The Power Authority of the State of New York, ex rel. Solar Liberty Energy Systems, Inc. v. Advanced Energy Industries, Inc.

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
THE POWER AUTHORITY OF THE
STATE OF NEW YORK EX REL. SOLAR
LIBERTY ENERGY SYSTEMS, INC.,
Plaintiff,
v.
ADVANCED ENERGY INDUSTRIES,
INC.,
Defendant.
19-CV-1542-LJV
DECISION & ORDER
On October 23, 2018, the plaintiff, the Power Authority of the State of New York
(“Power Authority”), by and through a qui tam relator, Solar Liberty Energy Systems,
Inc. (“Solar Liberty”), filed an amended complaint under the New York False Claims Act
(“NYFCA”) in New York State Supreme Court, Erie County. Docket Item 1-5. On
November 15, 2019, the defendant, Advanced Energy Industries, Inc. (“Advanced
Energy”), removed the action to this Court based on diversity jurisdiction. Docket Item
1; see 28 U.S.C. § 1332.
On December 6, 2019, Solar Liberty moved to remand this matter to state court.
Docket Item 7. A week later, Advanced Energy moved to dismiss for failure to state a
claim. Docket Item 11. On January 3, 2020, Solar Liberty responded to the motion to
dismiss and cross-moved to amend its complaint, Docket Item 14, attaching a proposed
second amended complaint, Docket Item 14-2. That same day, Advanced Energy
responded to Solar Liberty’s motion to remand. Docket Item 13. On January 27, 2020,
both parties replied in support of their motions, and Advanced Energy responded to
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Solar Liberty’s cross-motion to amend. Docket Items 19 and 20. And on February 6,
2020, Solar Liberty replied in support of its cross-motion to amend. Docket Item 21.
This Court held oral argument on April 28, 2020, and reserved decision. Docket
Item 27. For the reasons that follow, this Court denies Solar Liberty’s motion to remand;
denies Advanced Energy’s motion to dismiss; and grants Solar Liberty’s motion to
amend. Solar Liberty shall file its second amended complaint within seven days of
the date of this decision and order.
BACKGROUND
The first amended complaint tells the following story.1 Solar Liberty develops
and installs “renewable energy technologies in the United States and has substantial
expertise with photovoltaic electric generation systems, commonly referred to as solar
systems.” Docket Item 1-5 ¶ 8. Advanced Energy makes and sells “solar inverters,”
which “are an integral component of solar systems.” Id. ¶ 9. More specifically,
“[i]nverters convert the variable voltage direct current (DC) output of a photovoltaic (PV)
solar panel into fixed voltage alternating current (AC),” which “can then be incorporated
into a local power grid and used to decrease the electric demand of the local solar
photovoltaic system owner.” Id.
From approximately November 2014 through August 2015, “Solar Liberty entered
into a series of related contracts [with the Power Authority (the ‘NYPA Contracts’)] that
1 On a motion to dismiss, the Court must “accept[ ] all factual allegations as true
and draw[ ] all reasonable inferences in favor of the plaintiff.” Trustees of Upstate N.Y.
Eng’rs Pension Fund v. Ivy Asset Mgmt., 843 F.3d 561, 566 (2d Cir. 2016) (citing City of
Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 179 (2d Cir.
2014)).
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called for the design, engineering, procurement, and construction of solar systems to be
installed on the roofs of approximately 16 public schools located throughout New York
City (‘NYC Public School Solar Systems’).” Id. ¶ 10. To fulfill the NYPA Contracts,
“Solar Liberty needed to procure solar inverters.” Id. ¶ 11.
“Through a purchase order numbered 1587 and dated December 18, 2014, . . .
Solar Liberty purchased . . . twenty-two (22) ‘3TL 20kW—Gen 1 three-phase string
inverters’ and ‘forty-one (41) 3TL 24kW—Gen 1 three-phase string inverters’” from
Advanced Energy; and “[t]hrough [a] purchase order numbered 1806 and dated August
27, 2015, . . . Solar Liberty purchased . . . an additional sixteen (16) ‘3TL 20kW—Gen 1
three-phase string inverters’ and fifty (50) ‘3TL 24kW—Gen 1 three-phase string
inverters’” from Advanced Energy. Id. ¶¶ 12-13. Solar Liberty paid for these purchases
“with funds received from the New York Power Authority pursuant to the NYPA
Contracts.” Id. ¶ 14.
Solar Liberty then installed the inverters that it purchased from Advanced Energy
“as components of the NYC Public School Solar Systems, as part of a joint program
undertaken by the New York Power Authority as well as the New York City Department
of Citywide Administrative Services, as incentivized by the New York State Energy
Research and Development Authority.” Id. ¶ 15. But “[s]oon after installation, [the]
inverters began to experience widespread and persistent failures, which . . . resulted in
loss of power generation and significant and ongoing repair costs.” Id. ¶ 16.
Advanced Energy was well aware of “the widespread and persistent defects
associated with [its] inverters,” but it “actively concealed its knowledge of the defects
associated with its inverters when it sold them to . . . Solar Liberty.” Id. ¶¶ 17, 22. More
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specifically, “Advanced Energy knew that the inverters’ actual and established product-
wide failure rate was approximately 50%.” Id. ¶ 18. Yet “Advanced Energy knowingly
misrepresented to customers, including to . . . Solar Liberty, that these inverters would
experience a product-wide failure rate of approximately 4%.” Id.
