The opinion of the court was delivered by: ORLOFSKY
This action arises out of Plaintiffs' discovery and investigation of alleged Medicaid and tax fraud committed by some of the Defendants and the eventual termination of Plaintiffs' employment. Plaintiffs allege in their Complaint that Defendants, entities and individuals associated with CARING, Inc., and the law firm and one of its attorneys hired to represent CARING, Inc., terminated their employment in violation of the protections provided to "whistleblowers" under the Federal False Claims Act ("FCA"), 31 U.S.C. § 3730(h). Plaintiffs also allege that some of the Defendants, including CARING, Inc.'s outside law firm, Fox, Rothschild, O'Brien & Frankel and Ian Meklinsky, Esq., an attorney associated with the firm, violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., by engaging in a campaign to retaliate for, and, through intimidation and harassment, to dissuade Plaintiffs from investigating and reporting the alleged Medicaid and tax fraud to law enforcement officials. Plaintiffs also allege that the retaliatory discharge was a violation of the New Jersey Conscientious Employee Protection Act ("CEPA"), N.J.S.A. §§ 34:19-1 et seq. and, alternatively, a violation of the New Jersey Racketeer Influenced and Corrupt Organizations Act ("New Jersey RICO"), N.J.S.A. §§ 2C:41-1 et seq. Finally, Plaintiffs appear to allege a number of state law causes of action under New Jersey law, including, at least, defamation.
Defendants, CARING, Inc., CARING Residential Services, Inc., CARINGHouse Projects, Inc., CARING Medical Day Services, Inc., CARING Fellowship Centers, Inc., CARING International, Inc., Comprehensive ElderCARING, Inc., Coastal Support Services, Inc., Ann J. Underland, Carlisle W. Underland, Garfield L. Greene, Lewis W. Field, and Mary E. Haynie, and Defendants, Ian Meklinsky, Esq., and Fox, Rothschild, O'Brien & Frankel, have now moved pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss certain counts of the Complaint. In ruling on the motions, the Court must determine: 1) who may be held liable for an unlawful discharge under the "whistleblower" provision of the Federal False Claims Act, 31 U.S.C. § 3730(h); 2) whether Plaintiffs have standing to maintain this action under 18 U.S.C. § 1964(c) of RICO; 3) whether Plaintiffs have adequately alleged a pattern of racketeering activity within the meaning of 18 U.S.C. § 1961(5); 4) whether Plaintiffs have adequately alleged the participation in the operation or management of the RICO enterprise by the Attorney Defendants, Meklinsky and Fox, Rothschild; and 5) whether Plaintiffs have properly pled their state common law causes of action.
For the reasons set forth below, Defendants' motions will be granted in part and denied in part.
I. Facts and Procedural History
Plaintiff, John H. Mruz ("Mruz"), served as Vice-President of Development and Administration on behalf of Defendants, CARINGHouse Projects, Inc. ("CARINGHouse") and Coastal Support Services, Inc. ("Coastal"), between June 12, 1995, and October 31, 1996. Plaintiffs' Complaint P 1 (dated Mar. 21, 1997) (hereinafter Compl.). Between June 13, 1986, and October 31, 1996, Plaintiff, Jane A. Johnson ("Johnson"), served as Vice-President of Projects and Finance on behalf of CARINGHouse, CARING Fellowship Centers, Inc., ("CARING Fellowship"), CARING Medical Day Service ("CARING Medical"), and as Personnel Director on behalf of Defendants, CARING, Inc. ("CARING"), CARING Residential Services, Inc. ("CARING Residential"), CARINGHouse, CARING Medical, CARING Fellowship, CARING International, Inc. ("CARING International"), Comprehensive ElderCARING, Inc. ("Comprehensive"), and Coastal. Id. at P 2.
Plaintiff, Vasilike D. Nika ("Nika"), served as Executive Assistant to the President of Coastal between March 13, 1995 and October 31, 1996. Id. at P 3.
Defendant, Ann J. Underland ("Ann Underland"), is a member of one or more of the boards of trustees or directors of the CARING Corporations, and the person who chose board members. Id. at P 20. Ann Underland allegedly "dominated and dictated the actions" of the CARING Corporations. Id.; see also id. at PP 21, 36(a). Defendant, Carlisle W. Underland ("Carlisle Underland"), is the son of Ann Underland and a member of one or more of the boards of the CARING Corporations, id. at P 22, as are Defendants, Garfield L. Greene ("Greene"), Lewis W. Field ("Field"), and Mary E. Haynie ("Haynie"), id. at PP 24, 26, 28.
