United States of America, EX REL. Thomas Watkins v. KBR INC et al
Filing
41
ORDER & OPINION Entered by Judge Joe Billy McDade on 5/22/15. The complaint is dismissed for failure to state claims for which relief can be granted as well as failing to comply with Federal Rule of Civil Procedure 9(b). A review of the docket shows that Relator has not previously amended his complaint. Therefore, the Court finds it appropriate to grant Relator leave to amend his complaint to address the deficiencies and problems described in this Order and Opinion. Relator may amend his complai nt within twenty-eight days (28) of the date of this Order. Defendant may then file a responsive pleading or an appropriate motion within twenty-one (21) days thereafter. Should Relator fail to amend his complaint within the time allotted, the Court will dismiss this action with prejudice. IT IS THEREFORE ORDERED that Defendant's Motion to Dismiss 37 is GRANTED.(SW, ilcd)
E-FILED
Friday, 22 May, 2015 12:57:01 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
ROCK ISLAND DIVISION
UNITED STATES, ex rel. THOMAS
WATKINS,
Plaintiff/Relator,
v.
KBR, INC., and KELLOGG BROWN &
ROOT SERVICES, INC.,
Defendants.
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Case No. 4:10-cv-4010
ORDER & OPINION
This matter is before the Court on Defendants’ Motion to Dismiss Complaint
(Doc. 37). The Complaint (Doc. 1) consists of a single count alleging violations of the
False Claims Act, 31 U.S.C. § 3729 et. seq. (the “FCA”). Defendants assert that the
Complaint should be dismissed under Federal Rule of Civil Procedure 12(b)(6)
because the Relator has failed to plead viable theories of actionable fraud under the
FCA. Defendants also assert that the Complaint’s allegations have not been pled
with sufficient particularity as required by Rule 9(b) of the Federal Rules of Civil
Procedure. For the reasons stated below, Defendants’ motion (Doc. 37) is
GRANTED.
LEGAL STANDARDS
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must include “a
short and plain statement of the claim showing that the pleader is entitled to
relief.” The complaint must “give the defendant fair notice of what the claim is and
the grounds upon which it rests.” Bell Atl. v. Twombly, 550 U.S. 544, 555 (2007).
“A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to
state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of
Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “In evaluating the
sufficiency of the complaint, [courts] view it in the light most favorable to the
plaintiff, taking as true all well-pleaded factual allegations and making all possible
inferences from the allegations in the plaintiff’s favor.” AnchorBank, FSB v. Hofer,
649 F.3d 610, 614 (7th Cir. 2011). “To survive a motion to dismiss, the complaint
must contain sufficient factual matter, accepted as true, to state a claim to relief
that is plausible on its face.” Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665
F.3d 930, 934–35 (7th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662 (2009))
(internal quotation marks omitted). “The complaint must actually suggest that the
plaintiff has a right to relief, by providing allegations that raise a right to relief
above the speculative level.” Id. at 935 (citing Windy City Metal Fabricators &
Supply, Inc. v. CIT Tech. Fin. Servs., 536 F.3d 663, 668 (7th Cir. 2008)) (internal
quotation marks omitted). “[A] plaintiff’s claim need not be probable, only
plausible.” Id. “To meet this plausibility standard, the complaint must supply
enough fact[s] to raise a reasonable expectation that discovery will reveal evidence
supporting the plaintiff’s allegations.” Id. (citing Twombly, 550 U.S. at 556)
(internal quotation marks omitted)).
Rule 9(b) imposes a higher pleading standard than that required under Rule
8. See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631
F.3d 436, 446 (7th Cir. 2011). “The [False Claims Act] is an anti-fraud statute and
claims under it are subject to the heightened pleading requirements of Rule 9(b).”
2
United States ex rel. Gross v. AIDS Research Alliance–Chicago, 415 F.3d 601, 604
(7th Cir. 2005). Rule 9(b) requires a pleading to state with particularity the
circumstances constituting the alleged fraud. See Fed. R. Civ. P. 9(b); Pirelli, 631
F.3d at 441-42. This “ordinarily requires describing the ‘who, what, when, where,
and how’ of the fraud, although the exact level of particularity that is required will
necessarily differ based on the facts of the case.” Hofer, 649 F.3d at 615 (citation
omitted).
FACTUAL BACKGROUND1
Relator, Thomas Watkins, joined defendant Kellogg Brown and Root Services
Inc. (“KBRSI”) in September 2004. In May 2005, he was assigned to the company’s
Baghdad, Iraq facilities as a Senior Manager, Accounting & Finance, Middle
East/Central Asia, and became responsible for accounting functions under the
LOGCAP III contract. Relator developed most of the procedures for accounting
operations under the LOGCAP III contract. Relator resigned in March 2008. Prior
to joining KBRSI, Relator had extensive accounting, finance, business, and
management experience.
KBRSI is a wholly owned subsidiary of defendant KBR Inc. (“KBR”). KBR is
a Delaware corporation with its principal place of business in Houston, Texas. KBR
holds the LOGCAP III contract and has assigned responsibilities for that contract to
KBRSI. KBRSI is also a Delaware corporation with its principal place of business in
Houston, Texas.
As noted above, all well-pled facts must be construed in the plaintiff’s favor when
ruling on a Motion to Dismiss, so these background facts are drawn from the
Complaint. (Doc. 1).
1
3
The Logistics Civil Augmentation Program (“LOGCAP”) was established in
1985 to facilitate civilian contractor logistical support for United States military
forces deployed overseas, principally in countries with which the United States does
not have treaties or agreements that would enable the host country to provide such
support. Under the LOGCAP, a single company was awarded a contract to provide a
wide range of logistical services. Each LOGCAP prime contract contains a
Statement of Work describing generally the types of services to be provided by the
LOGCAP contractor. The services provided under the LOGCAP include supply
operations (such as the delivery of food, water, fuel, spare parts, and other items),
field operations, such as dining and laundry facilities, housing, sanitation, waste
management, postal services, and morale, welfare and recreation facilities,
engineering and construction services, support to communication networks,
transportation and cargo services, and facilities maintenance and repair.
LOGCAP contracts are awarded periodically. After a no-bid process, the
United States awarded the third such contract, LOGCAP III, to Brown and Root
Services, a division of KBR, in December 2001. Thereafter, KBR transferred the
responsibilities for the LOGCAP III contract to KBRSI.
The LOGCAP III contract was awarded by the United States Army Field
Support Command (“AFSC”), headquartered at Rock Island, Illinois. AFSC
administered the LOGCAP III contract until September 2006, when United States
Army Sustainment Command (“ASC”) was created to succeed AFSC as the logistics
integrator for contingency contracting. ASC, also headquartered in Rock Island,
Illinois, succeeded ASFC as the administrator of the LOGCAP III contract.
4
The LOGCAP III contract had a one-year base period and nine one year
renewal options. The United States recently awarded the LOGCAP IV contract to
three contractors and has begun transitioning LOGCAP operations to LOGCAP IV.
LOGCAP operations in Iraq, however, continue (as of the date of the filing of the
Complaint) to be performed pursuant to the LOGCAP III contract.
The Government and the contractor execute task orders detailing particular
operations or services that the contractor must furnish under each LOGCAP
contract. Task Orders 59, 89, and 139 are the largest task orders under LOGCAP
III. They require the contractor to satisfy a wide variety of the military’s logistical
needs in Iraq, including camp maintenance, construction, meals, and other services
for as many as 130,000 troops at dozens of camps. Army officials in Rock Island,
Illinois issued Task Order 59 to KBR in August 2003, issued Task Order 89 to KBR
in May 2005, and issued Task Order 139 to KBR in August 2006.
Defendants staffed Task Orders 59 and 89, and staff Task Order 139,
principally with United States citizen workers, but KBR also employed and
continues to employ a sizable number of European citizens to perform work under
Task Orders 59, 89, and 139. KBR transports those workers to Baghdad, Iraq, and
houses them there.
