Defendants’ Reply Brief in Support of Rule 12(b)(6) Motion to Dismiss — United States ex rel. Forsyth v. Kso Metalfab, Inc. (Dkt. 42, N.D. Ill.)

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Defendants' Reply Brief in Support of Rule 12(b)(6) Motion to Dismiss in United States of America ex rel. Aidan Forsyth v. KSO Metalfab, Inc., and Dora Kuzelka, No. 1:23-cv-04875, in the U.S. District Court for the Northern District of Illinois, filed May 18, 2026. The defendants argue that the government's claims are unprecedented because there is no allegation that KSO did not need the loan to stay afloat or that it misapplied any of the funds. They contend that the PPP was as much a grant or support program as a loan program, citing In re Skefos. The reply is filed by counsel at Aronberg Goldgehn, with a certificate of service by Khoa D. Trinh.

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Case: 1:23-cv-04875 Document #: 42 Filed: 05/18/26 Page 1 of 12 PageID #:267


                         IN THE UNITED STATES DISTRICT COURT
                        FOR THE NORTHERN DISTRICT OF ILLINOIS
                                  EASTERN DIVISION

UNITED STATES OF AMERICA, ex rel.,    )
Aidan Forsyth,                        )
                                      )
                       Plaintiff,     )
                                      )
         v.                           )                      No. 1:23-cv-04875
                                      )
KSO METALFAB, INC., and DORA KUZELKA, )                      Judge Manish S. Shah
                                      )
                       Defendants.    )


                 DEFENDANTS’ REPLY BRIEF IN SUPPORT OF RULE 12(b)(6)
                                MOTION TO DISMISS

        Defendants, Dora Kuzelka (“Dora”) and KSO Metalfab, Inc (“KSO”), state as follows in

further support of their Fed. R. Civ. P. 12(b)(6) Motion to Dismiss:

        The Government’s claims here are unprecedented in their attempt to make a False Claims

Act (“FCA”) case based on a PPP loan in the absence of any allegations that: (a) KSO did not need

the loan to stay afloat and not lay off employees; or (b) KSO misapplied even a penny of the funds

received. The Government’s Response does not discuss even a single case involving circumstances

like this one.

        This matters because the PPP program was as much a grant or support program as it was a

loan program. See e.g., In re Skefos, No. 19-29718-L, 2020 WL 2893413, at *11 (Bankr. W.D.

Tenn. June 2, 2020), aff’d sub nom. Carranza v. Alpha Visions Learning Acad., Inc., No. 2:20-

CV-02416-JTF-TMP, 2023 WL 11968535 (W.D. Tenn. Jan. 11, 2023) (“While a borrower’s

bankruptcy status clearly is relevant for a normal loan program, the PPP is the opposite of that. It

is not a loan program at all. It is a grant or support program.”); In re Roman Cath. Church of

Archdiocese of Santa Fe, 615 B.R. 644, 654 (Bankr. D.N.M. 2020) (same, stating PPP “‘loans”

     Case: 1:23-cv-04875 Document #: 42 Filed: 05/18/26 Page 2 of 12 PageID #:268


are really grants. Repayment is not a significant part of the program.”).1 However characterized,

the Government made PPP “loans” so businesses like KSO could pay their rent and employees

and avoid lay-offs or closure. Here, the Government got what Congress created the PPP program

to do, and the Complaint does not allege otherwise.

       The Government’s Response ultimately collapses eligibility into causation by treating the

issuance of the PPP loans themselves as the Government’s injury. But Seventh Circuit FCA

precedent requires more than an allegation that the Government would not have approved

participation in the program absent the challenged statements; it requires a plausible allegation that

the statement proximately caused a cognizable pecuniary loss.

       The Response only underscores the false premise that the Government was harmed, such

that Dora and KSO should be severely punished, because Dora had been indicted for (but never

convicted of) a crime, conviction for which undisputedly would not have disqualified KSO from

the PPP program. This is the central absurdity of the Complaint which no re-pleading could correct.