The Complaint alleges that sometime in approximately March, 1996, Plaintiffs began to suspect that Ann Underland was conducting the affairs of the CARING Corporations so as to benefit her and some of the other CARING Individual Defendants personally. Id. at P 36(a). Whatever this might mean, Plaintiffs also allege that Ann Underland and, it appears, the other CARING Individual Defendants, were causing the CARING Corporations to violate various, although unspecified, Federal and New Jersey laws. Id. at P 36(b).
In particular, Plaintiffs allege that the CARING Corporations "appeared" to be receiving Medicaid funds substantially in excess of the amounts which should have properly been received, and that these surplus monies were being secretly diverted for the personal benefit of the CARING Individual Defendants. Id. at P 37(a); see also id. at P 37(d). Additionally, the CARING Corporations are alleged to have improperly accounted for money which was used to pay the personal expenses of Ann Underland, without the knowledge of members of the boards of the CARING Corporations. Id. at P 37(b). Thus, Plaintiffs allege that the CARING Corporations, Ann Underland, and some or all of the other CARING Individual Defendants "engaged in activities that seemed to be federal tax fraud, failure to pay federal taxes, fraud in the receipt of federal Medicaid and other governmental funds, improper use of funds, and failure to properly spend funds." Id. at P 37(f).
Eventually, Plaintiffs began to refuse to perform various aspects of their jobs which, without their knowledge, had been assisting the CARING Corporate and Individual Defendants in the alleged fraud. Plaintiffs also brought to the attention of Ann Underland and the members of the boards of the CARING Corporations the allegedly fraudulent conduct. See id. at PP 36(c), 38. Because of the allegedly hostile reactions of the CARING Individual Defendants to Plaintiffs' disclosures of misconduct, Plaintiffs contacted various governmental authorities, see, e.g., id. at PP 39-40, including the Federal Bureau of Investigation ("FBI") and the New Jersey Inspector General, and investigated whether there might be a basis for prosecuting a False Claims Act action. Id. at PP 40-41.
On September 24, 1996, Plaintiffs delivered a memorandum to Ann Underland which outlined many of their concerns and invited the CARING Corporations to initiate their own internal investigation and to institute corrective measures. Id. at P 42; see also id. at Exh. A. It was at this point, Plaintiffs allege, that Ann Underland and the other CARING Individual Defendants commenced a "conspiracy, scheme, and campaign . . . that used the mail and the interstate wire . . . to retaliate against, harass, and intimidate Plaintiffs, as well as to punish Plaintiffs for being [whistleblowers] and for refusing to participate in said Defendants' schemes to violate the law." Id. at P 44; but see id. at P 48 (alleging that conspiracy to retaliate, harass, and intimidate began at a later moment). The actions constituting the "scheme,"
as alleged, are, inter alia : 1) Ann Underland and Greene's isolation of Plaintiffs from other board members, id. at PP 45, 47; 2) in essence, preventing Plaintiffs from causing an investigation of the finances of the CARING Corporations to be conducted; and 3) deceiving the board members about the Plaintiffs and Plaintiffs' efforts to investigate the factual bases of their memorandum, id. at PP 44-47.
Several days after receipt of Plaintiffs' memorandum, CARING's board of directors delivered a memorandum to Plaintiffs which indicated, inter alia : 1) that a full investigation of the matters brought to their attention in the September 24, 1996, memorandum would occur; 2) that Greene would act on the board's behalf in all matters relating to the investigation; 3) that Defendant, Fox, Rothschild, O'Brien & Frankel ("Fox, Rothschild") had been hired to assist in the investigation; and 4) that Plaintiffs would be required to meet with Defendant, Ian Meklinsky, Esq. ("Meklinsky"), an attorney associated with Fox, Rothschild. Id. at P 48; Exh. B.
The memorandum also imposed a number of restrictions upon Plaintiffs, including the restriction that Plaintiffs "remain off any [CARING] Organization premises unless directed otherwise by . . . Greene." See id. at P 49; Exh. B.
It was at this point, Plaintiffs allege, that Meklinsky and Fox, Rothschild joined in the conspiracy to "retaliate against, harass, and intimidate Plaintiffs," id. at P 48, actions which the law firm "should have known" had as their ultimate goal the obstruction of justice and other improper behavior, id. at P 54. Plaintiffs also allege that the memorandum circulated by CARING's board was used to "cause Plaintiffs to be defamed, maligned, portrayed as untrustworthy . . . and to intimidate and threaten [them]." Id. at P 49; see also id. at P 55.
