id. at ¶
148. Count IV alleges that Frontier and Mr. McKenzie
knowingly presented or caused to be presented to the
government false and fraudulent claims by seeking payment for
materials and services not provided for under the grant
award. Id. at ¶ 155. The materials and services
include, but are not limited to: 1) excessive maintenance
coils in the “as-built” amounts; 2) falsification
of the length of the fiber build; and 3) falsification of the
number of fiber strands provided on jobs. Id.
V through VIII allege violations of § 3729(a)(1)(B).
Count V alleges that “[d]efendants knowingly made,
used, or caused to be made or used, 646 false records or
statements material to false or fraudulent claims that were
presented to [the government] for payment from funds
restricted to an approved NTIA grant award for construction
of a mile middle-mile network for work that Frontier provided
constructing a non-approved Last-Mile project.”
Id. at ¶ 162. Count VI alleges a violation of
§ 3729(a)(1)(B) for defendants knowingly making, using,
or causing to be made or used, 365 false records or
statements material to false or fraudulent claims that were
presented to the government for payment of prohibited
Loadings charges and Indirect Costs under the grant.
Id. at ¶ 169. Count VII alleges a violation for
knowingly making, using or causing to be made or used, 327
false records or statements material to false or fraudulent
claims presented to the government for payment of prohibited
FBO Invoicing Fees under the grant. Id. at ¶
176. Count VIII alleges that Frontier and Mr. McKenzie made,
used or caused to be made or used, false records or
statements material to false or fraudulent claims presented
to the government for payment for materials and services not
provided under the grant. Id. at ¶ 183.
IX alleges a conspiracy by defendants to commit violations of
§ 3729(a)(1)(A) and (B), in violation of §
3729(a)(1)(C). Id. at ¶ 190. It alleges that
defendants engaged in conduct including “1) providing
false records and information for use in the State's
grant application and subsequent claims for payment; 2)
falsifying the need for a Mitigation Plan; 3) engaging in
conduct to hide the fraudulent claims submitted to the United
States from being discovered; 4) assisting other Defendants
in submitting fraudulent claims; 5) agreeing to engage in a
pattern of conduct to allow the fraudulent claims to be
submitted to, and paid by, the United States; and 6) advising
other Defendants on how to submit fraudulent claims to be
paid by the United States.” Id.
Counts, Citynet seeks three times the amount of damages
sustained by the government, and a civil penalty for each
violation, both pursuant to § 3729(a)(1). Id.
at ¶ 193. Citynet additionally seeks its fees and costs
pursuant to § 3729(a)(3)., all statutory, legal, and
equitable relief to which it is entitled, pre and
post-judgment interest, and any other relief the court deems
appropriate. Id. at ¶ 194; id. at p.
The Motions to Dismiss
State Employees, Kelley Goes (improperly named
“Kelly” in the complaint), Jimmy Gianato, and
Gale Given, filed a joint motion to dismiss. The State
Employees argue that the complaint should be dismissed as to
them because: (1) they are not persons subject to liability
under the False Claims Act; (2) they are immune from suit
pursuant to the Eleventh Amendment; (3) they are entitled to
qualified immunity and are therefore immune from suit; and
(4) that Citynet's claims are jurisdictionally barred
because they are based on public information. Defendants'
Goes, Gianato, and Given's Memo. in Supp. of Mot. to
Dismiss (“State Employees' Memo. in Supp. of Mot.
Frontier Defendants, Frontier, Kenneth Arndt, Dana Waldo and
Mark McKenzie, filed a separate joint motion to dismiss. They
allege that the complaint should be dismissed as to them
because: (1) all claims have failed to state a claim pursuant
to Fed.R.Civ.P. 12(b)(6); (2) Counts one and five are subject
to dismissal pursuant to the False Claim's Act public
disclosure bar; and (3) Count nine does not plead sufficient
facts in order to satisfy the plausibility standard and the
particularity standard of Fed.R.Civ.P. 9(b). Frontier
Defendants' Memo. in Supp. of Mot. to Dismiss at 1-2.
responded to both motion to dismiss, to which both sets of
defendants have replied. In addition, the court granted
Citynet leave to file a surreply to Frontier's reply, to
which Frontier responded.
21, 2017, Citynet filed a motion to file a second surreply in
opposition to the Frontier Defendants and Gale Given's
motion to dismiss. In the second surreply, Citynet wishes to
discuss the Office of Inspector General's June 2017
report (“OIG Report”) which they contend found
that “Frontier charged invoice processing fees that
were unreasonable, unallowable and unsupported, and that
Frontier built a significantly greater amount of maintenance
coils than had been previously disclosed.”
Citynet's Mot. to File a Second Surreply at 1-2. Citynet
argues that the court should take judicial notice of the OIG
Report for purposes of the pending motions to dismiss.