Pursuant to the terms of its agreement with the Government, KBR pays to
return its employees and subcontractors’ employees to their point of origin—usually
their home or point of hire—for periodic vacations or at the termination of their
employment. If employees wish to go somewhere other than their point of origin,
5
KBR will pay up to the cost of transporting them to their point of origin, and the
employees are responsible for paying any excess travel cost.
LOGCAP III is a cost reimbursement, award-fee contract. Pursuant to the
contract, the Government pays KBR the cost of performing the contract. KBR’s
recoverable cost includes both the cost of performance and an additional percentage
of those costs to cover expenses. The Government also pays a fixed “award fee” of
one percent of the cost of performance, and up to an additional two percent of the
cost as a performance incentive. Thus, in cost-reimbursement contracts such as
LOGCAP III, contractors’ fees rise with contract costs such that increased costs
translate into increased fees to the contractor. The LOGCAP III contract and the
task orders executed under it are governed by the Federal Acquisition Regulation
(“FAR”), codified in Chapter 48 of the Code of Federal Regulations.
Task Orders 59, 89 and 139 provide that one allowable cost of the contract is
the cost of rotating contractor employees into and out of the theater for periodic
vacations and at the termination of employment. KBR refers to this as “repatriation
and rotational leave.” KBR has employed tens of thousands of people at a time in
the theater of operations pursuant to Task Orders 59, 89, and 139. KBR is
responsible for transporting those people to and from Iraq, both at the beginning
and end of their employment and for periodic vacations during their employment.
KBR transports hundreds of people into and out of Baghdad each day for
repatriation and rotational leave.
Since 2004, KBR has arranged for charter flight service into and out of
Baghdad for repatriation and rotational leave. KBR’s chartered flights transport its
6
personnel to and from hub airports in other countries, where KBR personnel can
transfer to commercial flights to their point of origin or other destinations.
Prior to 2004, the Government did not allow private charters to fly into the
Baghdad airport. KBR persuaded the Government to do so after providing detailed
cost and pricing information demonstrating that private chartered air service would
be less costly than ground convoys or the use of available space on military flights.
Pursuant to its repatriation and rotational needs under Task Orders 59, 89,
and 139, KBR has chartered regular flights to and from Baghdad through hub
airports in Dubai, United Arab Emirates and Kuwait, and has arranged or paid for
further travel from those hubs. The vast majority of KBR personnel travel through
Dubai for their repatriation and rotational leave.
Because of the limited number of flights into and out of Dubai and
restrictions on the timing of charter flights out of Baghdad, KBR personnel
traveling to or from Baghdad through Dubai generally have long layovers ranging
from several hours to a full night. KBR arranges for lodging, meals for its employees
and subcontractor employees during such layovers, and certain administrative
processing necessitated by the layover in Dubai. The cost of food, lodging, and the
travel operations staff needed to process KBR travelers in Dubai for over 40,000
travelers per year is substantial. For example, in one twelve month period from
mid-2005 to mid-2006, the cost to KBR of the Dubai layover was $84,650,000.
Relator understands that KBR has incurred Dubai layover costs of similar
magnitude throughout the duration of Task Orders 59, 89, and 139.
7
KBR has submitted invoices or vouchers to the United States seeking
reimbursement of its claimed allowable repatriation and rotational leave costs
under Task Orders 59, 89, and 139, including the cost of the Dubai layovers. The
United States paid each such invoice or voucher claiming the costs of the Dubai
layover, plus additional general and administrative costs, the one percent
mandatory award fee applied to costs, and a portion of the remaining two percent
discretionary award fee applied to costs.
In 2006, KBR solicited bids from vendors for charter flight service from
Baghdad for repatriation and rotational leave beginning in January 2007, after the
expiry of the prior charter aviation subcontract. KBR asked the vendors to bid on
the existing Iraq-Dubai/Iraq-Kuwait schedule (the “Dubai Plan”), as well as an
alternative Iraq-Frankfurt/Iraq-Dubai/Iraq-Kuwait schedule (the “Frankfurt Plan”).
The Frankfurt Plan would continue to include flights to Dubai, albeit a reduced
number of such flights.
According to the Relator, the addition of the Frankfurt route would allow
KBR to transport most of its personnel to a hub airport with a wider and lessexpensive range of options. Most KBR personnel traveling through Frankfurt would
not require lodging, substantial meal expenses, or certain administrative processing
before transferring to connecting flights. Thus, a Frankfurt transfer point would
dramatically reduce the cost of KBR’s repatriation and rotational leave travel costs.
In addition, because transportation between Frankfurt and the United States or
Europe is substantially less expensive than transportation between Dubai and
those locations, a Frankfurt hub would result in additional substantial cost savings.
8
Four vendors submitted bids on the two proposed schedules. Two bids were
disqualified. KBR deemed the remaining two bids, from Skylink Arabia (the
incumbent charter carrier) and Ecolog AG, to be technically acceptable and in the
competitive range. Skylink Arabia bid $45,699,066 per year to provide charter
service pursuant to the Dubai Plan, or $68,026,140 per year pursuant to the
Frankfurt Plan. Ecolog AG bid $35,893,566 per year to provide charter service
pursuant to the Dubai plan, or $58,683,025 per year pursuant to the Frankfurt
Plan.
While the cost of the charter service alone was more expensive under the
Frankfurt Plan than under the Dubai Plan, Relator asserts that difference was far
smaller than the savings that KBR would have realized under the Frankfurt Plan
by eliminating most Dubai layover costs and enabling less expensive connecting
flights. According to KBR’s own June 2006 internal analysis, KBR expected to save
approximately $75,000,000 realized over the term of a year by implementing the
Frankfort Plan. Relator received a copy of that internal analysis in the ordinary
course of his duties.
In June 2006, KBR convened a meeting to discuss the bids. Approximately
fifteen KBR employees attended the meeting including: Jim Stapleton, Chief of
Staff to Steve Arnold, KBR’s Vice President and Program Manager for LOGCAP III;
Mike Mayo, KBR’s Deputy Program Manager for LOGCAP III Support; Neal
Jackson, the Aviation Manager responsible for repatriation and rotational leave
travel; Kelly Beaver, the Project Manager for KBR’s Dubai Operations Center; Gary
Steinke, the Subcontract Administrator who sent the June 2006 internal analysis to
9
Relator; and Relator. KBR made copies of the June 2006 internal analysis available
at the meeting.
During the meeting, Jackson, the person directly responsible for managing
the cost of travel associated with repatriation and rotational leave, strongly
advocated adoption of the Frankfurt Plan, with concurrence from some other
participants. Beaver strenuously opposed the Frankfurt Plan. As head of KBR’s
Dubai Operations Center, Beaver had a vested interest in maintaining the status
quo because his unit’s responsibilities would be eliminated, or at least substantially
diminished, under the Frankfurt Plan. At the close of the meeting, Mayo informed
the participants that they would not proceed with the meeting and he instructed the
participants to leave all materials distributed at the meeting on the table for
collection, including the June 2006 analysis concluding that the Frankfurt Plan
would save $75 million annually. Despite the savings that KBR expected to realize,
KBR rejected the Frankfurt Plan. Instead, it retained the Dubai Plan, pursuant to
which it continues to operate charter flights.
KBR submitted certain cost and pricing data to the Government in
connection
with
the
definitization
of
Task
Orders
59,
89,
and
139.
“Definitization means the agreement on, or determination of, contract terms,
specifications, and price, which converts the undefinitized contract action to a
definitive contract.” 48 C.F.R. § 217.7401(b). KBR also certified, as of the date of
definitization of each of those task orders, that the cost or pricing data submitted to
the Government were accurate, complete, and current as of the date of
10
definitization. Task Order 59 was definitized in March 2005.2
However, according to the Relator, the cost and pricing data KBR submitted
were not “accurate, complete, and current” because KBR did not provide the
Government with the June 2006 bid analysis that concluded the Frankfurt Plan
would result in a substantial cost savings of approximately $75,000,000 realized
over the term of a year, or the bid materials supporting that conclusion. Relator
contends that KBR’s failure to provide the Government with “accurate, complete,
and current” information concerning the Frankfurt Plan was unlawful under the
Truth In Negotiations Act (“TINA”), and rendered false each of KBR’s Certificates of
Current Cost or Pricing Data submitted after June 2006.