The alleged goals of the conspiracy to intimidate Plaintiffs were the obstruction of justice, interference with various investigations of the CARING Corporations, the intimidation of others with knowledge of the fraud, and the opportunity to "sanitize, destroy, and doctor evidence" of, presumably, the underlying Medicaid and tax fraud. Id. at P 51. These efforts included: 1) intimidating telephone calls with a witness to the alleged Medicaid and tax fraud, id. at PP 56-58; 2) purported investigatory meetings with Meklinsky which were in reality efforts to intimidate Plaintiffs from acting as witnesses and efforts to learn details of the federal investigation of the CARING Corporations and the identities of those individuals who were cooperating with that investigation, id. at P 61; 3) Fox, Rothschild's advice to CARING's board that Plaintiffs be fired, id. at P 63, and, eventually, on October 31, 1996, Plaintiffs' firings, id. at P 64.
The allegedly pretextual reasons for firing Plaintiffs were that Plaintiffs had failed to cooperate with the internal investigation being conducted by Fox, Rothschild on behalf of CARING's board and that Plaintiffs had absented themselves from work. Id. at P 63. In reality, however, Plaintiffs allege, they were fired for pursuing a qui tam action, for being potential witnesses to the Medicaid and tax fraud, for cooperating with governmental investigations, for supporting others who were cooperating with those investigations, for refusing to participate in illegal behavior, and for the purpose of intimidating others into not cooperating with governmental investigations. Id. at P 64; see also id. at P 59.
On March 21, 1997, Plaintiffs filed this action. On the same day, Plaintiffs also filed what they have called a "Qui Tam Complaint," naming as defendants, all of the CARING Corporations and Ann Underland. See Mruz, et al. v. CARING, Inc., et al., Qui Tam Complaint PP 4-20, Civil Action No. 97-1477 (SMO) (dated Mar. 21, 1997) (hereinafter Qui Tam Compl.).
The qui tam Complaint alleges a cause of action under 31 U.S.C. § 3730(h), in a form substantially similar to the count alleged in the Complaint at hand. Compare Qui Tam Compl. at PP 46-55 with Compl. at PP 67-76. Plaintiffs also allege an entitlement to between 15 and 25 percent of the proceeds of the action or settlement of the claim, if the government proceeds with the action brought by the Plaintiffs, i.e., the relators of the action, or between 25% and 30% of the proceeds of the action or settlement of the claim, if the government does not proceed with the action. Qui Tam Compl. at P 56 and p.23.
On October 20, 1997, the Government declined to intervene in the qui tam action and on November 7, 1997, the Court, pursuant to 31 U.S.C. § 3730(b)(2), unsealed the qui tam Complaint and ordered that it be served on the Defendants. The qui tam Complaint was served on or about January 16, 1998.
The Court may exercise jurisdiction over this action under 28 U.S.C. §§ 1331 and 1367.
II. Standards on Motion to Dismiss
In considering a motion to dismiss under Rule 12(b)(6), the Court may dismiss the Complaint if it appears certain that the Plaintiffs cannot prove any set of facts in support of their claims which would entitle them to relief. See, e.g. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988). While all well-pled allegations are accepted as true and all reasonable inferences are drawn in the Plaintiffs' favor, see, e.g., Gomez v. Toledo, 446 U.S. 635, 636, 64 L. Ed. 2d 572, 100 S. Ct. 1920 (1980); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir. 1991); Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990), the Court may dismiss the Complaint where, under any set of facts which could be shown to be consistent with a complaint, the Plaintiffs are not entitled to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984). Finally, "Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law." Neitzke v. Williams, 490 U.S. 319, 326-27, 104 L. Ed. 2d 338, 109 S. Ct. 1827 (1989) (noting that this procedure "streamlines litigation by dispensing with needless discovery and factfinding").
In spite of the fact that I must assume the truth of the facts alleged in the Complaint, it is nonetheless improper to assume that the Plaintiffs "can prove facts that it has [they have] not alleged or that the Defendants have violated . . . laws in ways that have not been alleged." Associated Gen'l Contractors of Calif. v. California State Council of Carpenters, 459 U.S. 519, 526, 74 L. Ed. 2d 723, 103 S. Ct. 897 (1983). Nor are legal conclusions made under the guise of factual allegations to be given the presumption of truthfulness. See Casper v. Paine Webber Group, Inc., 787 F. Supp. 1480, 1490 (D.N.J. 1992) (citing cases). With these basic principles in mind, I now turn to an analysis of Plaintiffs' claims.
