[00:00:00] Speaker 00: Case number 24-7032, United States of America, X-ray O'Neill-Kinney and O'Neill-Kinney appellant versus State of Consultancy Services Limited. [00:00:11] Speaker 00: Mr. Kochan for the appellant, Mr. Volchok for the appellate. [00:00:17] Speaker 01: Morning, Mr. Kochan. [00:00:18] Speaker 04: Morning, Your Honor. [00:00:23] Speaker 04: May it please the court? [00:00:25] Speaker 04: This case involves the misuse of the U.S. [00:00:28] Speaker 04: visa program to source indentured and poorly paid visa employees to replace higher cost Americans from IT jobs. [00:00:38] Speaker 04: The case also involves retaliation against a whistleblower who tried to stop the fraud. [00:00:44] Speaker 04: There are two types of fraud that are at issue here. [00:00:48] Speaker 04: The first type is the failure to pay H-1B wages [00:00:53] Speaker 04: including taxes due upon those wages. [00:00:56] Speaker 04: H-1B wages are specifically set forth and required under Department of Labor regulations. [00:01:04] Speaker 02: Which establish a duty to pay the alien, not the government. [00:01:10] Speaker 02: Duty to pay the government is set forth in the tax code. [00:01:14] Speaker 04: 20 CFR Section 655.731C, which is entitled Satisfaction of Wage Obligations, specifically sets forth the duty to pay the government withholding taxes. [00:01:30] Speaker 04: If you look at the Department of Labor Administrative Decisions, HTC, [00:01:36] Speaker 04: I'll Excel Betty. [00:01:39] Speaker 04: They all involve underpayment of wages and part of the wages the calculation of the wages is withholdings that are due to the IRS. [00:01:49] Speaker 05: Is that the distinction though that is. [00:01:52] Speaker 05: an IRS tax code implication as opposed to the statute that you're governing for the visas? [00:02:01] Speaker 04: Your Honor, the obligation itself is created by Department of Labor regulation. [00:02:07] Speaker 04: That is to satisfy, again, the title of that regulation is Satisfaction of Wage Obligation. [00:02:14] Speaker 04: And to satisfy the wage obligation, the appropriate wage obligation paid to H-1B employees, [00:02:20] Speaker 04: You also have to have appropriate withholdings paid to the IRS. [00:02:24] Speaker 04: It's a Department of Labor regulation, which is squarely falls within, it creates an obligation within the Reverse False Claims Act. [00:02:33] Speaker 05: How do we deal with the lesson of decision to tell that the obligation to pay visa fees only arises after submission of the application? [00:02:41] Speaker 04: So the Lesnick decision was rooted in ATMI, a Sixth Circuit decision that was abrogated by the amendment to the False Claims Act in 2009. [00:02:52] Speaker 04: So the Lesnick decision stands for the proposition if something isn't immediately due, payable, and it dealt with visa fees, then it doesn't fall within the False Claims Act. [00:03:05] Speaker 04: That is completely contrary if you look at, for example, the Knaggar decision, which motivated [00:03:11] Speaker 04: the amendments to the False Claims Act of 2009. [00:03:13] Speaker 04: The Connagra decision involved in lieu of replacement certificates under the USDA regulations, and fees apportioned that. [00:03:24] Speaker 04: Connagra did not seek those certificates, but still was held liable under the False Claims Act, even though it didn't seek the in lieu of certificates. [00:03:33] Speaker 04: So if you look at the Lesnik decision, including the lower court's decision, [00:03:38] Speaker 04: In that case, the district judge cites a TMI as support for the proposition that something that's not immediately payable or do under is not actionable under the False Claims Act. [00:03:52] Speaker 04: And that is precisely why the False Claims Act was amended in 2009. [00:03:59] Speaker 02: The amendment. [00:04:01] Speaker 02: eliminated the aspect of the Sixth Circuit decision that says you have to fix the amount. [00:04:09] Speaker 02: It doesn't eliminate our court's decisions on what it means to be established. [00:04:18] Speaker 04: Well, it's established whether or not fixed. [00:04:22] Speaker 04: And so the regulations and the agreements pursuant to the regulations by DCS establish the obligation [00:04:30] Speaker 04: Those obligations are established when TCS agreed to participate in the H-1B visa program. [00:04:37] Speaker 04: It agreed to pay the appropriate wage. [00:04:42] Speaker 04: That was an established obligation. [00:04:44] Speaker 02: I agree with you, but I guess it's just back to the reg. [00:04:49] Speaker 02: This comes down to [00:04:51] Speaker 02: whether these Romanettes, Romanette 3 is probably your best one with the FICA obligation, whether you read this as establishing an independent duty to pay FICA taxes to the government, [00:05:15] Speaker 02: which is an odd thing for an INA reg to do, or whether you just simply read this as this is defining what the requisite wage is, and the wage includes the FICA amounts. [00:05:29] Speaker 04: Well, I mean, I think the key question is, what is the obligation to pay? [00:05:33] Speaker 02: I think the key question is, to whom is? [00:05:37] Speaker 02: There clearly are obligations for the employer to cut checks [00:05:42] Speaker 02: to the alien and to the government. [00:05:47] Speaker 02: The question is, what is the nature of the obligation that runs to the government? [00:05:52] Speaker 04: Well, if there's a payment required under Department of Labor regulations to the government, [00:05:59] Speaker 04: then that's what brings it squarely within the ambit. [00:06:01] Speaker 02: That's great, but that just takes us back to the question whether this Romanette is creating, independently creating a duty to pay FICA taxes or just defining what the wage of the employee is. [00:06:16] Speaker 04: Well, it's the duty to pay that's important. [00:06:19] Speaker 01: And so the whole purpose of... The duty to pay would be, comes from the tax code. [00:06:26] Speaker 01: I mean, the Department of Labor [00:06:28] Speaker 01: doesn't have independent authority to issue a regulation to, say, pay taxes. [00:06:34] Speaker 01: They're implementing the tax code. [00:06:37] Speaker 01: So the tax code is where the obligation springs from, right? [00:06:43] Speaker 04: Correct. [00:06:44] Speaker 04: I mean, that is definitely the tax code that requires payment of taxes. [00:06:49] Speaker 04: But think about what, in creating the H-1B visa framework, what the government was trying to