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United States v. Honolulu Community Action Program, Inc.

United States District Court, D. Hawaii

September 13, 2018

UNITED STATES OF AMERICA and THE STATE OF HAWAII ex rel. BETHANY J. LEWIS, Relator,
v.
HONOLULU COMMUNITY ACTION PROGRAM, INC.; HONOLULU COMMUNITY ACTION PROGRAM dba HCAP HEAD START; ROBERT N.E. PIPER, in his individual capacity and as the Executive Director of HONOLULU COMMUNITY ACTION PROGRAM, INC.; LYNN K. CABATO, in her individual capacity and as Director of HCAP HEAD START; ROBYN ANTONUCCI, in her individual capacity and as Assistant Director of HCAP HEAD START; DONNA MANIBOG, in her individual capacity and as Assistant Director of HCAP HEAD START; SONIA CHAN, in her individual capacity and as Information Technology Manager of HCAP HEAD START, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS, ECF NO. 38 ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS, ECF NO. 38

          J. Michael Seabright Chief United States District Judge.

         I. INTRODUCTION

         Relator Bethany J. Lewis (“Relator”), on behalf of herself, the United States of America, and the State of Hawaii, has filed a multicount qui tam action against Defendants Honolulu Community Action Program, Inc.; Honolulu Community Action Program, Inc., dba HCAP Head Start; Robert N.E. Piper; Lynn K. Cabato; Robyn Antonucci; Donna Manibog; and Sonia Chan (collectively, “Defendants”) alleging various violations of the federal False Claims Act (the “FCA”), under 31 U.S.C. § 3729, and Hawaii's False Claims Act, under Hawaii Revised Statutes (“HRS”) § 661-21. ECF No. 1. In the Complaint, Relator alleges that Defendants used “ghost children” - children who had applied to the program, but were either not actually enrolled in the Head Start program or had been dropped from the program - to increase their enrollment levels to obtain Head Start funding. Id. Defendants move to dismiss the Complaint for failure to state a claim upon which relief can be granted. ECF No. 38. For the following reasons, the Motion is GRANTED IN PART and DENIED IN PART.

         II. BACKGROUND

         A. Factual Background

         Relator claims that HCAP Head Start, a private non-profit company, received federal and State of Hawaii grants to provide services to promote the school readiness of qualifying children from low-income families. Compl. ¶¶ 24, 25, 27, 31. Relator alleges that from the 2010/2011 school year to the 2015/2016 school year, HCAP Head Start was required to enroll a certain number of children - approximately 1, 650 children - to maintain its funding. Id. ¶¶ 41-47. For these school years, Relator alleges that HCAP Head Start increased the enrollment numbers by wrongfully including the following groups in its enrollment numbers: (1) children who applied but were never enrolled; (2) children who applied but did not qualify; and (3) children who were enrolled without completing the proper enrollment procedures. Id. ¶¶ 48, 49. Relator claims that Defendants used the term “ghost children” to describe the children who fell into these categories. Id. ¶¶ 49, 51. In the Complaint, Relator alleges a number of different tactics that Defendants used to falsify the enrollment numbers. See Id. ¶¶ 52-58.

         B. Procedural History

         On February 12, 2016, Relator filed the Complaint, on behalf of herself, the United States of America, and the State of Hawaii. ECF No. 1. Relator alleges: (Count I) Violation of the Federal False Claims Act, 31 U.S.C. § 3729(a)(1)(A); (Count II) Violation of the Federal False Claims Act, 31 U.S.C. § 3729(a)(1)(B); (Count III) Conspiracy to Violate the Federal False Claims Act, 31 U.S.C. § 3729(a)(1)(C); (Count IV) Violation of the State False Claims Act, HRS § 661-21(1); (Count V) Violation of the State False Claims Act, HRS § 661-21(2); and (Count VI) Conspiracy to Violate the State False Claims Act, HRS § 661-21(8). Id. The Complaint was unsealed by order of the court on April 16, 2018 (order signed on April 13, 2018). ECF No. 31. Defendants filed their Motion to Dismiss on June 18, 2018, ECF No. 38; Relator filed her Opposition on August 20, 2018, ECF No. 49; and Defendants filed their Reply on August 27, 2018, ECF No. 50. A hearing was held on September 10, 2018.

         III. STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss for “failure to state a claim upon which relief can be granted.” A Rule 12(b)(6) dismissal is proper when there is either a “lack of a cognizable legal theory or the absence of sufficient facts alleged.” UMG Recordings, Inc. v. Shelter Capital Partners, LLC, 718 F.3d 1006, 1014 (9th Cir. 2013) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)).

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Weber v. Dep't of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). This tenet - that the court must accept as true all of the allegations contained in the complaint - “is inapplicable to legal conclusions, ” and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555). Rather, “[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.” Id. (citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to infer “the mere possibility of misconduct” do not show that the pleader is entitled to relief. Id. at 679.

         IV. DISCUSSION

         Defendants argue that Counts I, II, IV, and V fail to allege fraud with particularity under Federal Rule of Civil Procedure 9(b). The court disagrees. Defendants also argue that Counts III and VI fail to allege conspiracy between two or more legally independent parties, and Relator concedes the issue. Accordingly, the Motion is GRANTED in part and DENIED in part.

         A. Counts Alleging Fraud ...


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