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Emekauwa v. The Shaw University

United States District Court, E.D. North Carolina, Western Division

June 14, 2019

EMEKA EMEKAUWA, Plaintiff,
v.
THE SHAW UNIVERSITY, Defendant.[1]

          ORDER

          LOUISE W. FLANAGAN, UNITED STATES DISTRICT JUDGE

         This matter is before the court on defendant's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), (DE 23), and plaintiff's motion to allow discovery, (DE 25). The issues raised are ripe for ruling. For the following reasons, the court denies defendant's motion to dismiss and denies plaintiff's motion as moot.

         BACKGROUND

         On September 13, 2017, plaintiff filed a qui tam suit under seal on behalf of the United States asserting claims under the False Claims Act, 31 U.S.C. § 3729 et. seq. (“FCA”), against his former employer defendant Shaw University. Plaintiff, former general manager of defendant's radio station, WSHA-FM, alleges that defendant 1) overstated its revenues and expenditures above and beyond its radio station's budgetary documents in its audited financial reports to increase its grant awards from the Corporation for Public Broadcasting (“CPB”) and 2) retaliated against plaintiff for voicing his belief that defendant was out of compliance with reporting requirements.

         The United States declined to intervene. (DE 10). Subsequently, plaintiff moved to dismiss his first claim under section 3729 and to proceed individually on his retaliation claim under an amended complaint, (DE 13), which the court allowed on October 9, 2018.

         Plaintiff filed amended complaint the next day, (Am. Compl. (DE 22)), and on October 29, 2018, defendant filed instant motion to dismiss, (DE 23), attaching in support three documents: 1) CPB's Radio Community Service Grant General Provisions and Eligibility Criteria (the “General Provisions”), 2) CPB's Financial Reporting Guidelines For Preparing The Annual Financial Report & Financial Summary Report, and 3) February 12, 2016 audited financial statements for defendant's radio station.

         On November 21, 2018, plaintiff filed opposition to defendant's motion to dismiss which also sounds as motion for the court to allow discovery, arguing documents attached to defendant's motion and arguments made by defendant are properly brought pursuant to Rule 56, not Rule 12(b)(6), requesting the court to either defer ruling on defendant's motion and allow discovery or strike defendant's motion insofar the arguments contained therein relate to questions of evidence and not the sufficiency of plaintiff's pleadings. (DE 25). Defendant filed opposition to plaintiff's motion on January 28, 2019, maintaining defendant's motion is properly brought pursuant to Rule 12(b)(6).

         STATEMENT OF FACTS

         The facts alleged in the amended complaint relevant to the resolution of the instant motions may be summarized as follows.

         A. Corporation for Public Broadcasting and Community Service Grants

         In order for a public broadcasting station to receive a community service grant (“CSG”) from the CPB, the station must certify annually to the CPB that they comply with the requirements of the Communications Act of 1934 (“Communications Act”), 47 U.S.C. § 396, et seq., as a condition of accepting a CSG. The Communications Act requires that CSG recipients undergo audits of their books and financial records, conducted by public accountants, and retained according to the form required by the CPB. The Communications Act requires, inter alia, that, “funds may not be distributed [under the CSG] . . . to any public telecommunications entity that does not maintain for public examination copies of the annual financial and audit reports, or other information regarding finances, submitted to the [CPB] . . . .¨ 47 U.S.C. § 396(k)(5).

         The CSG allocation to radio stations features a base grant in addition to an “incentive grant” or matching grant, which is calculated in part according to the amount of non-federal financial support (“NFFS”) accrued by the grantee during a particular period of time. Accordingly, fluctuations in the amount of NFFS accrued or reported by the grantee may cause the amount of the incentive grant authorized to the grantee to rise or fall in turn.

         Plaintiff alleges that as recently as April 2017, the CPB office of the inspector general began to identify incorrect calculations of NFFS and admonished grantees that “[i]f not calculated correctly, non-federal financial support may be overstated and subject your station to a penalty under the CSG Non-compliance Policy.” (Am. Compl. (DE 22) ¶ 15). Overstated NFFS can cause the CPB's incentive grant component of the CSG to allocate more federal funds to the grantee than that grantee may be entitled to receive.

         B. Plaintiff's Work at WSHA-FM

         Defendant has owned WSHA-FM since 1968. Plaintiff worked for defendant for nearly 29 years as general manager of WSHA-FM, from his date of hire in August 1987 until his termination on or about July 8, 2016.[2] Under plaintiff's leadership of WSHA-FM, the radio station earned millions of dollars in donations, signed contracts with major telecommunications companies such as Verizon, Sprint, and T-Mobile, and built a radio tower for defendant which was appraised at over $3, 000, 000.00 in 2008 and has earned approximately $250, 000.00 in annual revenue for defendant for over 20 years. Plaintiff maintained high performance evaluations throughout his employment until February 2016.

         By virtue of plaintiff's position as general manager, plaintiff alleges he had intimate knowledge of WSHA-FM's budget, including its itemized expenditures. As part of plaintiff's job duties, he was regularly required to review WSHA-FM's budget to make requests for approved expenditures under that budget, including approving personnel expenditures, travel costs, and other financial outlays incurred during the station's operation. Plaintiff held a general understanding of the amounts of revenue brought in by WSHA-FM, including the various sources of revenue such as fundraising and renting the use of the station's radio tower. Plaintiff received regular annual training on the CSG grant requirements by and through his annual attendance at CPB conferences held for the same purpose in Washington, D.C.

