United States of America v. BAE Systems Tactical Vehicle Systems, LP
Filing
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OPINION & ORDER granting in part and denying in part 9 Motion to Dismiss. Signed by District Judge Nancy G. Edmunds. (CBet)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
UNITED STATES OF AMERICA,
Case No. 15-12225
Plaintiff,
Honorable Nancy G. Edmunds
v.
BAE SYSTEMS TACTICAL VEHICLE
SYSTEMS, LP,
Defendant.
/
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT’S MOTION TO DISMISS [9]
The United States brings suit against Defendant BAE Systems Tactical Vehicle
Systems, LP, alleging violations of the False Claims Act (FCA) and the Truth-inNegotiations Act (TINA), breach of contract, unjust enrichment, and payment by mistake.
This matter comes before the Court on Defendant’s motion to dismiss the first amended
complaint. For the reasons stated herein, the court GRANTS Defendant’s motion to dismiss
Count III1 and DENIES the motion in all other respects.
I.
FACTS
In 2008, the Army entered into a contract with Defendant to purchase a fleet of 20,000
military vehicles, known as the Family of Medium Tactical Vehicles. (Dkt. 3, at ¶¶ 10, 2127.) The contract was awarded to Defendant as an undefinitized contract action on May 30,
2008. (Id. at ¶ 27.) An undefinitized contract is one that is awarded prior to agreeing on a
1
The government agrees to dismiss Count III in light of the fact that all claims for
payment at issue were submitted by Defendant after June 7, 2008, and therefore the
section of the FCA invoked in Count III is inapplicable. (Dkt. 18, at 9 n.1.)
price. (Id.) After the award of the contract, the parties entered into price negotiations. (Id.)
Pursuant to requirements in the contract, TINA, and the Federal Acquisition Regulation
(FAR), Defendant was obligated to provide the government accurate, complete, and current
information regarding its expected costs for parts and labor. (Id. at ¶ 17.)
Defendant submitted a “Bill of Materials” (BOM) sometime before July 30, 2008,
containing a list of costs, prices, and quantities for parts and materials needed. (Id. at ¶ 28.)
On September 4, 2008, the government requested Defendant conduct a “sweep” of its
proposed prices and confirm that the cost and pricing data disclosed was accurate,
complete, and current, as required. (Id. at ¶ 33.) On September 11, the government states
the parties agreed to a revised BOM, which continued to be updated as the pricing for
individual parts was discussed. (Id. at ¶¶ 34-35.) On September 25, 2008, Defendant
emailed the government: “Sweep is complete.” (Id. at ¶ 44.) In a letter dated September 25,
Defendant’s chief negotiator, Melvin Thornhill, stated, “[a]fter completion of the sweep,
current material cost now equal $1,542,962,510.” (Id. at ¶ 45.) This amount was
approximately $16 million higher than the last negotiated price. (Id.) Mr. Thornhill continued,
“[h]owever, ... [Defendant] will honor [] all agreed upon material costs and final pricing.”
(Dkt. 19-2, at 3.) Defendant also provided a Certificate of Current Cost or Pricing Data,
signed by Mr. Thornhill and dated September 24, 2008. (Dkt. 9-4.) This document certified
that “to the best of [the signatory’s] knowledge and belief, the cost or pricing data ...
submitted ... is accurate, complete, and current as of 04 September 2008.” (Id.) The parties
agreed on a price of $2,099,328,517 for 10,000 vehicles and support, with an option to buy
an additional 10,000 vehicles for $1,666,884,022. (Dkt. 3, at ¶ 21.)
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The government filed its first amended complaint on October 1, 2015. (Dkt. 3.) The
complaint alleges Defendant “knowingly failed to meet its obligation” to provide “cost or
pricing data that was accurate, complete, and current.” (Id. at ¶ 49.) The government states
it relied on the material costs provided, as well as Defendant’s statements that the data was
accurate, complete, and current, in reaching agreement with Defendant as to a final price.