I.     DORA’S ALLEGED MISREPRESENTATIONS DID NOT CAUSE THE
       GOVERNMENT ANY COGNIZABLE LOSS

       The Government argues that its reliance on Dora’s alleged misrepresentations to approve

and pay the KSO PPP loans establishes causation. Dkt. 41, p.11. Recent Seventh Circuit cases

that address the issue, however, have held that the Government’s payment of money based on a

misrepresentation goes to materiality, not causation, the latter of which is established only by a

showing of proximately caused pecuniary damages. Because the Government did not plead facts

that would establish it suffered any loss or damages proximately caused by Defendants’ alleged

wrongdoing, it did not plausibly plead causation under F.R.C.P. 8, let alone the heightened fraud



1
  Although there is some authority finding that an applicant’s criminal history is a relevant inquiry,
the point is that PPP loans served a different purpose that other Government loan programs and
the differences are important for the reasons stated herein.
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pleading requirements of Rule 9(b), thus this case should be dismissed. Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009).

       Since the United States Supreme Court issued its decision in Universal Health Services,

Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), the Seventh Circuit has issued three

key opinions addressing the causation requirement of FCA cases. In United States v. Luce, 873

F.3d 999, 1014 (7th Cir. 2017), the court overruled its prior cases applying a “but for” causation

standard in FCA cases and held that a claim under the FCA must meet the stricter common law

fraud requirement that a misrepresentation “was the proximate cause of the government’s harm.”

Id. at 1012, 1014.

       The Government’s attempt to explain away and distinguish the Luce opinion is nonsensical.

First, the Government argues that Luce does not apply because it “redefined the causation element

to be proven at trial or summary judgment, not alleged in a complaint subject to a motion to

dismiss.” Dkt. 41, p. 10. (Emphasis added). This assertion is self-defeating. Under Iqbal, because

the Government must prove causation as an element of its FCA claim, it must allege facts that if

proven would plausibly establish this element. The Government has not done so. Second, the

Government argues that Luce “simply added the legal cause requirement to the plaintiff’s burden

of proof…” Id. at 11. Luce, however, added a further burden on the government to establish that

the alleged acts of a defendant proximately caused a loss. Here, the Government has not identified

any loss it allegedly suffered, instead arguing that Dora’s alleged misrepresentations caused the

Government to make the KSO PPP loans. That is the “but for” causation standard abandoned in

Luce, i.e., that “but for” the statements, no loan would have been made. But this is different from

proximate cause, particularly where the Government’s expectation was that the “loan” proceeds

would be properly applied and the loan forgiven. This explains why other FCA cases involving




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PPP loans allege misapplication of loan proceeds, because it is the misapplication of the proceeds

that proximately cause a loss.

       If there could be any legitimate doubt about the proper interpretation of Luce, it is removed

by the second post-Escobar Seventh Circuit case, United States v. Carrington Mortg. Servs., 70

F.4th 968 (7th Cir. 2023).2 Consistent with Luce, the Carrington court held that for there to be

liability under the FCA a plaintiff must establish all elements of common law fraud, 1) the

defendant made a false statement (falsity); 2) the defendant knew the statement was false

(knowledge); 3) the false statement was material to the government’s payment decision

(materiality); and 4) the false statement caused the government’s loss (causation). Id. at 973.

       In Carrington, the defendant made false representations that induced the U.S. Department

of Housing and Urban Development (“HUD”) to provide mortgage insurance and indemnity. Id.

at 971. In addressing the materiality and causation requirements, the court held as follows:

       If HUD would have withheld federal insurance or issued an indemnification agreement had
       it known of the noncompliance, then the false certification of compliance is material to
       HUD’s payment decision. And if the loan defaults and HUD covers the cost of the default,
       then the false certification of compliance causes the government’s loss when the loan’s
       noncompliance is the foreseeable cause of the default.
                                              ***
       To show proximate causation, [the relator] had to put forward evidence indicating that the
       false certifications in the reviewed loans were the foreseeable cause of the later defaults.

Id. at 973, 979. Thus, the Government’s decision to approve the PPP loans relates only to

materiality, it did not cause a loss to the Government.

       The third post-Escobar Seventh Circuit causation case is United States v. Molina

Healthcare of Illinois, Inc., 17 F.4th 732 (7th Cir. 2021), cited by the Government in its Response.

