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for the 9th Circuit is now in session.

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Please be seated.

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Good morning, everyone.

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The cases will be called in the order listed on the docket.

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The first case, Rodriguez-Garay versus Bundy, has been submitted on the briefs.

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The first case on calendar for argument is Relator versus I-Link.

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Good morning.

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Good morning, Justice Miller, Justice Rawlinson, and Justice Johnstone.

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My name is Chuck Dender of the Cello Levitt, and I'm here on behalf of Plaintiff Appellant Relator LLC, and may it please the Court.

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Your Honors, we believe that the District Court Judge, the Honorable Gary Klausner, erred when he granted defendant appellee's motion to dismiss, because in his words he found we failed to allege falsity as to any defendants.

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This Court, of course, reviews that decision on a de novo basis,

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and we ask this court to reverse Judge Klausner's decision.

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We also believe the district court erred and abused its discretion when he denied us leave to amend the first operative complaint.

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Your Honor, while those standards are, of course, very different, we believe they're interrelated here for the purposes of this argument, because while we fully believe that we met the standards in our first amended complaint and that the motion to dismiss should have been denied,

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We believe, and I hope this court finds, that we're so close that perhaps the draftee of the complaint could have put in a specific statute, could have put in a specific reference to the PPP laws.

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But any mistakes that this court may find would be addressable on amendment, the second amendment.

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So we would ask the court to keep that in mind.

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I'm sorry, Your Honor.

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Counsel, I was going to say one of the criticisms that opposing counsel has regarding the pleading is that it was based on

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publicly available documents.

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What's your response to that?

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Your Honor, yes, thank you, Your Honor.

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Defendants don't know that.

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Defendants point to what is publicly available information, and the PPP website, PandemicOversight.gov, we do not dispute is a source for the public disclosure bar.

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We don't doubt that that is a qualified source.

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That information is purely factual.

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Under the Ninth Circuit standard, under the Miteski test, under Silbershare, it doesn't amount to a public disclosure.

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There's no indication there of fraud.

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There's no, what is it, there's no as presented state of facts versus a real state of facts.

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There's no allegation.

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It doesn't put the government on notice that there was any fraud committed there.

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Our relators, defense counsel also makes a lot to do that our relators, Relator LLC,

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is an outsider, not an insider to the company.

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And as this court is aware, there's no prohibition under the False Claims Act for an outsider to become a whistleblower.

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There may be a higher standard that they have to meet as far as proving their information.

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But as we allege in the complaint and as is briefed in our documents, not only are they outsiders who did their own investigative legwork,

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which, of course, defendants will have the right to get into at discovery and then raise the public disclosure bar again on summary judgment or at trial.

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They also talked to former employees or current or former employees, I'm sorry.

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So while the information that their complaint alleges may exist in the public realm, it's not that they based their complaint on that publicly disclosed or solely on that publicly disclosed information.

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They also did their investigative legwork.

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Did the complaint reference the

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Employees former employees that were consulted and and and what information was garnered from that consultation I don't believe the complaint did that your honor and that's a fix that can be done in the second I meant the complaint Our briefing discusses how they spoke to former employees that I link But now the complaint that's a failure of the complaint, but we don't believe it's a failure that renders to complain subject to the motion to dismiss we still believe that

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Importantly, this is a factual falsity or a legal falsity case, not an implied certification theory.

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We believe the complaint goes through all five certifications that were on their face false, and we believe that the complaint goes through the reasons why each of those five certifications were false on their face.

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Was the complaint drafted the way I would have drafted the complaint?

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Perhaps not, but I do believe the information was in there.

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with allegations supporting the false factual certifications.

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You mentioned the possibility of amendment.

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Could you sort of sketch out what, is there additional factual information you'd be able to allege to support falsity?

[00:04:46] Speaker 00:
My apologies, Your Honor.

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A bit nervous.

[00:04:48] Speaker 00:
Yes, Your Honor.

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For instance, Judge Klausner took issue with the idea of getting into the registered as a corporation in Delaware in late 2019.