Moreover, Relator contends the costs associated with the layovers
necessitated by the Dubai Plan are not “allowable costs” under applicable
government regulations. Each voucher or invoice that KBR submitted to the United
States claiming costs associated with the Dubai layovers necessitated by the Dubai
Plan was, pursuant to the terms of the LOGCAP III contract and Task Orders 59,
89, and 139, and the FAR provisions referenced therein, an affirmative statement
that such costs were “allowable” and “reasonable,” and thus each such statement
therefore was a false claim for payment.
In sum, Relator alleges that the Defendants violated the FCA in two ways.
First, Defendants falsely certified the accuracy, completeness, and currency of the
cost and pricing information that they provided to the Government by withholding
There are no allegations in the Complaint as to the specific dates of the
definitization of Task Orders 89 and 139 or the actual dates the alleged
certifications were made.
2
11
information about their decision to reject the projected $75 million in annual cost
savings in the June 2006 internal analysis.
Second, Defendants submitted invoices or vouchers to the Government
claiming reimbursement for costs that they knew were not reasonable or allowable
under the applicable law because the Defendants had rejected bids from vendors for
the provision of travel services that would have resulted in a substantial cost
savings of approximately $75,000,000 annually.
DISCUSSION
This is a single count FCA action premised upon the violation of a contract
that incorporated certain federal laws and regulations within its terms. Unlike
prototypical FCA claims, where the actual claims for payment themselves are
alleged to be false, this case involves a less straightforward path between what is
alleged to be false and the payment of the claims. See United States ex rel. Wilkins
v. United Health Group, Inc., 659 F.3d 295, 305 (3d Cir. 2011) (“A claim is factually
false when the claimant misrepresents what goods or services that it provided to the
Government and a claim is legally false when the claimant knowingly falsely
certifies that it has complied with a statute or regulation the compliance with which
is a condition for Government payment.”). While the theories of liability presented
by the Relator may have some merit, at the end of the day, the Relator’s allegations
are not enough to connect the alleged violation of TINA and FAR regulations to the
allegedly false statement made by Defendants to get a submitted claim paid; and
the Complaint lacks crucial factual allegations that would make the offered theories
of liability plausible.
12
I.
The Relator’s TINA Certification Theory Of Liability Fails To State A
Viable False Claims Act Theory And Also Lacks Sufficient Facts
Under Rule 9(B) Of The Federal Rules Of Civil Procedure.
Relator alleges that the Defendants have violated 31 U.S.C. § 3729(a)(1)
subparagraphs (A), (B), (C) and (G), which provides for civil penalties and treble
damages for those who are liable for the following acts:
(A) knowingly presenting, or causing to be presented, a false or
fraudulent claim for payment or approval;
(B) knowingly making, using, or causing to be made or used, a false
record or statement material to a false or fraudulent claim;
(C) conspiring to commit a violation of subparagraph (A), (B), . . . or
(G);
or
(G) knowingly making, using, or causing to be made or used, a false
record or statement material to an obligation to pay or transmit money
or property to the Government, or knowingly concealing or knowingly
and improperly avoiding or decreasing an obligation to pay or transmit
money or property to the Government.
The Truth in Negotiations Act, 10 U.S.C. § 2306a (“TINA”) requires a
government contractor to certify that to the best of the contractor’s knowledge and
belief, cost and pricing data submitted to the Government is accurate, complete, and
current as of the date the contract’s terms are settled. 10 U.S.C. § 2306a(a)(2).
Relator alleges that this certification is a condition of payment but does not cite any
authority for that proposition. He further alleges that Defendants were obligated to
make the Government aware that there was a projected $75 million in annual cost
savings in a June 2006 internal bid analysis under TINA and various subparts and
sections of the Federal Acquisitions Regulation (“FAR”), such as 48 C.F.R. § 15.4034. Defendants first argue that the $75 million figure upon which Relator’s claims
are based was merely an estimate and therefore does not qualify as “cost or pricing
data” subject to certification under TINA. Relator responds that this argument calls
13
for a factual determination and is inappropriate for resolution pursuant to a Rule
12(b)(6) motion. Relator also contends that his allegations—that Defendants did not
inform the Government that the Defendants solicited bids, received four vendor
quotations, carefully analyzed two quotations, and recommended accepting one—
suffice to state a claim under the FCA.
Before discussing “cost and pricing data” and what that term covers, the
Court believes it is more useful to begin with Defendants’ other argument that the
TINA certifications themselves cannot give rise to liability under the FCA.
Defendants rely on United States ex rel. Yannacopoulos v. General Dynamics, 652
F.3d 818, 836 (7th Cir. 2011) for the proposition that to be held liable under the
FCA based on a regulatory violation, a contractor in making its claim for payment
must certify its regulatory compliance, despite knowing the certification to be false.
A.
The Relator has not successfully pled that Defendants falsely
certified regulatory compliance in order to receive money from
the Government.
In Yannacopoulos, the court recognized that “[t]o establish civil liability
under the False Claims Act, a relator generally must prove (1) that the defendant
made a statement in order to receive money from the government; (2) that the
statement was false; and (3) that the defendant knew the statement was false.” Id.
at 822. There, a relator alleged that the defendant falsely certified compliance with
certain contractual requirements with a government defense agency in order to
secure payment of invoices submitted to the agency. Id. at 821-22. The defendant
was required to certify compliance with the contract by submitting a certification
agreement. Id. However, the defendant was also required to certify on each and
14
every invoice it submitted that the invoice itself was made in accordance with the
contract and the certification agreement. Id. at 824. According to Defendants, it was
the certifications on the invoices that were the sources of potential FCA liability in
Yannacopoulos, not the certifications made in relation to general compliance with
the contract. Defendants’ proposition is reasonable because the Yannacopoulos
court wrote: “These [invoice] certifications are significant because a mere breach of
contract does not give rise to liability under the False Claims Act.” Id. As an
ancillary claim, relator also alleged that defendant had violated the Arms Export
Control Act, but the court rejected that theory outright because there was no
evidence that the defendant ever certified compliance with that Act. Id. at 824, n.4.
If Yannacopoulos can fairly be read to say that the allegedly false general
certifications the defendant made that it was in compliance with the contract were
not material to the government agency’s decision to pay the claims; whereas the
specific certifications appearing on the face of each and every invoice were material
to the decision, then Yannacopoulos surely defeats Relator’s claim. This Court is of
the opinion that the certifications present on each and every invoice constituted the
“false statements” in Yannacopoulos. In this case, there are no allegations in this
Complaint that the invoices or vouchers submitted to the Government carried with
them any certification requirements similar to those in Yannacopoulos.
Relator responds that the submission of a TINA certificate is essential to the
definitization of each Task Order under 10 U.S.C. § 2306a(a)(1)(A), thus he has
satisfied his burden of pleading a certification that was material to the
Government’s decision to pay. Realtor’s reliance on the text of the statute is
15
misplaced. First, the statute provides in relevant part that an “offeror for a prime
contract… shall be required to submit cost or pricing data before the award of a
contract.” 10 U.S.C. § 2306a(a)(1)(A) (emphasis added). The LOGCAP III was
already awarded to Defendants in 2001, several years before the alleged cost and
pricing data at issue here even existed. Second, definitization is a separate and
independent phenomenon than the payment of invoices, as the Relator’s own
allegations imply. (See Doc. 1 at ¶ 31 (implying that payments under LOGCAP III
occur independently and without regard to the definitization of any individual task
order)). Indeed, one of the regulations Relator cites to as a source of the
requirements is entitled “Payment of Allowable Costs Before Definitization” and no,
it does not require a statement of allowable costs or a certification of reasonableness
to be submitted along with invoices for payment. 48 C.F.R. § 52.216-26.