Id. at 3 (citing Fed.R.Evid. 201 and United
States v. Savannah River Nuclear Sols., LLC,
No. 1:16-cv-00825-JMC, 2016 WL 7104823, at *8 (D.S.C. Dec. 6,
2016) (finding that a court may take judicial notice of OIG
State Employees and the Frontier Defendants both filed
responses in opposition to Citynet's motion to file a
second sur-reply to which Citynet replied. The State
Employees state that the OIG Report is not relevant to the
arguments set forth in their motion to dismiss and actually
supports their argument that the claims in the complaint were
publicly disclosed. State Employees' Resp. to Mot. to
File Surreply at 3. Because the OIG Report was released after
Citynet's complaint was filed, it cannot qualify as a
public disclosure. The Frontier Defendants contend that while
the court can take judicial notice of the OIG Report itself,
it may not take judicial notice for the truth of the
information contained in the report.
the court has reviewed the OIG Report and determined its use
at this stage would not change the court's ruling on the
motions to dismiss, the court need not reach the
determination as to whether the court may take judicial
notice of the facts contained therein. Accordingly,
Citynet's motion to file a second surreply is denied.
Rule of Civil Procedure 8(a)(2) requires that a pleader
provide “a short and plain statement of the claim
showing . . . entitle[ment] to relief.” See also
Erickson v. Pardus, 127 S.Ct. 2197, 2200 (2007). Rule
12(b)(6) correspondingly permits a defendant to challenge a
complaint when it “fail[s] to state a claim upon which
relief can be granted.” Fed.R.Civ.P. 12(b)(6).
required “short and plain statement” must provide
“‘fair notice of what the . . . claim is and the
grounds upon which it rests.'” Bell Atlantic
Corp. v. Twombly, 127 S.Ct. 1955, 1964 (2007) (quoting
Conley v. Gibson, 355 U.S. 41, 47 (1957),
overruled on other grounds, Twombly, 127
S.Ct. at 1969)); see also Anderson v. Sara Lee
Corp., 508 F.3d 181, 188 (4th Cir. 2007). Additionally,
the showing of an “entitlement to relief” amounts
to “more than labels and conclusions.”
Twombly, 127 S.Ct. at 1965. It is now settled that
“a formulaic recitation of the elements of a cause of
action will not do.” Id.; Giarratano v.
Johnson, 521 F.3d 298, 304 (4th Cir. 2008).
complaint need not, however, “make a case”
against a defendant or even “forecast evidence
sufficient to prove an element” of the claim. Chao
v. Rivendell Woods, Inc., 415 F.3d 342, 349 (4th Cir.
2005) (quoting Iodice v. United States, 289 F.3d
270, 281 (4th Cir. 2002)). Instead, the opening pleading need
only contain “[f]actual allegations . . . [sufficient]
to raise a right to relief above the speculative
level.” Twombly, 127 S.Ct. at 1965;
Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)
(noting the opening pleading “does not require
‘detailed factual allegations, ' but it demands
more than an unadorned, the-defendant-unlawfully-harmed-me
accusation”). Stated another way, the complaint must
allege “enough facts to state a claim to relief that is
plausible on its face.” Twombly, 127 S.Ct. at
1974; Giarratano, 521 F.3d at 302. The decision in
Iqbal provides some guidance concerning the
A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged. . . .
. . . But where the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct,
the complaint has alleged - but it has not
“show[n]” - “that the pleader is entitled
129 S.Ct. at 1949-50.
noted in Erickson, the Supreme Court has
consistently interpreted the Rule 12(b)(6) standard to
require a district court to “accept as true all of the
factual allegations contained in the complaint.” 127
S.Ct. at 2200 (quoting Twombly, 127 S.Ct. at 1965);
see also S.C. Dep't of Health & Envtl. Control v.
Commerce & Indus. Ins. Co., 372 F.3d 245, 255 (4th
Cir. 2004) (quoting Franks v. Ross, 313 F.3d 184,
192 (4th Cir. 2002)). The court is additionally required to
“draw all reasonable . . . inferences from those
facts in the plaintiff's favor.” Edwards v.
City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999).
Persons under the False Claims Act
State Employees first argue that as employees of the state
and state agencies, they are not “persons” under
the False Claims Act, and that they are therefore not subject
to liability under it. They contend that although they are
named in the complaint individually, the specific allegations
in the complaint refer to the state and the West Virginia
Executive Office, “[i]n an attempt to circumvent its
inability to sue the State of West Virginia pursuant to the
FCA.” State Employees' Memo. in Supp. of Mot. to
Dismiss at 6. Although they are named individually in the
complaint, the State Employees further contend that as state
officials, the allegations against them must be for
individual or “unofficial” activity, and Citynet
has not alleged that they have acted outside of their
official duties. Id. at 7.
