Reported / Citable
Background
During the COVID-19 pandemic, DNT Construction, LLC applied for and received a Paycheck Protection Program loan of $8,421,129 in April 2020, which was fully forgiven in August 2021. In April 2024, Relator LLC — an entity with no prior connection to DNT or its principals — filed this qui tam action under the False Claims Act on behalf of the United States against DNT, its CEO and chairman Duane McGlauflin, and its president Dean Tomme.
Relator alleged that Defendants fraudulently misrepresented DNT’s eligibility for the PPP loan in three key respects: (1) they understated the company’s headcount, reporting 498 employees when it actually had 700, thereby falsely qualifying as a small business; (2) they fabricated the economic necessity for the loan; and (3) they concealed that they could have obtained financing from affiliated sources rather than the government. Relator asserted claims under both § 3729(a)(1)(A) (false or fraudulent claim for payment) and § 3729(a)(1)(B) (false record or statement material to a false claim) of the FCA. The United States declined to intervene.
Defendants moved to dismiss under Rule 12(b)(6), arguing that the suit was barred by the FCA’s public disclosure bar and that the complaint failed to meet the pleading requirements of Rules 8(a) and 9(b). Defendants attached 73 pages of exhibits to their motion and asked the court to take judicial notice of them, including data from the government’s pandemic oversight website purportedly showing that DNT’s PPP loan details were publicly available.
The Court’s Holding
Magistrate Judge Susan Hightower recommended that the District Court deny the motion to dismiss in its entirety. On the public disclosure bar, the magistrate judge found that resolving the defense requires evidence outside the pleadings — including Defendants’ 73-page exhibit package — and is therefore more appropriately decided at summary judgment, not on a Rule 12(b)(6) motion. The court declined to convert the motion to a summary judgment motion under Rule 12(d) because discovery remains open until January 25, 2027. Relying on Fifth Circuit precedent, the court noted that the public disclosure bar is “necessarily intertwined with the merits” and should be treated as a summary judgment issue.
On pleading sufficiency, the court found that Relator’s complaint satisfied both Rule 8(a)’s plausibility standard and Rule 9(b)’s heightened particularity requirement for fraud. Relator adequately alleged the “who, what, when, where, and how” of the alleged scheme: it identified McGlauflin and Tomme by name, specified the April 2020 loan application as the vehicle for the fraud, described the particular misrepresentations made (employee count, economic necessity, and availability of alternative financing), and alleged that the government relied on those misrepresentations in approving and later forgiving the $8.4 million loan.
Key Takeaways
- The FCA’s public disclosure bar is not amenable to resolution on a Rule 12(b)(6) motion when doing so requires consideration of materials outside the pleadings; courts should defer that inquiry to summary judgment, especially where discovery is ongoing.
- Exhibits attached to a motion to dismiss — but not to the complaint itself — generally cannot be considered under Rule 12(b)(6) unless they qualify for judicial notice under Federal Rule of Evidence 201; a 73-page evidentiary package is not appropriate at that stage.
- A qui tam complaint under the FCA satisfies Rule 9(b) by identifying the specific individuals who made false representations, the loan application that conveyed them, the nature of each misrepresentation, and the government’s resulting financial loss — detailed factual recitations beyond these particulars are not required at the pleading stage.
Why It Matters
This recommendation reinforces a pleader-friendly threshold for FCA qui tam suits targeting COVID-era PPP loan fraud. By holding that the public disclosure bar cannot be resolved on a Rule 12(b)(6) motion supported only by outside exhibits, the court shields relators from early dismissal based on evidence they have not had the opportunity to contest through discovery. The ruling signals that defendants seeking to invoke that bar will generally need to wait for summary judgment — giving relators more time and leverage to develop their cases.
The case also illustrates the ongoing wave of qui tam litigation arising from PPP lending. With the United States declining to intervene, private relators like Relator LLC — described by defendants as serial filers with dozens of FCA actions nationwide — remain the primary enforcement mechanism for recovering fraudulently obtained pandemic relief funds. Courts’ willingness to let these suits survive past the pleading stage ensures that channel stays open, even as defendants raise threshold defenses to curtail it.