do. [00:06:55] Speaker 04: They were trying to make sure that that program was not being used to undercut labor markets here and salaries. [00:07:01] Speaker 04: And that's why they created specifically duties and obligations about you have to pay this and you have to pay it to both the H-1B employee as well as to the government, the IRS. [00:07:16] Speaker 04: And so that was the whole purpose of it. [00:07:19] Speaker 04: And so there's a duty to pay the H-1B visa employee, for sure. [00:07:24] Speaker 04: But as part and parcel of that, there's an obligation to withhold taxes and pay the taxes, just as Your Honor suggested. [00:07:31] Speaker 04: That's what the obligation is. [00:07:33] Speaker 04: And so if you look at the lower court's decision here, the lower court concluded that payment of that obligation is actually a penalty under Hoyt. [00:07:43] Speaker 04: as opposed to an obligation that falls within the ambit of the False Claims Act. [00:07:47] Speaker 04: And if you look at the decisions, if you look at Conagra, and you look at Pemko, if you look at Victaulic, if you look at the decisions that CCS cites, [00:07:59] Speaker 04: Cassowitz, Siminoe, they very well set forth the distinction between what constitutes an obligation and what constitutes a penalty. [00:08:09] Speaker 04: And that's the key question that's before the court. [00:08:12] Speaker 04: Is this an obligation or is it a penalty? [00:08:15] Speaker 04: And the fact that something is paid to the IRS [00:08:20] Speaker 04: as opposed to some other government agency, I don't think is dispositive of the issue. [00:08:24] Speaker 04: I would rely on the Merck Medco and Frye cases that support the notion that you don't look at who is ultimately paid to or how it gets to the government. [00:08:31] Speaker 04: The fact is, is it an obligation that reduces payments to the government? [00:08:36] Speaker 04: And so I think that is what is key in this case. [00:08:40] Speaker 04: And that's why I think that is squarely where the lower court erred on this issue. [00:08:45] Speaker 05: You know, just kind of as an aside, [00:08:48] Speaker 05: These visas come out of a lottery, right? [00:08:51] Speaker 05: Correct. [00:08:52] Speaker 05: And it's limited as to what you can get. [00:08:55] Speaker 05: Correct. [00:08:55] Speaker 05: And so it just seems almost practically that any employer going into this program who actually needs the workers is going to apply for, through the lottery, as many visas as they can, the H-1 visas. [00:09:09] Speaker 05: But then there's a lower category of visas that your clients were subjected to. [00:09:14] Speaker 05: And so from a practical standpoint, [00:09:19] Speaker 05: They are working, but you all contend that it's through the wrong visa program, but there's only so many visas that you can get anyway. [00:09:28] Speaker 04: Correct. [00:09:29] Speaker 04: But that's how the system was set up. [00:09:32] Speaker 04: That's the whole design of the system. [00:09:34] Speaker 04: There's a limited number of H-1B visas, and there are specific rules set up as to when you can apply for the visa and what type of work qualifies for visa type of work. [00:09:46] Speaker 05: And the government, through this investigation, would have, I assume, looked at the duties of the particular plaintiffs here, but then decided not to take the case. [00:09:58] Speaker 05: And so I don't know if there's anything to read into that or the fact that the questioning that we've been having here is that is this obligation that we're talking about not yet realized because the employer [00:10:14] Speaker 05: applied for certain visas and paid the payroll taxes on those particular visas that it actually got. [00:10:21] Speaker 04: Correct. [00:10:22] Speaker 04: It did, but our contention is they underpaid. [00:10:25] Speaker 04: The government, they obviously didn't intervene here. [00:10:28] Speaker 04: And if they thought this case didn't have merit was frivolous, then they would have exercised their discretion to dismiss the case, which they didn't do. [00:10:37] Speaker 04: So that put the burden on us to go forward and hear, argue, and explain to you exactly why the particulars of the Department of Labor regulations create the obligation [00:10:49] Speaker 04: That's that issue here. [00:10:50] Speaker 04: And do not involve penalties, which is what the lower court reasoned as to why underpayment of visa fees and underpayment of wages is actionable under the False Claims Act. [00:11:03] Speaker 04: When you look at the law and you look at what constitutes an obligation compared to what constitutes a penalty, I think it's pretty clear that if you look closely at the Department of Labor regulations, that this falls within the obligation. [00:11:16] Speaker 01: Why is the government's non intervention? [00:11:18] Speaker 01: Why should we imply that that means that the government is anything other than agnostic? [00:11:26] Speaker 04: Well, the government has elected not to take a position at all in this case. [00:11:33] Speaker 04: And candidly, I think to me it's I wish they would have just one way or another said if you if you think that this isn't [00:11:43] Speaker 04: If the government thinks that this is a frivolous case, it doesn't fall within the False Claims Act, they can take a position. [00:11:49] Speaker 04: They certainly did in the Kasowitz case. [00:11:51] Speaker 04: They certainly did in the Conagra case. [00:11:53] Speaker 04: They should do the same thing here. [00:11:54] Speaker 04: They've been on the sideline here. [00:11:56] Speaker 04: This is a really important case. [00:11:57] Speaker 05: There's been no referral to the Department of Labor or IRS? [00:12:01] Speaker 04: Not that we're aware of. [00:12:03] Speaker 04: But this is a case that affects a lot of people. [00:12:07] Speaker 04: There's a lot of interest nationally [00:12:11] Speaker 04: about what happens here because there's a lot of jobs at stake. [00:12:14] Speaker 04: And so the fact that the Department of Justice didn't weigh in here, didn't voice their opinion on this issue, I think is unfortunate. [00:12:23] Speaker 01: So what do you think is your strongest authority that this suit is not subject to the tax bar exclusion of 3729? [00:12:34] Speaker 01: Um, the 30 yeah, 37 29 D as a claim made under the internal revenue. [00:12:45] Speaker 04: Uh, the Lysak decision is the second circuit decision Lysak, which is the authority on this issue. [00:12:50] Speaker 04: So under the