Rako v. VMware LLC

Background

Sebastian Rako appeared without a lawyer and alleged that he worked as a sales professional for VMware LLC from approximately August 2021 through June 2022. He claimed VMware suspended and terminated him after he reported that Kaiser Aluminum Corporation had defrauded VMware under a VMware license. The complaint named VMware and its employees Michael Brewster and Jeremy Hoke, as well as Kaiser and its employees Mike Wood and Tami Mills.

The complaint asserted four causes of action: retaliation under the False Claims Act, retaliation under California Labor Code section 1102.5, civil conspiracy to retaliate against a whistleblower and facilitate wire fraud, and wrongful termination in violation of public policy. The first, second, and fourth claims were asserted against VMware; the conspiracy claim was asserted against the other defendants.

AI-related filing order

The court addressed notices in which Rako attempted to correct citations in his opposition briefs. The court noted that the original briefs cited nonexistent cases and that the corrected citations differed substantially from the originals. It ordered all parties and lawyers not to present fictitious or unverifiable legal citations or factual assertions. For future filings in this case, Rako must include a footnote for each authority located through an artificial-intelligence or similar automated tool stating: “Located through AI; Checked.” The court warned that failing to verify such citations or factual assertions could support sanctions.

False Claims Act retaliation claim

The court applied Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. For retaliation under the False Claims Act, an employee must plausibly allege that the employee engaged in protected conduct, the employer knew about that conduct, and the employer discriminated against the employee because of it.

The court explained that, under the Ninth Circuit’s current test, an employee trying to stop a False Claims Act violation engages in protected conduct when the employee in good faith believes, and a reasonable employee in similar circumstances might believe, that the employer may be committing fraud against the government. The court rejected VMware’s argument that Rako had to allege that he was investigating conduct likely to lead to a False Claims Act lawsuit.

The court nevertheless found the complaint’s allegations insufficient. Rako alleged that Kaiser used more VMware licenses than authorized, operated older technology at a facility involved in producing components for the F-35 Joint Strike Fighter, and had cybersecurity and compliance problems. He also alleged that he reported these concerns within VMware, refused to accept Kaiser’s self-reported license counts, and warned that false information could create potential wire-fraud or False Claims Act liability.

The court concluded that these allegations did not adequately connect Kaiser’s alleged licensing fraud involving VMware to a false claim made to the federal government, particularly by VMware. Because Rako had not plausibly alleged protected conduct, the court also concluded that he had not plausibly alleged VMware’s knowledge of protected conduct.

Other claims and jurisdiction

The court focused on the False Claims Act claim because Rako relied on it as the basis for federal-question jurisdiction and asserted that the other claims could proceed under supplemental jurisdiction. The court found that the conspiracy and wrongful-termination claims were also deficient to the extent they derived from the deficient False Claims Act claim. It did not reach the defendants’ remaining arguments concerning the California retaliation, conspiracy, and wrongful-termination claims.

The court also considered whether diversity jurisdiction existed and concluded it did not. The complaint alleged that Rako was an Austrian citizen and U.S. permanent resident residing in California, while the allegations indicated that several defendants would also be considered California citizens for diversity purposes.

Disposition

The court dismissed the first cause of action for False Claims Act retaliation and granted Rako leave to amend. It granted VMware’s motion to dismiss the third cause of action for civil conspiracy and the fourth cause of action for wrongful termination in violation of public policy, with leave to amend, to the extent those claims were based on the deficient False Claims Act claim.

The court denied without prejudice the remaining arguments for dismissal in the motions filed at Docket Nos. 17, 18, and 44. Those arguments could be renewed if Rako filed a First Amended Complaint. The court allowed Rako to file that complaint by December 31, 2025, required a redline comparing it with the original complaint, and directed defendants to respond within fourteen days after filing.