A. Whistleblower Provision of the FCA (Count I)
Plaintiffs state their first cause of action against all of the Defendants under section 31 U.S.C. § 3730(h). They allege that they acted as whistleblowers and were furthering a False Claims action, to be brought by them or the federal government, and that they were retaliated against because of the lawful acts performed by them in furtherance of a False Claims action.
The Attorney Defendants have argued that section 3730(h) is limited to suits against employers and that the Complaint does not allege any employment relationship between Plaintiffs and the Attorney Defendants. They argue that the word "employer" should be construed to embrace the common law master-servant relationship, and that Plaintiffs have not alleged any fact which would suggest such a relationship between Plaintiffs and the Attorney Defendants. See Brief on Behalf of Attorney Defendants at 5-9 (dated June 10, 1997) (hereinafter Attorney Defendants' Brief). Using substantially the same arguments, see Brief of CARING Corporate and CARING Individual Defendants at 1 n.1 (dated June 11, 1997) (hereinafter CARING Defendants' Brief), and with virtually identical language, the CARING Individual Defendants, i.e., Ann Underland, Carlisle Underland, Greene, Field, and Haynie, argue that Plaintiffs have not alleged that they were ever employed by the CARING Individual Defendants. See CARING Defendants' Brief at 8-11. Thus, the CARING Individual Defendants argue, they cannot be liable under 31 U.S.C. § 3730(h).
In response, Plaintiffs contend that those who are not actually employers can and should be liable under section 3730(h) because to hold otherwise would be to create an unwarranted "immunity" for those who are not employers, but who nonetheless participate in activity prohibited by the statute. This "immunity," Plaintiffs argue somewhat tautologically, is unwarranted because those who conspire to injure a whistleblower in his or her job should be liable to the same extent and in the same way as the actual employer, as should the employer's agents. See Plaintiffs' Combined Briefs in Opposition to Motions to Dismiss at 19 (dated July 21, 1997) (hereinafter Plaintiffs' Brief).
For the reasons set forth below, I conclude that Plaintiffs' "grasp" of "whistleblower" liability exceeds the reach of section 3730(h) of the FCA. Accordingly, Plaintiffs' claim under section 3730(h) of the FCA as against the Attorney Defendants and Carlisle Underland, Greene, Field, and Haynie will be dismissed.
I begin my analysis where all questions of statutory interpretation begin, the plain language of the statute. See Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 409, 124 L. Ed. 2d 368, 113 S. Ct. 2151 (1993). Section 3730(h) provides:
Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. Such relief shall include reinstatement with the same seniority status such employee would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees. An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection.
31 U.S.C. § 3730(h); see generally Boese, Civil False Claims at 4-133 to 4-142 (discussing basic elements of cause of action under section 3730(h); David P. Westman, Whistleblowing: The Law of Retaliatory Discharge 123-24 (1991). Everything about the plain language of section 3730(h) reflects a legislative intent to operate exclusively in the area of the "employment relationship." The statute extends to specified actions taken "by [the plaintiff's] employer."
The statute prohibits actions which might be taken with respect to a plaintiff's conditions of employment, e.g., being discharged, demoted, suspended, or "in any other manner discriminated against in the terms and conditions of employment." Also, the primary relief mentioned in the statute can logically be granted only by someone who has or had an employment relationship with a section 3730(h) plaintiff, i.e., relief is likely to consist of reinstatement or the payment of back wages or interest thereon.
Finally, given the language of section 3729, a closely related statute which provides for a cause of action for false claims against the federal government, it is quite clear that had Congress intended to provide a remedy against those who aid and abet, or conspire to discharge, demote, suspend, or discriminate against their employees, it certainly knew how to do so. See, e.g., 31 U.S.C. § 3729(a)(3) (imposing liability on "any person who conspires to defraud the Government by getting a false or fraudulent claim allowed or paid"); see also id. at § 3729(a)(1) (imposing liability on "any person who knowingly presents, or causes to be presented to . . . the United States Government . . . a false or fraudulent claim for payment or approval"); cf. Behrens v. Rutgers Univ., 1996 WL 570989, *6 (D.N.J. Mar. 29, 1996).