Lysak decision, the IRS has no jurisdiction here and there's no violation of the internal revenue code. [00:12:58] Speaker 04: And so that takes it squarely without means that the tax bar will not apply to this issue. [00:13:05] Speaker 02: Can I ask you about your second theory we haven't really talked about? [00:13:12] Speaker 02: Suppose I go to a museum and I can buy one of two tickets. [00:13:19] Speaker 02: I can buy general admission for $10, or I can buy a special admission for $20, which gets me into the touring money exhibit. [00:13:29] Speaker 02: I buy the $10 ticket, I go in the museum, and then I sneak into the special exhibit, right? [00:13:38] Speaker 02: Seems odd to say that what I've done is [00:13:42] Speaker 02: defraud the museum of money. [00:13:45] Speaker 02: I mean what I've done is I've bought the cheaper ticket and then I, you know, trespass into the special exhibit. [00:13:52] Speaker 02: Well, here's the distinction. [00:13:54] Speaker 02: You agree with my instinct on the hypo? [00:13:58] Speaker 02: Are you going to tell me your case is different or are you going to tell me my instinct is wrong? [00:14:02] Speaker 04: I would say there's rules set up by the museum, and there must be reasons for those rules. [00:14:09] Speaker 04: And so you should abide by the rules if you're going to visit. [00:14:12] Speaker 02: But violations, it's not an obligation to pay. [00:14:17] Speaker 02: Well. [00:14:17] Speaker 02: I mean, I've bought the cheaper ticket. [00:14:20] Speaker 04: Here's the distinction. [00:14:21] Speaker 04: OK. [00:14:21] Speaker 04: That's, I think, critical. [00:14:23] Speaker 04: The very reason why the visa system is set up the way it is is to ensure that if there are labor shortages here, [00:14:33] Speaker 04: If there are needs here for visa employees, let's set up a system to make sure that happens. [00:14:39] Speaker 04: But if you are going to let anyone come in and do H-1B work when there is a cap on how many H-1B visas are issued, if anyone can come in and do that work, then what you're doing is you're hurting labor markets here. [00:14:58] Speaker 04: There was an article published. [00:15:01] Speaker 02: compelling argument that the allegations here state something very serious about immigration policy. [00:15:13] Speaker 02: It just doesn't feel like what this case is about is whether you pay the $4,000 visa fee or the $3,000. [00:15:24] Speaker 04: But if there was a false, let's assume for the [00:15:30] Speaker 04: the purpose of this hypothetical. [00:15:32] Speaker 04: Let's assume that there's fraud on the government. [00:15:35] Speaker 04: L1 employee, for example, doing H1B work. [00:15:38] Speaker 04: Let's just assume that. [00:15:40] Speaker 04: And so your position is, well, even though the H1B visa costs a couple thousand dollars more than the L1, it doesn't seem like that's kind of what's at issue here. [00:15:51] Speaker 04: I understand your point, except if you look at the specific language of the Reverse False Claims Act, if payment is either avoided or decreased to the government as part and parcel of a fraudulent scheme, that's action. [00:16:10] Speaker 02: No, I get that. [00:16:12] Speaker 04: Take your point. [00:16:14] Speaker 04: If you're sneaking into a museum, the $20 museum piece, or if you're having an L1 do H1B work, that is wrong. [00:16:24] Speaker 04: There is a financial harm to the government. [00:16:28] Speaker 04: Is that what is motivating the fraud? [00:16:32] Speaker 04: I don't think that's relevant to the question of whether, if it's avoiding that visa fee, I don't think that's a question that's relevant to the specific reverse false claims act here. [00:16:40] Speaker 02: No, I agree with that. [00:16:43] Speaker ?: OK. [00:16:44] Speaker 02: informs the instinct, right? [00:16:46] Speaker 02: If you go back to the text of the statute, there are two ways of looking at this. [00:16:50] Speaker 02: One is the kind of simplistic way, consistent with my hypo, is there's a menu of things you can buy. [00:17:00] Speaker 02: And they're buying a cheaper license. [00:17:03] Speaker 02: And that's fine. [00:17:04] Speaker 02: And they're paying for the cheaper license. [00:17:07] Speaker 02: And there's nothing fraudulent. [00:17:10] Speaker 02: There's nothing wrong with that. [00:17:11] Speaker 02: The harm comes when they then later [00:17:14] Speaker 02: exceed the scope of the license. [00:17:17] Speaker 04: Well, they have a duty they have a duty to pay to seek and pay the right. [00:17:22] Speaker 02: And you're saying no, there's actually a duty on the front end to [00:17:28] Speaker 02: by the more expensive life well there's there's there's 2 issues there one is on if they know that that there are I think that sorted that just takes me back to is this really about license fees or is this really about. [00:17:42] Speaker 02: The harm to the labor markets when the we when they exceed the scope of license they bought. [00:17:47] Speaker 04: Well, from our perspective, you can't separate those two things out. [00:17:51] Speaker 04: And so I think there's two ways, two things that go on wrong. [00:17:55] Speaker 04: Assuming an L1 employee is defrauding, there's fraud. [00:17:59] Speaker 04: If TCS is applying [00:18:02] Speaker 04: for an L-1 visa knowing that the L-1 visa holder ultimately is going to do H-1B work. [00:18:08] Speaker 04: That's wrong because under the form I-129, TCS has to certify that all the statements are true and correct. [00:18:14] Speaker 04: That's false. [00:18:15] Speaker 04: That's what Mr. Keeney was complaining about. [00:18:18] Speaker 04: He was also complaining about once L-1 workers were in working, doing H-1B work. [00:18:24] Speaker 04: Once they started doing H-1B work, if you look at the regulations, there was a specific requirement that TCS had to see. [00:18:31] Speaker 04: in H1B visa. [00:18:34] Speaker 04: And so if you look at 20 CFR section 700B2, that sets forth the requirement. [00:18:42] Speaker 04: If you're going to work in a specialty occupation covered by the H1B visa program, you've got to submit, for example, a certified LCA. [00:18:50] Speaker 04: And then to do that, you have to pay the appropriate visa fees as part of that. [00:18:55] Speaker 04: And so I get your point. [00:18:58] Speaker 04: And I thought about that in preparing here. [00:19:01] Speaker 04: But I think the distinction here is that you have a visa program that's specifically set up where you have to require people to