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Registered a business that would only be doing business in California at that time period Judge Klausner took issue with the fact that our allegations said They couldn't have been doing business until they registered on July 22nd He sort of I forget his exact language, but he sort of takes us to task for not citing the statutes and we could cite to the California tax code statute and the California Secretary of State statute that says it's not proper to be doing business including hiring employees prior to being registered with the Secretary of State

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So that's one thing that I think is a simple fix that could give some more clarity to the extent it's needed.

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And we sort of take issue that the defendants are not put on notice by this complaint of our allegations, but would bring more clarity to the complaint.

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And what about the $100,000 salary limit?

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I mean, there's some question as to what your calculation even is.

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Whatever it is, it's not spelled out in the complaint.

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So I agree it's not spelled out clearly in the complaint, Your Honor.

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And there is some confusion, I will admit, in the complaint and with defense counsel too, not their fault, between the standards for getting the PPP loan and getting the standards, or the standard for getting the PPP loan forgiven, which we also allege are falsely certified.

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For getting the PPP first draw loan, the amount you would receive would be 2.5 times your average monthly payroll.

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So what we did was we took, and I forget, we took the whole number divided by, it's in our brief, I'm sorry,

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By a number using the two and a half months method.

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That's how we came up with $179,000 defense counsel, I would say improperly but Understandably divided that number by 12 months.

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That's not the way the PPP loan determinations were worked out They were it was a factor of 2.5 months of your average monthly salaries why Why didn't you make these fixes in the amended complaint your honor?

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I was not involved in the case yet

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I don't know.

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To be quite honest with you, I don't know.

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There were some additional allegations made.

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I do believe that they had a good faith belief that they made those allegations clear.

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I still believe, and again, I'm just talking about amendment here, which is fine, I still believe the complaint does satisfy Rule 9B, but I believe, given the chance, that I could quickly amend the complaint, being an experienced FCA lawyer, to meet the standards that are necessary in this case.

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What about Mr. Ayala?

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There's no allegation that he

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that he signed the disclosures, that he reviewed them, or even that he knew about them.

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So how can he possibly be liable?

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Well, Your Honor, it was sort of a control person standard for the PPP loans.

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We do allege he was the CEO, CFO, sole controlling person of the company.

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We don't use those words, but we do use that he was in charge of the affiliates, which would mean legally he had to be the one who either

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caused them to be, submitted them or caused them to be submitted?

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So there's control person liability under the Securities Act, but this is about, is there, do you have a case that says that the False Claims Act?

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My apologies, Your Honor.

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I did not mean to bring in securities law with it.

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By control person, I meant the only person who could have caused, who could have submitted these or caused them to be submitted.

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He would have had to approve them at some point.

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Are there more questions?

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With respect to, if I may, I think I still have two minutes left.

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On the 478 employees, your honors, again, we believe that while

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The district court we but we but I think happened here your honors is it was a sort of a hybrid Standard that was applied to this it was both a false or implied certification standard which would require more details because there you're getting into the weeds of why a Certification was false as opposed to it's facially false with respect to the 478 employees We believe that we did clearly allege that the only employee if he was considered an employee was mr. Ayala

[00:09:10] Speaker 00:
The company had only opened up, as far as we are concerned, legally on July 22nd, and he could not possibly have hired 478 employees.

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We spoke to an employee who said there were not 478 employees.

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And the employees that would have been there under the PPP, if you were a corporation that hired temporary employees, you were allowed to count those temporary employees as your employees because the purpose of the PPP was to keep your payroll going forward.

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The temporary employment agencies were not allowed to count those employees.

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They were only allowed to count their sort of in-house employees.

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And we believe that while it could be better, we believe the allegation is that they counted in that 478

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If they existed at all, which we do make the allegation that it didn't exist at all in the complaint, if they existed at all, that number was false because they counted sort of, I don't want to use the term outsourced, but sort of people who were placed by them to work at another company.

[00:10:08] Speaker 00:
They weren't responsible for their payroll.

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They were not eligible to claim them on their PPP loan application.

[00:10:18] Speaker 04:
All right, Kelsey, do you want to save some time for rebuttal?

[00:10:21] Speaker 00:
Thank you so much, Your Honors.

[00:10:22] Speaker 04:
Thank you.

[00:10:35] Speaker 01:
Good morning.