(Id. at ¶¶ 46-48.) The government contends it “would not have agreed” to the final price had
Defendant “disclosed accurate, complete, and current cost or pricing data,” as required. (Id.
at ¶ 82.) The government argues, “[e]ach of [Defendant]’s claims for payment was
therefore inflated” and the “inclusion of those inflated prices makes the claims false or
fraudulent under the FCA.” (Id.)
Defendant seeks dismissal of the FCA Counts pursuant to Federal Rule of Civil
Procedure 12(b)(6) for failure to satisfy the pleading requirements of Rules 8 and 9.
Defendant argues the remaining claims should also be dismissed because without a valid
claim for fraud, the Armed Services Board of Contract Appeals (ASBCA) maintains
exclusive jurisdiction for such claims under the Contract Disputes Act.2 Finally, Defendant
contends the existing contract between the parties bars the government’s quasi-contract
claims for payment by mistake and unjust enrichment.
II.
STANDARD
A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of a complaint. The
court must, in a light most favorable to the plaintiff, assume the plaintiff’s factual allegations
2
According to the pleadings, the government demanded a contract price reduction for
alleged defective cost or pricing data under TINA in July 2014. (Dkt. 9, at 16.) In August
2014, Defendant filed an appeal with the ASBCA, which is presently pending. (Id. at 17.)
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are true and determine whether the complaint states a valid claim for relief. See Bower v.
Fed. Express Corp., 96 F.3d 200, 203 (6th Cir. 1996). To survive a Rule 12(b)(6) motion
to dismiss, the complaint’s “[f]actual allegations must be enough to raise a right to relief
above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a
motion to dismiss, the complaint must contain sufficient factual matter, taken as true, to
state a claim for relief that is plausible on its face. Id.
III.
ANALYSIS
A.
False Claims Act
The sections of the FCA invoked in the complaint impose liability on any person who
“knowingly presents, or causes to be presented, a false or fraudulent claim for payment or
approval” to the government, or who “knowingly makes, uses, or causes to be made or
used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. §
3729(a)(1)(A)-(B). In enacting the FCA, “Congress wrote expansively, meaning to reach
all types of fraud, without qualification, that might result in financial loss to the
Government.” Cook County, Ill. v. United States ex rel. Chandler, 538 U.S. 119, 129 (2003)
(internal quotation omitted). Defendant argues the FCA Counts should be dismissed for
failure to comply with the pleading requirements of Rules 8(a)(2) and 9(b).
1. Rule 8(a)(2)
Under Rule 8(a)(2), a pleading must contain a “short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Defendant contends
the complaint fails this basic pleading standard because it contains only conclusory
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assertions that Defendant acted “knowingly” and submitted “false” claims or records.
Defendant argues the allegations are merely a “formulaic recitation of the elements” of the
cause of action and fail to state a claim under Twombly. The Court considers the adequacy
of the government’s allegations with regard to both knowledge and falsity.