         C. Financial Management of WSHA-FM

         Throughout plaintiff's tenure as general manager of WSHA-FM, defendant largely exerted exclusive control over the financial management of WSHA-FM operations by and through the department of fiscal affairs. Plaintiff did not have control over developing the WSHA-FM budget throughout his tenure at WSHA-FM. At all times relevant to the complaint, WSHA-FM's budget was created by defendant's vice president of fiscal affairs and the vice president of institutional advancement, from whom plaintiff was required to obtain approval for requisitions.

         Substantially all income generated by WSHA-FM was directed to defendant and was not deposited directly into WSHA-FM internal accounts but instead into defendant's general fund. For example, revenue generated by WSHA-FM, including leasing of the radio tower, was directed to fiscal affairs and not retained in WSHA-FM's own accounts.

         Plaintiff was able to review budgetary documents that represented WSHA-FM's budget for the fiscal year. Specifically, plaintiff was able to access WSHA-FM's general fund as well as the CSG fund. WSHA-FM's general fund and the CSG fund represented the only two bank accounts associated with WSHA-FM's operations.

         D. WSHA-FM and Community Service Grants

         In 1992, defendant began to apply for and receive CSGs to support its radio operations. In the most recent years of WSHA-FM's operations, the radio station received the following in CSGs over the course of the following fiscal years: 2011: $136, 215.00; 2012: $122, 442.00; 2013: $136, 141.00; 2014: $179, 245.00; 2015: $175, 475.00.

         For each year in which defendant received a CSG, defendant, by and through its agents, was subject to multiple requirements including the requirement to certify the accuracy of its financial documentation, describing the assets, liabilities, expenditures, and revenue over a specified period of time, which was submitted to the CPB and was published and made available to the general public; to report and annually certify an amount it received in NFFS; and to read and sign their assent to the Radio Community Service Grant Agreement and Certification of Eligibility (“CSG Agreement”).

         For all years relevant to the complaint, the CSG Agreement's language was substantially similar to that included in the CSG Agreement for fiscal year 2016, which stated in relevant part:

A. Grant Offer and Acceptance: CPB offers and Grantee accepts the grant (Grant(s)) set forth in Section III below, subject to all of the terms and conditions herein. CPB has calculated and offered the Grants in reliance and contingent upon the accuracy of the following:
1. The representations and warranties made by the Grantee to qualify for and receive the following Grants:
• FY 2016 Radio Community Service Grant (CSG); . . .
2. Grantee's Fiscal Year (FY) 2014 financial report.
B. Conditions: In addition to the terms and conditions stated herein, this Agreement includes and the Grantee must fully comply with CPB's Radio Community Service Grant General Provisions and Eligibility Criteria . . ., the certification requirements set forth in the Communications Act of 1934, . . . and the Financial Reporting Guideline s . . . All o f the se d o cume n t s . . . ar e incorpor ated herein by reference as if fully set forth herein.

(Id. ¶ 47).

         For such CSG Agreements, grantees such as defendant were required to certify its compliance with a checklist of criteria, including that the grantee complied with the General Provisions for eligibility. In the General Provisions, the CPB warned grantees that, “improper certification may result in penalties under the Federal False Claims Act.” (Id. ¶ 49).

         Plaintiff alleges defendant knowingly submitted its Audited Financial Reports (“AFR”) and Audited Financial Statements (“AFS”) to the CPB, and published the same on the WSHA-FM website, with knowledge that the CPB would rely upon the accuracy of the same in approving the payment of the CSG monies.

         Additionally, within each annual CSG Agreement, language substantially similar to the following used in the CSG Agreement for fiscal year 2016 was included:

E. Representations and Warranties: Grantee represents and warrants:
1. The information provided in this application is true and accurate; 2. That Grantee understands that using false information to obtain the Grants may subject the Grantee to penalties under the Federal False Claims Act, 31 U.S.C. §§ 3729-3733; . . .
4. That Grantee shall comply with all of the terms and conditions herein and in the General Provisions . . . .

(Id. ¶ 52).

         Agents acting on behalf of defendant were required to sign, and did sign, specific certifications of eligibility for each annual CSG Agreement, including an express certification that “Grantee complies with the General Provisions” provided in the CSG grant. (Id. ¶ 53).

         For each year defendant received a CSG allocation, defendant's president as well as plaintiff signed the CSG Agreement and signed other documents material to the CPB's determination to approve disbursement of the CSG to defendant, certifying their compliance with the CSG requirements, including but not limited to those aforementioned, and defendant caused the same to be submitted to the CPB for payment of the CSG.

         E. Plaintiff's Complaints to Defendant Prior to 2016

         During the annual CSG application and AFR/AFS reporting processes, fiscal affairs worked directly with defendant's chosen auditor, BDO USA, LLP (“BDO”), to prepare the same. Beginning in 2007, plaintiff began to be included in reviewing the AFR/AFS prior to its submission to the CPB.

         From the outset of plaintiff's inclusion in this process, plaintiff identified exaggerated amounts claimed as expenditures for WSHA-FM. Plaintiff was further concerned that inflated expenditures were being used to cover similarly inflated revenues, including for the purpose of increasing the matching grant component of the CSG. Plaintiff communicated his concerns promptly to his supervisors, including but not limited to the instances discussed below.

         On or about February 2, 2007, plaintiff emailed Tom Poitier (“Poitier”), then defendant's vice president of fiscal affairs, stating:

I have received the second draft for WSHA's Annual Financial Report (AFR) for 2005-2006. I am still baffled at the figures used in the calculations. . . . This is the first time our AFR has been released to me for review before it was uploaded to CPB. It is ...

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