MacDowell v. A&T Marketing, Inc. et al

Filing 129

ORDER RE 122 MOTION FOR LEAVE TO FILE FOURTH AMENDED COMPLAINT by Judge William Alsup.(whalc1, COURT STAFF) (Filed on 11/20/2019)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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UNITED STATES ex rel
MATTHEW MACDOWELL,
No. C 19-00173 WHA
Plaintiff,

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v.
ORDER RE MOTION FOR LEAVE
TO FILE FOURTH AMENDED
COMPLAINT

SYNNEX CORPORATION,
Defendant.
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INTRODUCTION
In this False Claims Act action, qui tam relator moves for leave to file a fourth amended
complaint. To the extent stated below, the motion is GRANTED.
STATEMENT
Previous orders have explained this case. In short, defendant Synnex Corporation sells

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office products to the federal government. In 1980, defendant entered into a contract with the

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government for the sale of electric power-supply products. The contract incorporated the Trade

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Agreements Act which necessitated end products sold to the United States Government be

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manufactured in certain countries. In 2006, Synnex entered into a contract with Huawei

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Technologies Co., Ltd., a Chinese technology corporation, to sell technology components in the

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United States. As a result of the agreement, Synnex imported products from APC by Schneider

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Electric (formerly known as American Power Conversion Corporation), which contained
Huawei-manufactured parts. The complaint alleges Synnex offered for sale and sold power-

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supply products to the government under the MAS 70 contract knowing that they contained

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parts from APC that were manufactured in TAA noncompliant countries (Compl. ¶¶ 2, 6, 9, 43,

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45).

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Relator Matthew MacDowell filed the instant action in August 2012 in the United States

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District Court for the District of Columbia, followed by an amended complaint in February

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2014 and a second amended complaint in January 2017, all under seal. During this time,

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various extensions of time allowed the United States to consider whether to intervene. A

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transfer sent the action to the United States District Court for the Northern District of California

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in January 2019. The government successfully moved to unseal the complaint in February
2019, but declined to intervene. Relators then filed a public third amended complaint in April

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For the Northern District of California

United States District Court

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2019, alleging violations of the False Claim Act. Defendant moved to dismiss the complaint. A

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September 2019 order granted the motion and allowed relator to seek leave to amend (Dkt. Nos.

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1, 15, 44, 58, 69, 94, 114). Relator now moves for leave to file a fourth amended complaint.

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Defendant opposes.

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ANALYSIS

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Relator seeks to add detailed allegations regarding the TAA noncompliant products sold

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to the government. FRCP 15(a)(2) permits a party to amend its pleading with the court’s leave,

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stating that “[t]he court should freely give leave when justice so requires.” In the FRCP 15

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context, our court of appeals has instructed that “[f]ive factors are frequently used to assess the

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propriety of a motion for leave to amend: (1) bad faith, (2) undue delay, (3) prejudice to the

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opposing party, (4) futility of amendment[,] and (5) whether plaintiff has previously amended

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his complaint.” Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990). These factors

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weigh in favor of granting leave here.

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PARTICULARITY OF PLEADING.

To allege a False Claims Act claim for relief, there must be a “(1) a false statement or

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fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the

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government to pay out money or forfeit moneys due.” United States v. Safran Grp., S.A., No.

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15- CV-00746-LHK, 2017 WL 3670792, at *9 (N.D. Cal. Aug. 25, 2017) (Judge Koh).
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Furthermore, because the complaint alleges fraud, it is subject to a heightened pleading standard

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under FRCP 9(b) which requires “a party [to] state with particularity the circumstances

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constituting fraud or mistake.” To demonstrate sufficient particularity under FRCP 9(b),

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plaintiff must allege “the who, what, when, where, and how of the misconduct charged.” Vess

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v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).

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Here, the order granting defendant’s motion to dismiss all of relator’s claims did so on

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the ground that the complaint did not plead with adequate particularity that defendant had sold

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products and parts to the government that were TAA noncompliant. Specifically, relator did not

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adequately allege which noncompliant products from the offer to sale lists were sold to the
government, when they were sold, who specifically sold them, and how they did so.

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For the Northern District of California

United States District Court

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Relator has now pled these details with sufficient particularity.

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The fourth amended complaint provides import records from 2011, records of shipments

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(and corresponding shipment dates) to Synnex from Asian countries in 2014 and 2015, the types

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of APC parts routinely included in shipments from the 2014 and 2015 records, and the types of

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products that were sold to the government, but allegedly misrepresented as originating from the

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United States.

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Defendant argues that of the hundreds of shipment details relator has provided from

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2014 and 2015, only four shipments at most originated in TAA noncompliant countries, and

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that importantly, the shipments alleged to have originated in China from the list actually

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originated in Taiwan, a TAA-compliant country. Although it is true that most of foreign ports

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of lading listed in the complaint are in Taiwan, in closely examining the shipping details as well

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as the export numbers, it is adequately pled that some of the products in question originated

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from the Philippines or China, TAA noncompliant countries. In particular, the proposed

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amended complaint provides import records from 2011 in which the country of origin is labeled

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as Taiwan, but the product description shows items with a PEZA label, indicating at least some

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part of the shipment originated from the Phillippines.