a. Knowledge
Defendant argues the allegations that Defendant acted “knowingly” are conclusory
and thus insufficient. A person acts “knowingly” under the FCA when he or she “has actual
knowledge of the information,” or “acts in deliberate ignorance” or “reckless disregard” of
the truth or falsity of the information. 31 U.S.C. § 3729(b)(1). Even under the heightened
pleading standard of Rule 9(b), however, a plaintiff may generally allege that the defendant
acted “knowingly.” See Chesbrough v. VPA, P.C., 655 F.3d 461, 466 (6th Cir. 2011)
(“Malice, intent, knowledge, and other conditions of a person’s mind may be alleged
generally.”). The Court finds the government has adequately pleaded that Defendant acted
knowingly. Indeed, the complaint alleges Defendant acted knowingly in numerous
paragraphs. (E.g., Dkt. 3, at ¶¶ 49, 51, 53, 56, 58, 64, 70, 84, 86.). For example, the
government alleges Defendant “prepared a final updated BOM of material costs” but did
not disclose these costs to the government because Defendant “knew that these costs
could significantly affect price negotiations ... but did not want the lower prices to depress
the price of the Contract.” (Id. at ¶¶ 43, 56.) The government alleges further that Defendant
“certif[ied] that its cost or pricing data was accurate, complete, and current when it knew
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that it was defective.” (Id. at ¶ 86.) Viewing the complaint in the light most favorable to the
government, the government has sufficiently alleged knowledge.3
b. Falsity
Defendant also argues the complaint fails to plausibly allege that the claims for
payment were false. (Dkt. 9, at 20-28.) Although the government takes issue with “judicially
created” theories of falsity, it nonetheless works within such theories to argue it has
adequately pleaded falsity under either a fraudulent inducement or a false certification
theory. (Dkt. 18, at 15-32.) Viewing the complaint in the light most favorable to the
government, the Court finds the government has adequately pleaded falsity under a
fraudulent inducement theory.4
FCA liability exists under a fraudulent inducement theory when a government contract
is obtained “through false statements or fraudulent conduct.” Harrison v. Westinghouse
Savannah River Co., 176 F.3d 776, 787 (4th Cir. 1999). See also United States v. United
Techs. Corp., 626 F.3d 313, 320 (6th Cir. 2010), as amended (Jan. 24, 2011) (affirming
finding of FCA liability where false cost data provided during negotiations “had the potential
to influence the government’s decision to sign the contract”). Once fraudulent inducement
3
In its reply brief, Defendant also argues that the allegation that it “knowingly concealed
cost and pricing data” is implausible because its September 25 letter disclosed a $10
million decrease from the cost previously disclosed. (Dkt. 19, at 10-12.) But the government
has alleged Defendant knowingly failed to disclosed purchase orders, vendor quotations,
and labor rates that would have resulted in a reduction of the contract price by at least $44
million. (Dkt. 3, at ¶¶ 58, 63, 64, 69, 70, 74, 81.) As such, even if the Court agreed that the
September 25 letter disclosed an overall decrease in material costs by $10 million, the
government has adequately alleged that Defendant knowingly concealed additional cost
and pricing data sufficient to survive a motion to dismiss.
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The Court thus need not address the false certification theory.
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is shown, the original fraud renders all subsequent claims for payment false and actionable
under the FCA. United States ex rel. Marcus v. Hess, 317 U.S. 537, 543 (1943).
To plead an FCA claim under a fraudulent inducement theory of liability, a plaintiff
generally must allege (1) that there was a false statement or fraudulent course of conduct;
(2) made or carried out with the requisite scienter; (3) that was material; and (4) that
caused the government to pay out money or to forfeit moneys due. Harrison, 176 F.3d at
788. Taking the well-pleaded allegations as true, the Court finds the government has
adequately pleaded its FCA claims under a fraudulent inducement theory of liability. The
government alleges Defendant knowingly concealed cost or pricing data during
negotiations and on September 24, 2008, certified that such data was accurate, complete,
and current even though Defendant “knew that its disclosure of the data was, in fact, not
accurate, complete, and current.” (E.g., Dkt. 3, at ¶¶ 46-55, 85.) The government also
pleads that such data was material—i.e., that it had the “objective, natural tendency to
influence a government decision maker.” United Techs. Corp., 626 F.3d at 321. That is, the
government alleges it “relied on [Defendant’s] cost or pricing data to be accurate, complete,
and current” and “would not have agreed” to the price absent Defendant’s failure to comply
with its obligation to provide accurate, complete, and current data and false certification of
the same. (E.g., Dkt. 3, at ¶¶ 57, 82.) As a result, the government alleges, it “paid inflated
prices for vehicles under the Contract, and the United States was damaged thereby.” (Id.