Moreover, “[w]hen Advanced Energy’s inverters fail, the top or cap affixed to the
element is sometimes forcibly blown off the inverter and can travel a significant
distance.” Id. ¶ 25. “Advanced Energy was aware that its inverters were prone to failing
in this manner” and “was aware that Relator Solar Liberty intended to use the inverters
for installations on the rooftops of school buildings.” Id. ¶¶ 26-27. But it never informed
“Solar Liberty of the known hazards associated with the caps blowing off the tops of the
inverters.” Id. ¶ 28.
Additionally, “Advanced Energy represented to Solar Liberty that the inverters
were suitable for use in connection with electrical systems that are commonplace in the
United States,” when, in fact, “the inverters had been engineered for use in European
markets where electrical systems are quite different from those in the United States.”
Id. ¶ 29. Advanced Energy also “represented to Solar Liberty that the inverters had a
500 Volt DC maximum rating,” when “certain of the Advanced Energy inverters were
designed to have internal DC Voltage up to 1000 Volts during standard operation.” Id.
¶ 30. “The presence of such high DC voltage levels in the inverters is due to defects”
and “makes the inverters hazardous to those who service them as well as those who
live, work, or attend school near locations where the inverters are installed.” Id. ¶ 31.
“Advanced Energy did not disclose these issues and failures to . . . Solar Liberty,
and instead continued to represent to . . . Solar Liberty that the inverters were
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merchantable and of good quality, and that any failures could be fixed.” Id. ¶ 35. When
Solar Liberty contacted “Advanced Energy with complaints and concerns regarding the
inverters’ pervasive failures, . . . Advanced Energy repeatedly assured . . . Solar Liberty
that the problems with the inverters were fixable and would be fixed.” Id. ¶ 34. Even
worse, “Advanced Energy engaged in a pattern and practice whereby it would represent
to customers, including . . . Solar Liberty, that [it] would repair or refurbish faulty or
defective inverters that were returned to it by customers when, in point of fact, [it] would
make no meaningful effort to repair or refurbish such inverters and would instead simply
return the faulty or defective inverters to customers after a period of time had passed.”
Id. ¶ 43. “This intentionally deceptive charade damaged customers of Advanced
Energy, including . . . Solar Liberty, who were forced to provide labor to service and
disconnect the defective inverters, ship them to Advanced Energy, and reinstall the
same inverters after they were returned without any credible or practical effort by
Advanced Energy to service the inverters.” Id. ¶ 44.
“Notwithstanding its knowledge that the inverters it was selling to . . . Solar
Liberty were defective, . . . Advanced Energy sold approximately 120 inverters to . . .
Solar Liberty and accepted payment from” Solar Liberty. Id. ¶ 49. “In total, the New
York City Schools Solar Project gave rise to payments to Advanced Energy of
approximately $315,250.00 for the inverters themselves” out of Power Authority funds,
“as well as the expenditure of significant amounts of [Power Authority] funds associated
with the installation of those inverters.” Id. ¶ 52. “Moreover, the costs associated with
replacing Advanced Energy’s defective and dangerous inverters will be well over one
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million dollars—the replacement inverters themselves will cost approximately
$582,490.00 and the work to install them will total approximately $645,000.00.” Id.
ANALYSIS
I. 	MOTION TO REMAND
Solar Liberty argues that this Court does not have jurisdiction over this matter
because of a procedural deficiency as well as the absence of diversity of citizenship
between the parties. Docket Item 7-2. On the latter issue, Solar Liberty says that “the
[p]laintiff and a real party in interest, the Power Authority, is an arm or instrumentality of
the State of New York” and as such “is not a ‘citizen’ for the purposes of diversity
jurisdiction.” Id. at 6. For the reasons that follow, this Court finds that there is no
procedural deficiency, that the Power Authority is not an arm or instrumentality of New
York State, and that this Court has jurisdiction over this action.
A. The Notice of Removal is Sufficient.
Solar Liberty first contends that Advanced Energy’s notice of removal is
inadequate because “Advanced Energy does not expressly allege . . . that the Power
Authority is a citizen of any state, let alone a citizen [of] New York State.” Docket Item
7-2 at 8. This Court disagrees.
A notice of removal must provide a “short and plain statement of the grounds for
removal.” 28 U.S.C. § 1446(a). Here, the notice of removal states that “Advanced
Energy is a Delaware corporation with its principal place of business [in] Colorado” and
Solar Liberty “is a New York corporation with its principal place of business [in] New
York.” Docket Item 1 ¶¶ 2-3. The notice adds that Solar Liberty “purports to bring this
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qui tam action on behalf of the Power Authority,” which is “a political subdivision of the
[S]tate” and “a fiscally independent public corporation that does not receive State funds
or tax revenues or credits.” Id. ¶ 4 (citations omitted). The claimed damages total “well
over one million dollars.” Id. ¶ 6 (quoting Docket Item 1-5 ¶ 52). Thus, the notice
assets, “this action could have been filed originally in this Court pursuant to 28 U.S.C.
§ 1332 in that it is a civil action where the matter in controversy exceeds the sum or
value of $75,000 and is between citizens of different states.” Id. ¶ 7.
Advanced Energy’s notice provides the requisite “short and plain statement of the
grounds for removal.” See 28 U.S.C. § 1446(a). Although it does not state explicitly
that the Power Authority is a citizen of New York State, that assertion is clear from the
statement that the Power Authority is “a political subdivision of the [S]tate.” Docket Item
1 ¶ 4.2 Accordingly, the Court finds that the notice of removal is not deficient.
