1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 UNITED STATES OF AMERICA ex rel. Case No. 20-cv-00636-VKD

JONATHAN FAULKNER,

9 Plaintiff-Relator, ORDER GRANTING DEFENDANT'S 10 MOTION TO DISMISS COMPLAINT v. 11 Re: Dkt. No. 46

THE BOARD OF TRUSTEES OF THE

12 LELAND STANFORD JUNIOR

UNIVERSITY,

13 Defendant. 14 15 Plaintiff-relator Jonathan Faulkner filed this qui tam action against The Board of Trustees 16 of the Leland Stanford Junior University (“Stanford”), alleging violations of the federal False 17 Claims Act (“FCA”), 31 U.S.C. § 3729, et seq. Mr. Faulkner’s allegations concern the operation 18 and management of a lodging facility for the SLAC National Accelerator Laboratory. Stanford 19 moves pursuant to Rule 12(b)(6) to dismiss the complaint. Dkt. Nos. 46, 56. Mr. Faulkner 20 opposes the motion. Dkt. No. 54. Upon consideration of the moving and responding papers, as 21 well as the oral arguments presented, the Court grants Stanford’s motion to dismiss the complaint 22 with leave to amend.1 23 I. BACKGROUND 24 Unless otherwise noted, the following factual allegations are taken from Mr. Faulkner’s 25 complaint. Well-pled allegations are accepted as true for purposes of resolving the present motion 26

27 1 The United States declined to intervene in this action. See Dkt. No. 18. Although it received 1 to dismiss. 2 The U.S. Department of Energy (“DOE”) owns and funds the operation of 17 National 3 Laboratories across the country. Dkt. No. 1 ¶ 2. These National Laboratories “address large scale 4 and complex research and development challenges with a multidisciplinary approach that places 5 an emphasis on translating basic science to innovation” and “provide an integrated laboratory 6 network critical to U.S. defense and national security interests.” Id. DOE contracts with various 7 universities and other contractors to operate and manage these Laboratories. Id. ¶ 3. 8 The SLAC National Accelerator Laboratory (“SLAC”)2 is one of DOE’s 17 National 9 Laboratories. Id. ¶ 4. Since 1962, Stanford has operated SLAC pursuant to a Management and 10 Operating Contract (“M&O Contract”)3 with DOE. Id. ¶¶ 4, 5 & Ex. 1. SLAC is a Federally 11 Funded Research and Development Center (“FFRDC”)4 located in Menlo Park, California on land 12 owned by Stanford and leased to the United States government. Id. ¶¶ 4, 29 & Ex. 1, § F.4; see 13 also App. J at J-M-2. In general, the M&O states that certain funds are “obligated by the 14 Government with respect to this [M&O] Contract,” and Stanford agrees to “provide the personnel, 15 facilities, equipment, materials, supplies, and services (except such facilities, equipment, 16 materials, supplies and services as are furnished by the Government) necessary to perform the 17 requirements and work set forth in this [M&O] Contract” and to “perform such requirements and 18 work in a quality, timely, and cost-effective manner.” See Id., Ex. 1 at §§ B.1. B.2; see also id. 19 ¶¶ 30-33. 20 Sometime in the late 1990s, several decades after Stanford and DOE entered into the M&O 21

22 2 SLAC originally was known as the Stanford Linear Accelerator Center. Dkt. No. 1 ¶ 4.

23 3 A “management and operating” contract is defined by regulation as “an agreement under which the Government contracts for the operation, maintenance, or support, on its behalf, of a 24 Government-owned or -controlled research, development, special production, or testing establishment wholly or principally devoted to one or more major programs of the contracting 25 Federal agency.” 48 C.F.R. § 17.601.