follow the rules. [00:19:10] Speaker 04: Otherwise, the labor markets in this country are going to be damaged. [00:19:14] Speaker 04: Bloomberg News came out with an article this week that was shockingly interesting about it. [00:19:19] Speaker 04: I got the point. [00:19:20] Speaker 05: OK. [00:19:21] Speaker 05: I did want to touch on your retaliation claim. [00:19:24] Speaker 04: Yes, your honor. [00:19:26] Speaker 04: I'm very happy that you want to do that because I do want to talk about that too. [00:19:28] Speaker 04: But I know I'm well over my time here. [00:19:30] Speaker 04: You're on art. [00:19:33] Speaker 05: Okay yeah so with respect to the retaliation claim when I assume that you would say the notice comes from the whistleblower reports to the employer not just the complaint which had been sealed for quite some time. [00:19:48] Speaker 04: Correct there are I mean it started well before the complaint was filed I mean if as soon as Mr. Keeney there are later here [00:19:56] Speaker 04: Witness the fraud he did everything in his power and it is impressive what the amount of work that went in on his end to try to stop the fraud. [00:20:05] Speaker 04: And so the the note he was concerned about it he wrote to the higher ups at TCS he refused to participate. [00:20:14] Speaker 04: In the fraud, he tried to correct the fraud and encouraged TCS to amend his visa applications. [00:20:19] Speaker 04: For example, when L1 employees were doing H1B work, if you look at the language of the complaints he submitted and how he tried everything in his power to make sure things were legal and legitimate, it is [00:20:33] Speaker 04: It is the poster child, in our view, for what the anti-retaliation provision of the False Claims Act is supposed to capture. [00:20:42] Speaker 04: This is the type of conduct that we want people to identify and notify and try to correct. [00:20:49] Speaker 04: And so we think on that issue as well that the lower court erred. [00:20:54] Speaker 02: What is your best piece of evidence that protected activity [00:21:03] Speaker 02: involved, put the employer on notice about False Claims Act exposure as opposed to immigration fraud? [00:21:16] Speaker 04: If you look at the statements of Mr. Kenia, I recommend we do the right and legal thing and amend our H-1B filings. [00:21:25] Speaker 04: Why is corporate governance not stopping and fixing this? [00:21:28] Speaker 04: I will not approve of any false changes. [00:21:31] Speaker 04: Any false? [00:21:33] Speaker 04: Any false changes. [00:21:34] Speaker 04: And to the L1A reporting structure, we need to amend the H1B petition. [00:21:40] Speaker 02: That sounds like he's complaining about immigration fraud. [00:21:46] Speaker 04: If you look at the Euclidean decision, if you look at the Singletary decision, he saw fraud. [00:21:52] Speaker 04: And he saw that, for example, [00:21:54] Speaker 04: L1 employees. [00:21:55] Speaker 02: I mean, I'm thinking of Singletary and Judge Millett and I had this debate and part of what pushed her towards False Claims Act as well as animal rights regulations was that the complaints in that case involved payments to the government. [00:22:19] Speaker 02: Well, she was worried. [00:22:21] Speaker 02: Singletary was worried about payments to the government. [00:22:24] Speaker 04: What Mr. Keeney was worried about were false work was fraud to the government. [00:22:30] Speaker 04: L1 employees, for example, doing H1B work. [00:22:33] Speaker 04: That had to change. [00:22:34] Speaker 04: It had to amend. [00:22:35] Speaker 04: Did he say you have to pay visa fees as part of it? [00:22:37] Speaker 04: He didn't say that, but he said we have to file H1B amendments, which by definition include payment of visa fees. [00:22:45] Speaker 04: If you look at the Euclidean case, [00:22:47] Speaker 04: You don't have to have every piece of a False Claims Act case lined up, particularly for a layperson, in order to be captured under the False Claims Act anti-retaliation provision. [00:23:05] Speaker 04: That's not a requirement. [00:23:08] Speaker 04: Otherwise, that provision would never apply, because this is a very complicated law. [00:23:12] Speaker 02: No, that's true. [00:23:13] Speaker 04: And so someone like Mr. Keeney, how, you know, [00:23:18] Speaker 04: He just saw the fraud. [00:23:20] Speaker 04: He wasn't thinking about visa fees per se, but he was thinking about amendments to H-1B visa applications. [00:23:25] Speaker 04: And he's like, we've got to do the right thing. [00:23:30] Speaker 01: All right. [00:23:31] Speaker 01: We'll give you some time on rebuttal. [00:23:32] Speaker 01: OK. [00:23:33] Speaker 01: OK. [00:23:34] Speaker 01: Thank you. [00:23:35] Speaker 03: May I please the court? [00:23:45] Speaker 03: Daniel Volchok for TCS. [00:23:47] Speaker 03: Judge Chutkin correctly concluded that Relator's complaint does not plausibly allege either a reverse FCA violation, excuse me, or FCA retaliation. [00:23:57] Speaker 03: And I want to start with the taxes issue, then go to the visa issue, and hopefully have time to talk about retaliation. [00:24:02] Speaker 03: So starting with the underpayment, suppose the alleged underpayment of tax issue. [00:24:06] Speaker 03: You heard Mr. Kotchan say it this morning. [00:24:08] Speaker 03: The obligation that they are positing comes from one place and one place only, this labor law regulation, this employment law regulation. [00:24:15] Speaker 03: Submit, it's a little counterintuitive that a tax obligation would be imposed solely by an employment law regulation. [00:24:21] Speaker 03: And indeed, as our brief explains, for example, on pages 13 and 18, regulation does not impose any independent tax obligations. [00:24:31] Speaker 03: It refers instead to the obligations imposed by the tax code. [00:24:35] Speaker 03: And the critical point here is, Relator has expressly alleged that TCS did not commit, quote, any violation of the tax code. [00:24:45] Speaker 03: That's paragraph 89 of the amended complaint. [00:24:47] Speaker 03: And he repeats that concession on page nine of his reply brief here. [00:24:51] Speaker 03: And he makes that concession, advertently, of course, in order to get out from under the tax code, the tax bar. [00:24:56] Speaker 03: But having made that obligation, having made that concession, he can't win on the employment law regulation either because what employment law regulation says [00:25:05] Speaker 03: is that in order for a covered employee's actual