B. The Power Authority Is a Real Party in Interest.
In opposing the motion to remand, Advanced Energy argues that the Power
Authority is not a real party in interest in this case and its citizenship therefore does not
affect this Court’s jurisdiction. See Docket Item 13 at 11-15. According to Advanced
Energy, the first amended complaint “does not plead any controversy between the
Power Authority and Advanced Energy, nor facts showing that the Power Authority
suffered damages or is otherwise entitled to a recovery.” Id. at 11. Instead of
describing a “fraud on the government,” Advanced Energy says, the first amended
2 As explained in more detail below, “an arm of the state” is not a citizen of that
state for diversity jurisdiction purposes, whereas “an independent political subdivision” is
a state citizen. See Treasurer of Conn. v. Fortsmann Little & Co., No. 3:02CV519(JBA),
2002 WL 31455245, at *2 (D. Conn. Oct. 15, 2002).
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complaint “describes a dispute between two private parties.” Id. Solar Liberty counters
that “the State of New York, through its instrumentality[,] the Power Authority, maintains
virtually identical interests in protecting its school children and citizens from a public
hazard and in preventing the perpetuation of fraudulent schemes, thus making it a real
party in interest.” Docket Item 20 at 8.
The parties’ dispute over whether the Power Authority is a real party of interest
rises and falls with a parallel question: whether this case was properly brought under
the NYFCA or whether—as Advanced Energy claims—it is actually a private contract
dispute masquerading as a false-claims case. Based on this Court’s finding below that
Solar Liberty states a claim under the NYFCA, see infra Section II.B, it likewise finds
that the Power Authority is a real party in interest in this case. Accordingly, this Court
analyzes whether the Power Authority is a citizen of New York State for the purposes of
diversity jurisdiction.
C. The Power Authority Is Not an Arm or Instrumentality of the State.
A state—or an entity that is an arm or instrumentality of a state—is not a citizen
of any state and therefore destroys diversity of citizenship. See Martelli v. Niagara Falls
Bridge Comm’n, No. 13-CV-652-A, 2013 WL 3761550, at *4 n.1 (W.D.N.Y. July 16,
2013) (“A state, or an arm or alter ego of a state, is not a citizen of the state for
purposes of diversity jurisdiction.” (citing Moor v. Alameda Cty., 411 U.S. 693, 717
(1973)). Here, Solar Liberty argues that the Power Authority is an arm of New York
State, thus defeating diversity and depriving this Court of jurisdiction.
“The critical diversity determination, distinguishing between an independent entity
and an ‘arm or alter ego’, asks whether or not ‘ . . . the suit is, in effect, against the state
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. . . .’” Treasurer of Conn. v. Fortsmann Little & Co., No. 3:02CV519(JBA), 2002 WL
31455245, at *2 (D. Conn. Oct. 15, 2002) (quoting State Highway Comm'n of Wyo. v.
Utah Constr. Co., 278 U.S. 194, 194 (1929)); see also Krisel v. Duran, 386 F.2d 179,
181 (2d Cir.1967) (per curiam) (“For the purpose of diversity jurisdiction, the
determinative factor is whether the state is the real party in interest.”). “A parallel and
essentially equivalent inquiry extends a state’s Eleventh Amendment sovereign
immunity to entities considered alter egos or ‘arms of the state,’ but not to independent
political subdivisions such as counties and municipal corporations.” Fortsmann, 2002
WL 31455245, at *2 (citing Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S.
274, 280 (1978)). “Accordingly, for both diversity and immunity purposes, courts use
the same criteria to evaluate whether an entity is an arm of the state or rather an
independent political subdivision.” Id. (citing Mt. Healthy, 429 U.S. at 280-81).
In the Second Circuit, the following six factors determine whether an entity is an
arm of the state:
(1) how the entity is referred to in its documents of origin; (2)
how the governing members of the entity are appointed; (3)
how the entity is funded; (4) whether the entity’s function is
traditionally one of local or state government; (5) whether the
state has a veto power over the entity’s actions; and (6)
whether the entity’s financial obligations are binding upon the
state.
McGinty v. New York, 251 F.3d 84, 95-96 (2d Cir. 2001) (citing Mancuso v. N.Y.S.
Thruway Auth., 86 F.3d 289, 293 (2d Cir. 1996)). “If these factors point in one direction,
the inquiry is complete. If not, a court must ask whether a suit against the entity in
federal court would threaten the integrity of the state and expose its treasury to risk.” Id.
(citing Mancuso, 86 F.3d at 293). “If the answer is still in doubt, a concern for the state
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fisc will control.” Id. (citing Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 480-49
(1994)).
For the reasons that follow, this Court finds that the McGinty factors do not all
point in one direction here. But because a suit against the Power Authority would not
“threaten the integrity of the state and expose its treasury to risk,” the Power Authority is
not an arm of New York State. Accordingly, there is diversity between the parties, and
this Court has jurisdiction over this action.
1. 	How the Entity Is Referred to In Its Documents of Origin
The first factor is “how the entity is referred to in its documents of origin.”
McGinty, 251 F.3d at 95. New York Public Authorities Law (“NY PAL”) § 1002(1) states:
For the purpose of effectuating the policy declared in section
one thousand one of this chapter there is hereby created a
corporate municipal instrumentality of the state to be known
as “Power Authority of the State of New York”, in this title
referred to as “the authority”, which shall be a body corporate
and politic, a political subdivision of the state, exercising
governmental 	and 	public 	powers, 	perpetual 	in 	duration,
capable of suing and being sued, and having a seal, and
which 	shall 	have 	the 	powers 	and 	duties 	hereinafter
enumerated, together with such others as may hereafter be
conferred upon it by law.