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Defendant further takes issue with the failure of the complaint to allege an exact chain of
sale, specifically the failure of the complaint to trace the alleged TAA noncompliant products
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from 2011 to any government purchase. At this stage in the litigation, however, it is not

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necessary to provide the details of every single part of every single transaction during the

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alleged period of misconduct. As our court of appeals found, it is sufficient to allege “particular

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details of a scheme to submit false claims paired with reliable indicia that lead to a strong

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inference that claims were actually submitted.” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993,

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998 (9th Cir. 2010).

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The causality pled between the alleged TAA noncompliant products and those that were

complaint now provides four import records from 2011 that show products allegedly originating

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from TAA noncompliant countries, such as the Phillippines (but shipped from Taiwan). It also

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For the Northern District of California

ultimately sold to the government, though weak, is nonetheless sufficient. In particular, the

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United States District Court

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provides details of hundreds of shipments from 2014 and 2015 received by defendant and

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shipped from Taiwan, as well as a list of products routinely included in such shipments that

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allegedly originated from China. Some of the listed products match up to those listed in the

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2011 import records.

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The complaint further provides a list of purchases made by the government of some of

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those same listed products. Defendant does correctly contend that the alleged TAA

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noncompliant items listed in the 2011 import records do not match any of the sales to the

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government listed in paragraphs 53 to 61 of the fourth amended complaint, and that the chain of

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causation is weak for the products in the 2011 import records because the alleged sale of those

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products occurred in 2015, nearly four years after Synnex imported the products. The alleged

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TAA noncompliant products from the 2014 and 2015 shipments do, however, match the sales to

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the government listed in paragraphs 53 to 61 as well as paragraph 64, which describes sales to

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the government similar to those described in paragraphs 53 to 61 and span from 2003 to 2018.

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The proposed fourth amended complaint has thus pled with particularity that some TAA

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noncompliant products were included in shipments to Synnex even though records listed the

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country of origin as Taiwan, that Synnex received shipments from Taiwan that included some

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of the same products as those listed in the 2011 import records, and that the government

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purchased some of those products from Synnex.
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As to defendant’s contentions regarding Synnex’s resellers, the complaint alleges that

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Synnex allows resellers to enter into teaming arrangements to sell products on GSA schedules.

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Many of these resellers have been identified as teaming partners by Synnex itself in its MAS 70

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contracts. There is also no need for the complaint to allege Synnex submitted a claim to the

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government to violate the FCA as any person is liable when they “knowingly present[], or

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cause[] to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. §

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3729(a)(1)(A). Relator’s motion for leave to amend is thus GRANTED.

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2.

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Defendant also takes issue with the complaint’s additional allegations regarding sales

OPEN MARKET SALES.

between Synnex and various government departments for products such as the APC Smart-UPS

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For the Northern District of California

United States District Court

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products and AS400 cable bundles. Defendant argues these are open market sales and as

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explained in the Federal Acquisition Regulations and United States v. Comstor Corp.,

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acquisitions of open market items are generally only subject to the TAA if the value of the

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acquisition reaches a certain threshold. 308 F. Supp. 3d 56, 82 (D.D.C. 2018).

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Open market sales are those that allow government agencies to purchase “items not on

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the Federal Supply Schedule.” Comstor, 308 F. Supp. 3d at 84. All of the products at issue

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here including the APC Smart-UPS products and cable bundles are alleged to be listed on the

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GSA schedule (a federal supply schedule), and are thus not considered open-market items.

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3.

ORIGINAL SOURCE EXCEPTION.

Defendant argues again that the public disclosure bar precludes the fourth amended

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complaint. A previous order has already found that the even though the public disclosure bar

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applies because the instant action is substantially similar to two previous public lawsuits, the

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original source exception applies, subject to proof (Dkt. No. 114). Specifically, relator has

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offered proof that he, as an employee of a Synnex product reseller, knew that defendant had

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offered resellers substantial rebates and had discounted pricing on APC products and that it

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would affirmatively offer to swap out APC products when vendors had ordered similar

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products. Even though defendant correctly states that the complaint contains allegations based

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on information received from other sources, much of relator’s primary allegations comes from
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information he learned in the course of his employment and not primarily through piecing

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together public information to infer an FCA violation. See Prather v. AT&T, Inc., 847 F.3d

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1097, 1105 (9th Cir.) (finding original source exception did not apply when relator’s primary

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firsthand knowledge was inference that the information available amounted to FCA violations).

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CONCLUSION

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Relator’s motion for leave to file a fourth amended complaint is GRANTED. Relator

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shall file a fourth amended complaint to the extent stated above as a separate docket entry by

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DECEMBER 5 AT NOON. The answer is due by DECEMBER 30 AT NOON.

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IT IS SO ORDERED.

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Dated: November 20, 2019.
For the Northern District of California

United States District Court

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WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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