Perry v. Pacific Martime Industries Corporation et al

Filing 54

ORDER Granting 44 Summary Judgment. Pacific's motion for summary judgment is granted. Signed by Judge Larry Alan Burns on 5/30/2017. (lrf)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 JOSEPH EARL PERRY, 12 CASE NO. 13cv2599-LAB (JMA) Plaintiff, vs. 13 14 ORDER GRANTING SUMMARY JUDGMENT PACIFIC MARITIME INDUSTRIES CORP., et al., Defendants. 15 16 When evaluating a False Claims Act case, courts must “ensure that government 17 contractors will not face onerous and unforeseen FCA liability as the result of noncompliance 18 with any of potentially hundreds of legal requirements established by contract. Payment 19 requests by a contractor who has violated minor contractual provisions that are merely 20 ancillary to the parties' bargain are neither false nor fraudulent.” United States ex rel. Kelly 21 v. Serco, Inc., 846 F.3d 325, 333 (9th Cir. 2017) (quotations and citation omitted). That’s the 22 case here. 23 Joseph Perry filed a qui tam action on behalf of the United States against his former 24 employer—Pacific Maritime Industries, Harcon Precision Metals, and owner John Atkinson 25 (“Pacific”)—for knowingly submitting false claims for payment to the United States in violation 26 of the False Claims Act. 31 U.S.C. § 3729. Perry says Pacific tried to cheat the Navy on 27 three contracts by supplying (1) overweight doors, (2) cheap locks, and (3) defective lockers. 28 The Court disagrees. Pacific's motion for summary judgment is granted. -1- 13cv2599 1 Legal Standard 2 Summary judgment is appropriate when there's no genuine issue as to any material 3 fact. Fed. R. Civ. P. 56(c). “To survive summary judgment, the relator must establish 4 evidence on which a reasonable jury could find for the plaintiff.” Serco, Inc., 846 F.3d at 330 5 (9th Cir. 2017) (affirming summary judgment for defense contractor accused of submitting 6 fraudulent claims to Navy) (quotations and emphasis omitted). 7 Analysis 8 Under the False Claims Act, Perry must prove that Pacific knowingly presented a false 9 claim for payment or approval. 31 U.S.C. § 3729 (a)(1)(A).1 “A misrepresentation about 10 compliance with a . . . contractual requirement must be material to the Government's 11 payment decision in order to be actionable under the False Claims Act.” Universal Health 12 Servs., Inc. v. United States, 136 S. Ct. 1989, 1996 (2016). Perry hasn't offered material 13 evidence that Pacific was trying to cheat the government. In fact, Perry didn't mention a 14 single case or offer any argument on how the specific aspects of the law apply to his claims. 15 I. Doors 16 A. Background 17 Pacific agreed to build 50 doors for Defense Logistics Agency for use on Navy ships. 18 The contract specified payment of some $86,000—roughly $82,500 for the doors and $3,500 19 for a First Article Test. The Test required Pacific to inspect one of the doors to ensure the 20 door complied with the contract specifications. The contract also required Defense Contract 21 Management Agency to approve the Test.2 22 Perry says the Test had two parts. Juvenal Torres performed the first part; Perry 23 performed the second part. The doors complied with all of the contract specifications, except, 24 on Perry’s reading of the relevant military provision, the doors were too heavy. Perry told 25 CEO John Atkinson and Engineering Manager Phu Vu. They disagreed. Atkinson said there 26 was no weight requirement for the doors. Perry alleges Atkinson instructed him to write down 27 1 28 Perry brings claims for the same violations under the false record and conspiracy provisions of the Act as well. 31 U.S.C. § 3729(a)(1)(B) and (C). 2 Dkt. 50 and Dkt. 44-5, Ex. L. -2- 13cv2599 1 “that all items tested” “were in conformance with the requirements.” Perry prepared the Test, 2 but refused to sign it. Instead, Juvenal Torres, Phu Vu, and Roger Kemp (Quality 3 Department) signed the Test.3 4 Pacific shipped the doors to Defense Logistics before Defense Contract Management 5 Agency approved the Test as the contract required. As a result, Defense Logistics paid 6 Pacific for the doors, but it never paid for the Test. About nine months after Pacific shipped 7 the doors, Defense Logistics modified the contract and deleted the provision requiring the 8 Test. Atkinson says the problem was that Pacific hadn’t performed a First Article Test in a 9 while, there was some confusion over what needed to be done, and ultimately, Pacific 10 performed a standard inspection of the 50 doors instead of a true First Article Test.4 11 B. 12 Perry alleges two false statements: (1) Perry’s statements on the First Article Test that 13 the doors conformed with weight requirements even though they didn't; and (2) Torres, Vu, 14 and Kemp’s signatures approving the portion of the Test that Perry performed. 