Id. (emphasis added). Both parties rely on this statute. Solar Liberty points to the
words “corporate municipal instrumentality of the state,” while Advanced Energy relies
on the “political subdivision” language. Cf. Woods v. Rondout Valley Cent. Sch. Dist.
Bd of Educ., 466 F.3d 232, 236 (2d Cir. 2006) (explaining that “a governmental entity is
entitled to Eleventh Amendment immunity only if ‘it is more like an arm of the State,
such as a state agency, than like a municipal corporation or other political subdivision’”
(quoting Mancuso, 86 F.3d at 292)).
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Given the inclusion of both the “instrumentality of the state” language (which
suggests that the Power Authority is an arm of New York State) and the “political
subdivision” language (which suggests that it is not), the documents of origin are
ambiguous. Therefore, the Court finds that this factor is neutral.
2. 	How the Governing Members of the Entity Are Appointed
The second factor is “how the governing members of the entity are appointed.”
McGinty, 251 F.3d at 95. Advanced Energy concedes that this factor supports Solar
Liberty’s argument for remand. See Docket Item 13 at 18 (“Advanced Energy
acknowledges that the Power Authority’s trustees are appointed by the Governor, by
and with the advice of the Senate, see [NY PAL] § 1003, and hence, this one factor
weighs in favor of finding it to be an arm of the state.”). Accordingly, the Court finds that
this factor supports remand.
3. 	How the Entity is Funded
The third factor is “how the entity is funded.” McGinty, 251 F.3d at 95-96. Solar
Liberty points to the following statutory language as evidence that the Power Authority is
funded by New York State: “As long as and to the extent that the [Power A]uthority is
dependent upon appropriations for the payment of its expenses, it shall incur no
obligations for salary, office or other expenses prior to the making of appropriations
adequate to meet the same.” NY PAL § 1004. But as Advanced Energy observes,
“[t]he ‘as long as’ language recognizes that the Power Authority may not be funded by
the State of New York and in fact, . . . that is the reality today: the Power Authority is
currently not being funded by the State of New York.” Docket Item 13 at 19 (emphasis
in original). Indeed, Solar Liberty acknowledges that, as a practical matter, the Power
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Authority is financially independent and does not receive any funds from New York
State. See Docket Item 7-2 at 14 (“Notwithstanding these statutory provisions expressly
tying it to the State fisc, it is acknowledged, as a practical matter, that the Power
Authority generates revenue from power delivery and transmission services and that
those revenues generally allow it to operate on a financially independent basis.”).
What is more, “[a]ll appropriations made by the state to the [Power A]uthority
shall be treated as advances by the state to the authority, and shall be repaid to it.” NY
PAL § 1013. Thus, even if the Power Authority received funds from New York State, it
is statutorily obligated to repay them. Accordingly, the Court finds that the Power
Authority is not “funded” by the State, and this factor cuts against remand.
4. 	Whether the Entity’s Function Is Traditionally One of Local or
State Government
The fourth factor is “whether the entity’s function is traditionally one of local or
state government.” McGinty, 251 F.3d at 96. Solar Liberty points to the following
statutory language:
[T]he projects authorized by this title are for the aid and
improvement of commerce and navigation and that such aid
and 	improvement 	of 	commerce 	and 	navigation 	and 	the
development, sale and distribution of power is primarily for the
benefit of the people of the state of New York . . . and is a
public 	purpose, 	and 	the 	authority 	shall 	be 	regarded 	as
performing 	a 	governmental 	function 	in 	undertaking 	such
projects and in carrying out the provisions of this title . . . .
NY PAL § 1012 (emphasis added). Advanced Energy counters that the provision of
electricity was not traditionally a function performed by the State and cites several cases
to that effect. See, e.g., Connolly v. Long Island Power Authority, 30 N.Y.3d 719, 729
(2018) (explaining that “the provision of electrical power” is “a service that traditionally
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has been provided by private entities in the State of New York”); Heeran v. Long Island
Power Auth., 141 A.D.3d 561, 564 (N.Y. App. Div. 2016) (“The provision of electricity
has traditionally been a private enterprise in this state . . . .”).
In light of the contradiction between the statute and the provision of electrical
power historically, this Court finds this factor to be neutral. Cf. Adler v. S. Orangetown
Cent. Sch. Dist., No. 05CIV.4835(SCR), 2008 WL 190585, at *5 (S.D.N.Y. Jan. 17,
2008) (finding fourth McGinty factor to be neutral because although “Article XI, § 1 of
the New York State Constitution . . . requires the State to provide a public education,”
education has “traditionally been considered a local function”).
5. 	Whether the State Has a Veto Power Over the Entity’s Actions
The fifth factor is “whether the state has a veto power over the entity’s actions.”
McGinty, 251 F.3d at 96. The Power Authority may not enter into “[c]ontracts for the
sale, transmission and distribution of power and energy” without the governor’s
approval. See NY PAL §§ 1005(v), 1009(4). Solar Liberty argues that such contracts
“govern the Power Authority’s core operations.” Docket Item 7-2 at 16. Advanced
Energy counters that “the state lacks veto power over virtually all other actions of the
Power Authority, including the Power Authority’s day-to-day operations.” Docket Item
13 at 21.