26 4 There appears to be no dispute that an FFRDC refers to a particular class of research facility that “meets some special long-term research of development need which cannot be met as effectively 27 by existing in-house or contractor resources.” 48 C.F.R. § 35.017; see also Dkt. No. 1, Ex. 1, 1 Contract, the SLAC Feasibility Committee determined “that there was high demand for lodging by 2 SLAC users and visitors that was not being met.” Id. ¶ 45. According to the complaint, “[t]his 3 demand was in part due to the unique nature of the required stay by SLAC users and visitors 4 needed to conduct research at SLAC,” which “could last approximately one week up to four 5 months, with a small portion of research lasting up to two years.” Id. 6 In 2001, Stanford and DOE entered into a Memorandum of Agreement (“MOA”) to 7 “document the understandings between Stanford University and DOE . . . related to the 8 construction and operation of a User Lodging Facility (‘ULF’) on the DOE Stanford Leasehold.” 9 See id. Ex. 1, App. M; see also id. ¶¶ 35, 53. The MOA provides that “[t]he ULF will be funded 10 by Stanford University, constructed on the DOE Stanford Leasehold site, and operated by Stanford 11 University to the benefit of the DOE and in furtherance of the DOE mission of the Laboratory.” 12 Id., Ex. 1, App. M at J-M-2. Stanford agreed “to operate the ULF in accordance with the terms of 13 this MOA for as long as DOE continues its research at the DOE Stanford leasehold.” Id., Ex. 1, 14 App. M at J-M-2, J-M-3. In a section of the MOA titled “DOE R[esponsibility],” the MOA states 15 that DOE “authorizes Stanford University to build a ULF on the DOE Stanford Leasehold”5 and 16 that “[t]he purpose of the ULF is for short term lodging of visiting scientist and staff working on 17 projects/programs at SLAC.” Id. at J-M-3. A section of the MOA titled “S[tanford] 18 R[esponsibility]” states that Stanford “shall retain ownership and responsibility of the ULF,” is 19 “responsible for ensuring that all construction and operations of the ULF comply with all 20 applicable federal, state, and local requirements,” and is entirely “responsible for all costs related 21 to the construction, operation, and maintenance of the ULF, which includes but is not limited to 22 general oversight, management, and day to day operations of the ULF.” Id. at J-M-3. 23 In a section of the MOA titled “S[tanford] R[epresentations],” the MOA states that 24 Stanford “shall use the revenues generated from room charges to pay-off the ULF construction 25

26 5 The MOA says that the DOE’s authorization is made “in accordance with Article 9(c) of the Contract.” Dkt. No. 1, Ex. 1, App. M at J-M-3. Article 9(c) is not in the record before the Court. 27 As the reference to Article 9(c) appears in a section of the MOA concerning the DOE’s 1 costs, including interest; the cost of equipping and furnishing the ULF; the cost of operating the 2 ULF; and the costs of all maintenance of and repairs to the ULF[.]” Id. at J-M-4. Stanford 3 additionally represented that it would “use its best efforts to obtain a reasonable interest rate to 4 ensure that user-lodging rates remain low” and “shall charge a reasonable rate sufficient to recover 5 operating costs, life cycle maintenance costs, and the amortized construction costs including 6 interest.” Id. The MOA states that Stanford “anticipates that the ULF daily room charges will be 7 in the $50.00 to $60.00 range”; and that its “investment will be recovered over a thirty-year period 8 from the operating revenues of the ULF.” Id. With respect to the allocation of rooms at the ULF, 9 Stanford agreed to “refrain from competing with the local hotel industry” and to give “[p]riority 10 allocation” to “SLAC users and DOE reviewers.” Id. The MOA states that “[i]t is anticipated that 11 room demand associated with SLAC affiliates will more than utilize the available room nights.” 12 Id. “However, should demand from SLAC affiliates fall short of capacity at any particular time,” 13 the MOA provides that Stanford “may utilize this excess capacity to provide short term lodging 14 for individuals associated with other University programs. Under no circumstances will rooms be 15 made available to the public.” Id. For its part, DOE made “no representations or guarantees 16 respecting the number of users that might now, or in the future, conduct research at SLAC” or “the 17 numbers of users that might use the ULF, or the minimum or maximum occupancy rates that the 18 ULF will experience.” Id. at J-M-5. 