support of this argument, the State Employees cite to
Will v. Michigan Department of State Police, 491
U.S. 58 (1989), for the proposition that state officials
acting in their official capacities “are not
‘persons' for the purposes of law suits brought
pursuant to federal statutes.” State Employees'
Memo. in Supp. of Mot. to Dismiss at 7. They also cite to the
Eighth Circuit case of United States ex rel. Gaudineer
& Comito LLP v. Iowa, 269 F.3d 932 (8th Cir. 2001),
where the court determined that a state employee, sued in his
individual capacity, was not a person subject to suit under
the FCA when the plaintiff failed to allege that the employee
was not acting outside of their official duties. The State
Employees contend that here, Citynet has similarly failed to
allege that they acted outside of their official duties and
that they are therefore not persons under the FCA. State
Employees' Memo. in Supp. of Mot. to Dismiss at 8-9.
response, Citynet states that it has very explicitly sued the
State Employees in their individual, not official, capacities
because the State Employees “acted outside of their
statutory authority when they engaged in the fraudulent
activity set forth in the First Amended Complaint.”
Citynet Resp. to State Employees' Mot. to Dismiss at 3.
As a result, Citynet contends that it is suing the State
Employees in only their individual capacities. Id.
Citynet noted in its response, its claims against the state
employees are in their individual, not official capacity.
Under the FCA, “any person who . . . knowingly
presents, or causes to be presented, a false or fraudulent
claim for payment or approval . . . is liable to the United
States Government.” 31 U.S.C. § 3729. In
Vermont Agency of Natural Resources v. United States ex
rel. Stevens, the Supreme Court determined that state
and state agencies were not persons within the meaning of the
FCA, and therefore were not subject to liability under it.
529 U.S. 765, 781 (2000). The Court did not address whether
state employees, sued either in their individual or official
capacity, are persons under the FCA.
Fourth Circuit has not addressed whether a state official
sued in his individual capacity is a person subject to
liability under the FCA. As the state employees note, in
Gaudineer, the Eighth Circuit determined, in a 2-1
panel decision, that in order to state a claim against a
state employee in his individual capacity, the alleged
conduct of the defendant must be “outside of [his]
official duties.” 269 F.3d at 937 (citing BlyMagee
v. California, 236 F.3d 1014, 1016 (9th Cir. 2001)).
According to the court, because the plaintiff did not allege
“the extent and nature of [the state employee's]
duties, the mere assertion that he issued standards that
conflicted with state law does not allege actions outside his
official duties.” Id. As a result, the
plaintiff failed to state a FCA claim against the state
dissent, Judge Gibson stated that he would hold “that
state officials may be sued in their individual capacity
under the False Claims Act.” Id. at 939. He
made this determination based on the decision of the Supreme
Court in Hafer v. Melo, where the Court ruled that
“state officials, sued in their individual capacities,
are ‘persons' within the meaning of §
1983.” Id. at 938 (quoting Hafer v.
Melo, 502 U.S. 21, 31 (1991)). Judge Gibson found it
persuasive that the Court “expressly rejected any
distinction based on whether the actions at issue were within
the scope of the official's authority, ” reasoning
that to rule otherwise would “absolutely immunize state
officials from personal liability for acts within their
authority . . . . Yet our cases do not extend absolute
immunity to all officers who engage in necessary official
acts.” Id. (quoting Hafer 502 U.S. at
28). In light of the Court's decision in Hafer,
Judge Gibson would similarly permit FCA claims against state
officials in their individual capacity irrespective of
whether those acts occurred within their official duties.
Ninth Circuit followed the approach of Judge Gibson's
dissent in confronting the same issue. In Stoner v. Santa
Clara County Office of Education, the Ninth Circuit
reversed the decision of the district court, which found that
plaintiff failed to state a FCA claim against state employee
defendants sued in their official capacities because the
plaintiff could not allege that their actions were outside of
their official duties. 502 F.3d 1116, 1123 (9th Cir.
2007). The court concluded that because the
Supreme Court has defined “persons” to include
“natural persons, ” state employees sued within
their personal capacities were persons under the FCA. See
id. at 1124 (citing Cook Cty. v. United States ex
rel. Chandler, 538 U.S. 119, 125 (2003)). The plaintiff
“need not allege that the individual defendants
personally profited from such false submissions. Nothing in
§ 3729(a)(1) requires the person knowingly making a
false submission to obtain a personal benefit from the
wrongful act.” Id. The court stated that it
disagreed with “Gaudineer to the extent the
reasoning of [the case] cannot be reconciled with the plain
language of the statute.” Id.
court finds the rationale of the Ninth Circuit and Judge
Gibson in Gaudineer to be more persuasive. The text
of the FCA contains no indication that a plaintiff must state
more in pleading a FCA claim against a state official sued in
his personal capacity. Guidance from the Supreme Court in the
context of § 1983 claims similarly advises that state
officials can be sued in their individual capacities for
activities during the course of their official duties.
