Rille, et al v. Electronic Data, et al

Filing 325

ORDER denying 249 Motion to Dismiss; denying 252 Motion to Dismiss for Lack of Jurisdiction. Signed by Judge Billy Roy Wilson on 1/30/12. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
UNITED STATES OF AMERICA, ex rel.
NORMAN RILLE and NEAL ROBERTS
v.

PLAINTIFFS

4:04-CV-00986-BRW

SUN MICROSYSTEMS, INC.

DEFENDANT
ORDER

Pending is a Motion to Dismiss Certain Relator Claims for Lack of Subject Matter
Jurisdiction (Doc. No. 249) filed by the United States (the “Government”). Also pending is Sun
Microsystem, Inc.’s (“Sun”) Motion to Dismiss Relator Claims for Lack of Subject Matter
Jurisdiction (Doc. No. 252). Responses and replies have been filed.1 For the reasons set out
below, both motions are DENIED.
I.

BACKGROUND
In September 2003, the General Service Administration (“GSA”) Office of Inspector

General (“OIG”) received a fraud hotline complaint alleging that Sun gave large commercial
customers more substantial discounts than it gave the Government under the GSA schedule
contract for Sun’s services.2 Norman Rille and Neal Roberts (“Relators”) did not submit the
complaint. The complaint was forwarded to the GSA OIG audit office in Philadelphia,
Pennsylvania. The office initiated an audit and on September 8, 2004 requested information
from Sun.

1

Doc. Nos. 263, 264, 265, 274, 292, 296, and 311.

2

Doc. No. 249.
1

That same day, Relators hand-delivered a copy of their False Claims Act3 pre-filing
disclosure statement4 to Don Williamson, an attorney at the Department of Justice (“DOJ”).5
Neither Relators nor their counsel were aware of the GSA OIG’s ongoing audit of Sun. Rather,
apparently the DOJ asked the GSA OIG to get involved in this case. As a result, Marie Ingol, an
agent with the GSA OIG, participated in more than one strategy conference.6 The GSA OIG’s
audit office in Philadelphia, however, became aware of this lawsuit only around October, 2006.7
So, it seems that the GSA OIG was investigating Sun on two separate fronts, and that one
investigator did not know of the other’s efforts until much later.
Relators filed this qui tam8 action on September 17, 2004.9 In a nutshell, Relators alleged
that Defendants formed strategic alliances to drum up Government business; that members of the
alliances received certain benefits; that the actions in connection with the benefits were

3

31 U.S.C. §§ 3729, et seq.

4

Pre-filing disclosure is required to “escape the jurisdictional bar” if information has been
publicly disclosed. See United States ex rel. Ackley v. IBM, 76 F. Supp. 2d 654, 668 (S.D. Md.
1999) (internal citations omitted); 31 U.S.C. § 3730(e)(4)(B).
5

Doc. No. 274. By this time, Relators already had retained counsel. Relators assert that
in June and July, 2004, their counsel made verbal disclosures about this case to Howard Daniels
and Chris Hendrickson, both of the DOJ.
6

Doc. No. 274. In August 2006, Maire Ingol apparently attended a “strategy conference”
in this case.
7

Doc. No. 249. Declaration of James M. Corcoran, Regional Inspector General for
Auditing of the GSA OIG’s Mid-Atlantic Field Audit Office in Philadelphia, Pennsylvania.
8

“Qui tam is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac
parte sequitur, which means ‘who pursues this action on our Lord the King’s behalf as well as
his own.’ The phrase dates from at least the time of Blackstone.” Vt. Agency of Natural Res. v.
United States ex rel. Stevens, 529 U.S. 765, 769 (2000). “[W]hen a portion of the penalty
recovered went to the person or persons informing, and a portion to the sovereign, the action was
styled a ‘qui tam’ action.” Williams v. Wells Fargo & Co. Express, 177 F. 352, 355 (8th Cir.
1910) (internal citation omitted).
9

Doc. No. 1.
2

wrongful; and that as a result of those actions, the Government overpaid. In 2007, nearly three
years after Relators filed their complaint, the Government intervened in this case.10 The
Government and Sun settled in January, 2011.11 The settlement agreement resolved two types of
fraud claims: kickbacks and defective pricing.12
II.