at ¶ 86.) These allegations are sufficient to survive a Rule 12(b)(6) motion to dismiss. See,
e.g., United States ex rel. Shemesh v. CA, Inc., 89 F. Supp. 3d 36, 46-49 (D.D.C. 2015)
(denying in part motion to dismiss FCA claims where defendant allegedly provided price
lists containing false information in order to induce the government to enter into contracts);
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United States ex rel. Woodlee v. Sci. Applications Int’l. Corp., No. SA-02-CA-028-WWJ,
2005 WL 729684, at *2-4 (W.D. Tex. Feb. 4, 2005) (denying motion to dismiss FCA claims
where defendant allegedly failed to disclose accurate, complete and current cost and
pricing data during negotiations). Because under a fraudulent inducement theory all
subsequent claims for payment are false and actionable, the Court finds the government
has adequately pleaded the falsity of the claims for payment made by Defendant,
representative examples of which are pleaded in the complaint. (Dkt. 3, at ¶¶ 90-133.)
Defendant argues the fraudulent inducement theory must fail because the
government has not alleged that the initial contract (awarded in May 2008) was procured
by fraud. (Dkt. 9, at 27 n.9.) The Court does not find this argument availing. As Defendant
admits, the September price agreement was a modification of the Contract. (See, e.g., Dkt.
19, at 16-17 (referring to the “price modification”).) The fraudulent inducement theory may
apply not only when fraud is used to obtain a contract, but also when used to obtain subcontracts or modifications to contracts. See, e.g., United States ex rel. Frascella v. Oracle
Corp., 751 F. Supp. 2d 842, 855 (E.D. Va. 2010) (FCA claim sufficiently pleaded where
false statements were made “with the intent to induce [the government] to enter into
contract modifications”); Woodlee, 2005 WL 729684, at *1-2 (master contract awarded prior
to individual delivery orders, the negotiations of which were the basis of the FCA fraudulent
inducement claims). The Court finds the government has sufficiently pleaded falsity.
2. Rule 9(b)
Defendant also seeks to dismiss the FCA Counts under Rule 9(b). Claims brought
pursuant to the FCA must comply with the heightened pleading standards set forth in Rule
9(b). See United States ex rel. Blesdoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 641 (6th
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Cir. 2003). Rule 9(b) requires that the circumstances constituting fraud or mistake be stated
with particularity. Fed. R. Civ. P. 9(b). To satisfy Rule 9(b), a plaintiff must set forth “the
time, place, and content of the alleged misrepresentation on which he or she relied; the
fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the
fraud.” Blesdoe, 342 F.3d at 643 (internal citation omitted). Stated differently, a plaintiff
must allege the “who, what, when, where, and how of the alleged fraud.” Sanderson v.
HCA-The Healthcare Co., 447 F.3d 873, 877 (6th Cir. 2006) (internal quotation omitted).
Rule 9(b), however, “is not designed to force a plaintiff to prove [its] case in the complaint,
but simply to give adequate notice to the defendants and ensure there is some basis for
the allegations.” United States v. Assocs. in Eye Care, P.S.C., No. 13-27-GFVT, 2014 WL
414231, at *7 (E.D. Ky. Feb. 4, 2014). As such, Courts must analyze Rule 9(b) in
conjunction with the “short and plain statement” pleading requirement of Rule 8. See, e.g.,
Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir. 1988). Rule 9(b)
also aims to prevent fishing expeditions, protect defendants’ reputations against fraud
allegations, and whittle down potentially wide-ranging discovery. Thompson v. Bank of Am.,
N.A., 773 F.3d 741, 751 (6th Cir. 2014) (citing Chesbrough, 655 F.3d at 466-67).