19 Stanford began construction on the ULF in the early 2000’s. The ULF opened in 2003 20 with 112 guest rooms. Dkt. No. 1 ¶ 46. 21 Mr. Faulkner was employed by Stanford from September 11, 2006 to January 22, 2019 and 22 was the General Manager of the ULF. Id. ¶ 21. He alleges that Stanford violated the False Claims 23 Act by charging rates “beyond the amount necessary to recover the costs associated with the 24 construction and operation of the [ULF]” and “far in excess” of the “$50.00 to $60.00 range” 25 anticipated in the MOA. Id. ¶ 9. According to Mr. Faulkner, during the fiscal years 2009 to 2018, 26 Stanford generally charged rates ranging from $75.00 to $200.00, and averaging $115.61, per 27 night. Id. ¶¶ 9, 58, 59. He says that the alleged unreasonable charges “have caused the DOE to 1 been responsible for.” Id. ¶ 10. At the motion hearing, Mr. Faulkner clarified that he does not 2 contend that it is per se unreasonable for Stanford to charge rates in excess of $60.00 per night, but 3 rather that Stanford may only charge rates that are no greater than what is sufficient to recover the 4 costs described in the MOA. See Dkt. No. 64 at 20:10-21:16. 5 Mr. Faulkner further alleges that Stanford did not give SLAC users and DOE reviewers 6 priority in the allocation of ULF rooms “at all times.” Dkt. No. 1 ¶ 6. The complaint alleges, on 7 information and belief, that beginning around 2007, Stanford broadened its efforts to open the 8 ULF to non-SLAC users and non-DOE reviewers in “the University’s larger community.” Id. 9 ¶ 97. As a result, Mr. Faulkner alleges that in 2015 Stanford “housed approximately 20,135 room 10 nights of non-SLAC visitors at the [ULF],” but “me[t] only 72% of SLAC demand, leaving 11 approximately 28% of all SLAC visitors that desired to stay at the [ULF] unaccommodated.” Id. 12 ¶ 107. He says that “[b]y failing to prioritize SLAC users as required by the MOA, the DOE was 13 forced to incur additional costs to house SLAC users elsewhere in the surrounding area and 14 provide transportation to SLAC.” Id. ¶ 111. At the motion hearing, Mr. Faulkner clarified that 15 Stanford’s alleged failure to abide by the priority allocation provision of the MOA is not itself a 16 false claim; rather, he says that the alleged failure to give SLAC users and DOE reviewers priority 17 in the allocation of ULF rooms provides context and shows that Stanford was motivated by profit 18 to avoid what he contends the MOA requires. See Dkt. No. 64 at 32:13-23, 33:2-4. 19 In sum, Mr. Faulkner contends that, contrary to the MOA terms, Stanford charged rates 20 that were more than sufficient to cover the costs identified in the MOA and used the ULF as a 21 profit-generating venture for its own self-interest, while reportedly “hiding the existence of these 22 profits from the DOE . . .” Id. ¶¶ 9, 101-110, 114-118. 23 Mr. Faulkner filed this action, on behalf of the United States, under seal on January 28, 24 2020. Dkt. No. 1. His complaint asserts two claims for relief based on the FCA. The first claim 25 is based on 31 U.S.C. § 3729(a)(1)(A) and alleges that Stanford presented false or fraudulent 26 claims for payment. The second claim is based on 31 U.S.C. § 3729(a)(1)(B) and alleges that 27 Stanford made or used false records or statements in relation to the claims for payment. Id. 1 18), on January 8, 2024, the Court ordered this case unsealed and directed Mr. Faulkner to serve 2 Stanford with the summons and complaint. Dkt. No. 19. Stanford now moves pursuant to Rule 3 12(b)(6) to dismiss the complaint, arguing that Mr. Faulkner fails to assert sufficient facts 4 establishing a plausible claim for relief under the False Claims Act.6 5 II. LEGAL STANDARD 6 A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) tests the legal 7 sufficiency of the claims in the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). 