DISCUSSION
Now, after litigating for years, settling the case, and filing a stipulation of dismissal, the

Government maintains that Relators’ defective pricing claims are prohibited under the False
Claims Act by the public disclosure bar,13 and asks that I dismiss Relators’ defective pricing
claims for lack of jurisdiction.14 Sun adopts the Government’s arguments in connection with
Relators’ defective pricing claims, and further asks that I dismiss Relators’ kickback claims for

10

Doc. No. 47. The Government intervened on April 12, 2007.

11

Doc. No. 242. The Government and Sun filed a stipulation of dismissal in February,

12

Id.

13

31 U.S.C. § 3730(e)(4)(A), which provides:

2011.

No court shall have jurisdiction over an action under this section based upon the
public disclosure of allegations or transactions in a criminal, civil, or administrative
hearing, in a congressional, administrative, or Government Accounting Office report,
hearing, audit, or investigation, or from the news media, unless the action is brought
by the Attorney General of the person bringing the action is an original source of the
information.
I cite the FCA as it existed at the time Relators filed their complaint. On March 23,
2010, 31 U.S.C. § 3730(e)(4) was amended, but the legislation is silent as to retroactivity. See
Section 10104(j)(2) of the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124
Stat. 119; Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885, 1889 n.1
(2011).
14

Doc. No. 249.
3

lack of jurisdiction, also based on the public disclosure bar.15 I consider these requests under
Federal Rule of Civil Procedure 12(b)(1) as a factual challenge to this Court’s jurisdiction.16
Under the False Claims Act (“FCA”), federal courts lack jurisdiction over a qui tam
action if the allegations in a relator’s complaint have been publicly disclosed in a federal
hearing, in a federal report or audit, or in the news media -- unless the relator is an original
source of the information.17 In the Eighth Circuit, when a relator’s complaint alleges fraud, the
public disclosure bar is not triggered by information about a transaction unless the information
presents a clear indication of foul play.18 “The jurisdictional bar to an FCA claim exists only
‘when the essential elements comprising [the] fraudulent transaction have been publicly
disclosed so as to raise a reasonable inference of fraud’; to bar the action this disclosure must
reveal the ‘critical elements of the fraudulent transaction themselves.’”19
In analyzing public disclosure and original source, a court must first consider:
“(1) Have allegations made by the relator been ‘publicly disclosed’ before the qui tam suit was
brought? (2) If so, is the qui tam suit ‘based upon’ the public disclosure? and (3) If so, was the

15

Doc. Nos. 252, 253.

16

Osborn v. United States, 918 F.2d 724, 729-30 & n.6 (8th Cir. 1990) (“Because at issue
in a factual 12(b)(1) motion is the trial court’s jurisdiction -- its very power to hear the case -there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as
to the existence of its power to hear the case.”) (internal citations omitted).
17

United States ex rel. Kinney v. Stoltz, 327 F.3d 671, 674 (8th Cir. 2003) (internal
citation omitted).
18

United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1514 (8th Cir. 1994).

19

United States ex rel. Hixson v. Health Mgmt. Sys., 613 F.3d 1186, 1188 (8th Cir. 2010).
4

relator an ‘original source’ of the information on which the allegation was based?”20 It is
necessary to determine if a relator is an original source only if there has been public disclosure.21
If there was public disclosure, the original source analysis has three parts: “the relator’s
knowledge of the information must be (1) direct and (2) independent, and (3) the relator must
have voluntarily provided the information to the Government before filing suit.”22 Direct
knowledge is immediate knowledge -- knowledge that is “unmediated by anything but [the
plaintiff’s] own labor.”23 Independent knowledge is knowledge not derived from the public
disclosure.24 “If the relator has direct knowledge of the true state of the facts, it can be an
original source even though its knowledge of the misrepresentation is not first-hand.”25

A.