Relator also cites Veridyne Corp. v. United States, 758 F.3d 1371 (Fed. Cir.
2014) for the proposition that where a contract was procured by fraud, the invoices
for payments themselves do not need to contain false statements to form the basis of
FCA liability. Veridyne (as well as United States ex rel. Marcus v. Hess, 317 U.S.
537, upon which Veridyne relies) is easily distinguishable from this case because
there is no allegation here that the LOGCAP III or any of its Task Orders were
procured by fraud such that invoices for payment under them are tainted. Similarly,
Relator’s reliance on United States ex rel. Harrison v. Westinghouse Savannah River
Co., 352 F.3d 908, 920 (4th Cir. 2003) is also misplaced.
Relator cites that case in support of his argument that once an initial false
certification is made all following invoices are tainted by fraud. But that was not
16
Harrison’s ruling. The Harrison court held the evidence adduced at trial
demonstrated that at all times relevant the defendant possessed the requisite intent
to defraud the government and such intent was not negated by the Government’s
payment of invoices after the Government attained knowledge of the underlying
fraud. Id. at 920 (“This evidence demonstrates that when Westinghouse submitted
its initial PUR package and all of the twenty-five subsequent invoices, it intended
for DOE to believe (which it did) that no OCI existed.”). In any event, the Harrison
court viewed the defendant as having fraudulently obtained the contract and thus
as having fraudulently obtained payment for each claim under the contract. Id. at
920 n.13. The Court has already rejected the assertion that LOGCAP III or any of
the Task Orders where fraudulently obtained.
For the reasons stated above, the Court rejects Relator’s theory of liability
based upon the TINA certifications because the Relator has not alleged facts that
satisfy the first prong of his pleading requirement. To “establish civil liability under
the False Claims Act, a relator generally must prove (1) that the defendant made a
statement in order to receive money from the government; (2) that the statement
was false; and (3) that the defendant knew the statement was false.” 652 F.3d at
822. The Court concludes that under existing Seventh Circuit precedent, certifying
that the cost and pricing data was accurate, complete and current was too remotely
connected to the obtainment of payment under the LOGCAP III to incur liability
under the FCA.
B.
Cost and Pricing Data
“Cost and pricing data” is defined in TINA as:
17
all facts that, as of the date of agreement on the price of a contract . . .
a prudent buyer or seller would reasonably expect to affect price
negotiations significantly. Such term does not include information that
is judgmental, but does include the factual information from which a
judgment was derived.
10 U.S.C. § 2306a(h)(1). FAR 2.101 further clarifies that
Cost or pricing data are factual, not judgmental; and are verifiable.
While they do not indicate the accuracy of the prospective contractor’s
judgment about estimated future costs or projections, they do include
the data forming the basis for that judgment. Cost or pricing data are
more than historical accounting data; they are all the facts that can be
reasonably expected to contribute to the soundness of estimates of
future costs and to the validity of determinations of costs already
incurred. They also include, but are not limited to, such factors as—
(1) Vendor quotations;
(2) Nonrecurring costs;
(3) Information on changes in production methods and in
production or purchasing volume;
(4) Data supporting projections of business prospects and
objectives and related operations costs;
(5) Unit-cost trends such as those associated with labor
efficiency;
(6) Make-or-buy decisions;
(7) Estimated resources to attain business goals; and
(8) Information on management decisions that could have a
significant bearing on costs.
48 C.F.R. § 2.101.
Relator’s first proposition—that it is premature to decide whether the 2006
bid analysis is cost and pricing data—is unavailing. Defendants contend that the
Complaint does not contain sufficient factual matter, accepted as true, to state an
FCA claim to relief that is plausible on its face. Such an inquiry into the sufficiency
18
of a complaint is proper on a Rule 12(b)(6) motion. See e.g., Indep. Trust Corp., 665
F.3d at 934–35.
In the Complaint, Relator alleged the Defendants “withheld information
about their decision to reject $75 million.” (Doc. 1 at ¶6). Elsewhere he alleges KBR
submitted certain cost and pricing data to the Government in connection with the
definitization of Task Orders 59, 89, and 139, (Doc. 1 at ¶58), but withheld an
internal June 2006 bid analysis concluding that the Frankfurt Plan was expected to
result in “a substantial cost savings of approximately $75,000,000 realized over the
term of a year” and “the bid materials” supporting that conclusion. (Doc. 1 at ¶59).
The Court takes the Relator’s term “bid materials” to refer to the data forming the
basis for the estimate. The Complaint also contains a section summarizing the
applicable laws and regulations. (Doc. 1 at 7-12).
It is apparent from the face of the Complaint, as well as the bid analysis
attached to the Complaint as an exhibit, that the $75 million savings was an
expectation and potential outcome. An expectation is a belief that something will
occur in the future. The Complaint and bid analysis do not contain information on
how the $75 million estimate was calculated, nor do they identify or describe any of
the underlying data and calculations used to arrive at the estimate.3
It is the underlying data and calculations that qualify as “cost and pricing
data” as that term is defined under the law, not merely the end product estimate
itself or the third-party bids for that matter. 48 C.F.R. § 2.101 (“Cost or pricing
This is particularly alarming considering Relator’s allegations that he was a
Senior Manager, Accounting & Finance, Middle East/Central Asia, responsible for
accounting functions under the LOGCAP III contract and had developed most of the
procedures for accounting operations under the LOGCAP III contract.
3
19
data. . . are all the facts that can be reasonably expected to contribute to the
soundness of estimates of future costs….”); 10 U.S.C. § 2306a(h)(1) (“Such term does
not include information that is judgmental, but does include the factual information
from which a judgment was derived.”). While it is reasonable to assume that some
employees of the Defendants possess (or possessed) the data and calculations
utilized to compute the $75 million expectation, the Complaint does not identify
who those employees are. Moreover, the Complaint plainly alleges that the charter
flight services themselves under the Frankfurt Plan were more expensive than the
Dubai Plan. This fact alone highlights the structural problem facing Relator in
pleading a plausible claim under the FCA. Generally speaking, to establish civil
liability under the FCA, a plaintiff must allege and prove that the defendant in
some fashion made a false statement in order to receive money from the
Government. See Gross, 415 F.3d at 604. There are no allegations in the Complaint
that there is anything false about the charter service bids or the failure of
Defendants to disclose the bids to the Government. Rather, Relator’s theory is based
upon Defendants’ failure to disclose to the Government its June 2006 conclusory
analysis that the Frankfort plan would result in an estimated $75 million savings in
repatriation and rotational costs during a one year period that substantially
outweighed the increased cost of the charter flight service.
Relator responds that Defendants ignore that his claim encompasses the
“other information” Relator has alleged Defendants failed to turn over to the
Government, including the fact that the Defendants solicited bids, received four
vendor quotations, carefully analyzed two quotations, and recommended accepting
20
one. Thus, he is contending that all cost and pricing information associated with
those repatriation and rotational costs and the showing of a reduction in those costs
under the Frankfurt Plan was information that should have been given to the
Government prior to negotiating a Task Order after June 6, 2006. There are two
problems though: First, more is needed than just a conclusory estimate of saving
$75 million under the Frankfurt Plan; there also must be facts and figures
supporting that conclusion and that would allow the Government to perform a
meaningful audit. Otherwise, the whole estimate falls outside the definition of cost
and pricing information. Second, the Complaint should have contained facts to show
that the cost of repatriation/relocation services under the retained Dubai Plan are
unreasonable in light of the cost information withheld from the government.