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May it please the court?

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I think it's important to keep in mind that what we're dealing with here is a False Claims Act Relator that is a private entity that calls itself Relator LLC.

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The district court observed that it was aptly named, and its only purpose is to file FCA claims against businesses that took out PPP loan funding.

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What does that matter to 12b6?

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It matters because it explains why all of Relator's allegations are completely conclusory, speculative.

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It has no insider information about any of the defendants.

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So for example.

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The second point, what in the statute or in the case law requires them to be an insider?

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I mean, that's not a direct requirement.

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That's not an element.

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But the reason I bring it up and emphasize it is because it really goes a long way toward explaining why we see the complaint that we do here in which it's just pure legal conclusions unadorned by any facts.

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They just go through each certification in the PPP loan application.

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and just allege that each one was false.

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Is it a fact that the business was in operation in February 2020 before it registered to do business in California?

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I mean, yes, that is a fact.

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But the only actual supporting fact that they allege is that the company didn't register to do business in California until July of 2020.

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So they have no explanation or allegation as to why that would render them ineligible or render any of their statements in the PPP application false.

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I think they say it's that combined with the Delaware filing that says that it was doing business in California.

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So if you take that latter filing to suggest that it wasn't doing business anywhere other than California and

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than the lack of a California filing to suggest it wasn't doing business in California, you can, I mean, we're just talking about what's plausible at the complaint stage, right?

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You could infer that it wasn't doing business anywhere, couldn't you?

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I mean, it's too tenuous under Rule 9b, right?

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9b's a separate question, right?

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So we've got a particularity standard and a plausibility standard, and let me know if I'm getting these in the wrong order.

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But yes, they have to.

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Plead with particularity as to the who what where when how?

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But as to each of those factors it only merely needs to be plausible that that's How they did it that that's where they did it that that's who did it.

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That's what they did right, right?

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I mean they the The cause of action itself has to be plausible and so it's not the standard isn't just let's see if they have any facts that

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relate to what they're talking about.

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It's have they pleaded enough factual detail to act to raise a plausible cause of action.

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And this, you know, the fact that it didn't register in California and it's registration in Delaware.

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I mean, none of that rebut none of that necessarily indicates that it couldn't have had the reported number of employees.

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Another important fact about that is that.

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The employees are just one.

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You can see that a false certification of any of the two, three, four, five, or six, seven different, any one of those would be sufficient to state a claim.

[00:14:13] Speaker 01:
Yes.

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And of course, they allege every single one of them just trying to get something to stick.

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But none of them rises to the level of plausibility.

[00:14:23] Speaker 02:
What about the purchase of real estate shortly after the funding came in?

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I mean, so they alleged that Mr. Ayala purchased that real estate.

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So to be clear, Mr. Ayala did not take out a PPP loan.

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Only the business entities, the separate entities, took out PPP loan funding.

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Do the entities have any other officers than Mr. Ayala or owners?

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I mean, none of this is alleged in the complaint in any kind of detail.

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So it's strictly not part of the record.

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But my understanding is that, yes, there are other

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there are other individuals who at least have some kind of managerial authority within these companies.

[00:15:07] Speaker 02:
What about the, to pick up on Judge Miller's question, the salary, the salary math, how do you understand that to work out so it is not plausibly?

[00:15:18] Speaker 01:
I mean, we think it's pretty straightforward.

[00:15:21] Speaker 01:
I mean, you know, that particular entity that's I-Link Business Management,

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took a $1,232,162 loan and reported that it had 33 employees.

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So as the district court observed, if you divide $1,232,162 by 33, you come out with way, way less than $100,000.

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It's about $37,000 a year.

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But the loan wasn't supposed to cover the full year's salary.

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It was only two and a half months, right?

[00:15:58] Speaker 01:
I mean, this isn't that's the allegation.

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Well, it's not that it's not alleged in the complaint.

[00:16:05] Speaker 01:
So I mean, sure, they can try to clean that up in their briefing, but that wasn't in the record before the district court.

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And in fact, in the district court's first dismissal order, it called out this exact point.

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And then there was nothing fixed.

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There was nothing clarified.

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There was nothing added in the first amended complaint.