Defective Pricing

20

Minn. Ass’n of Nurse Anesthetists v. Allina Health System Corp., 276 F.3d 1032, 1042
(8th Cir. 2002) (quoting United States ex rel. Rabushka v. Crane Co., 40 F.3d 1509, 1512-14
(8th Cir. 1994) (Judge Magill’s dissent in Rabushka disagrees with the majority’s interpretation
of United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 651 (D.C. Cir. 1994), in
particular the interpretation that Springfield requires the disclosure of all elements of a fraudulent
transaction. Rabushka, 40 F.3d at 1514. While Judge Magill agrees with the majority “that the
district court’s application of the jurisdictional bar whenever there is disclosure of the ‘subject
transactions’ was too broad, [he] believe[s] that ‘in its attempt to evade Scylla, [the panel
majority] steered precipitously close to Charybdis.’” Id. at 1515 n.3.)
21

United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 651 (D.C. Cir.

22

Allina Health System Corp., 276 F.3d at 1042-43.

23

Id. at 1048-49 (quoting Wang v. FMC Corp., 975 F.2d 1412, 1417 (9th Cir. 1992)).

24

Id. at 1048.

1994).

25

Id. at 1050 (citing United States ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645,
656-67 (D.C. Cir. 1994)).
5

1.

2004 Complaint

The Government contends that the Relators’ September 17, 2004 complaint “raised no
defective pricing allegations whatsoever” and that “the words and phrases ‘pricing,’ ‘defective
pricing,’ ‘GSA,’ ‘commercial sales,’ ‘current accurate, and complete,’ and other terms and
phrases typical of any GSA defective pricing claim” do not appear in the complaint.26 The
Government maintains that defective pricing information was publicly disclosed by August,
2005 in GSA OIG audit-related discussions with Sun and in two Federal Computer Week
articles,27 and that Relators amended their complaint to include defective pricing claims only in
October, 2006.28
In broad terms, under the Truth in Negotiations Act (“TINA”) and the Federal
Acquisition Regulations (“FARs”) a government contractor must submit cost and pricing data to
the Government along with any proposal over a certain dollar amount; the contractor must also
certify that the data is “accurate, complete and current.”29 If the data submitted by a contractor is
not accurate, complete, and current, then the Government may bring a defective pricing action
against the contractor.30 The Government carries the burden of proof in a defective pricing claim

26

Doc. No. 249.

27

Federal Computer Week is an IT-oriented online publication. See
http://fcw.com/Home.aspx . One article cited by the Government, GSA Nearly Delists Sun
Microsystems, was published on August 16, 2005. Available at
http://fcw.com/articles/2005/08/16/gsa-nearly-delists-sun-microsystems.aspx?sc_lang=en. The
second article that the Government cites, Sun Narrowly Escapes GSA Delisting, was published
on August 22, 2005. Available at
http://fcw.com/articles/2005/08/22/sun-narrowly-escapes-gsa-delisting.aspx?sc_lang=en.
28

Doc. No. 249.

29

10 U.S.C. § 2306a.

30

Id.
6

and must establish by a preponderance of the evidence that: (1) the data at issue is “cost or
pricing data” within the meaning of the TINA; (2) the cost or pricing data was not meaningfully
disclosed to the Government; and (3) the Government detrimentally relied on the data, which
resulted in overpayment.31
Under the False Claims Act, a person who presents a fraudulent or false claim to the
government faces civil liability.32 “The archetypical qui tam FCA action is filed by an insider at
a private company who discovers his employer has overcharged under a government contract.”33
However, FCA actions have also been sustained under the theory of “false negotiation, including
bid rigging and defective pricing,” among others.34 In the FCA context, to prevail on a defective
pricing claim the Government must prove by a preponderance of the evidence that the contractor
submitted “cost or pricing data” within the meaning of the TINA, that the contractor failed to
make a meaningful disclosure, and that the contractor acted with the requisite intent.35
With this in mind, I turn to Relators’ 2004 complaint, which alleges that the Government
contracts with consultants for information technology services (“Systems Integration
Consultants”). To implement the plans or services of the Systems Integration Consultants, the
Government must procure hardware, software, or technical services from technology companies
(“Technology Vendors”). The complaint continues that the TINA, FARs, Anti-Kickback