Absent explicit statutory language, the Court sees no reason why "whistleblower" liability should be extended in the wholesale and unprecedented fashion advocated by the Plaintiffs. Cf. Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S. Ct. 1439, 1451, 128 L. Ed. 2d 119 (1994) (no precedent for proposition that aiding and abetting liability should attach to all federal statutes absent aiding and abetting provision). Thus, liability under section 3730(h) cannot be extended on the basis of a conspiracy; the hallmark of liability under section 3730(h) is an "employment relationship" and for this, the Court must search. See, e.g., Clemes v. Del Norte Cty United School Dist., 1996 U.S. Dist. LEXIS 21883, 1996 WL 331096, *7 n.6 (N.D. Cal. 1996) (finding that plaintiff could not name individuals as defendants in section 3730(h) action because school district, not school officials, were employers); Shapiro v. Sutherland, 835 F. Supp. 836, 837-38 (E.D. Pa. 1993) (question of fact existed as to whether plaintiff was employee under common law agency test); Hardin v. DuPont Scandinavia (ARA-JET), 731 F. Supp. 1202, 1205 (S.D.N.Y. 1990) (independent contractor failed to state claim under 3730(h)); see also United States ex rel. Lamar v. Burke, 894 F. Supp. 1345, 1347-48 (E.D. Mo. 1995) (applying Title VII definition of employer and finding that "employer" as used in section 3730(h) does not extend to corporate supervisors or president of defendant). This approach is faithful to both the language of the statute, the general proposition that remedial statutes be liberally construed, and Congress' intent that the "definitions of 'employee' and 'employer' . . . be all inclusive." S. Rep. No 99-345, at 34-35 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5299-5300.
The principal case upon which Plaintiffs rely for the proposition they advance -- that the co-conspirators of a plaintiff's employer, who are not themselves the plaintiff's employer, may be liable under section 3730(h) -- does not extend as far as Plaintiffs "reach." In United States ex rel. Kent v. Aiello, 836 F. Supp. 720 (E.D. Cal. 1993), the plaintiff's first employer turned over the management of an enterprise to a second, closely-related corporate entity, which assumed the employment contract. Id. at 722. The plaintiffs in Kent sued both the first and second employers under section 3730(h). The question addressed by Kent was whether only a current employer could be sued under section 3730(h), or whether an immediate past employer who had engaged in proscribed conduct could also be sued. Id. at 724. The Kent court, influenced by Ninth Circuit precedent holding that past employers could be sued for interfering with a plaintiff's later employment under Title VII, id. at 726, found that both employers could be sued. However, the Kent court carefully noted that the plaintiff had had an employment relationship with both defendants. Also, the Kent court simply never went so far as to hold that those who never had an employment relationship with the actual employer could be sued under the statute, let alone hold that mere conspiracy with an employer could subject someone to liability under section 3730(h). Id. at 725-26. In short, the one case affirmatively cited by Plaintiffs does not support their position with any logical force.
On a more fundamental level, Plaintiffs' argument about the reach of the statute misstates the question. It is true that from some perspective, every statute which proscribes specifically defined conduct creates "immunity" in that the statute reaches only those who fall within its language. Nonetheless, to conceive of the conduct beyond the scope of section 3730(h) as "immunized" obscures more than it reveals. Immunity, for example, qualified or sovereign immunity, is normally a defense which must be asserted and proven by a defendant or which may be waived. See, e.g., Gomez v. Toledo, 446 U.S. 635, 640, 64 L. Ed. 2d 572, 100 S. Ct. 1920 (1980); Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 239-41, 87 L. Ed. 2d 171, 105 S. Ct. 3142 (1985). Here, however, the burden is not on the Attorney Defendants and the CARING Individual Defendants to show why they are not entitled to "immunity" under the statute. Rather the burden is on the Plaintiffs to plead sufficient facts in their Complaint so as to state a cause of action against these specific Defendants under section 3730(h) and, eventually, to prove those facts at trial.
Turning now to the Complaint, I must determine whether Plaintiffs have pled facts from which an inference of an employment relationship between Plaintiffs and the Attorney Defendants or between Plaintiffs and the CARING Individual Defendants can be drawn.
A review of the Complaint confirms that no such inference can reasonably be drawn. First and perhaps most important, Plaintiffs allege that they were employed by various corporate entities, not by the Attorney Defendants or the CARING Individual Defendants. See Compl. at PP 1-3. Plaintiffs have alleged that the CARING Individual Defendants defined and supervised Plaintiffs' job assignments, not that they were Plaintiffs' employers. See Compl. at PP 36(c), 49, 61(a). As to the Attorney Defendants, there is nothing in the Complaint suggesting an employment relationship between the Attorney Defendants and Plaintiffs. However, with respect to Ann Underland, there is a factual question whether she was Plaintiffs' de facto employer as she is alleged to have dominated and dictated the actions of the CARING Corporations and their boards, and to have been conducting the affairs of the CARING Corporations in a way which benefitted her, inter alia, personally. ...