The Court finds that this factor also is neutral. Although New York State does not
have veto power over many of the Power Authority’s activities and decisions—including
its day-to-day operations—the contracts that the governor must approve are central to
the Power Authority’s functioning. Cf. Woods, 466 F.3d at 249 (finding fifth factor to be
neutral because “without minimizing the considerable supervisory authority conferred by
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New York law on the State Commissioner of Education, . . . the Board [of Education]
has not convincingly demonstrated that this authority equates to a veto power over the
unprotested day-to-day decisions of local boards of education”).
6. 	Whether the Entity’s Financial Obligations Are Binding Upon
the State
The sixth and final factor is “whether the entity’s financial obligations are binding
upon the state.” McGinty, 251 F.3d at 96. “The relevant question with respect to this
sixth factor is ‘whether a judgment against the [Power Authority] would have the
practical effect of requiring payments from New York.’” Id. at 99 (quoting Mancuso, 86
F.3d at 296). In Mancuso, for example “this factor worked against a finding of immunity
because the Thruway Authority was self-sustaining and produced no evidence that it
could not satisfy a judgment.” Id. (citing Mancuso, 86 F.3d at 296). “In contrast, the
Retirement System [in McGinty was] not self-sustaining as it require[d] contributions
from employees, the state and other participating employers.” Id.
Solar Liberty acknowledges that the Power Authority has “no power at any time
to pledge the credit of the state nor shall any of its obligations or securities be deemed
to be obligations of the state.” Docket Item 7-2 at 17 (quoting NY PAL § 1005(11)).
Nonetheless, Solar Liberty argues that this factor favors remand because “the Power
Authority’s financial affairs are closely tied to the State fisc.” Docket Item 7-2 at 16. But
the crux of this factor is not whether “the financial affairs are closely tied”; instead, it is
whether the State would be responsible for the entity’s debts.
Here, the Power Authority is a self-sustaining entity. Even more important, as
explained above, it is statutorily obligated to repay any funds it receives from New York
State. See NY PAL § 1013 (“All appropriations made by the state to the [Power
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A]uthority shall be treated as advances by the state to the authority, and shall be repaid
to it.”). Because the Power Authority’s financial obligations are not binding on the State,
this factor cuts against remand.
7. 	A Suit in Federal Court Would Not Threaten the Integrity of the
State and Expose its Treasury to Risk.
All told, three of the McGinty factors are neutral, one favors remand, and two cut
against remand. As explained above, when the factors do not all “point in one direction,
. . . a court must ask whether a suit against the entity in federal court would threaten the
integrity of the state and expose its treasury to risk.” McGinty, 251 F.3d at 96 (citing
Mancuso, 86 F.3d at 293). Here, the two factors that cut against remand—“how the
entity is funded” and “whether the entity’s financial obligations are binding upon the
state,” id. at 95-96—demonstrate that the Power Authority is financially independent
from New York State and that the State is not responsible for any judgment against the
Power Authority.
For that reason, this Court finds that “a suit against [the Power Authority] in
federal court would [not] threaten the integrity of [New York State] and expose its
treasury to risk.” See McGinty, 251 F.3d at 96. The Power Authority is therefore not an
arm of the State, and this Court has jurisdiction over this action.
II. 	MOTION TO DISMISS AND CROSS-MOTION TO AMEND
Under the NYFCA, a defendant is liable if it “knowingly presents, or causes to be
presented[,] a false or fraudulent claim for payment or approval” to the government or if
it “knowingly makes, uses, or causes to be made or used, a false record or statement
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material to a false or fraudulent claim.” N.Y. State Fin. Law § 189(1)(a)-(b). A “claim” is
defined as
any 	request 	or 	demand, 	whether 	under 	a 	contract 	or
otherwise, for money or property that
(i) is presented to an officer, employee or agent of the state or
a local government; or
(ii) is made to a contractor, grantee, or other recipient, if the
money or property is to be spent or used on the state or a local
government’s 	behalf 	or 	to 	advance 	a 	state 	or 	local
government program or interest, and if the state or local
government (A) provides or has provided any portion of the
money 	or 	property 	requested 	or 	demanded; 	or 	(B) 	will
reimburse such contractor, grantee, or other recipient for any
portion of the money or property which is requested or
demanded.
Id. § 188(1)(a).
Advanced Energy moves to dismiss the first amended complaint, arguing that
“nowhere does Solar Liberty identify a single false claim Advanced Energy submitted or
caused to be submitted for payment or approval.” Docket Item 11-1 at 5. Therefore,
Advanced Energy argues, Solar Liberty has “fail[ed] to plead the most essential element
required to state an NYFCA claim.” Id. (emphasis in original). According to Advanced
Energy, “this case should have been brought as a breach of contract or products liability
action . . . in Colorado State Court, as required by the contract between these two
private parties, Solar Liberty and Advanced Energy.” Id. at 17. Advanced Energy adds
that the first amended complaint “also fails to plead with the level of specificity required
for allegations of fraud; fails to allege materiality as to a government payment decision;
and fails to sufficiently allege scienter.” Id. at 5 (emphasis omitted).
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Solar Liberty responds that it adequately has pleaded that Advanced Energy
“made false claims by (1) demanding payment out of government funds (2) under the
pretense that (3) its products were reliable, safe, and suitable when, (4) it knew they
were not.” Docket Item 14-3 at 6. Alternatively, Solar Liberty cross-moves to amend its
complaint. Id. at 7. It includes a proposed second amended complaint with additional
factual detail, which it says “eliminates any doubt on the subject of whether [it] is
capable of pleading a NYFCA claim.” Id. at 22.