wages to count toward his or her legally required wage, the employer has to pay, quote, appropriate withholding for the employee's tax. [00:25:19] Speaker 03: Here comes the critical part that he never discusses in accordance with the Internal Revenue Code. [00:25:25] Speaker 03: That is C2A of the regulation. [00:25:27] Speaker 03: So what it is saying is, for these wages to count toward the required wage, you have to comply with the tax code. [00:25:34] Speaker 03: He has expressly alleged and repeated in this court that we complied with the tax code. [00:25:39] Speaker 03: And that means there can be no violation of this regulation. [00:25:42] Speaker 03: And bear in mind, last point on this, Your Honors, [00:25:44] Speaker 03: This regulation is not even imposing freestanding obligations. [00:25:49] Speaker 03: You must pay this. [00:25:50] Speaker 03: As I said a moment ago, what C2 is saying is simply that in order for certain wages to count toward the legally required wage, you have to satisfy these various other obligations, including complying with the tax code. [00:26:03] Speaker 03: But it's not you must pay a certain amount of taxes. [00:26:06] Speaker 03: And to the extent it is, the amount of taxes that have to be paid are what is required by the Internal Revenue Code, what the Internal Revenue Code requires [00:26:13] Speaker 03: is payment of employee taxes on wages actually quote unquote paid. [00:26:20] Speaker 03: That's 26 USC section 3111 paragraphs A and B, and the regulation is 26 CFR section 601 and 401. [00:26:29] Speaker 03: Everything I've quoted here today is in our briefing, but just so the court has it. [00:26:33] Speaker 03: Given his concession that we comply with the tax code and the clear language of the regulation that only requires compliance with the tax code, there is no plausible allegation here [00:26:42] Speaker 03: that TCS violated any obligation to pay payroll taxes. [00:26:46] Speaker 05: If we agree with the district court, do we have to address the FCA tax rule? [00:26:50] Speaker 03: No, Your Honor. [00:26:51] Speaker 03: The tax bar is an alternative ground for affirming that part of Judge Chutkin's ruling. [00:26:56] Speaker 03: If the court instead agrees with us, as she did, that there simply is no cognizable FCA obligation here to pay higher payroll taxes, then the court doesn't reach the tax bar. [00:27:06] Speaker 03: Of course, if the court does, we have briefed why we believe the tax bar would provide an independent basis, along with the other alternative grounds for affirmance that we briefed, lack of declarity, lack of sienta. [00:27:17] Speaker 03: Let me. [00:27:17] Speaker 01: He says the LISC or LISC decision supports his view of the tax bar. [00:27:25] Speaker 01: What's your response? [00:27:27] Speaker 03: No. [00:27:27] Speaker 03: So the LISC lays out this two-part test that is essentially, are these alleged violations of, is this a loss based on tax revenue to the government? [00:27:38] Speaker 03: And is this money that the Internal Revenue Service could go after? [00:27:40] Speaker 03: And he says the second prong isn't met because the IRS isn't authorized to recover [00:27:45] Speaker 03: treble damages right the things that you can get under the fca well if that were the test then right the tax bar would be right there would be no tack bar because right this this comes up in every right so now we have also explained why we think the test the broader test that courts in this district have applied which is essentially whether the claim involves a loss of tax revenue is sufficient to invoke the tax bar we think we win either under lisac or under the ddc cases but again [00:28:13] Speaker 03: the court needs to reach this issue or our other grounds for firmance on the tax allegation, only if it disagrees with us and Judge Chutkin on the central point, there simply is no obligation to pay higher payroll taxes. [00:28:27] Speaker 03: I was going to go to visas. [00:28:29] Speaker 02: That's what I want to ask you about. [00:28:32] Speaker 02: There are two aspects of the fee regulation that might cut against you. [00:28:40] Speaker 02: and cut against my instinct that the employer can buy a bunch of different visas, and if he buys the less expensive one, that's what he gets, and he might or might not exceed the scope of it later. [00:28:55] Speaker 02: But the reg says that the fees established, which is an obligation to pay the government, are associated with the benefit. [00:29:09] Speaker 02: and are not solely determined by section 106.2. [00:29:16] Speaker 02: So associated with the benefits seems to suggest that the fees the employer has to pay [00:29:28] Speaker 02: correlate to the benefit that the employer wants? [00:29:33] Speaker 03: So I don't think so, Judge Katz. [00:29:34] Speaker 03: And we explain this on pages 33 to 34 of our brief, where you look at the actual visa application form. [00:29:39] Speaker 03: And it says that the application will be granted or denied based on whether you have established entitlement to the benefit you are seeking. [00:29:48] Speaker 03: So that's the way. [00:29:49] Speaker 03: I mean, this is ambiguous enough. [00:29:50] Speaker 03: Just standing alone, I think it is not sufficient to create an established [00:29:54] Speaker 03: duty to pay that you need for a False Claims Act violation, which is a very serious thing with tribal damages, et cetera. [00:30:00] Speaker 03: But the visa application form, I submit, makes it clear that that is not the correct interpretation of benefit. [00:30:06] Speaker 03: And bear in mind, Your Honors, virtually every court, virtually every judge to consider this theory of reverse False Claims Act liability has rejected it. [00:30:15] Speaker 03: Most recently, as Childs, to your point, the Ninth Circuit did so unanimously in the Lesnick case. [00:30:21] Speaker 05: And you don't get to the fee until the application is granted. [00:30:24] Speaker 03: Absolutely right the lottery your other point that you made and I want to get to that as well completely disposes of this argument, but just just to just to get there. [00:30:32] Speaker 03: Lesnick cited and agreed with Judge Chuckins decision here the decision of the district judge in Billington. [00:30:38] Speaker 03: you have you have the weight of authority but it's not just the authority let's go to I mean I'll it's just the reasoning right and sure and what what the Ninth Circuit said it explained that there is no obligation to pay the fees