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Ninth Circuit:
No False Claim Liability for Filing for Cheaper Visas for Foreign Workers
Opinion Says There’s No Duty to Pay Government Costlier Fee Applicable to Unskilled Workers if Did Not Actually Apply for That Version
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeal held yesterday that subcontractors that applied for employment visas for skilled workers, when they had actually hired foreign nationals who were unskilled and the proper documents were costlier, there was no violation of a federal statute against cheating the government.
A qui tam action—based on legislation allowing whistleblowers to sue those who improperly avoid an obligation to pay the U.S. and to retain a portion of the recovery—was properly dismissed, the court held, where the plaintiffs did not show any established duty to pay.
Senior Circuit Judge Mary M. Schroeder wrote the opinion affirming the judgment in favor of the defendants by District Court Judge Beth Labson Freeman. Circuit Judges Ronald M. Gould and Ryan D. Nelson joined in the opinion.
Fraud Alleged
The dispute arose after foreign workers filed a complaint in March 2016 alleging that the subcontractors that hired them to perform unskilled labor on construction projects at a Fremont Tesla facility fraudulently applied for the wrong type of employment visas on their behalf in order to save money.
Appealing the dismissal, on behalf of the U.S. government, were Gregor Lesnik of Slovenia and Stjepan Papes of Croatia who sued Robert Vuzem, Ivan Vuzem, ISM Vuzem, d.o.o., ISM Vuzem USA, Inc., Vuzem USA, Inc., HRID-Mont, d.o.o., and Gregurec, Ltd. The defendants include related entities operated by Robert and Ivan Vuzem, residents of Slovenia.
After the defendants failed to appear, the plaintiffs moved for default judgment. On Sept. 17, 2021, Freeman denied the motion and dismissed the action with prejudice.
Reverse False Claims
Suit was brought under 31 U.S.C. §3729(a)(1)(G), part of the False Claims Act (the “FCA”), which provides liability for what are known as “reverse false claims.” Schroeder explained:
“While an ordinary false claim involves seeking money from the government to which the claimant is not entitled, we have the reverse situation here: defendants allegedly paid the government less than they should have. The FCA expressly imposes liability for reverse false claims where a person ‘knowingly makes [or] uses...a false record or statement material to an obligation to pay...the Government, or . . . knowingly and improperly avoids or decreases [such] an obligation.”
She declared that the defendants had no obligation under the FCA to pay the higher application fees associated with visas for which they never applied.
Schroeder said the case turns on what amounts to an “obligation” under the FCA, and pointed to subdivision (b)(3), which defines the term as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, [or] from statute or regulation.”
The jurist noted that “[o]ur Court has not yet interpreted this definition since its inclusion in 2009” and reasoned that “[t]he key issue [is] whether the defendants had an obligation to pay more than they did.”
Looking to the language of the section, she said “[t]he definition requires that a legal obligation to pay the government be ‘established’ at the time the false statement or record is made” and concluded that the plaintiffs could not show that the defendants had skirted any “established duty.” Schroeder opined:
“In this case, because the statute requires an established legal obligation, it is not sufficient that defendants applied for the wrong visas or may face liability for violating applicable regulations. They had no ‘established duty’ to pay for visas for which they did not apply….Indeed, the only specific, legal obligation defendants had at the time they applied for the…visas was to pay the application fees for those visas.”
District Court Decision
The plaintiffs cited what Schroeder said was “the sole district court decision” finding an obligation to pay higher application fees for visas for which a party did not apply—the 2021 District of New Jersey case of Franchitti v. Cognizant Technology Solutions Corp. Unpersuaded by the reasoning of the case, she wrote:
“[T]he court never identified any legal authority that would establish such an obligation….The court suggested that the obligation arose from an ‘implied contractual’ or ‘fee based’ relationship between defendant and the government….But it never explained why such a relationship would obligate the defendant to pay a fee for a visa application it did not submit. Plaintiffs here make the same mistake: they never identify any legal authority establishing that defendants had such an obligation.”
The court also found that a forced labor claim by Lesnik—who alleges that the defendants threatened him with prosecution and pursued civil claims against him in order to pressure other workers to continue working—was properly dismissed as the relevant statute requires that the person facing abuse or threats be the one working under coercion.
Schroeder said:
“The [Trafficking Victims Prevention Reauthorization Act] defines ‘abuse or threatened abuse of law or legal process’ as improperly using or threatening the same ‘to exert pressure on another person to cause that person to take some action.’….A plain reading of this section is that the person facing abuse or threats must be the same person who is pressured to provide their labor. While defendants allegedly threatened and sued Lesnik after he was terminated, plaintiffs admitted that these actions were not taken to coerce him to provide any labor or services. The district court therefore correctly held that Lesnik failed to state a…claim.”
The case is U.S. ex rel Lesnick v. ISM Vuzem D.O.O., 23-16114.
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