A. Applicable Pleading Standard
As a threshold matter, the parties disagree on whether the heightened pleading
standard in Federal Rule of Civil Procedure 9(b) applies to a NYFCA claim that has
been removed to federal court. Under Rule 9(b), a complaint alleging fraud “must ‘(1)
specify the statements that the plaintiff contends were fraudulent, (2) identify the
speaker, (3) state where and when the statements were made, and (4) explain why the
statements were fraudulent.’” New York ex rel. Khurana v. Spherion Corp., No. 15 CIV.
6605 (JFK), 2017 WL 1437204, at *9 (S.D.N.Y. Apr. 21, 2017) (quoting Wood ex rel.
U.S. v. Applied Research Assocs., Inc., 328 F. App’x 744, 747 (2d Cir. 2009) (summary
order)). Put another way, “Rule 9(b) requires that a plaintiff set forth the who, what,
when, where and how of the alleged fraud.” Id. (quoting U.S. ex rel. Polansky v. Pfizer,
Inc., No. 04-cv-0704 (ERK), 2009 WL 1456582, at *4 (E.D.N.Y. May 22, 2009)). “The
purpose of this requirement is ‘to provide a defendant with fair notice of a plaintiff’s
claim, to safeguard a defendant’s reputation from improvident charges of wrongdoing,
. . . to protect a defendant against the institution of a strike suit, [and] . . . to discourage
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the filing of complaints as a pretext for discovery of unknown wrongs.” Id. at *8
(alteration in original) (quoting Wood, 328 F. App’x at 747).
As Advanced Energy observes, courts in this circuit routinely apply Rule 9(b) to
NYFCA claims in federal court. See, e.g., id. (“A plaintiff alleging false claims under the
[NYFCA] must plead with particularity the circumstances constituting fraud in
accordance with Federal Rule of Civil Procedure 9(b).” (citing Gold v. Morrison-Knudsen
Co., 68 F.3d 1475, 1476-77 (2d Cir. 1995))); Kane ex rel. U.S. v. Healthfirst, Inc., 120 F.
Supp. 3d 370, 382 (S.D.N.Y. 2015) (explaining that claims under the “NYFCA ‘fall within
the express scope of Rule 9(b)’” (quoting Wood, 328 F. App’x at 747)).
Solar Liberty does not cite any contrary case law. Instead, it argues that Rule
9(b) should not apply based on the wording of the NYFCA. Docket Item 14-3 at 11.
More specifically, Solar Liberty notes that the NYFCA provides:
For purposes of applying rule three thousand sixteen of the
civil practice law and rules, in pleading an action brought
under this article the qui tam plaintiff shall not be required to
identify specific claims that result from an alleged course of
misconduct, or any specific records or statements used, if the
facts alleged in the complaint, if ultimately proven true, would
provide a reasonable indication that one or more violations of
section one hundred eighty-nine of this article are likely to
have occurred, and if the allegations in the pleading provide
adequate 	notice 	of 	the 	specific 	nature 	of 	the 	alleged
misconduct 	to 	permit 	the 	state 	or 	a 	local 	government
effectively to investigate and defendants fairly to defend the
allegations made.
Id. (emphasis in original) (quoting N.Y. State Fin. Law § 192(1-a)). Thus, Solar Liberty
says, “it is disingenuous for [Advanced Energy] to argue that, having removed this
action to [f]ederal [c]ourt, the [a]mended [c]omplaint should be dismissed for failing to
meet a pleading standard . . . that did not apply to it.” Id.
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This Court agrees with Advanced Energy that the Rule 9(b) standard applies. As
this Court has previously found, “the federal pleading standard applies to a motion to
dismiss filed after an action has been removed.” Piechowicz v. Lancaster Cent. Sch.
Dist., No. 17-CV-845, 2019 WL 6463402, at *2 (W.D.N.Y. Dec. 2, 2019) (citing Fed. R.
Civ. P. 81(c)(1)). More specifically, Federal Rule of Civil Procedure 81 states that the
federal “rules apply to a civil action after it is removed from a state court.” Id. (emphasis
in original) (quoting Fed. R. Civ. P. 81(c)(1)). Rule 81 further states that “[a]fter
removal, repleading is unnecessary unless the court orders it.” Id. (emphasis in
original) (quoting Fed. R. Civ. P. 81(c)(2)). Thus, “Rule 81 implicitly acknowledges that
there are circumstances in which a state court complaint must be repleaded in federal
court—for example, when a defendant has successfully argued in a motion to dismiss
that the complaint does not meet federal pleading requirements.” Id.3
Moreover, as noted above, federal courts regularly apply Rule 9(b) to NYFCA
claims. See, e.g., Khurana, 2017 WL 1437204, at *8; Kane, 120 F. Supp. 3d at 382.
And Solar Liberty does not cite—nor was this Court able to find—any case in which a
federal court declined to apply Rule 9(b) to a NYFCA claim.
Solar Liberty alternatively argues that this Court should “relax[ ]” the Rule 9(b)
standard in this case because it has “set[ ] forth a complex and far-reaching scheme,
the specifics of which are often known only to the defendant.” Docket Item 14-3 at 12
(citing United States ex rel. Lee v. N. Adult Daily Health Care Ctr., 205 F. Supp. 3d 276,
289 (E.D.N.Y. 2016)). But as Advanced Energy observes, “[c]ases that have been
3 Although Piechowicz dealt with the plausibility standard under Federal Rule of
Civil Procedure 8 rather than the more stringent Rule 9(b) standard, the same principles
apply.