Finally, requiring a state official to take action outside of
his official capacity would “absolutely immune state
officials from personal liability for acts within their
authority and necessary to fulfilling government
responsibilities, ” which is “contrary to the
principles of the Supreme Court's well-established public
employee immunity jurisprudence.” See Hafer,
502 U.S. at 28; see also Stoner, 502 F.3d at 1125
(citing Harlow v. Fitzgerald, 457 U.S. 800, 807
(1982)). Accordingly, the state employees sued in their
individual capacities are persons under the FCA, and as such,
are subject to liability under it. This determination does
not affect the entitlement of the State Employees to
qualified immunity, discussed below.
Eleventh Amendment Immunity
State Employees next argue that the Eleventh Amendment bars
the plaintiff's suit against them, insisting that
although the State is not a named party in the complaint, the
allegations refer directly to the State or an agency of the
state. Memo. in Supp. of Mot. to Dismiss at 9. The State
Employees argue that because the allegations in the complaint
refer to official actions taken by them, or allegations
against the State directly, sovereign immunity bars the FCA
claims. Id. at 9. In response, Citynet contends that
because it has decided to sue the state employees in their
individual capacities and because it is not seeking damages
or any relief from the State, the claims are not barred by
the Eleventh Amendment. Citynet Resp. to State Employees'
Mot. to Dismiss at 3-4.
Eleventh Amendment “bars ‘citizens from bringing
suits in federal court against their own states.'”
Bragg v. W.Va. Coal Ass'n, 248 F.3d 275, 291
(4th Cir. 2001) (internal citations omitted). The Amendment
further acts as a bar where the suit is against a state
official but the State is the real party in interest.
Id. Eleventh Amendment immunity is “an
essential element of the constitutional design”
inasmuch as it “accords the States the respect owed
them as members of the federation” and “protects
the States' ability to govern in accordance with the will
of their citizens.” Id. (internal citations
omitted). As noted by our court of appeals, Eleventh
Amendment immunity is not absolute: “A State's
immunity to suit in federal court is subject to well
established and important exceptions.” Id.
(citing S.C. State Ports Auth. v. Fed. Maritime
Comm'n, 243 F.3d 165 (4th Cir. 2001)) (enumerating
six exceptions to Eleventh Amendment immunity).
individual capacity suit for damages against state officials
alleged to have personally violated § 3729 does not
implicate the principles of state sovereignty protected by
Stevens and our Eleventh Amendment jurisprudence
because such an action seeks damage from the individual
defendants rather than the state treasury.”
Stoner, 502 F.3d at 1125 (citing Alden v.
Maine, 527 U.S. 757 (1999)).
a plaintiff seeks to hold individual employees 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 the Eleventh
Amendment poses no barrier to such a suit.”
Stoner, 502 F.3d at 1125 (citing Pennhurst State
Sch. & Hosp. v. Halderman, 465 U.S. 89, 101 (1984)
and Hafer, 502 U.S. at 30-31) (internal citations
omitted). Accordingly, because here, plaintiff has sued the
State Employees in their individual capacity and is not
seeking damages from the state, the Eleventh Amendment does
not bar its claims against them.
doctrine of qualified immunity protects government officials
from actions for civil damages to the extent that the
officials do not violate clearly established constitutional
rights. See Harlow, 457 U.S. at 818. Because it is
an immunity, and not merely a defense, it shields government
officials from not only liability but also from the burdens
of trial and preparing, and so it is to be addressed by the
court at an early stage of the litigation. Hunter v.
Bryant, 502 U.S. 224, 227 (1991); Mitchell v.
Forsyth, 472 U.S. 511, 526 (1985). “[I]t is
effectively lost if a case is erroneously permitted to go to
trial.” Mitchell, 472 U.S. at 526.
general, government officials are entitled to qualified
immunity from liability for discretionary actions unless a
claim against an official satisfies a two-prong test:
“(1) the allegations underlying the claim, if true,
substantiate the violation of a federal statutory or
constitutional right; and (2) this violation was of a clearly
established right of which a reasonable person would have
known.” Ridpath v. Bd. of Governors Marshall
Univ., 447 F.3d 292, 306 (4th Cir. 2006) (internal
citations and quotations omitted).
the first prong, the court discusses below Citynet's FCA
claims against the State Employees that survive the State
Employees' Rule 12(b)(6) motion to dismiss. Consistent
with that discussion, the court finds that Citynet has
alleged that the State Employees violated the FCA to the
extent detailed below. The first prong is thus satisfied.
the court finds that it cannot conclude whether Citynet's
claims satisfy the second prong. As a consequence, despite
the principles urging the court to make as early decision as
feasible on the issue of qualified immunity, the
determination of whether the State Employees are entitled to
the defense must be deferred ...