Qui Tam Complaint Survives UChicago Argonne’s Motion to Dismiss

Last week, a federal judge in Illinois retained the majority of a relator’s allegations in a complaint filed under the False Claims Act against UChicago Argonne LLC after the company sought to dismiss the case. Originally filed in 2012 and unsealed in December 2013, the complaint details how the research lab, managed and operated by UChicago Argonne, engaged in an elaborate scheme to defraud the government by overcharging it for work done under federally-funded contracts for agencies. These agencies included the U.S. Department of Defense, the U.S. Department of Energy (“DOE”), and the U.S. Department of Transportation. UChicago Argonne is the prime contractor for Argonne National Laboratory. The laboratory employs more than 12,000 scientists and engineers who perform nuclear engineering, basic energy science, biological and environmental research, hard x-ray science, high energy physics, and computational and technological research at a facility outside Chicago.

The lab is operated and staffed by the private sector under a Management & Operating (“M&O”) contract (“M&O”) awarded to UChicago Argonne by the DOE. M&O contracting is highly regulated. In addition to complying with the terms of the prime contract, M&O contractors must also comply with: federal cost accounting standards, the American Recovery and Reinvestment Act (if such funds are at issue), the Anti-Deficiency Act, and the False Claims Act. More specifically, the federal cost accounting standards required UChicago Argonne to (1) maintain and file a written disclosure statement accurately describing and revealing its accounting policies and practices, including practices for accumulating, classifying, reporting, and billing all direct and indirect costs; (2) comply with the accounting policies and practices outlined in the disclosure statement; and (3) file a Statement of Costs Incurred and Claimed each year that accounts for all costs claimed and incurred during the preceding year. UChicago Argonne was then required to certify that those costs incurred are allowable under the corresponding prime contract.

While serving as the company’s chief financial officer from December 2008 until his alleged retaliatory termination, Michael Besancon claims to have discovered that the certifications, disclosure statements, cost statements, and overhead rate sheets prepared and submitted to the DOE pursuant to the federal cost accounting standards in support of invoices were false or fraudulent. This allegedly resulted in continuous and systematic overpayment to the company by the government. UChicago Argonne allegedly sought and received such overpayments for undisclosed discounts on indirect costs that the company granted to certain favored subcontractors; for billing researchers’ time and efforts to cost centers for work never performed; for undisclosed discounted rates granted to users of large machine electricity; for billing federally-sponsored projects for the cost of space and facilities used by outsiders not associated with the projects; and for the undisclosed assignment of salary and expense charges for one of the company’s employees serving as a government liaison in Washington, D.C. Besancon allegedly identified these issues and brought them to the attention of the company’s President and Director and the CEO. He was then allegedly directed to continue to extend preferential subcontract rates to certain subcontractors. His refusal to participate in this scheme to defraud ultimately resulted in his alleged termination in November 2010.

In analyzing the relator’s qui tam complaint, the judge determined that four of the six counts survived UChicago Argonne’s motion to dismiss. Regarding the false claim allegations, the judge maintained that the allegations provided sufficient detail to satisfy the pleading standard applicable to cases involving fraud. He stated that the complaint alleges the appropriate “transactional detail” to indicate that every invoice for payment submitted by the company to the government for reimbursement over a five year period contained false claims. The judge also found the relator’s allegation that he had been terminated for his failure to acquiesce in the fraud adequately stated a claim under both the False Claims Act and the Illinois Whistleblower Act. The two allegations dismissed by the judge include: a reverse false claim count and a common law retaliatory discharge count. The reverse false claim count was found to be a redundant allegation while the common law retaliatory discharge claim was found insufficient to satisfy what was deemed a narrow cause of action requiring the violation of a clearly stated public policy. Uchicago Argonne must now respond to the four remaining allegations.

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