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afforded the relaxed 9(b) pleading standard have consisted of far greater complexity.”
Docket Item 19 at 10; see, e.g., United States ex rel. Smith v. Yale Univ., 415 F. Supp.
2d 58, 84 (D. Conn. 2006) (allegations of “thousands of instances” of Medicare claims
submitted “over an extended period”); In re Pharm. Indust. Average Wholesale Price
Litig., 307 F. Supp. 2d 196, 201-02, 208 (D. Mass. 2004) (allegations that “forty-two
pharmaceutical companies fraudulently overstate[d] the published ‘average wholesale
prices’ (‘AWP’) of . . . 321 drugs”). Thus, this Court finds that the Rule 9(b) pleading
standard applies here.
The Court finds, however, that it would be unfair to hold Solar Liberty to a federal
pleading standard that did not apply when it drafted its first amended complaint, which it
filed in state court. See Fed. R. Civ. P. 15(a)(2) (“The court should freely give leave [to
amend] when justice so requires.”). Accordingly, this Court grants Solar Liberty’s
motion to amend and will analyze the allegations in the proposed second amended
complaint to determine whether Solar Liberty has stated a viable claim.
B. Identification of a False Claim Submitted for Payment
Advanced Energy argues that “[n]either the [first amended complaint] nor the
[p]roposed [second amended complaint] identifies a single request or demand for
money or property by Advanced Energy that was false.” Docket Item 19 at 13. This
Court disagrees.
The proposed second amended complaint identifies six invoices that Advanced
Energy sent to Solar Liberty, including dates, amounts, and invoice numbers. Docket
Item 14-2 ¶ 13. Solar Liberty alleges that it paid those invoices “with funds received
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from the New York Power Authority pursuant to the NYPA Contracts.” Id. ¶ 14.
Moreover, Solar Liberty says,
[b]oth prior to and after its sales of inverters to Relator Solar
Liberty, 	Advanced 	Energy 	knowingly 	misrepresented 	to
customers, including to Relator Solar Liberty, that these
inverters “have a great reliability track record” and were
“highly reliable.” 	See Exhibits A and B hereto (Advanced
Energy data sheets for 600 Series and 1000 Series inverters).
As one example, Advanced Energy salesman Joe Ross
stated to Solar Liberty’s President Adam Rizzo telephonically
in 2014 (before the inverters were purchased, invoiced, and
paid for) that the inverters had a product wide failure rate of
only approximately 1% to 2%. As another example, at various
times after the inverters started failing, Advanced Energy’s
Brenda Clarke and Jennifer Parnell (among others) stated to
Solar Liberty’s President Adam Rizzo (among others) that the
inverters’ historical failure rate was only approximately 4%. In
making 	those 	misrepresentations 	to 	customers, 	and 	to
Relator Solar Liberty in particular, Advanced Energy knew
that the inverters’ actual and established product wide failure
rate was approximately 50%—hardly “highly reliable,” as
Defendant Advanced Energy had represented in its data
sheets for the inverters. Id.
Docket Item 14-2 ¶ 18. Solar Liberty further contends that
By invoicing Relator Solar Liberty for the solar inverters which
were the subject of Relator Solar Liberty’s purchase orders,
Defendant Advanced Energy falsely claimed that the quality
and 	nature 	of 	the 	solar 	inverters 	it 	had 	supplied 	were
consistent with the representations it had previously made
with 	respect 	thereto 	. 	. 	. 	. 	Each 	of 	its 	prior 	false
representations about the solar inverters were made and
became part of Advanced Energy’s invoices to Relator Solar
Liberty for the inverters.
Id. ¶ 51.
The Court finds that these allegations are sufficient to support Solar Liberty’s
claim that Advanced Energy “knowingly present[ed], or cause[d] to be presented[,] a
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false or fraudulent claim for payment or approval” under the NYFCA. See N.Y. State
Fin. Law § 189(1)(a). As explained above, a “claim” includes
any 	request 	or 	demand, 	whether 	under 	a 	contract 	or
otherwise, for money or property that . . . is made to a
contractor, grantee, or other recipient, if the money or property
is to be spent or used on the state or a local government’s
behalf or to advance a state or local government program or
interest, and if the state or local government (A) provides or
has provided any portion of the money or property requested
or demanded; or (B) will reimburse such contractor, grantee,
or other recipient for any portion of the money or property
which is requested or demanded.
Id. § 188(1)(a)(ii). The proposed second amended complaint alleges that Advanced
Energy represented to Solar Liberty—a government contractor—that the solar inverters
had a failure rate of 1%-4%, when in fact Advanced Energy knew that they failed
approximately 50% of the time. Docket Item 14-2 ¶ 18. It identifies instances when
specific Advanced Energy employees misrepresented the failure rate to Solar Liberty.
Id. It claims that Advanced Energy then demanded payment from Solar Liberty by
sending six invoices for the product that Advanced Energy had falsely represented was
“highly reliable.” Id. ¶ 13. And it pleads that Solar Liberty used the dangerous invertors
for a government project and paid for them with funds from the Power Authority. Id.
¶¶ 14-15.
These allegations are sufficient even under Rule 9(b)’s heightened pleading
standard, as they “set forth the who, what, when, where and how of the alleged fraud.”
See Khurana, 2017 WL 1437204, at *9.