Relator cites to 48 C.F.R. § 2.101 for the proposition that vendor quotations
are included within the items that qualify as cost and pricing data. He also cites to
In Re Aerojet Solid Propulsion Co., ASBCA No. 44568, 00-1 BCA (CCH) ¶30,855
(Mar. 17, 2000), for the proposition that bids themselves are cost or pricing data
within the meaning of TINA.
First, the Court does not interpret 48 C.F.R. § 2.101 to instruct that all
vendor quotations are per se cost and pricing data. Instead, the Court interprets the
inclusion of vender quotations into the list of factors at 48 C.F.R. § 2.101 as an
example of items that can qualify as cost and pricing data if the preliminary
conditions of being factual, verifiable and not judgmental are satisfied. Relator has
not cited any authority to make this Court conclude its interpretation of the
regulation is incorrect.
21
Second, as alluded to earlier, even if the Skylink Arabia’s and Ecolog AG’s
bids were disclosed to the Government, there is no information provided in the
Complaint as to how these bids would have influenced the Government’s decision to
definitize LOGCAP III and the Task Orders, let alone to pay pre-definitization
invoices. Cost or pricing data are “all the facts that can be reasonably expected to
contribute to the soundness of estimates of future costs and to the validity of
determinations of costs already incurred.” 48 C.F.R. § 2.101. Relator has not
explained how the Government’s knowledge of the charter flight service bids alone
would allow the Government to assess the soundness of estimates of future costs,
validate the determinations of costs, or affect its ability to negotiate with
Defendants under LOGCAP III.
Relator wrote: “While the cost of the charter service alone was more
expensive under the Frankfurt Plan than under the Dubai Plan, that difference was
far smaller than the savings that KBR would have realized under the Frankfurt
Plan by eliminating most Dubai layover costs and enabling less expensive
connecting flights.” (Doc. 1 at ¶54). Obviously, one is not required to produce
evidence at this stage of the proceedings to back up his allegations. Thus, the Court
is not asking Relator to prove his allegation at this point of the litigation. However,
one is obligated to describe with specificity the nature of the misrepresentation
when one is alleging fraud.
United States ex rel. Grenadyor v. Ukrainian Vill.
Pharmacy, Inc., 772 F.3d 1102, 1105-06 (7th Cir. 2014). An adequately pled
complaint of fraud, deceit or false claims should leave the Court with a clear
understanding of how such fraud, deceit or false claims were accomplished. Here,
22
the Relator has not provided in the Complaint how the $75 million figure was
created and how that figure stands in relation to the higher cost of charter flight
service under the Frankfort Plan, the costs of Dubai layovers, or the cost of
anticipated layovers under the Frankfort Plan. The Court finds that there is not
enough information in the Complaint as it is currently drafted to understand how
and why the Government would find the bid analysis and the unspecified bid
materials to be useful in its decisions to pay vouchers submitted for payment.
Importantly, the flight service bids themselves show that the Frankfort Plan
was on the surface more expensive than the Dubai Plan. There is no explanation of
how these bids would have provided the Government with a basis to conclude
Defendants would be able to save $75 million annually by adopting the Frankfort
Plan. There must have been some data calculations that allowed the generator of
the bid analysis to expect savings. However, there are no specific allegations within
the Complaint detailing what that data is and how such data would have allowed
the Government to verify the $75 million expectation. This is not an instance of
simply failing to meet Rule 9(b) standards because failing to plead fraud with
particularity bears on the plausibility of the claim itself. Grenadyor, 772 F.3d at
1106 (“The requirement of pleading fraud with particularity includes pleading facts
that make the allegation of fraud plausible.”) And if a claim is not plausible on its
face then it cannot withstand a Rule 12(b)(6) motion to dismiss. E.g., Thulin v.
Shopko Stores Operating Co., LLC, 771 F.3d 994, 997 (7th Cir. 2014).
Third, this Court does not find the Aerojet cases to be helpful in analyzing
what constitutes cost and pricing data in this case. There, the bids at issue were
23
competitive bids for the price of nitroethane, a key raw material input for the
production of nitroplasticizer. In Re Aerojet Solid Propulsion Co., ASBCA No. 44568,
00-1 BCA (CCH) ¶30,855. Aerojet had a contract with the Government for the
production of nitroplasticizer. Id. Aerojet had an original quote of $1.98 per pound of
nitroethane from a supplier. Id. Prior to negotiating the price of its contract with
the Government, Aerojet solicited and received two additional bids for nitroethane.
Id. Those bids turned out to be substantially lower than the $1.98 per pound price
originally quoted to Aerojet. Id. Due to procedures designed to prevent fraud and
some fortuitous events, Aerojet did not view the two solicited bids until after the
price for the nitroplasticizer contract with the Government was agreed upon, i.e.
definitized. Id. However, Aerojet never disclosed to the Government that the two
unopened bids existed until after the nitroplasticizer contract was definitized. Id.
The Board (this case did not originate in a district court) found that the existence of
unopened bids for nitroethane in Aerojet’s possession was “cost or pricing data” that
a prudent buyer or seller would reasonably expect to affect negotiations
significantly. Id. It reasoned that 1) nitroethane was the most expensive raw
material used to produce nitroplasticizer; 2) Aerojet solicited the quotations after
the parties began negotiations, and the bid opening date was one day after the
agreement on price; 3) Aerojet could have easily determined the number of bids and
the identity of the bidders prior to the agreement on price; and 4) Aerojet was aware
that the price of nitroethane was subject to wide fluctuations during this time
period and that it might obtain a price reduction for rail deliveries. In Re Aerojet,
ASBCA No. 44568, 00-1 BCA (CCH) ¶30,855.
24
Aerojet should not be applied to this case. First and foremost, the bids here
are of charter flight services that are understandably fixed throughout the contract
term, not a quote on a price-fluctuating raw material. Second, the Aerojet decision
and the subsequent appellate opinion, do not actually explain how knowledge of the
existence of bids impacts an analysis of cost estimates. “Cost or pricing data are . . .
all the facts that can be reasonably expected to contribute to the soundness of
estimates of future costs and to the validity of determinations of costs already
incurred.” 48 C.F.R. § 2.101 (emphasis added). The Aerojet tribunal found that the
contractor was not required to open and disclose to the Government the actual bid
prices, yet it nevertheless found that Aerojet was required to disclose the bids
existed. This makes little sense because the Government would not be able to assess
the soundness of the estimates of future costs or the validity of determinations of
costs under the nitroplasticizer contract without either knowing what the actual bid
prices of the nitroethane were or at least knowing that the bids were lower than the
original $1.98 unit price.
The Federal Circuit Court of Appeals held on appeal that a reasonable buyer
or seller would recognize that knowledge of the undisclosed sealed nitroethane bids
might give one negotiator an advantage during contract price negotiations because
chemical prices fluctuated wildly. Aerojet Solid Propulsion Co. v. White, 291 F.3d
1328, 1331 (2002). That court explained that a “primary objective of TINA is to
place government and private contractors in roughly equal positions during contract
negotiations,” id. at 1330, and that objective had been undermined by Aerojet’s
withholding from the Government that the sealed bids existed. Unfortunately, that
25
court did not explain how the existence of the unopened bids put the two parties in
a different bargaining position. As the dissent in that case explained, there was no
plausible reason for the Government to have been disadvantaged in its negotiations
with Aerojet when neither negotiating party knew the actual values of the sealed
bids for the nitroethane. Id. at 1333 (J. Bryson dissenting).