15 Analysis 1. Weight 16 “Knowing submission of claims that, as here, are not false or fraudulent, obviously 17 does not give rise to liability.” U.S. ex rel. Lindenthal v. Gen. Dynamics Corp., 61 F.3d 1402, 18 1412 (9th Cir. 1995). Perry says that he falsified the First Article Test on Atkinson's orders 19 by writing down that the doors “were in conformance with the requirements.” But that's not 20 what the Test says. Item 78, “Weight of Furnishing,” states that “the weight of the furnishing 21 shall not be greater than 105 percent of the weight shown.” Pacific’s comments for Item 78, 22 however, say “N/A” and “Not Required.” Perry doesn’t explain this contradiction.5 23 /// 24 25 3 26 4 27 28 Dkt. 45-1. Dkt. 47-1 and Dkt. 45-1. Compare the “PMI Inspection Report” that Perry calls the First Article Test (Dkt.45-4, Ex. A, B) with the “First Article Test” Pacific submitted with its Reply. (Dkt. 47-1, Ex. JA-2.) 5 Dkt. 45-1 and 45-4, Ex. A, B. Items 76 and 79 also mention weight, but Item 78 is the controlling provision since Perry says he relied on the rule from Item 78 that the doors couldn’t exceed 105% of the maximum weight. 13cv2599 -3- 1 Pacific does. Atkinson explained that the form was pre-populated with “Not Required” 2 for Item 78 because the doors didn’t need to be a certain weight. Atkinson says his 3 company's been selling these doors to the Navy for 15 years. The Navy has never raised the 4 issue of a weight requirement. Pacific also provided a recent order for the same doors, for 5 the same customer, with an official First Article Test that doesn’t list any weight requirement. 6 Pacific says it “has no control over the final weight” because the contract requires Pacific to 7 use specific material to fabricate the doors in a specific way. In sum, Perry hasn't raised a 8 genuine issue of material dispute that Pacific made false statements about the doors’ weight. 9 See Universal Health, 136 S. Ct. at 2003–04.6 10 Even if there was a genuine dispute whether the notations on the First Article Test 11 were false, Perry still loses. Because courts grant summary judgment to government 12 contractors when the relator fails to produce “sufficient evidence to support an inference that 13 the defendants understood that they were interpreting the [contract] incorrectly.” U.S. ex rel. 14 Hochman v. Nackman, 145 F.3d 1069, 1076 (9th Cir. 1998). Perry argues that his 15 interpretation of an old and ambiguous military provision requires a certain weight for the 16 doors. But even if Perry has the better reading, he hasn’t offered sufficient evidence that 17 Pacific knowingly interpreted the antiquated provision to pawn-off overweight doors on the 18 Navy. See Hochman, 145 F.3d 1076 (affirming summary judgment because good faith 19 contract interpretation didn't give rise to requisite knowledge); see also Lindenthal, 61 F.3d 20 at 1412 (9th Cir. 1995). 21 2. 22 First Article Test The False Claims Act defines material to mean “having a natural tendency to 23 influence, or be capable of influencing, the payment or receipt of money or property.” 24 31 U.S.C. § 3729(b)(4). Perry says Pacific also falsified the First Article Test by having 25 Torres, Vu, and Kemp sign-off on the portion of the Test that Perry completed so that 26 Defense Logistics would pay for the doors. 27 /// 28 6 Dkt. 44-10 and Dkt. 47-1. -4- 13cv2599 1 Perry's right. A “claim may be false even if the services billed were actually provided, 2 if the purported provider did not actually render or supervise the service.” United States v. 3 Mackby, 261 F.3d 821, 826 (9th Cir. 2001). Perry’s claim, however, doesn’t make it to a jury 4 because, unlike Mackby, the signatures weren’t material. 5 First, Perry hasn't offered evidence, argument, or authority that suggests these 6 signatures meet the “demanding” “materiality standard” under the False Claims Act. 7 Universal Health, 136 S. Ct. at 2003. The Supreme Court explained that courts must strictly 8 enforce the materiality standard: 9 The False Claims Act is not an all-purpose antifraud statute . . . or a vehicle for punishing garden-variety breaches of contract . . . . A misrepresentation cannot be deemed material merely because the Government designates compliance with a . . . contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant's noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial. 10 11 12 13 14 Id. (quotations omitted). Perry told Vu and Atkinson that the doors complied in all ways, 15 except, weight. But since there was no weight requirement (or Pacific made a good faith call 16 that there was no weight requirement), having other members of the quality assurance team 17 sign this report wasn't material. At best, the signatures are the type of “minor or insubstantial” 18 compliance the Supreme Court said doesn’t pass muster under the Act's “rigorous materiality 19 requirement.” Id. at 1996; see U.S. ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1019 20 (7th Cir. 1999) (“Even if this was an outright lie, the lie was immaterial.”). 21 Second, the Supreme Court explained that “if the Government pays a particular claim 22 in full despite its actual knowledge that certain requirements were violated, that is very strong 23 evidence that those requirements are not material.” Universal, 136 S. Ct. at 2003–04. Here, 24 Defense Logistics agreed to pay the full contract price for the 50 doors even though it knew 25 Defense Contract Management Agency didn’t review the First Article Test. 26 / / / 27 / / / 28 / / / -5- 13cv2599 1 *** 2 In sum, Perry hasn't offered evidence that Pacific knowingly attempted to defraud the 3 government by selling them overweight doors or submitting a First Article Test. Pacific's 4 motion for summary judgment on Perry's claims related to the doors is granted. 5 II. Locks 6 A. 7 Perry says that Pacific contracted to make combination locks for the Navy. Similar to 8 the contract provision for the doors, the locks contract references an outdated military 9 provision that redirects manufacturers to an updated, but ambiguous provision—UL 768. 10 Perry reads UL 768 to require that Pacific produce a more expensive, higher-grade lock. 11 Pacific reads UL 768 as an ambiguous provision that offers contracting parties discretion to 12 select the appropriate lock for the intended use.7 Background 13 B. Analysis 14 Where the “evidence shows only a disputed legal issue[,] that is not enough to 15 support a reasonable inference that the [representation] was false within the meaning of the 16 False Claims Act.” Hagood v. Sonoma Cty. Water Agency, 81 F.3d 1465, 1477 (9th Cir. 17 1996). Perry testified that he wasn't sure “if the customer knows that they're getting the 18 . . . inferior lock.” His declaration filed in support of his motion didn't even address this claim. 19 The complaint alleges that Pacific “fraudulently represent[ed] that” the more expensive 20 “combination locks had been installed” when in fact, Pacific was using less expensive locks. 21 Perry’s offered no evidence that Pacific made false representations to the Navy that it had 22 installed the more expensive lock.8 23 Even if Perry could point to evidence and he was right about his interpretation of UL 24 768, he didn't offer “sufficient evidence to support an inference that the defendants 25 understood that they were interpreting the [contract] incorrectly.” Hochman, 145 F.3d at 26 1076. Atkinson submitted evidence, and Perry's testimony confirmed, that no one in the 27 28 7 8 Dkt. 50. Dkt. 45-4, Ex. L, Dkt. 44-9 at 158; and Dkt. 1. -6- 13cv2599 1 industry uses the locks that Perry says UL 768 requires. Perry’s alternative take on UL 768 2 doesn’t create a material, triable issue of fact that Pacific knew more expensive locks were 3 required, but decided to use cheaper locks anyway. Perry’s “argument raises questions of 4 contract interpretation rather than false claims.” U.S. ex rel. Butler v. Hughes Helicopters, 5 Inc., 71 F.3d 321, 326 (9th Cir. 1995). Pacific's motion for summary judgment on Perry's 6 claims related to the combination locks is granted.9 7 III. Lockers 8 A. 9 Perry says Pacific contracted with Austal to make three different types of lockers for 10 the Navy. The contract required the lockers to pass shock-testing, but Perry says they didn't. 11 Perry alleges that Pacific asked him to sign-off on some paperwork concerning the lockers 12 that Perry thought would amount to a false representation so he refused. Pacific, however, 13 says it didn't have any contracts with Austal while Perry was employed.10 Background 14 B. Analysis 15 “To survive summary judgment, the relator must establish evidence on which a 16 reasonable jury could find for the plaintiff.” Serco, 846 F.3d at 330 (9th Cir. 2017). Perry's 17 only evidence supporting this claim was his own testimony that he was “pretty sure” he was 18 asked to approve a document involving a contract with Austal. But Pacific produced evidence 19 that it only sold lockers to Austal two years after Perry was terminated and it performed the 20 requisite shock tests when required. Perry hasn't rebutted this evidence. He's failed to offer 21 evidence that a jury could rely on to find for him. Pacific's motion for summary judgment on 22 Perry's claims related to the lockers is granted.11 23 / / / 24 / / / 25 / / / 26 27 9 28 10 Dkt. 44-10. 11 Dkt. 44-10; 44-7, Ex. U; and Dkt.44-11. Dkt. 44-9, Ex. CC at 142, 146-47; Dkt. 44-7, Ex. U; and Dkt. 45-1. -7- 13cv2599 1 Conclusion 2 Pacific’s motion for summary judgment is granted. The Clerk shall close the case. 3 IT IS SO ORDERED. 4 DATED: May 30, 2017 5 6 HONORABLE LARRY ALAN BURNS United States District Judge 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8- 13cv2599

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