Dkt. 41, pp. 9-10. To support its argument that Dora’s alleged misrepresentations satisfied the

causation element, the Government asserts that the Molina Healthcare court held that “allegations


2
 The Government does not address Carrington in its Response even though it was cited in
Defendants’ Memorandum. [Dkt. 40, pp. 6 and 7]
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that an applicant submitted falsified forms to receive government funds ‘is enough to satisfy the

pleading burden on causation.’” Id. The text of this sentence that precedes the Government’s

quote from Molina Healthcare, however, blatantly misstates the court’s holding.

       In Molina Healthcare, the defendant contracted with the State of Illinois to provide skilled

nursing facility services. Because the defendant did not have the personnel to provide the services,

it subcontracted with a third party that employed the required personnel. The State paid the

defendant, which in turn was required to pay the third party. After the defendant’s contract with

the third party was terminated for non-payment, the defendant continued to bill the State for

services the defendant did not and could not provide. As the court put it, the defendant received

“payments for nothing.” Id. at 738.

       Consistent with Luce and Carrington, the court explained it was not enough that the

defendant made a false statement to receive money from the government; the government also had

to establish causation, meaning the defendant caused an injury in the form of “pecuniary losses.”

Id. at 739-40. The Molina Healthcare court explained the Government’s burden and why it was

met in that case: “Last, we say a word about causation. This too is an element of an FCA claim:

the plaintiff must establish that the defendant’s fraud ‘was a material element and a substantial

factor in bringing about an injury.’” The court held that causation was “evident” because the

defendant “submitt[ed] enrollment forms requesting payment for services [the defendant] could

not provide to Illinois Medicaid…” Id. at 745. (Emphasis added).

          The Molina Healthcare court did not implicitly overrule Luce and Carrington. The court

simply held the causation element was satisfied in that case because the defendant submitted false

forms in a scheme to fraudulently receive payment for services it did not provide.

       Here, the Government did not plead that Dora or KSO used the PPP loan proceeds for any

purpose other than what was intended by the CARES Act. It did not plead that KSO defaulted on


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its PPP loans or that any other businesses were denied PPP loans due to Dora’s alleged

misrepresentations. The Government thus failed to allege any facts inconsistent with its receipt of

what it “paid for,” that is, that the PPP funds were applied properly by KSO to pay employees and

other approved expenses to avoid lay-offs during the pandemic. The loan was thus forgiven

because it worked as it was supposed to. This is not an injury of a pecuniary nature, as required to

allege proximate causation.

        The United States Supreme Court has “emphasize[d] … that the False Claims Act is not a

means of imposing treble damages and other penalties for insignificant regulatory or contractual

violations.” Universal Health Services, Inc. v. U.S., 579 U.S. 176, 196 (2016). That is precisely

what the Government is seeking to do in this case. It relies on Dora’s alleged misrepresentations

about an indictment for a crime that, had she been convicted, would not have disqualified KSO

from participation in the PPP program. It does not allege that the program did not work as intended

in this instance. In that critical respect, the Government fails to allege that Dora’s statement was

the proximate cause of damages to the Government. For these reasons, the Government has not

plausibly alleged causation and thus its claims should be dismissed.

II.     THE DAMAGES AND PENALTIES SOUGHT ARE UNCONSTITUTIONALLY
        EXCESSIVE

        While the Government argues that judgments about the appropriate penalties for an offense

belong in the first instance to the legislature and courts should give substantial deference to the

legislature’s determinations, Dkt. 41, at 14, this does not mean that excessive fines under the FCA

are not subject to judicial review. Indeed, “[t]he touchstone of the constitutional inquiry under the

Excessive Fines Clause is the principle of proportionality: The amount of the [fine] must bear some

relationship to the gravity of the offense that it is designed to punish.” United States v. Bajakajian,

524 U.S.321, 334 (1998). This determination, by its nature, is to be made by a court based on the

facts of each case.