In this Court’s view, the Aerojet court overwhelmingly relied on the
Government’s assertion that it would have relied upon the lower bids in negotiating
a price for its nitroplasticizer contract despite that there was no basis for the
Government to know the unsealed bids were actually lower. White, 291 F.3d at 1331
(“The Board clearly credited the government negotiators’ testimony that they would
have used lower cost data to negotiate a lower contract price. Hence, the mere
knowledge of the existence of the sealed bids and the June 21 bid opening date may
have supplied Aerojet with an advantage in the negotiation process. Any prudent
buyer or seller would recognize the existence of the bids as significant to price
negotiations.”). Clearly then, the tribunal and court in those cases were willing to
define “cost and pricing data” through the use of post hoc outcome-determinative
reasoning. And in relation to FCA claims, Aerojet can be taken to merely underscore
what has already been well established in FCA jurisprudence—the fraud must be
material to the Government’s decision to pay the fraudster. Thus, in the TINA
context, information will be deemed “cost and pricing data” if such information is
deemed to be material to the Government’s definitization decisional process.4
However, as was mentioned before and will be discussed again in the next section,
information can be relevant to the Government’s decision to definitize a contract,
yet not be relevant to the Government’s decision to pay invoices.
4
26
In Aerojet, the Government initiated the action to pursue Aerojet for defective
pricing, and took the position it would have used the information of the lower bids
prices to negotiate a lower contract price. These facts influenced the courts’
decisions to find the information there to be cost and pricing data because it was
clear the Government thought it was deprived of information material to its
definitization decisional process. Here, however, there are no specific allegations in
the Complaint that speak to how the Government’s ability to negotiate the
LOGCAP III and its Task Orders with Defendants was affected. For example, the
Complaint does not contain allegations that the Government would not have
definitized the LOGCAP III or the Task Orders had it known of the bid analysis and
the underlying bids.5 Moreover, here the Government has declined to intervene in
this FCA action and thus has failed to make any assertion that its position was
compromised in the underlying contract negotiations such that one can reasonably
infer the Government would have expected its price negotiations with Defendants
over LOGCAP III to be affected significantly.
In short, the Court rejects the premise that the bid analysis or underlying
third party bids by themselves constituted “cost and pricing data” in this case. To
the extent that the Aerojet decisions differ from this Court’s conclusion, the
decisions of other circuits should be given due consideration but should not be
The Complaint does make general allegations that the Government would not
have paid the invoices and vouchers Defendants submitted had it known
Defendants’ TINA certifications were false. (Doc. 1 at ¶29). There are no allegations
in the Complaint concerning how the Government would have utilized knowledge of
Skylink Arabia’s and Ecolog AG’s bids in its negotiations with Defendants.
Incidentally, as will be discussed more fully in next section of the Opinion and
Order, the Complaint also does not provide a basis to identify the amount any given
invoice or voucher was falsely inflated.
5
27
deemed controlling necessarily upon a district court. Richards v. Local 134, Int'l
Bhd. of Elec. Workers, 790 F.2d 633, 636 (7th Cir. 1986); Colby v. J.C. Penney Co.,
811 F.2d 1119, 1123 (7th Cir. 1987) (“neither this court nor the district courts of this
circuit give the decisions of other courts of appeals automatic deference; we
recognize that, within reason, the parties to cases before us are entitled to our
independent judgment.”). Relator has offered insufficient explanation as to how
Skylink Arabia’s and Ecolog AG’s bids had the potential to influence the
Government’s decision to definitize LOGCAP III with the Defendants.
There are additional failures in the Complaint that render Relator’s claims
implausible. In paragraph 28 of the Complaint, Relator alleges “TINA requires that
Defendants submit ‘cost and pricing data’ to the Government prior to the
definitization of each LOGCAP III task order” (emphasis added). In paragraph 29,
Relator alleges TINA also requires that Defendants “certify that ... the cost or
pricing data submitted are accurate, complete and current as of the date of
definitization. . . . A truthful certification is a condition of payment under the
LOGCAP III contract and Task Orders 59, 89, and 139. If the Government had
known Defendants' TINA certifications were false, it would not have paid the
invoices and vouchers that Defendants submitted under those Task Orders.”
(internal quotation marks omitted) (emphasis added). In paragraph 26, the Relator
alleges that Task Order 59 was definitized in March 2005. Accepting what the
Relator alleges as true, there seems to be no basis for liability for any invoice or
voucher submitted in conjunction with Task Order 59 because it was definitized in
March 2005, which is more than one year prior to the solicitation of bids or the date
28
of the bid analysis. (See Doc. 1 at ¶¶ 50 and 55). The Defendants could not possibly
provide to the Government information that did not yet exist. While Relator alleges
that the dates of definitization of Task Orders 89 and 139 have already occurred
and implies that such dates occurred after the definitization of Task Order 59, he
does not provide the specific dates of their definitization, as he did for Task Order
59 (inasmuch as March 2005 is specific). This is problematic because Relator’s
theory of liability hinges on the dates of definitization. If Task Order 89 were
definitized before June 2006,6 then invoices submitted in conjunction with it cannot
be deemed false or fraudulent either. Even if the bid analysis and the unidentified
bid materials did constitute “cost and pricing data”, it is entirely possible under the
current Complaint that Defendants could have submitted accurate and complete
cost and pricing data relating to Task Order 89 as of June 2006.
Another similar problem with the Complaint is that the TINA theory is
premised upon the certifications of TINA compliance constituting the false
statements but the Complaint fails to allege when exactly such certifications
occurred. The Defendants are correct that Relator was required to identify the dates
on which the “Certificates of Current Cost or Pricing Data” underlying his claims
were executed, because pursuant to his own allegations, only TINA certificates
executed after June 2006, when the bid analysis was allegedly created, could even
potentially be false. (Doc.1 at ¶59). Moreover, it is nowhere alleged that TINA
certificates must accompany the invoices in order for the invoices to be paid.
6
Relator alleges Task Order 139 was not created until August 2006.
29
Similarly, Relator alleges that the 2006 bids were for charter flight services
to commence in 2007, after the expiry of the prior subcontract. (Doc. 1 at ¶50).
Relator alleges the false claims began in June 2006, at which point Defendants
began making certifications that were false because they withheld the bid analysis
and concomitant materials. Accepting that as true, if the subcontract for the
Frankfort Plan flight services was not to begin until 2007, then the invoices/bills
predicated upon the then existing prior subcontract submitted for the duration of
2006 could not be deemed false since they would not include a falsely inflated
premium due to Defendants’ failure to choose the Frankfort Plan over the Dubai
Plan (which could not begin until 2007).
Thus, even if the Court accepted Relator’s theory of liability, the Complaint
does not satisfy Rule 9(b)’s requirement of particularized allegations of fraud.
II.
Relator’s Second Theory That Defendants Requested And Received
Payment For Unallowable Claims In Violation Of The FCA Must Also
Fail And He Again Has Not Pled Specific Factual Allegations To
Proceed With His Claim.
The second theory of liability offered by Relator is that Defendants violated
the FCA by submitting invoices in order to receive payment for costs incurred under
the LOGCAP III that were not, in fact, allowable under the applicable regulations.
(Doc. 1 at ¶¶7 and 40). Under FAR, allowable costs are defined as those costs that
are “reasonable” and satisfy other criteria not relevant for this discussion. 48 C.F.R.
§ 31.201-2. Costs are “reasonable” if they do not exceed an amount that a prudent
person in the conduct of competitive business would pay. 48 C.F.R. § 31.201-3.
Relator contends that each and every invoice submitted by Defendants for
reimbursement for expenditures related to repatriation and rotational leave under
30
the Dubai Plan after June 2006 was false or fraudulent because the Defendants
knew the costs were actually unreasonable in that they could have saved $75
million dollars by implementing the Frankfort Plan and no reasonable person would
forego $75 million dollars in savings.
Relator cites to 48 C.F.R. § 52.232-25, which is included in the LOGCAP III
Prime Contract and specifically, Task Order 59,7 as the authority requiring
Defendants to submit invoices to the Government for payment under LOGCAP III.
(Docs. 1-2 at 7, 1-3 at 7). That regulation provides that invoices submitted to the
Government must satisfy certain criteria. However, none of the criteria mentioned
in that particular regulation is an affirmative statement that the cost is allowable
or reasonable. See 48 C.F.R. § 52.232-25(a)(3)(i)-(a)(3)(x). Relator points to 48 C.F.R.
