United States of America ex rel. v. Guthrie Theater Foundation

Background

Patricia Lesko, described in the opinion as an investigative journalist, brought a False Claims Act case on behalf of herself and the United States against The Minnesota Orchestral Association. The United States declined to intervene but allowed Lesko to continue the case in its name.

The case concerned the Paycheck Protection Program, which provided potentially forgivable loans to qualifying organizations during the COVID-19 pandemic. The Orchestra’s loan application reported 423 employees, and it received a first-draw loan of $4,503,852. The loan was later forgiven.

Lesko alleged that the Orchestra was ineligible because it had more employees than the program allowed. She relied in part on employee numbers reported on the Orchestra’s Internal Revenue Service Form 990 filings. The amended complaint asserted four False Claims Act theories involving allegedly false claims or statements, conversion of funds, and avoidance or reduction of an obligation to repay the loan.

Motion to Dismiss

The Orchestra moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Because the claims alleged fraud, the court also applied Rule 9(b), which requires the circumstances of fraud to be pleaded with particularity, including the alleged fraud’s who, what, where, when, and how.

The court held that Lesko did not allege sufficient facts to support a reasonable inference that the Orchestra’s employee count was false or that it intended to defraud the government. The application form did not define “employee” or explain how to calculate the number. Lesko did not allege that the Orchestra had more than 500 employees on its payroll when it applied or that it dismissed employees to qualify and later rehired them. The court also noted that the Form 990 employee count could include people who worked only briefly during the year, while the program’s eligibility calculation could involve an average employee count.

Public-Disclosure Bar

The court also addressed the False Claims Act’s public-disclosure bar. That rule requires dismissal when substantially the same allegations or transactions were publicly disclosed, unless the person bringing the case qualifies as an original source—someone with independent knowledge that materially adds to the public information.

The court determined that essential information underlying Lesko’s allegations had been publicly disclosed through sources including the Small Business Administration’s loan database, Internal Revenue Service Form 990 filings, the Orchestra’s website, and news-media sources. The court concluded that these sources, considered together, provided information leading to an inference of fraud. It also concluded that Lesko was not an original source. The court stated that Lesko had waived any argument that she qualified for that exception because she maintained that the information had not been publicly disclosed.

Disposition

The court held that the amended complaint failed to satisfy Rule 9(b) and that the public-disclosure bar independently required dismissal. Judge Paul A. Magnuson granted The Minnesota Orchestral Association’s motion to dismiss and ordered that the matter be dismissed with prejudice. The court directed that judgment be entered.

Note on the Opinion’s Employee Figures

The opinion states in one part that the Orchestra’s Form 990s reported 823 employees, but later describes one of the alleged publicly disclosed elements as the Form 990s listing 923 employees in 2019 and 2020. The opinion does not explain this difference.