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       Here, the alleged facts establish that the treble damages sought by the Government would

violate the excessive fines provision of the Eighth Amendment. To begin with, the Government

does not dispute that the damages it seeks are at least in part a penalty, thus there is no question

they must pass muster under the Eighth Amendment. Grashoff v. Adams, 65 F.4th 910, 916 (7th

Cir. 2023) (“[C]ivil sanctions can constitute punishment, and therefore are subject to the

limitations of the Excessive Fines Clause, if they serve, at least in part, retributive or deterrent

purposes”); citing Towers v. City of Chicago, 173 F.3d 619, 625 (7th Cir. 1999).

       Further, the Government does not dispute that if Dora had misapplied the PPP loan funds

rather than using them for the purposes intended under the CARES Act, it would be seeking

identical damages in this case. This alone is compelling proof that the damages and fines sought

in this case are excessive. Allowing treble damages under these circumstances would run counter

to the Universal Health Services guidance against using the FCA to impose treble damages for

insignificant regulatory or contractual violations.    579 U.S. at 196.      Not surprisingly, the

Government has not cited any case with a similar fact pattern where a defendant was found liable

under the FCA for using Government funds for their intended purposes.

       To support the Government’s argument that Dora’s answers on the loan application forms

“were significant,” it notes that in the SBA’s March 8, 2021 interim final rule it determined that

the remaining criminal history restrictions on PPP loan eligibility “will help mitigate the risk of

default, fraud, or misuse of PPP loan funds that are intended to benefit small business employees.”

Dkt. 41, p. 14. This is just an argument that the statements were relevant to the decision to let

KSO participate in the program.

       As the Government recognizes, the controlling issue in an excessive fines case is whether

the fine is “grossly disproportionate to the gravity of a defendant’s offense.” Id. p. 13. This

standard is based on the touchstone Bajakajian principle that a penalty must bear some relationship


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to the gravity of the offense that it is designed to punish. 524 U.S. at 334. Applying the four

factors courts focus on when addressing whether a fine or penalty would violate the excessive fines

clause establishes that the damages and fines sought by the Government in this case are

unconstitutionally excessive.

       One of the factors is the nature of the harm caused by the defendant’s conduct. Critically,

this factor assumes there was harm. As noted above, in the context of FCA cases the harm must

proximately cause a pecuniary loss or injury to the Government. The absence of harm conclusively

establishes that any fine would be inappropriate, while the treble damages and other monetary

relief sought by the Government, where it benefitted from the loan proceeds being used to pay the

KSO employees, is grossly disproportionate to Dora’s alleged wrongful conduct.

       For these same reasons, Dora and KSO do not fit into the class of persons or entities for

whom the FCA was principally designed. Only those whose wrongful conduct proximately causes

pecuniary loss or damage to the Government are the intended targets of the FCA.

       Further, the Government is seeking the maximum fine allowed under the FCA, which it

argues is mandatory. This one size fits all punishment as applied to this case would be excessive.

The Government is seeking three times the amount of the loans made to KSO, not treble damages

based on any pecuniary harm it suffered. A fine of over $2.5 million in a case where the

Government has not suffered any damages would be per se disproportionate to the gravity of the

alleged offense and therefore excessive and unconstitutional.

       Finally, Dora’s conduct is put into proper perspective by the rapidly changing landscape of

the PPP loan program as detailed in Defendants’ Memorandum. On February 22, 2021, the Biden

administration advised the American public that “[c]urrently, a business is ineligible for PPP if it

is at least 20 percent owned by an individual who has either: (a) an arrest or conviction for a felony

related to financial assistance fraud within the previous five years; or (2) any other felony within


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the previous year.” (Emphasis added). The Administration accurately suggested the “other felony

within the previous year” restriction would be rescinded. The SBA did so on March 8, 2021, days

before Dora submitted the first loan application for KSO.

       The SBA’s March 8, 2021 loan application form only added to the confusion. The form

included two questions related to an applicant’s criminal history. Here, the Government avoids

addressing the confusion in the form by only addressing the first question and by repeatedly

focusing on the outdated “pending criminal charges” language, rather than the revised restriction

that focused on felony charges for fraud related crimes. The loan application form included the

two criminal history questions and advised that the application could be rejected depending on

how the two questions were answered. The explanation for the first question stated that if the

applicant had pending felony charges, the application would be denied. As to the second question,

however, it was only a conviction for limited financial fraud charges that would cause the

application to be denied.