§§ 52.216-7 and 52.216-26 for support that a statement of certification is required,
but those regulations clearly state in relevant part that the “Contractor may
submit. . . , an invoice or voucher supported by a statement of the claimed allowable
cost incurred by the Contractor in the performance of this contract” (emphasis
added). The existence of the term “may” expresses that either the submission of the
invoice itself or the statement of the claimed allowable cost is optional. Since 48
C.F.R. § 52.232-25(a)(3) states that the Contractor shall prepare and submit the
invoice and this regulation is incorporated by reference in the LOGCAP III contract
and Task Order 59, the invoice itself cannot be deemed to be optional, so the phrase
“statement of the claimed allowable cost” is left as the only plausible object of the
These documents were attached to the Complaint as exhibits and thus may be
considered by the Court on this Rule 12(b)(6) motion. Williamson v. Curran, 714
F.3d 432, 436 (7th Cir. 2013).
7
31
term “may”. Since the regulations provide that giving the “statement of claimed
allowable cost” is optional, this Court cannot conclude that giving such statement
was required. Thus, the Court rejects Relator’s contention that statements of
certification were required by the regulations.
In United States ex rel. Chilcott v. KBR, Inc., No. 09-CV-4018, 2013 WL
5781660, at *12-13 (C.D. Ill. Oct. 25, 2013), this Court explained that no
certifications of compliance seemed necessary to plead the FCA claims at issue
there and in dicta, observed that the Court would be receptive to a claim that an
invoice itself could be the false record or statement that influences the
Government’s decision to pay. Ultimately however, this Court decided that issue
need not be resolved because the relator there had adequately alleged that the filing
of a standard invoice form carried with it an express certification of compliance, and
that disposition of a Rule 12(b)(6) motion to dismiss was not the proper stage at
which to contest the veracity of a plaintiff's allegations. Id. at *13. Thus, in Chilcott
the allegations were sufficient to convey to the Court that the plaintiff was pleading
an affirmative statement/express certification was required by the defendant to
obtain payment in that case. This is not the case here.
Relator takes the reader of the Complaint down an attenuated path,
attempting to link separate regulatory provisions to arrive at an alleged
requirement that Defendants had to affirmatively state that their costs were
allowable in order to receive payment. In paragraph thirty-five, Relator alleges the
regulations instruct that allowable costs are costs that are “reasonable”. In
paragraphs thirty-seven and thirty-eight, he alleges the LOGCAP III, Task Orders
32
59, 89, and 139 all incorporate8 the regulations requiring an invoice and a
“statement of allowable cost.” Here is where the link unravels for as we have seen,
the FAR regulations do not require the claimant to provide a “statement of
allowable cost” along with an invoice, they merely permit it. (See supra p. 31.)
Finally, in paragraph thirty-nine, Relator alleges that the FAR regulations require
the preparation and submissions of invoices. Thus, Relator is trying to establish
that “statements of allowable cost” were required based on regulations mandating
invoices. That will not do because the Complaint makes clear the following points:
First, only invoices are required under the regulations. Second, the affirmative
statement that Relator refers to is not required to get the invoice paid. In other
words, Relator’s conclusion that “[e]ach voucher or invoice. . . was. . . an affirmative
statement that such costs were ‘allowable’ and ‘reasonable’,” (see Doc. 1 at ¶61)
cannot stand in light of the information pled in the Complaint.
Undoubtedly, Relator takes the position that whether or not the “statement
of allowable cost” was required is irrelevant. What is relevant from the Relator’s
point of view is that Defendants submitted the “statements of allowable costs” along
with the invoices in order to get the invoices paid with full knowledge that the
statements of claimed allowable costs were false because Defendants knew the costs
were not reasonable. This argument fails because it is apparent from the Complaint
Interestingly, Relator makes his allegations as to what Task Orders 89 and 139
contain on information and belief, yet he has provided no basis for how he has come
to be so informed or acquired such belief. In Grenadyor, 772 F.3d at 1108, the court
explained in a fraud case, allegations based on information and belief will not
suffice unless accompanied by an assertion that the facts constituting the fraud are
not accessible to the plaintiff and an explanation for the basis for plaintiff’s
suspicions.
8
33
and the quoted regulations that appear throughout the Complaint, that the
“statements of allowable cost” were simply not material to the Government’s
decision to pay the invoices. The Court reaches that conclusion for two reasons.
First, again—the statement of allowable costs was permissible and not required.
(See supra p.31). It can hardly be argued with a straight face that the Government
deemed something it did not even require to be submitted to be influential in its
decision-making process. Second, nowhere in 48 C.F.R. § 52.232-25(a)(3)—the
regulation cited by Relator as the source of the duty of a claimant to prepare and
submit invoices and also lists what an invoice must contain to be paid—appears a
requirement for a claimant to provide an affirmative statement that the cost is
allowable or reasonable.
Relator attempts to salvage the claim by arguing that the FCA does not
require in its text any certification requirement. This argument is also unavailing.
Relator cannot deny that the FCA requires a plausible allegation that the defendant
made a statement to receive payment under 31 U.S.C. § 3729(a)(1)(B). Gross, 415
F.3d at 604 (listing requirements to satisfy 31 U.S.C. § 3729(a)(2), now codified as
31 U.S.C. § 3729(a)(1)(B)). Section 3729(a)(1)(B) provides liability for using “a false
record or statement material to a false or fraudulent claim.” The term “record or
statement” should not be interpreted to encompass the term “claim”, because
reading the statute in that manner violates the well-established canon that
different words within the same statute should be given different meanings, see,
e.g., Firstar Bank, N.A. v. Faul, 253 F.3d 982, 991 (7th Cir. 2001), and it ignores the
distinct meaning of the term “claim” found at § 3729(b)(2)(A). In short, the Court
34
rejects Relator’s argument that the invoices themselves qualify as the “statements”
described in §3729(a)(1)(B).
Nor can the Relator deny that under binding Seventh Circuit precedent
applying 31 U.S.C. § 3729(a)(1)(A), his particular theory of liability does require the
pleading of a certification. Generally, to plead a viable claim under § 3729(a)(1)(A),
a plaintiff must plead “(1) a false or fraudulent claim; (2) which was presented, or
caused to be presented, by the defendant to the United States for payment or
approval; (3) with the knowledge that the claim was false.” United States ex rel.
Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 741 (7th Cir. 2007) overruled on other
grounds by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009).
Section 3729(a)(1)(A) legal claims do not require the allegation of a statement, but
they do require allegation of a false or fraudulent claim. The “claim” is an invoice,
i.e. the request for payment. 31 U.S.C. § 3729(b)(2)(A). There is no dispute the
Relator is not alleging that the claims are factually false.
In United States ex. rel. Lusby v. Rolls-Royce Corporation, the Seventh
Circuit allowed a legal claim—similar in nature to Relator’s legal claim here in that
both claims were alleged to be of the legally false variety—to survive a motion to
dismiss because the complaint alleged that the defendant certified that certain
parts were of a contractually-specified quality and each and every request for
payment under the contract had to be submitted with that certification. 570 F.3d
849, 853-54 (7th Cir. 2009) (“If Rolls–Royce submitted such a certificate, knowing
the representations to be false, then it committed fraud.”). The teaching of Lusby is
that if a plaintiff is pleading a legally false claim theory—one in which the claimant
35
is alleged to have knowingly falsely certified that it has complied with a statute or
regulation the compliance with which is a condition for Government payment,
Wilkins, 659 F.3d at 305—then one must concurrently plead the defendant was
obligated to certify or affirmatively state compliance with an applicable rule or
regulation. The Court finds that the Relator, despite being sensible enough to
include the conclusory allegation that Defendants were obligated to affirmatively
state compliance with the applicable regulations, has nevertheless actually failed to
point out any such requirement in the Complaint and applicable regulations he
contends apply.