31

See 10 U.S.C. § 2306a; United States ex rel. Campbell v. Lockheed Martin Corp., 282
F. Supp. 2d 1324, 1331-32 (M.D. Fl. 2003).
32

31 U.S.C. § 3729.

33

United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996).

34

Id.

35

See United States v. JT Construction Co., 668 F. Supp. 592, 593 (W.D. Tex. 1987).
7

provisions,36 and FCA, as well as the contracts between the Government and Systems Integration
Consultants, require that the Systems Integration Consultants and Technology Vendors be
“truthful in negotiations, and to certify that the cost or pricing data they proffer to the
Government is current, accurate, and complete.”37
The 2004 complaint alleges that Systems Integration Consultants and Technology
Vendors established alliances to consummate sales to the Government. According to the
complaint, participation in a kickback scheme was a prerequisite to inclusion in an alliance, and
alliance benefits were secret. While the 2004 complaint repeatedly refers to kickbacks, the
complaint explains that “discounted products” were a form of kickback in the kickback
scheme.38 Relator Rille apparently learned of Sun’s alliance involvement while Rille was
employed by NCR and Accenture -- before filing the 2004 complaint.
The 2004 complaint continues that “[i]n furtherance of this Kickback Scheme and
conspiracy, Defendants, and each of them, expressly or impliedly represented or certified to the
Government that they complied with various Anti-Kickback statutes, FARs, and TINA when, in
fact, they had not, and do not, comply with such laws and regulations.”39 The 2004 complaint
specifically alleges that Sun contracted with the Government and was required to comply with
the Anti-Kickback statutes, FCA, TINA, and FARs. The complaint further alleges that
Defendants had knowledge that their “negotiations, statements, records, claims, invoices for
payment and certification of compliance . . . with the Anti-Kickback statutes, FARs, and TINA

36

41 U.S.C. § 51, et seq.

37

Doc. No. 1.

38

Id. At least one exhibit to the complaint shows discounted products.

39

Id.
8

were false, and/or acted in reckless disregard for their truth, or acted with deliberate ignorance of
their falsity.”40
Defendants allegedly submitted false claims to the Government in violation of the FCA,
Anti-Kickback statutes, FARs, and TINA; the Government relied on the allegations; and, as a
result, the Government overpaid. Considered as a whole, the 2004 complaint contains
allegations of defective pricing.
2.

Public Disclosure

The Government contends that public disclosure occurred through audit-related
conversations between the GSA OIG and Sun, and in the media. James M. Corcoran, Regional
Inspector General for Auditing of the GSA OIG’s Mid-Atlantic Field Office in Philadelphia,
Pennsylvania, declared that the GSA OIG’s audit revealed that Sun had not provided the GSA
with current, accurate, or complete customer sales practice information; had not complied with
price reduction clauses in its GSA schedule contracts; and had not administered its GSA
contracts in accordance with their terms.41 Corcoran stated that between December 2004 and
December 2006, these findings were discussed at length with Sun employees -- both employees

40

Id.