8 Dismissal is appropriate where there is no cognizable legal theory or an absence of sufficient facts 9 alleged to support a cognizable legal theory. Id. (citing Balistreri v. Pacifica Police Dep’t, 901 10 F.2d 696, 699 (9th Cir. 1990)). In such a motion, all material allegations in the complaint must be 11 taken as true and construed in the light most favorable to the claimant. Id. 12 However, “[t]hreadbare recitals of the elements of a cause of action, supported by mere 13 conclusory statements, do not suffice,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and “[f]actual 14 allegations must be enough to raise a right to relief above the speculative level,” Bell Atl. Corp. v. 15 Twombly, 550 U.S. 544, 555 (2007) (citations omitted). Moreover, the Court is not required to 16 “‘assume the truth of legal conclusions merely because they are cast in the form of factual 17 allegations.’” Prager Univ. v. Google LLC (“Prager I”), No. 17-CV-06064-LHK, 2018 WL 18 1471939, at *3 (N.D. Cal. Mar. 26, 2018) (quoting Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th 19 Cir. 2011) (per curiam)). Nor does the Court accept allegations that contradict documents attached 20 to the complaint or incorporated by reference, Gonzalez v. Planned Parenthood of L.A., 759 F.3d 21 1112, 1115 (9th Cir. 2014), or that rest on “allegations that are merely conclusory, unwarranted 22 deductions of fact, or unreasonable inferences,” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 23 (9th Cir. 2008). Although pro se pleadings are liberally construed and held to a less stringent 24 standard than those drafted by lawyers, see Haines v. Kerner, 404 U.S. 519, 520-21 (1972), a 25 complaint (or portion thereof) should be dismissed for failure to state a claim if it fails to set forth 26 6 After Stanford filed its motion to dismiss the complaint, the previously assigned judge recused 27 himself, and the case was reassigned to this Court. See Dkt. Nos. 51, 52. All parties have 1 “enough facts to state a claim to relief that is plausible on its face,” Twombly, 550 U.S. at 570. 2 Documents appended to or incorporated into the complaint or which properly are the 3 subject of judicial notice may be considered along with the complaint when deciding a Rule 4 12(b)(6) motion. Khoja v. Orexigen Therapeutics, 899 F.3d 988, 998 (9th Cir. 2018); Coto 5 Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). A court may take judicial notice of 6 facts that are “not subject to reasonable dispute” because they are “generally known” or “can be 7 accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” 8 Fed. R. Evid. 201(b); see also Khoja, 899 F.3d at 999. Thus, a court properly may take judicial 9 notice of matters of public record, but cannot take judicial notice of disputed facts contained 10 within such records. Khoja, 899 F.3d at 999 (citing Lee v. City of Los Angeles, 250 F.3d 668, 689 11 (9th Cir. 2001)). 12 III. DISCUSSION 13 A. FCA Pleading Requirements 14 “The essential elements of an FCA claim are (1) a false statement or fraudulent course of 15 conduct, (2) made with requisite scienter, (3) that was material, causing (4) the government to pay 16 out money or forfeit moneys due.” United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 17 992 (9th Cir. 2011) (quotations and citation omitted). “Because they involve allegations of fraud, 18 qui tam actions under the FCA must meet not only the requirement of Rule 8, but also the 19 particularity requirements of Rule 9.” Id.; see also United States ex rel. Cafasso v. Gen’l 20 Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 (9th Cir. 2011) (“The heightened pleading standard 21 of Rule 9(b) governs FCA claims.”). “Rule 9(b) provides that ‘[i]n alleging fraud or mistake, a 22 party must state with particularity the circumstances constituting fraud or mistake.’” Cafasso, 637 23 F.3d at 1054-55 (quoting Fed. R. Civ. P. 9(b)). “To satisfy Rule 9(b), a pleading must identify 24 ‘the who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or 25 misleading about [the purportedly fraudulent] statement, and why it is false.’” Id. at 1055 26 (quoting Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010)). “It is not 27 enough to allege regulatory violations; rather, the false claim or statement must be the sine qua 1 899 (9th Cir. 2017) (quotations and citations omitted). “[B]reach of contract claims are not the 2 same as fraudulent conduct claims, and the normal run of contractual disputes are not cognizable 3 under the FCA.” Cafasso, 637 F.3d at 1057 (cleaned up) (quotations and citation omitted). 4 “An FCA claim can proceed under either an express or implied false certification theory.” 5 United States v. McKesson Corp., No. 19-cv-02233-DMR, 2020 WL 4805034, at *3 (N.D. Cal. 6 Aug. 18, 2020). “Express certification simply means that the entity seeking payment certifies 7 compliance with a law, rule or regulation as part of the process through which the claim for 8 payment is submitted.” Ebeid, 616 F.3d at 998. Under an implied false certification theory, 9 “when a defendant submits a claim, it impliedly certifies compliance with all conditions of 10 payment.” Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176, 180 11 (2016). “But if that claim fails to disclose the defendant’s violation of a material statutory, 12 regulatory, or contractual requirement, so the theory goes, the defendant has made a 13 misrepresentation that renders the claim ‘false or fraudulent’ under § 3729(a)(1)(A).” Id. The 14 implied certification theory can be a basis for liability under the FCA where (1) “the claim does 15 not merely request payment, but also makes specific representations about the goods or services 16 provided” and (2) “the defendant’s failure to disclose noncompliance with material statutory, 17 regulatory, or contractual requirements makes those representations misleading half-truths.” Id. at 18 190. At the motion hearing, Mr. Faulkner clarified that he is proceeding on an implied 19 certification theory of liability. See Dkt. No. 64 at 24:21-25:12. 20 Focusing on the first and third elements of an FCA claim, Stanford argues that Mr. 21 Faulkner has not adequately alleged that Stanford (1) made a false claim to DOE or (2) committed 22 any MOA violations, much less any alleged violations that were material to DOE’s decision to pay 23 any claims. 24 B. False Claim 25 Stanford argues that the complaint should be dismissed because it does not plead with 26 requisite particularity that a false claim was made to DOE. 27 “It seems to be a fairly obvious notion that a False Claims Act suit ought to require a false 1 2002); see also Campie, 862 F.3d at 899 (stating that “the false claim or statement must be the 2 sine qua non of receipt of state funding.”) (quotations and citation omitted). Under the FCA, a 3 “claim” includes “any request or demand, whether under a contract or otherwise, for money or 4 property” that “is presented to an officer, employee, or agent of the United States[.]” 31 U.S.C. 5 § 3729(b)(2)(A)(i); see also Escobar, 579 U.S. at 182 (a “claim” under the FCA includes direct 6 requests to the government for payment). A “claim” also includes “any request or demand, 7 whether under a contract or otherwise, for money or property” that is “made to a contractor, 8 grantee, or other recipient, if the money or property is to be spent or used on the Government’s 9 behalf or to advance a Government program or interest” and if the United States “provides or has 10 provided any portion of the money or property requested or demanded” or “will reimburse such 11 contractor, grantee, or other recipient for any portion of the money or property which is requested 12 or demanded.” 31 U.S.C. § 3729(b)(2)(A)(ii). 13 “To state an FCA claim, a relator is not required to identify actual examples of submitted 14 false claims; instead, it is sufficient to allege particular details of a scheme to submit false claims 15 paired with reliable indicia that lead to a strong inference that claims were actually submitted.” 16 Godecke v. Kinetic Concepts, Inc., 937 F.3d 1201, 1209 (9th Cir. 2019) (cleaned up); see also 17 Ebeid, 616 F.3d at 998-99 (same). “A relator is not required to identify representative examples of 18 false claims to support every allegation, although the use of representative examples is one means 19 of meeting the pleading obligation.” Id. (citing Ebeid, 616 F.3d at 998). 20 Mr. Faulkner maintains that he has adequately pled the existence of false claims by 21 providing representative examples and explaining the means by which Stanford submitted or 22 caused such false claims to be submitted to DOE. He refers the Court to the complaint’s 23 allegations that Stanford charged unreasonable rates for the ULF, concealed its rate practices from 24 DOE, and used the profits on other non-SLAC University programs. Dkt. No. 54 at 13-14; Dkt. 25 No. 1 ¶¶ 9; 114-118. He maintains that this alleged scheme is supported by specific allegations 26 that Stanford “directly overcharged SLAC for approximately 14,130 SLAC visitors between fiscal 27 years 2009 and 2018 alone”; that “an equal, if not greater number of visitors, including DOE 1 visitors were then later reimbursed by the DOE based upon the excessive and unreasonable rates 2 paid upfront to [Stanford] by the visitors”; and that he “estimates that from fiscal years 2009 3 through 2018 alone, after accounting for all debt service, operation, and management costs 4 actually paid, [Stanford]’s submission of false claims to SLAC and the DOE for reimbursement 5 resulted in approximately $14,653,850 in profits for [Stanford].” Dkt. No. 54 at 13-14; Dkt. No. 1 6 ¶¶ 66, 68. 