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But how could it be otherwise if there's no apparent

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dispute in the facts that they weren't in business for a full year by this point.

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I mean, I don't think that they have alleged anything that plausibly makes that so.

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I mean, you know, it was incorporated in Delaware in 2019.

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And I mean, you know.

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So it's not it is.

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The only, it's not plausible to believe other than that they were incorporated in Delaware to do business only in California where they were not actually licensed to do, registered to do business until several months later and that had, in that limbo of being incorporated but not doing business,

[00:17:20] Speaker 02:
They had 33 employees that generated $1.2 million of salaries paid out well, all while they were not doing business in California.

[00:17:28] Speaker 01:
I mean, why do the employees have to be in California, is the point.

[00:17:32] Speaker 02:
That's a great question for summary judgment, for trial.

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But there's nothing, once you've said that you're a California business incorporated in Delaware, but not doing business till July,

[00:17:48] Speaker 02:
Again, just in terms of getting over the line of plausibility, that's certainly very, it sounds very particular.

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So then the question is whether that's plausible.

[00:17:57] Speaker 01:
I mean, it can be as particular as it gets, but it doesn't indicate that any of the certifications in the PPP loan application were false.

[00:18:06] Speaker 01:
I mean, it's completely consistent that it could have been in operation except incorporated as a different entity or,

[00:18:18] Speaker 01:
something like that, but that we have to look at the actual survey.

[00:18:22] Speaker 01:
Let me put it this way.

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It's not like they had to certify that they were doing business in California, right?

[00:18:28] Speaker 01:
The location of the employees is not relevant to its eligibility for a PPP loan.

[00:18:35] Speaker 02:
Or with it.

[00:18:36] Speaker 02:
I mean this is I think an interesting question that we've asked about your friend about What more would they have to do right in other words with the complaint have had to cite chapter and verse of California law including cases to say that Registered to do business and being registered to do business in California is actually a legal requirement to do business in California I mean they needed to have at least alleged some

[00:19:01] Speaker 01:
factual detail in this regard.

[00:19:04] Speaker 02:
So for example- Why isn't the late filing, the July filing of the registration, that factual detail?

[00:19:12] Speaker 01:
Because it's not enough.

[00:19:13] Speaker 01:
It's not enough to- What would it be?

[00:19:15] Speaker 01:
So for example, if they had some kind of statement or something they could cite or allege showing how many employees did each of them really have, they just allege in their complaint, oh, well, that was false because they had zero employees.

[00:19:31] Speaker 01:
OK, so how does relator LLC know?

[00:19:34] Speaker 01:
Is there a statement of information?

[00:19:36] Speaker 01:
Is there some kind of SEC filing?

[00:19:38] Speaker 01:
Anyone can just look at a statement and allege that it's false and say the opposite is true.

[00:19:45] Speaker 01:
But if it were going to reach the particularity standard, we would expect to see some kind of something besides relator's own say so that it could

[00:19:55] Speaker 01:
site and point to showing why the statement is false.

[00:20:00] Speaker 01:
And that's under Rule 9B, under the cases, it has to be the who, what, the when, the where, the why, and the why it is false.

[00:20:11] Speaker 01:
So the basis for that knowledge.

[00:20:13] Speaker 04:
So opposing counsel represented that the related talk to employees of the company.

[00:20:22] Speaker 04:
So why shouldn't

[00:20:24] Speaker 04:
we direct the court to grant leave to amend to include those specifics that you think are necessary?

[00:20:32] Speaker 01:
Because they already got that opportunity.

[00:20:34] Speaker 01:
We went through an original round of motion to dismiss briefing.

[00:20:38] Speaker 01:
The district court dismissed but granted them leave to amend and said that it was highly skeptical and that there was, I think the word was a serious deficiency or devoid of factual detail.

[00:20:49] Speaker 01:
If that's not an alarm to tell you, you better put up and shut up now.

[00:20:55] Speaker 01:
And if you have some kind of explosive insider evidence that you're going to rely on, you better go ahead and put that into your amended complaint.

[00:21:03] Speaker 01:
And they didn't.

[00:21:04] Speaker 04:
But the standard is that leave to amend should be granted unless amendment would be futile.