for a visa application that you never submitted now I do want to mention mr. cock [00:30:56] Speaker 02: Associated with the benefit, I have your answer. [00:31:00] Speaker 02: What about not solely determined by 106.2? [00:31:04] Speaker 02: If we go to 106.2, it reads like a very reticulated and comprehensive list of you want H1B, you pay this, you want L, you pay that, and on and on for pages. [00:31:21] Speaker 02: And this first reg says, [00:31:23] Speaker 02: fees are not solely determined by 106.2. [00:31:28] Speaker 02: Right. [00:31:28] Speaker 02: And so, but the question is, how do you get to suggest it's more than just this formal, purely formal, you know, I want to buy an L visa. [00:31:37] Speaker 02: So you charge me for an L visa, even if I'm intending for the workers to do H1B work. [00:31:43] Speaker 03: So the regulations do say, as we saw at the top of page 36 of our brief, that the fees are for filing a particular application. [00:31:50] Speaker 03: But even Judge Katz is taking what you just read for everything it's worth. [00:31:54] Speaker 03: How do you get from not solely based on what's in 106 to the notion that the fee is for the application you intended [00:32:03] Speaker 03: to get the benefit of. [00:32:04] Speaker 03: I mean, again, this is a serious thing to be sued under the FCA. [00:32:07] Speaker 03: There has to be what Congress called an established duty to pay. [00:32:11] Speaker 03: And if I could just finish the point on Lesnick, because Mr. Kotchan talked about it this morning, he said Lesnick relied on the Sixth Circuit's decision in ATMI. [00:32:18] Speaker 03: The district court in Lesnick relied on ATMI for the point that I think you were alluding to, Judge Katzis, that obligation had to be fixed in amount. [00:32:28] Speaker 03: That is the only thing about ATMI that Congress changed in 2009. [00:32:32] Speaker 03: But in any event, the relator in Lesnik made this same challenge about relying on ATMI to the Ninth Circuit. [00:32:40] Speaker 03: And the Ninth Circuit explained, this case is not about whether the obligation is fixed in amount or not. [00:32:46] Speaker 03: It is about the preceding threshold question of whether there is an obligation at all. [00:32:52] Speaker 03: And Lesnik explained quite clearly why there is. [00:32:54] Speaker 03: Now, Judge Child, I do want to talk about the lottery because it largely disposes just [00:32:58] Speaker 02: finish the last piece of my question, which is, if not solely determined, can't bear the full weight suggested by my question, what do you think that clause is doing? [00:33:12] Speaker 03: There likely is, well, I think it is likely recognizing the discretion that individual visa application officials will have to grant or deny an application in particular [00:33:24] Speaker 03: circumstances without regard to a fee or so on and so forth, but it is not establishing a clear duty to pay the fee for an entirely different application. [00:33:33] Speaker 03: I mean, you can imagine the chaos and the consternation that would result if the regime that he posits actually came into effect and everyone was started submitting one type of visa application with the fee for another type of application. [00:33:44] Speaker 03: There is simply no support for that regime to the lottery point. [00:33:49] Speaker 03: That's why we have a contingent. [00:33:50] Speaker 03: Yes, that is why we have a contingent obligation here, right? [00:33:53] Speaker 03: No one has the entitlement, much less the obligation to pay the full H1B fee unless their request for such to be able to submit such an application is granted, which you never know if that's going to happen or not. [00:34:06] Speaker 03: Now, in the opening brief, [00:34:07] Speaker 03: Relator says, well, wait a minute. [00:34:09] Speaker 03: There's a $215 pre-application fee that you have to pay. [00:34:14] Speaker 03: So we're reduced to that being the supposed fee that was evaded. [00:34:18] Speaker 03: But we point out on our brief, I think it's page 36, that fee was not in place at the relevant time. [00:34:23] Speaker 03: The relevant fee was between $0 and $10, which is less than the amount that TCS actually paid for the applications it actually submitted for L1 or B1. [00:34:34] Speaker 03: Every application that he suggests [00:34:36] Speaker 03: was improperly submitted and hence a fee was denied to the United States. [00:34:40] Speaker 03: No, we paid more. [00:34:42] Speaker 03: Now, all he says in the reply brief is that this offset theory has no basis for it. [00:34:47] Speaker 03: I don't know where he's getting offset. [00:34:49] Speaker 03: He is making a reverse false claims act allegation that we did not pay the government money. [00:34:54] Speaker 03: He says that we owed our responses. [00:34:57] Speaker 03: Actually, we paid more than we owed on your theory that we should have submitted the H one B pre application with the zero to $10 [00:35:04] Speaker 03: fee so this is a complete response now he also mentions in his brief this possibility of a fee based relationship or an implied contractual relationship and the district court in french city the case that he relies so heavily on from new jersey likewise referred to this first of all it's not clear to me exactly what the fee based relationship or implied contractual relationship is it seems to be [00:35:27] Speaker 03: that anyone who pays the government any fee for a license or permit, or gets the benefit of a license or permit, suddenly has a fee-based relationship or implied contractual relationship, that would vastly expand the scope of the FCA. [00:35:39] Speaker 03: It gets to your museum hypothetical, I think Judge Katz's, far beyond what it has ever been. [00:35:43] Speaker 03: And in contradiction to the Supreme Court's admonition in Escobar that the FCA is not an all-purpose anti-fraud statute, but in any event, [00:35:51] Speaker 03: Just saying there is a fee-based relationship or an implied contractual relationship is not enough. [00:35:56] Speaker 03: An obligation still has to exist. [00:35:58] Speaker 03: The statute says it can arise from fee-based or implied contractual relationship. [00:36:03] Speaker 03: But it's not enough to say that exists, just like it's not enough to say there was a contract with the government, express contract. [00:36:08] Speaker 03: The express contract would have to create an obligation. [00:36:10] Speaker 03: Same thing here. [00:36:11] Speaker 03: There is no obligation to pay fees for