41

Doc. No. 249. Corcoran’s statement, reads, in relevant part:

By August 2005, when Sun’s GSA contract was up for renewal, while we had not
completed or issued our audit reports, we had documented significant problems with
Sun’s negotiation and administration of its GSA contracts. Specifically, by August
2005, our work revealed that Sun: 1) had not provided GSA with current, accurate,
or complete customer sales practice information in negotiating the pricing of its GSA
contracts in 1997 and 1999; 2) had not complied with price reduction clauses of its
GSA contracts by offering significantly better pricing to many of its commercial
customers than it offered to GSA; and 3) had not administered its GSA schedule
contracts in accordance with their terms and provisions.
9

believed responsible for the inaccurate pricing and employees not suspected of involvement with
any wrongful activity.42
The two articles that the Government contends resulted in public disclosure set out that
Sun granted commercial clients deeper discounts than the Government, which is contrary to the
GSA’s standard price-reduction clause obligating contractors to give the Government equal or
bigger discounts.43
I first note that both the audit-related discussions and the articles occurred after Relators
filed the 2004 complaint. Further, as set out above, to fall within the public disclosure bar in the
Eighth Circuit, the disclosure “must reveal the ‘critical elements of the fraudulent transaction
themselves.’”44 There is little information in the record about what, exactly, was discussed with
which Sun employees. While it seems Sun employees were made aware that Sun did not provide
accurate pricing information and did not comply with its GSA schedule contract, I cannot find
that Corcoran’s statement clearly indicates that fraud was involved. Likewise, the two Federal
Computer Week articles lack the critical elements of a fraudulent transaction; neither article
clearly indicates fraud. Based on the record, there was not enough information in the public
domain to expose any alleged fraudulent transaction.
Even if there was public disclosure, Relators were an original source. Relator Rille was
formerly employed by Accenture, LLP, a defendant in another qui tam case filed by Relators.45
While employed by Accenture, Rille became aware of contracts between Accenture and Sun that
42

Id.

43

Id.

44

United States ex rel. Hixson v. Health Mgmt. Sys., 613 F.3d 1186, 1188 (8th Cir. 2010).

45

United States ex rel Rille v. Accenture LLP, et al., No. 4:04-CV-00985-BRW (E.D.

Ark.)
10

are relevant to the defective pricing claim.46 Relators possessed hundreds of thousands of pages
of documents at the onset of their qui tam cases. Certain documents evidenced the alleged
strategic alliances and the nature of the alliance.47 Relators admit not having seen other
documents at issue. Nonetheless, Relators had direct knowledge of the “true state of the facts”
and can be an original source even though their knowledge was through documents that
referenced other documents at issue.48
Considering the 2004 complaint, the nature of the disclosures, and my finding that
Relators are an original source, the Government’s motion to dismiss Relators’ defective pricing
claims is DENIED. I note that the Government also asked for dismissal under Federal Rule of
Civil Procedure 9(b). The time for Rule 9(b) motions has passed.
B.

Kickbacks

Sun joins in the Government’s request that Relators’ defective pricing claims be
dismissed and further asks that Relators’ kickback claims be dismissed. Sun maintains that its
system of discounts was widely publicized in the press, and that the Government was aware of
its practices well before Relators filed their complaint.49 In support of its argument, Sun
submitted around 250 pages of documents consisting of articles, deposition excerpts, and
government reports.50 None of the documents, however, disclose the critical elements of fraud or
clearly indicate that fraud was involved. And, as set out above, even if there was public
46

Doc. No. 274.

47

Id.

48

Allina Health System Corp., 276 F.3d at 1050. (citing United States ex rel. Springfield
Terminal Ry. v. Quinn, 14 F.3d 645, 656-67 (D.C. Cir. 1994)).
49

Doc. No. 253.

50

Doc. No. 254.
11

disclosure, Relators qualify as an original source. Accordingly, Sun’s Motion to Dismiss is
DENIED.
CONCLUSION
Based on the findings of fact and conclusions of law above, the Government’s Motion to
Dismiss (Doc. No. 249) and Sun’s Motion to Dismiss (Doc. No. 252) are both DENIED.
IT IS SO ORDERED this 30th day of January, 2012.

/s/Billy Roy Wilson
UNITED STATES DISTRICT JUDGE

12