Federal District Court Dismisses Providence’s False Claims Act Claim, Upholds Other Claims Against Pension Consultant

| Aug 21, 2013 | Firm News

The federal district court has dismissed The City of Providence’s state law False Claims Act claim against its pension consultants but otherwise denied defendant’s motion to dismiss the complaint.  The City claims the consultants provided negligent advice related to the City’s settlement of pension litigation brought by the City’s employees’ unions.

The defendant was the City’s “long time” pension actuary.  It had provided the City with various calculations respecting savings the City could obtain from suspending cost-of-living adjustments in its pension payments.  Based on the defendant’s calculations, the City passed an ordinance suspending the COLAs.  The unions sued in state court.  During settlement negotiations defendant provided additional calculations to the City upon which the City purportedly relied in reaching a settlement agreement with the unions.  The City alleges the defendant miscalculated certain savings by $10 million and that it would not have agreed to the actual settlement if it had the correct calculations.  It brought claims for breach of contract, breach of fiduciary duty, negligence, negligent mispresentation and violation of the recently enacted Rhode Island False Claims Act, R.I.G.L. 9-1.1-1, et seq.

With respect to the False Claims Act claim, the Court looked to decisions interpreting the federal act because there was a “paucity” of case law interpreting the state act.  The Court said the claim relied entirely on a “worthless services” theory.  That is, the defendant violates the Act if “services are literally are not provided or the service is so substandard as to be tantamount to no service at all.”  The Court said defendant’s service could not be fairly characterized as “worthless.”  Even if there were errors in defendant’s calculations, it provided the City with “rough approximations” of anticipated savings which were useful in the negotiations.

In addition, the Act includes a scienter element that requires the claimant to prove a person acted “knowingly” which includes “deliberate ignorance” or “reckless disregard.”  However, the City consistently alleges instead that defendant “knew or should have known” that it had made miscalculations.  Because this is the “language of negligence” the allegations are insufficient.

With respect to the other claims, defendant argued that the City’s actual savings from the settlement exceeded the amount defendant projected during the negotiations.  Accordingly, there was a lack of causation.  However, the City said defendant admitted it made errors in its initial calculations so it was reasonable to infer for purposes of a motion to dismiss that the subsequent calculations were inaccurate as well.

With respect to the negligent misrepresentation claim, Defendant also argued that the $10 million miscalculation was less than 1 percent of the City’s total pension liabilities so it could not have reasonably relied on the miscalculation in reaching the settlement.  The Court said whether the City’s reliance was reasonable was not an issue subject to resolution on a motion to dismiss.  Moreover, the issue was whether the amount affected the City’s decision to enter into the settlement agreement.

The Court also rejected defendant’s argument that the City had failed to plead defendant’s intent to induce action.  The Court said the complaint alleged that one of defendant’s employees had represented he was a member of the American Academy of Actuaries and it alleged the Academy said actuarial opinions are intended to be relied upon by the person to whom the opinion is addressed.

Finally, the Court also rejected defendant’s argument that statements of opinion are not a sufficient basis for a misrepresentation claim.  The court said acturial opinions are intended to be relied upon.  Moreover, in this case, the “opinion” was a simple mathematical calculation, not a forecast of the future.

The City of Providence v. Buck Consultants, LLC, 2013 WL 4047133 (D.R.I. Aug. 9, 2013).

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