[00:21:10] Speaker 04:
Is that what you're arguing, that any amendment would be futile?

[00:21:14] Speaker 01:
Yes.

[00:21:15] Speaker 01:
And just as a procedural matter that we can't just

[00:21:19] Speaker 01:
keep doing this over and over again.

[00:21:21] Speaker 01:
It's a good turn.

[00:21:22] Speaker 04:
Rule 15 says that amendments should be allowed liberally.

[00:21:26] Speaker 04:
So it does contemplate that we do it over and over again, as long as there is some.

[00:21:33] Speaker 04:
It's not futile to do so.

[00:21:35] Speaker 04:
So the rule contemplates, perhaps, an additional amendment.

[00:21:41] Speaker 01:
I think there also has to be a burden on plaintiffs that if they really are aware of something and I mean think about that that is how what could be more relevant that they say they went out and interviewed certain of our employees and they found out all these you know contradictory facts wouldn't that be like how do you forget about that and so that should have been in their original complaint much less in their first amended complaint after the district court told them

[00:22:09] Speaker 01:
that there was a serious factual deficiency in their complaint.

[00:22:13] Speaker 04:
That wouldn't render it futile, though, if the fact that they didn't see the importance of putting it in the first complaint or either the amended complaint, would that render it futile?

[00:22:24] Speaker 01:
I think there's something to be said about the fact that they didn't put it in there.

[00:22:29] Speaker 01:
And maybe one interpretation is that they forgot.

[00:22:32] Speaker 01:
Another interpretation is just that it's nowhere near as supporting of their position

[00:22:37] Speaker 01:
as they say that it is.

[00:22:39] Speaker 01:
So I mean, while I'm sympathetic to the intuition of, oh, well, let's just see what they're going to allege, I mean, I think when they've already gotten two rounds of filing a complaint, I mean, if they haven't come forward with something like that yet, then it's just past the time when we're going to tolerate.

[00:23:03] Speaker 04:
All right.

[00:23:03] Speaker 04:
Thank you, counsel.

[00:23:04] Speaker 04:
Thank you.

[00:23:06] Speaker 01:
Yes.

[00:23:06] Speaker 01:
Thank you.

[00:23:09] Speaker 04:
Let's have two minutes.

[00:23:13] Speaker 00:
Thank you, your honors.

[00:23:13] Speaker 00:
Just briefly to clean up.

[00:23:15] Speaker 00:
what we're discussing with respect to the $100,000.

[00:23:18] Speaker 00:
It's 15 USC section 636, page 6 of our reply brief that mandates that the amounts, the salary to be calculated was 2.5 times your average salary, which leads to, respectfully, defendants and Judge Klausner making the mistake of dividing by 12 instead of dividing by, the number would actually be 4.8 if you do the math, which is 12 divided by the 2.5 months.

[00:23:43] Speaker 00:
That is material here.

[00:23:44] Speaker 00:
It's not just nitpicking.

[00:23:45] Speaker 00:
It's material here because while in defense, in the appellant's brief, they argue that you can factor in health care costs.

[00:23:53] Speaker 00:
I forget all the lists.

[00:23:53] Speaker 00:
They go through the list of all of your employees costs, not just salary.

[00:23:56] Speaker 00:
That's actually untrue.

[00:23:58] Speaker 00:
The $100,000 cap was on all salary expenses.

[00:24:01] Speaker 00:
So if someone made, just making up numbers, if someone made $60,000 but had $41,000 in a benefit package, they would have been capped at $100,000.

[00:24:10] Speaker 00:
Just like an employee who made $130,000 in just pay, they would have been capped at $100,000.

[00:24:16] Speaker 00:
So it is material to their, another false statement with respect to, their false statement to the government to get that extra, caused the government to pay that extra money over and above the $100,000 per salary.

[00:24:30] Speaker 03:
This is going back to the question I asked you before of what you would add in an amended complaint.

[00:24:35] Speaker 03:
And in particular, you mentioned statements from employees of the defendant.

[00:24:41] Speaker 03:
What exactly would you allege that they've said?

[00:24:44] Speaker 00:
And that, Your Honor, is a great question.