7 Several of the allegations Mr. Faulkner cites as supporting the alleged fraudulent scheme 8 are asserted solely on “information and belief.” See, e.g., Dkt. No. 1 ¶¶ 58, 66, 68, 112. The 9 complaint does not assert the factual basis for these assertions. Such allegations are not sufficient 10 under Rule 9(b). See, e.g., Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (“[A] plaintiff 11 who makes allegations on information and belief must state the factual basis for the belief.”). 12 Citing “a review of the plain language of the MOA,” “common sense,” and the “presumption of 13 regularity” rule, Mr. Faulkner argues that it may reasonably be inferred that “DOE received the 14 claims and processed such payments to Stanford, unless an evidentiary showing proves 15 otherwise.” Dkt. No. 54 at 15. Mr. Faulkner’s reliance on the presumption of regularity is 16 misplaced, as that rule “supports the official acts of public officers,” and, absent clear evidence to 17 the contrary, “presume[s] that they have properly discharged their official duties.” United States 18 v. Chem. Found., Inc., 272 U.S. 1, 14-15 (1926). The official acts of public officers are not at 19 issue. Rather, Mr. Faulkner’s theory of liability rests on Stanford’s alleged breach of the MOA’s 20 terms. 21 As noted above, Mr. Faulkner essentially contends that, contrary to the MOA’s terms, 22 Stanford used the ULF as a profit-generating venture for its own self-interest and hid the profits 23 from the DOE. See Dkt. No. 1 ¶¶ 9, 101-110, 114-118. He maintains that the MOA requires 24 Stanford to charge a “reasonable” rate, i.e., a rate that is no more than sufficient to cover the 25 categories of costs referenced in the MOA. Mr. Faulkner points out that the MOA says that 26 Stanford “shall use the revenues generated from room charges to pay-off” the costs of 27 constructing, equipping, furnishing, operating, maintaining, and repairing the ULF; “will use its 1 charge a reasonable rate sufficient to recover operating costs, life cycle maintenance costs, and the 2 amortized construction costs including interest”; “shall refrain from competing with the local hotel 3 industry”; and would give “[p]riority allocation” of rooms to “SLAC users and DOE reviewers.” 4 Dkt. No. 54 at 16; Dkt. No. 1 ¶¶ 38-40, 42, 43. Stanford maintains that Mr. Faulkner’s allegations 5 depend on open-ended and discretionary language in the MOA that does not provide a basis for a 6 “false” claim within the meaning of the FCA. See Dkt. No. 46 at 5, 11; see also McKesson Corp., 7 2020 WL 4805034 at *5 (“The Ninth Circuit has held that when the statutory or contractual 8 requirement underlying an FCA claim contains ‘imprecise and discretionary language,’ there is 9 only a ‘disputed legal issue’ rather than an objective statement of fact that can be deemed ‘false’ 10 under the FCA.”) (quoting Hagood v. Sonoma Cnty. Water Agency, 81 F.3d 1465, 1477 (9th Cir. 11 1996)). 12 To the extent Mr. Faulkner claims that Stanford breached the MOA, and also violated the 13 FCA, by charging rates that were more than sufficient to cover the costs identified in the MOA, 14 the complaint fails to allege a false claim. The MOA does not prescribe specific rates that may be 15 charged, nor does it proscribe increased rates over time. It provides that Stanford must charge 16 “reasonable” rates “sufficient to recover” certain costs, not that the rates charged must be no 17 greater than what is sufficient to recover those costs. As currently pled, the complaint does not 18 sufficiently allege the falsity of any statement or claim that was made to DOE, or sufficient facts 19 warranting an inference that false claims were part of the allegedly fraudulent profit-making 20 scheme. 21 C. Materiality 22 Even assuming the complaint sufficiently pleads a violation of the MOA, Stanford argues 23 that Mr. Faulkner has not sufficiently pled materiality to support an FCA claim. For the reasons 24 discussed below, the Court agrees. 25 The FCA provides that a misrepresentation is “material” if it “ha[s] a natural tendency to 26 influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. 