Defendants also contend that even if their submission of invoices could be
interpreted as affirmative statements that the underlying costs were reasonable,
these statements do not constitute objective falsehoods capable of being adjudged
true or false, and only empirically verifiable statements can give rise to FCA
liability. The Court will address the argument for the sake of completeness even
though it has found submission of invoices did not constitute affirmative statements
of compliance. Defendants cite Yannacopoulos, 652 F.3d at 836, for the proposition
that a statement may be deemed false under the False Claims Act only if the
statement represents an objective falsehood. The court did not hold so broadly.
Importantly, Yannacopoulos did not hold that the purported falsehoods there were
incapable of being objectively assessed nor did the case give guidance on what sort
of purported falsehood is incapable of objective assessment. Ultimately, the Court
found that the relator had failed to present any evidence of falsity. Id. at 837.
Because Yannacopoulos was in summary judgment proceedings, the court could
36
properly assess the evidentiary support of falsity. Here, the case is on a motion to
dismiss and no evidence, save what the Relator has attached to the Complaint, can
even be considered. Curiously, Defendants concede that the relevant question of
whether a cost is reasonable is a highly contestable and fact-specific issue with
enumerated criteria that should be taken into account to determine reasonableness.
48 C.F.R. § 31.201-3(b). The fact that the regulation contemplates that the
reasonableness of costs can be determined is sufficient enough indication that such
costs can indeed be objectively assessed. In any event, in this Court’s view, it is the
very nature of the “highly contestable and fact-specific inquiry” that makes it
inappropriate for resolution on a 12(b)(6) motion to dismiss. Consequently,
Defendants’ contention that the reasonableness of the costs submitted to the
Government for payment is incapable of objective assessment is unavailing.
Finally, even if this Court is incorrect in dismissing the Relator’s theory of
liability on 12(b)(6) grounds, the Complaint does not satisfy Rule 9(b) of the Federal
Rules of Civil Procedure, which requires a relator to plead with “particularity the
circumstances constituting fraud.” Grenadyor, 772 F.3d at 1105-06. At a minimum,
the “complaint must state the identity of the person making the misrepresentation,
the time, place, and content of the misrepresentation, and the method by which the
misrepresentation was communicated to the plaintiff. Id. at 1106 (internal
quotation marks and citations omitted) (emphasis added). A relator must plead
particularized information of fraud or falsity. United States ex rel. Fowler v.
Caremark RX, L.L.C., 496 F.3d 730, 740-41 (7th Cir. 2007) overruled on other
grounds by Glaser v. Wound Care Consultants, Inc., 570 F.3d 907 (7th Cir. 2009).
37
Fowler instructs and Grenadyor supports that a relator must allege facts on
an individualized transactional level to demonstrate liability. 496 F.3d at 740; 772
F.3d at 1107. In Grenadyor, the court wrote:
[I]t is not enough to allege. . . that the pharmacy engaged in a practice
that violated a federal regulation. [Relator] would have had to allege
either that the pharmacy submitted a claim to Medicare (or Medicaid)
on behalf of a specific patient who had received a kickback, or at least
name a Medicare patient who had received a kickback (presumably if
the pharmacy provided a drug to a Medicare patient it billed Medicare
for the cost of the drug minus the copay); 496 F.3d at 740-41. The
complaint contains no such allegations. Similarly, by failing to identify
a single patient who received multiple gift bags over the course of the
year the complaint fails to allege with the requisite particularity that
any customer received more than $50 worth of these goodies.
772 F.3d at 1107 (internal citations omitted) (emphasis added).
While the specific factual details at issue in Grenadyor do not apply here, the
legal principle utilized in that case does. When pleading fraud, one must allege facts
describing the content of the misrepresentation, amongst other things. Relator
alleges that the Government would not have paid the invoices and vouchers that
Defendants submitted under those Task Orders. Yet, even had the Defendants
implemented the Dubai Plan there would still be costs generated and there is no
allegation in the Complaint that the Defendants billed the Government for anything
beyond the actual costs they incurred in carrying out the Task Orders. This means
that under the Relator’s theory some amount of any given invoice had to be
legitimate while some amount was theoretically disallowable. Here, Relator has not
adequately described the content of the misrepresentation because he has not
provided information that can be used to discern how much, if any, of any individual
invoice or voucher submitted to the Government under LOGCAP III was artificially
38
inflated due to Defendants’ failure to implement the Frankfort Plan. In short, his
claim based on Defendants obtaining payment for disallowable costs must be
dismissed.
Moreover, as was detailed in the earlier section, Relator’s allegations taken
as true indicate that the Frankfort Plan subcontract would not have begun until
2007, yet he contends each and every invoice from June 2006 was in fact
disallowable. If the Frankfort Plan subcontract would not begin until 2007, then the
2006 invoices, generated pursuant to the subcontract then in effect, cannot be
deemed artificially inflated and therefore cannot be deemed false or fraudulent even
under Relator’s theory. Yet Relator nonetheless contends every invoice after June
2006 is false or fraudulent. His claim based on Defendants obtaining payment for
disallowable costs must be dismissed.
III.
The Relator Has Not Pled Any Facts That State Plausible Claims
Under The False Claims Act Based Upon Any Purported Conspiracy
or Reverse False Claims.
Relator listed subparagraphs (C) and (G) of 31 U.S.C. 3729(a)(1) as two of the
provisions he was relying upon for his FCA claims by including them in the heading
for Count I.
9
(Doc. 1 at 19). Subparagraph (C) of 31 U.S.C. 3729(a)(1) discusses
conspiracies to defraud while subparagraph (G) deals with so-called reverse false
claims where there is an obligation due to the Government. Relator has not actually
pled any facts concerning a conspiracy or any payments due to the Government. The
Court does not know whether listing subparagraphs (C) and (G) and inserting the
Relator also included a fleeting reference to “co-conspirators” in paragraph 1 of the
Complaint. (Doc. 1 at 2).
9
39
term “co-conspirators” was an oversight or clerical error, but on the chance that it
was not, the Court must find any claims concerning a conspiracy or reverse false
claims contained in the Complaint are woefully inadequately pled. “A bare
allegation of conspiracy [is] not enough to survive a motion to dismiss for failure to
state a claim.” Cooney v. Rossiter, 583 F.3d 967, 970 (7th Cir. 2009). There must be
pled enough facts (taken as true) to suggest the existence of an agreement.
Twombly, 550 U.S. at 556 and Iqbal, 556 U.S. at 680. The Court notes that Relator
has not even addressed the issue in his response brief. These claims are therefore
dismissed pursuant to Rule 12(b)(6).
CONCLUSION
For the reasons stated above, the Complaint is dismissed for failure to state
claims for which relief can be granted as well as failing to comply with Federal Rule
of Civil Procedure 9(b). A review of the docket shows that Relator has not previously
amended his complaint. Therefore, the Court finds it appropriate to grant Relator
leave to amend his complaint to address the deficiencies and problems described in
this Order and Opinion. Relator may amend his complaint within twenty-eight days
(28) of the date of this Order. Defendant may then file a responsive pleading or an
appropriate motion within twenty-one (21) days thereafter.10 Should Relator fail to
Defendants cursorily argued that KBR, Inc. should be dismissed from this action
because the Complaint failed to make any particularized allegations as to KBR,
Inc.’s participation in the alleged fraud. Relator failed to respond to the allegation.
The Complaint alleges that KBR employees met, discussed the bid analysis, and
decided to forego the Frankfort Plan (Doc. 1 at ¶¶ 55-56) and alleges KBR
submitted the certificates of current cost or pricing data (Doc. 1 at ¶59). At times
the Complaint alleges KBR submitted invoices while at other times it states
“Defendants” submitted invoices. The Court finds the allegations very confusing but
10
40
amend his complaint within the time allotted, the Court will dismiss this action
with prejudice.
IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss (Doc. 37)
is GRANTED.
Entered this 22nd day of May, 2015.
s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge
given the disposition of the motion as to the substance of the claims, the Court finds
the issue to be moot and will not comment further on it.
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