[00:24:46] Speaker 00:
And I take defense counsel's point there.

[00:24:49] Speaker 00:
I mean, we can say that they didn't have 478 employees.

[00:24:52] Speaker 00:
Right.

[00:24:53] Speaker 00:
The only thing you can really add through an insider statement at this time in a factual falsity case is

[00:24:59] Speaker 00:
It's not true.

[00:25:00] Speaker 00:
We weren't even operating yet.

[00:25:02] Speaker 00:
I wasn't even hired.

[00:25:03] Speaker 03:
Would you have an insider statement to that effect that you would add to the complaint?

[00:25:07] Speaker 00:
We have insider statements we can add to the complaint, Ron.

[00:25:09] Speaker 00:
I don't know if they're going to be able to say just flat out, it's not true because there were 217 employees at that date.

[00:25:16] Speaker 03:
I have not personally interviewed the employer.

[00:25:18] Speaker 03:
But wait, so you haven't spoken to the employees whose statements?

[00:25:25] Speaker 00:
I personally have not, Your Honor.

[00:25:26] Speaker 00:
I've been on this case for about four months after Mr. Brew passed away.

[00:25:30] Speaker 00:
I've been discussing with my clients and my co-counsel, but I have not spoken to them.

[00:25:35] Speaker 00:
I personally have not spoken to the employees.

[00:25:37] Speaker 03:
OK.

[00:25:37] Speaker 03:
So then, I mean, that's not.

[00:25:41] Speaker 03:
That's maybe understandable given the timing of things, but it's not very helpful in terms of figuring out how that would add specificity.

[00:25:53] Speaker 00:
I appreciate that, Your Honor.

[00:25:54] Speaker 00:
Again, all I can do is talk to my co-counsel as I have done.

[00:25:57] Speaker 00:
To be honest with you, we don't put the cart before the horse.

[00:26:00] Speaker 00:
In my mind, I've been drafting the complaint, as I think we tend to do as lawyers.

[00:26:06] Speaker 00:
There will be a drilling down of that.

[00:26:08] Speaker 00:
But I do want to circle us back to the amendment.

[00:26:12] Speaker 00:
I still don't think that's necessary at this stage.

[00:26:14] Speaker 00:
I do think this complaint satisfies the standard for a false claims act case under a facial falsity claim under the PPP loans.

[00:26:22] Speaker 00:
I do not think it is barred by the public disclosure defense.

[00:26:26] Speaker 00:
And I do think we adequately alleged seantar as well.

[00:26:29] Speaker 04:
What's your response to opposing counsel's position that your clients have already been given

[00:26:36] Speaker 04:
two opportunities to plead their causes of action and have not been able to do so adequately and should not be allowed a third opportunity.

[00:26:48] Speaker 00:
I'm so sorry, Your Honor.

[00:26:49] Speaker 00:
A, I don't think that's the standard.

[00:26:51] Speaker 00:
B, I think Your Honor was right when you said there to be liberally amended, leave is to be liberally given.

[00:26:56] Speaker 00:
As a, I don't know if this is relevant here, as an FCA litigator, I can tell you that it's not rare to see seventh and eighth and ninth and tenth amended to complaints.

[00:27:05] Speaker 00:
Several of the cases we cite Silbershire, Soligo, Aetna, even though it came out the other way, they're all up on their third and fourth and fifth amendment of complaints.

[00:27:14] Speaker 00:
Sometimes it does take a while to get the complaint right under the false claims ad context.

[00:27:20] Speaker 00:
I believe I could have done it and made it easier on this court.

[00:27:23] Speaker 00:
As I said, I believe we still did get it right, but I do not believe a third amendment complaint is too much of a burden on defendants.

[00:27:29] Speaker 00:
I think we met the standard.

[00:27:30] Speaker 00:
I believe it's a very close call and that we can fix it.

[00:27:33] Speaker 04:
All right.

[00:27:34] Speaker 04:
Thank you, counsel.

[00:27:34] Speaker 00:
Thank you, Your Honor.

[00:27:35] Speaker 04:
Thank you to both counsel for your helpful arguments.

[00:27:37] Speaker 04:
The case just argued is submitted for a decision by the court.