       Dora was under indictment at the time of the loan applications but not for any fraud-related

crime for which a conviction would have disqualified KSO. The application form advised that,

even if Dora had been convicted of the non-financial fraud felonies with which she was charged,

this would not cause KSO’s loan application to be denied. Although the Government now tries to

rationalize why a different, higher standard should apply to pending felony charges as opposed to

convictions, no such explanation was provided to Dora in the loan application. While lawyers can

rationalize why a pending felony charge would disqualify a loan applicant while the applicant

would qualify for the loan if its primary owner had been convicted of the same felony, the loan

application did not disclose the alleged logic for the distinction. Instead, the loan application

appeared to indicate that answering “yes” to the first question would disqualify the applicant from

receiving a loan that was allowed by the wording of the second question.


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          While Dora’s state of mind is not at issue in the pending Motion, the Government did not

plead any facts that indicate Dora intentionally applied for a loan to defraud the Government by

using the proceeds for any unintended purpose. In many FCA cases, illustrated by Molina

Healthcare, the defendant’s conduct reflected a high degree of reprehensibility because it plotted

to defraud the Government by obtaining funds with no intent of using the funds for a proper

purpose. This is not such a case. The gravity of Dora’s alleged offense is low, the key

consideration in determining whether the treble damages sought by the Government are excessive.

Under all these circumstances, the penalties sought by the Government would violate the excessive

fines provision of the Eighth Amendment.

   III.      THE UNJUST ENRICHMENT CLAIM SHOULD BE DISMISSED

          The Government’s unjust enrichment claim is based on the same facts as its FCA claims.

Dkt. 26, p. 15. For this reason, the unjust enrichment claim will stand or fall along with the FCA

claims. Cleary v. Philip Morris, 656 F.3d 511, 517 (7th Cir. 2011). Defendants incorporate their

arguments above as the basis for dismissal of the unjust enrichment claim.

   IV.       THE GOVERNMENT’S REQUEST TO FILE AN AMENDED COMPLAINT
             SHOULD BE DENIED

          Although the Government asks for leave to amend if it has failed to state claims in its

Complaint, it does not offer any explanation for why it should be allowed to do so. The

Government does not allege it has evidence that Dora or KSO misused the PPP loan proceeds or

that there was any downstream damage caused by the loans to KSO. It does not allege that it

requires discovery to fully respond to the issues raised in Defendants’ Motion to Dismiss. Under

these circumstances, amendment would be futile.

          Further, the Government passed on the opportunity to amend as of right by not seeking to

do so within 21 days after Defendants filed their Motion to Dismiss. F.R.C.P. 15(a)(1)(B). The

Government has not filed a motion seeking leave to amend, and even the insufficient request to

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amend included in its Response does not provide any reason why it should be allowed to do so.

For these reasons, Defendants request that the Court deny the Government’s request to file an

Amended Complaint, or in the alternative that the Court require the Government to provide a good

faith basis for why an amended complaint would cure the deficiencies in its original Complaint.



Date: May 18, 2026                                  Respectfully submitted,

                                                    KSO Metalfab, Inc. and Dora Kuzelka

                                                    By: /s/Gary Hollander
                                                    Gary P. Hollander (ARDC #6181915)
                                                    Khoa Trinh (ARDC #6351044)
                                                    ARONBERG GOLDGEHN
                                                    225 W. Washington St. Suite 2800
                                                    Chicago, Illinois 60606
                                                    (312) 923-7336
                                                    ghollander@agdglaw.com
                                                    ktrinh@agdglaw.com

                                                    Counsel for Defendants




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                                CERTIFICATE OF SERVICE

       I, Khoa D. Trinh, hereby certify that on May 18, 2026 I caused to be electronically filed

the foregoing REPLY BREIF IN SUPPORT OF RULE 12(b)(6) MOTION TO DISMISS, true

and correct copies of which will be served via the Court’s EF/ECM system on all parties of record.


                                                            /s/ Khoa D. Trinh




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