27 § 3729(b)(4). “Under any understanding of the concept, materiality look[s] to the effect on the 1 193 (quotations and citation omitted). “The materiality standard is demanding.” Id. at 194. The 2 FCA “is not an all-purpose antifraud statute, or a vehicle for punishing garden-variety breaches of 3 contract or regulatory violations.” Id. (quotations and citation omitted). “A misrepresentation 4 cannot be deemed material merely because the Government designates compliance with a 5 particular statutory, regulatory, or contractual requirement as a condition of payment.” Id. “Nor is 6 it sufficient for a finding of materiality that the Government would have the option to decline to 7 pay if it knew of the defendant’s noncompliance.” Id. “Materiality, in addition, cannot be found 8 where noncompliance is minor or insubstantial.” Id. 9 Mr. Faulkner maintains that the complaint sufficiently alleges materiality, pointing to 10 allegations that he contends constitute breaches of the MOA, i.e., Stanford charging unreasonable 11 ULF rates, hiding its rate practice from DOE, and not publicly disclosing ULF rates. See Dkt. No. 12 54 at 21-25; Dkt. No. 1 ¶¶ 10, 60, 116-117. Even assuming that Mr. Faulkner’s allegations 13 amount to violations of the MOA, the complaint does not sufficiently plead facts establishing that 14 Stanford’s alleged acts were material to its M&O Contract with DOE, or why the FCA is an 15 appropriate means for enforcing alleged breaches of the MOA. See Escobar, 579 U.S. at 194. 16 Although Mr. Faulkner argues that “Stanford knew what was material to the DOE and that it 17 risked the withholding or reducing payment for stays at the [ULF]” (Dkt. No. 54 at 25), the 18 Supreme Court has rejected the idea that “that any statutory, regulatory, or contractual violation is 19 material so long as the defendant knows that the Government would be entitled to refuse payment 20 were it aware of the violation.” Escobar, 579 U.S. at 195; see also id. at 196 (“The False Claims 21 Act does not adopt such an extraordinarily expansive view of liability.”). In his opposition papers, 22 Mr. Faulkner asserts that the M&O Contract required Stanford to conduct an audit. See Dkt. No. 23 54 at 24 (citing Dkt. No. 1, Ex. 1 at 162). However, this allegation does not appear in the 24 complaint, and it is not clear what, if any, bearing such a requirement might have on 25 considerations of materiality. In any event, in his opposition brief, Mr. Faulkner merely asserts, 26 on information and belief, that no such audit was conducted, without providing the factual basis 27 for his belief. 1 TK 2 Based on the foregoing, the Court concludes that Mr. Faulkner has not sufficiently alleged 3 that Stanford made a false claim to DOE under 31 U.S.C. § 3729(a)(1)(A) or § 3729(a)(1)(B), or 4 || that any such claim was material. 5 || IV. LEAVE TO AMEND 6 Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend “should be 7 || freely granted when justice so requires,” and “the court must remain guided by the underlying 8 || purpose of Rule 15 ... to facilitate decision on the merits, rather than on the pleadings or 9 technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quotations and 10 || citation omitted). “The decision of whether to grant leave to amend nevertheless remains within 11 the discretion of the district court,” which may deny leave to amend if allowing amendment would 12 || unduly prejudice the opposing party, cause undue delay, or be futile, or if the party seeking 5 13 amendment has acted in bad faith. Leadsinger, Inc. vy. BMG Music Publ’g, 512 F.3d 522, 532 (9th 14 || Cir. 2008) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). 3 15 Mr. Faulkner provided no basis in his opposition papers for the Court to find that there are a 16 additional facts that could be alleged on an amendment to support a plausible FCA claim. At the 3 17 hearing, he indicated that on amendment, he could state a basis for allegations stated on 18 “information and belief” and provide additional information that he believes support his claims. 19 As the law generally favors resolving matters on the merits, the Court exercises its discretion to 20 || grant Mr. Faulkner leave to file an amended complaint that addresses the deficiencies discussed in 21 this order. 22 || V. CONCLUSION 23 Based on the foregoing, Stanford’s Rule 12(b)(6) motion is granted with leave to amend. 24 If he chooses to file an amended complaint, Mr. Faulkner must do so by December 20, 2024. 25 IT IS SO ORDERED. 26 Dated: December 3, 2024

28 Virginia K. DeMarchi United States Magistrate Judge