applications that were never submitted. [00:36:17] Speaker 03: If I can talk briefly about retaliation, [00:36:21] Speaker 03: First of all, there's no protected activity here. [00:36:23] Speaker 03: Judge Chutkin correctly concluded for the same reasons I've been discussing, there's no obligation. [00:36:27] Speaker 03: If there's no obligation, there can't be protected activity. [00:36:30] Speaker 01: It doesn't have to conclusively establish an obligation. [00:36:35] Speaker 01: He just has to objectively, I guess we have to look at whether [00:36:49] Speaker 01: It's reasonable under circumstances for whistleblower to believe that that's what they're doing is exposing an FCA violation. [00:37:00] Speaker 03: Right, could he have had, this is the second prong of protected activity, could he have had an objectively reasonable belief that TCS was committing or would commit FCA violations? [00:37:10] Speaker 03: And if there is no legal obligation, the answer is no. [00:37:13] Speaker 03: I mean, Mr. Cotchen said in his top-side argument that under this court's case law, and this part is correct, you don't have to have a completed or a winning FCA claim for there to be protected activity. [00:37:22] Speaker 03: You don't have to have put all the puzzle pieces together, so to speak, is how this court has sometimes phrased it. [00:37:27] Speaker 03: But if an essential puzzle piece [00:37:29] Speaker 03: the legal obligation simply does not exist, then there cannot be protected activity. [00:37:34] Speaker 03: You cannot have that objectively reasonable belief. [00:37:37] Speaker 03: But even if there were protected activity here, Your Honors. [00:37:40] Speaker 02: Why shouldn't he be protected if we conclude that his legal theory is wrong for reasons you suggest? [00:37:52] Speaker 02: But here we are having a reasonable dispute about it. [00:38:00] Speaker 02: And whistleblowers are not legally trained. [00:38:06] Speaker 02: The zone of protection in retaliation provisions typically sweeps more broadly than the underlying substantive protections. [00:38:19] Speaker 02: You don't want to protect cranks, but you do want to protect people who [00:38:25] Speaker 02: Take positions that are reasonable and later turn out to be unfounded. [00:38:30] Speaker 03: I agree with all of that. [00:38:30] Speaker 03: Judge Katz's and I have two responses. [00:38:32] Speaker 03: Number one is there simply it could not have been an objectively reasonable belief. [00:38:37] Speaker 03: I have to quibble or take issue with your suggestion that we're having a reasonable conversation. [00:38:41] Speaker 03: No court. [00:38:42] Speaker 03: I mean, French City is the only court you need to for retaliation. [00:38:45] Speaker 02: You need to persuade us that. [00:38:48] Speaker 02: the FCA debate, his position is not just wrong, but unreasonable. [00:38:54] Speaker 03: That he could not have had an objectively reasonable belief that this obligation existed. [00:38:59] Speaker 03: And at the time that the conduct was going on, no court had ever identified a source of the supposed obligation to underpay fees. [00:39:06] Speaker 03: Franchitti came along later. [00:39:07] Speaker 03: But even Franchitti, as the Ninth Circuit explained, didn't point to any such authority. [00:39:12] Speaker 03: It just declared that there is such an obligation. [00:39:15] Speaker 05: That's not generally in retaliation law. [00:39:17] Speaker 05: You don't have to win the underlying claim to still proceed on your retaliation. [00:39:23] Speaker 03: Absolutely, Judge Childs. [00:39:23] Speaker 03: If there's an actual obligation out there that the employer might be violating, and you think they might be violating it, and you go look into it, and it turns out they're not doing it, you're still going to be protected along the way. [00:39:36] Speaker 03: It just turns out the facts were not there. [00:39:37] Speaker 02: But it's not just factual uncertainty. [00:39:39] Speaker 02: It's legal uncertainty as well. [00:39:41] Speaker 03: I will if that is so if that is so Judge Katz's I maintain that there is not a reasonable argument that there's an actual obligation here but even if they're disputing whether. [00:39:54] Speaker 01: whether legal uncertainty is a is a basis. [00:39:59] Speaker 01: You saying that it's only if it's factual. [00:40:02] Speaker 03: I'm just trying to understand the scope of our I'm not I'm not saying that legal uncertainty can never be enough to get it. [00:40:10] Speaker 03: But but but standard this court has articulated is whether there is an objective, whether the relator had [00:40:16] Speaker 03: an objectively reasonable belief. [00:40:18] Speaker 03: And my submission here is that there could not have been an objectively reasonable belief that there was an obligation to pay taxes on wages that were never paid or an obligation, an established duty [00:40:30] Speaker 03: to pay fees for visa applications that were never submitted. [00:40:33] Speaker 03: But even if there were, even if this fell within protected activity, the retaliation claim would still fail because he did not put his employee, he's not plausibly alleged that TCS was aware of any protected activity, which means the alleged. [00:40:48] Speaker 05: But you're distinguishing then whistleblower reports from the actual complaint. [00:40:52] Speaker 05: What do you mean by never on notice? [00:40:54] Speaker 05: Because he'd been employed since 2006, [00:40:59] Speaker 05: These complaints rise in May, June 2017, January 2018. [00:41:05] Speaker 05: And then it's during that time that he's just kind of got a downfall of a myriad of things that are happening with his employment from, you know, being misclassified, the issues with respect to his promotion, being asked to go out, you know, to get another project with no support, et cetera. [00:41:22] Speaker 03: That's the alleged retaliatory activity. [00:41:24] Speaker 03: And there is no doubt that his whistleblower reports, his email communications put TCS on notice that he was investigating company policies and wage violations. [00:41:36] Speaker 03: The question is, none of that is an FCA violation, right? [00:41:40] Speaker 03: To be protected activity, you have to be investigating a possible FCA violation. [00:41:46] Speaker 03: And for the alleged retaliation to be because of the protected activity, [00:41:50] Speaker 03: The employer has to be aware of the potential FCA violation. [00:41:54] Speaker 03: Mr. Kotchan this morning