C. Materiality
Advanced Energy next argues that Solar Liberty has failed to “allege that any
false claim by Advanced Energy was material to the Power Authority’s decision (or any
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state or local government decision) to pay Solar Liberty (which in turn paid Advanced
Energy) for the solar systems.” Docket Item 11-1 at 19. Again, this Court disagrees.
The proposed second amended complaint alleges that
[u]pon information and belief, Defendant Advanced Energy’s
false representations, which were adopted by Relator Solar
Liberty and made by it to [the Power Authority], were also
material to [the Power Authority] in awarding the [the Power
Authority] Contracts to Relator Solar Liberty and making
payment to Relator Solar Liberty, which payments would not
have been made but for the false representations. 	Indeed,
[the 	Power 	Authority] 	has 	issued 	Relator 	a 	“Notice 	of
Concern—Continued Inverter Issues” outlining the gravity to
it of the problem (see Exhibit F hereto) and has refused to
accept the NYC Public School Solar Systems as final or
complete, instead requiring that the Advanced Energy solar
inverters be replaced with those of a different manufacturer
and withholding final payment to Relator Solar Liberty on that
basis.
Docket Item 14-2 ¶ 53. In other words, Solar Liberty alleges that the Power Authority
would not have provided Solar Liberty with funds to pay for the inverters but-for
Advanced Energy’s misrepresentations. Such allegations are sufficient to allege
materiality. Indeed, it defies logic to suggest that the Power Authority would have
provided funds to purchase the solar inverters for school buildings had it known that
they had a 50% failure rate and posed a safety hazard. See Universal Health Servs.,
Inc. v. United States ex. rel. Escobar, 136 S. Ct. 1989, 1994 (2016) (“An undisclosed
fact is material if, for instance, ‘[n]o one can say with reason that the plaintiff would have
signed this contract if informed of the likelihood’ of the undisclosed fact.” (quoting Junius
Constr. Co. v. Cohen, 257 N.Y. 393, 400 (1931))).
Advanced Energy contends that the Power Authority did not suffer any financial
loss, relying on the proposed second amended complaint’s allegation that the Power
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Authority has withheld payment from Solar Liberty. Docket Item 19 at 8. But Solar
Liberty alleges only that the Power Authority has “withh[eld] final payment” for the
project as a result of the defective inverters, Docket Item 14-2 ¶ 53 (emphasis added);
elsewhere, Solar Liberty alleges that it paid for the inverters “with funds received from
the New York Power Authority pursuant to the NYPA Contracts.” Id. ¶ 14. And those
allegations actually support Solar Liberty’s claim that the misrepresentations were
material. See Escobar, 136 S. Ct. at 2003 (“[P]roof of materiality can include, but is not
necessarily limited to, evidence that the defendant knows that the Government
consistently refuses to pay claims in the mine run of cases based on noncompliance
with the particular statutory, regulatory, or contractual requirement. Conversely, if the
Government pays a particular claim in full despite its actual knowledge that certain
requirements were violated, that is very strong evidence that those requirements are not
material.”).
Therefore, Solar Liberty adequately has alleged materiality.
D. Scienter
“[T]o satisfy Rule 9(b), conditions of a person’s mind, including knowledge, may
be alleged generally rather than with particularity.” Kane, 120 F. Supp. 3d at 395.
Nevertheless, and “[a]lthough scienter may be demonstrated by inference under Rule
9(b), that is not a ‘license to base claims of fraud on speculation and conclusory
allegations.’” Wood, 328 F. App’x at 750 (quoting O’Brien v. Nat’l Prop. Analysts
Partners, 936 F.2d 674, 676 (2d Cir. 1991)).
Advanced Energy contends that “Solar Liberty makes conclusory statements . . .
about Advanced Energy’s purported knowledge but does not allege any specific events
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or other specific factual basis that gives rise to a ‘strong inference of fraudulent intent,’
as required.” Docket Item 11-1 (quoting United States ex rel. Grupp v. DHL Exp. (USA),
Inc., 47 F. Supp. 3d 171, 178 (W.D.N.Y. 2014), aff’d sub nom. U.S. ex rel. Grupp v. DHL
Worldwide Exp., Inc., 604 F. App’x 40 (2d Cir. 2015)). This Court again disagrees.
Solar Liberty alleges that “Advanced Energy was aware since at least December
2013” that its solar inverters failed at rates up to 50% but told Solar Liberty that the
failure rate was 1%-4%. See Docket Item 14-2 ¶¶ 18-19. That allegation alone is
sufficient to demonstrate scienter. Cf. Grupp, 47 F. Supp. 3d at 177 (finding no claim of
scienter where the complaint contained only “conclusory allegation[s] of fraud, based
solely on a disputed interpretation of the contract documents”).
To be sure, Advanced Energy may have valid factual defenses to Solar Liberty’s
claim. But that is not a viable argument on a motion to dismiss. At this early stage of
the litigation, Solar Liberty’s claim under the NYFCA may proceed.
CONCLUSION
For all those reasons, this Court DENIES Solar Liberty’s motion to remand,
Docket Item 7; DENIES Advanced Energy’s motion to dismiss, Docket Item 11; and
GRANTS Solar Liberty’s cross-motion to amend, Docket Item 14. Solar Liberty shall file
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its second amended complaint within seven days of the date of this decision and
order.
SO ORDERED.
Dated: 	October 9, 2020
Buffalo, New York
/s/ Lawrence J. Vilardo
LAWRENCE J. VILARDO
UNITED STATES DISTRICT JUDGE
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