Lesnik v.Eisenmann SE

Background

Gregor Lesnik and Stjepan Papes brought a False Claims Act (FCA) claim against several defendants that had not appeared in the case. They alleged that the defendants brought international workers to the United States on B-1 visas, which are generally reserved for skilled work, even though the workers allegedly performed unskilled construction work. They alleged that the defendants submitted false statements to obtain those visas.

The plaintiffs pursued a reverse FCA theory under 31 U.S.C. §§ 3729(a)(1)(G) and 3729(a)(1)(C). They argued that the defendants avoided paying higher fees associated with petition-based visas by applying for less expensive non-petition-based B-1 or B-2 visas. They also alleged a conspiracy to violate the FCA.

Jurisdiction and Service

The court found that it had subject-matter jurisdiction because the claim arose under federal law. It also held that the FCA’s nationwide service-of-process provision allowed the court to consider the defendants’ contacts with the United States as a whole. Based on the allegations that the defendants contracted for construction work in the United States, supplied workers for United States sites, brought workers into the United States, or otherwise participated in those activities, the court found sufficient minimum contacts to exercise specific personal jurisdiction over each defendant.

The court found that service was proper for ISM Vuzem d.o.o.; ISM Vuzem USA, Inc.; Vuzem USA, Inc.; Robert Vuzem; Ivan Vuzem; HRID-MONT d.o.o.; LB Metal d.o.o.; Mos Servis, d.o.o.; and Gregurec Ltd. Gregurec Ltd. had waived service. The court found that the plaintiffs had not shown proper service on Magna d.o.o. under the Hague Service Convention and Federal Rule of Civil Procedure 4(f). Slovenia permits service by registered mail only when the documents are written in or accompanied by a Slovenian translation, and the plaintiffs did not attest that this requirement was met.

The court therefore denied the third motion for default judgment as to Magna d.o.o. and ordered the Clerk to vacate the January 16, 2020 entry of default against Magna d.o.o. The court stated that Magna d.o.o. would have to be properly served before the plaintiffs could seek entry of default against it.

False Claims Act Claim

For the properly served defendants, the court applied the factors used to decide whether default judgment is appropriate. A default does not automatically establish a legally sufficient claim: even when well-pleaded liability allegations are treated as true, the court may not enter default judgment if those allegations do not entitle the plaintiff to relief.

The court held that the plaintiffs’ reverse FCA theory failed. Under the FCA, an “obligation” to pay the government must be an established duty involving a fixed amount that is immediately due; it cannot be merely a potential liability. The plaintiffs alleged that the defendants applied for cheaper non-petition-based visas, not that they applied for the more expensive petition-based visas. Because the defendants had not applied for petition-based visas, the court found that they did not have an obligation to pay the higher petition-based visa fees.

The court also held that the alleged conspiracy claim failed because a conspiracy claim under the FCA requires an underlying FCA violation. Since the plaintiffs had not adequately alleged a reverse FCA violation, they could not establish an FCA conspiracy claim based on that alleged violation.

Disposition

The court concluded that the complaint failed to state an FCA claim against the properly served non-appearing defendants and therefore that default judgment could not be entered. Because the plaintiffs had already amended their complaint three times, filed four complaints in total, and had been warned about the defect since 2019, the court found that further amendment would be futile and would cause undue delay. Judge Lucy H. Koh denied the plaintiffs’ third motion for default judgment and dismissed with prejudice the FCA claim against ISM Vuzem d.o.o.; ISM Vuzem USA, Inc.; Vuzem USA, Inc.; Robert Vuzem; Ivan Vuzem; HRID-MONT d.o.o.; Gregurec Ltd; LB Metal d.o.o.; and Mos Servis, d.o.o.