said, look at his whistleblower reports. [00:41:56] Speaker 03: He read you a few quotes. [00:41:58] Speaker 03: I submit those quotes, underscore, there is nothing, and the court has, I'm sure, and will, I'm sure, look at the reports and the emails. [00:42:04] Speaker 03: There's nothing in there that remotely says you are not paying the government money that you owe. [00:42:11] Speaker 03: You don't have to phrase it in FCA terms. [00:42:12] Speaker 03: You don't even have to know about the particular FCA provision, but you have to put the employer on notice that this is not just about violating wage regulations or... But what about him mentioning unethical visa-related conduct? [00:42:27] Speaker 03: Sure. [00:42:28] Speaker 03: That is applying for the wrong visa. [00:42:30] Speaker 03: It is not an FCA obligation to apply for the wrong visa. [00:42:34] Speaker 03: It could be that the visa they didn't apply for was less expensive, that the fee was less expensive, right? [00:42:40] Speaker 03: He did not do anything to let his employers know. [00:42:44] Speaker 03: The issue here, boss, is that you are not making payments to the government. [00:42:49] Speaker 03: Now, he relies heavily in these discussions. [00:42:51] Speaker 03: He brought up Yesudian, Singletary, those are [00:42:55] Speaker 03: traditional FCA claims, and he keeps referring to the fact that he was investigating misrepresentations and alerted his bosses to misrepresentations. [00:43:04] Speaker 03: A misrepresentation, a false claim, is an essential element of a traditional false claims act case, so that can well be enough. [00:43:11] Speaker 03: But it is not an element, not an essential part, of a reverse FCA violation. [00:43:17] Speaker 03: The reverse FCA violation requires an obligation, and there's nothing that he said to his employer at any time. [00:43:23] Speaker 03: alerted them any relevant time that alerted the employer to the fact that this was about avoiding an obligation to pay the government. [00:43:31] Speaker 03: That's why there's no retaliation, and I ask that Judge Chuckin's order of dismissal be affirmed. [00:43:35] Speaker 01: All right. [00:43:36] Speaker 01: Thank you. [00:43:36] Speaker 01: Thank you, Your Honors. [00:43:43] Speaker 01: Mr. Kotchin, you are out of time. [00:43:44] Speaker 01: We'll give you two minutes. [00:43:45] Speaker 04: Okay. [00:43:46] Speaker 04: Thank you, Your Honor. [00:43:47] Speaker 04: Look, just a couple very quick points. [00:43:52] Speaker 04: The argument that because an H-1B visa, for example, wasn't applied, which I think is what the Lesnick decision is discussing, at the time of the fraud, that the only visa that was sought was an L-1 visa, such that the visa fees, the H-1B visa fees weren't paid, that is contrary to a case like Conagra. [00:44:14] Speaker 04: So if the Reverse False Claims Act involves reducing or avoiding an obligation to pay the government, [00:44:23] Speaker 04: When TCS made the decision to have L1 employees do H1B work, it had an obligation at that point to seek the appropriate application and visa for it to cover the work, the H1B visa. [00:44:41] Speaker 04: That obligation attached non-refundable fees, such as the $215 fee, [00:44:49] Speaker 04: that was discussed and the fees that preceded that. [00:44:51] Speaker 04: In the relevant timeframe in this case, the conduct at issue here is ongoing. [00:44:57] Speaker 04: If you look at TCS's visa applications and what they're doing with respect to H-1B, L-1 and visa applications, that conduct is ongoing. [00:45:07] Speaker 04: Second point, we talked about avoiding tax liabilities. [00:45:11] Speaker 04: The DOJ, to bring up the DOJ's position on this issue, they settled a case with TCS's primary competitor, Emphasis, where Emphasis was using B1 employees to do H1B work. [00:45:25] Speaker 04: There is no wage obligation associated with B1 employees. [00:45:30] Speaker 04: And so what the DOJ said, and we quoted on page 28 of our brief, is that they were avoiding tax liabilities by perpetrating bet fraud. [00:45:42] Speaker 04: With respect to an objectively reasonable basis, Mr. Keene, if you look at his emails and you look at the whistleblower reports that he submitted, he clearly was concerned, not about just... [00:45:54] Speaker 04: visa application. [00:45:55] Speaker 04: It's kind of a normal company policy. [00:45:58] Speaker 04: What he was concerned about was fraud. [00:45:59] Speaker 04: He continually highlighted to his superiors and to his colleagues that we have to apply for H-1B visas. [00:46:08] Speaker 04: We're going to have these L-1. [00:46:09] Speaker 01: I think your friend on the other side says he had to have said more than this. [00:46:14] Speaker 01: He was concerned about fraud. [00:46:16] Speaker 01: He has to have at least articulated there's money that we're not paying to the federal government. [00:46:23] Speaker 04: And that goes to the issue of, if that is the requirement of the anti-retaliation provision of the False Claims Act, then laypeople are never going to be covered by that. [00:46:33] Speaker 04: Because that requires such a level of detail and discussion that we've spent hours researching and can articulate now, and we're lawyers. [00:46:43] Speaker 04: Mr. Keeney is just a lay person who's just seeing improper conduct. [00:46:47] Speaker 02: And so you don't... If you go back to Singletarian all the way back to Yesudian, our cases do draw some line between complaining about non-monetary regulatory violations and complaining about not paying the government. [00:47:08] Speaker 04: Well, you don't have to have a completed FCA violation to have an objectively reasonable concern that there is a violation. [00:47:19] Speaker 04: And so the discussion here and what Mr. Keeney was complaining about was we cannot have the L1 conduct. [00:47:25] Speaker 04: We can't falsify reporting structures to try to meet L1 regulations and have these folks do H1B work. [00:47:32] Speaker 04: And so if he has to draw the next step and say, because there's visa fees, that becomes where, if that is what is required for there to be an objectively reasonable basis, whether or not there's a completed violation of the act, if that's what's necessary, then you're never going to have the anti-retaliation provision apply in this area. [00:47:57] Speaker 01: We have your argument. [00:47:58] Speaker 01: We'll take the case under advisement. [00:48:00] Speaker 01: Thank you. [00:48:00] Speaker 01: Thank you for your time.