The Court finds the government has adequately pleaded its FCA claims with the
particularity required by Rule 9(b). The 55-page, 164-paragraph complaint sufficiently
alleges the “who, what, where, when, and how” of the purported fraud. The “what” and the
“how” have been discussed at length: the government alleges Defendant knowingly
provided cost and pricing data during negotiations that was not accurate, complete, and
current (as required), and falsely certified that such data was accurate, complete, and
current. (E.g., Dkt. 3, at ¶¶ 46-50.) For example, the government alleges Defendant
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knowingly concealed vendor quotations for 40 parts (specified and itemized in the
complaint) that were lower than the quotations disclosed. (Id. at ¶¶ 58-63.) By way of
another example, the government alleges Defendant used undisclosed cost or pricing data
to calculate the cost of fabricating over 200 parts (the “fab shop parts”).5 (Id. at ¶ 70.) The
government claims it relied on the certification of the data as accurate, complete, and
current, and agreed “to a higher Contract price” than it otherwise would have as a result.
(Id. at ¶¶ 46, 82, 86.)
The “who, when, and where” are also alleged with sufficient particularity. For example,
the government alleges that on September 24, 2008 (“when”), Defendant’s chief negotiator,
Mr. Thornhill (“who”), certified the cost and pricing data disclosed as accurate, complete,
and current, even though Defendant knew that the data was defective. (Dkt. 3, at ¶¶ 46,
86.) The certification was sent by letter, with Defendant based in Sealy, Texas and Army
Contracting Command located in Warren, Michigan (“where”). (Id. at ¶¶ 10, 45.) In sum,
the Court finds the facts alleged are sufficient to enable Defendant to understand the
allegations and prepare a responsive pleading, thus satisfying both the requirements and
the underlying purpose of Rule 9(b).
B.
Jurisdiction
While in some cases the CDA divests the court of jurisdiction over disputes with the
government, Defendant acknowledges that jurisdiction is not divested for claims involving
fraud. (Dkt. 9, at 43 n.17.) Because the government has adequately pleaded fraud, the
5
As alleged, the actual labor rates used to calculate the cost of the “fab shop parts” are
“cost or pricing data” as defined by TINA. (Dkt. 3, at ¶ 71.)
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Court will retain jurisdiction over the parties’ remaining related claims. See, e.g., United
States v. Rockwell Int’l Corp., 795 F. Supp. 1131, 1135-39 (N.D. Ga. 1992).
C.
Unjust Enrichment and Payment by Mistake
Lastly, Defendant argues the express contract between the parties bars the
government from pursuing the “quasi-contract claims” in Counts VII and VIII6 (unjust
enrichment and payment by mistake). (Dkt. 9, at 45-47.) While the government agrees
recovery under both contract and quasi-contract claims would be barred, it argues it is not
prohibited from pleading such alternative theories. (Dkt. 18, at 43-45.) At this stage, the
Court agrees with the government.
As numerous courts within this district have held, a plaintiff may allege alternative
theories of FCA violations and quasi-contractual claims, even when a contract between the
parties exists. See, e.g., United States v. United Techs. Corp., No. C-3-99-093, 2000 WL
988238, at *4 (S.D. Ohio Mar. 20, 2000) (“Even though an express contract exists between
the parties, the United States may plead, in the alternative, unjust enrichment, payment by
mistake, and breach of contract, along with its claims under the False Claims Act, pursuant
to Fed. R. Civ. P. 8(e).”); United States ex rel. Roby v. Boeing Co., 184 F.R.D. 107, 112-13
(S.D. Ohio 1998) (denying motion to dismiss quasi-contractual claims even though an
express contract existed between defendant and the government); United States v.
Stevens, 605 F. Supp. 2d 863, 870 (W.D. Ky. 2008) (denying motion to dismiss alternative
unjust enrichment claim as premature because the FCA claim had not been fully litigated).
The Court finds it would be premature to dismiss such claims at this stage of the litigation.
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The eighth Count in the first amended complaint (“Payment by Mistake”) is incorrectly
labeled Count VII. (Dkt. 3, at 52.) The Court refers to it as Count VIII.
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IV.
CONCLUSION
For the above-stated reasons, Defendant’s motion to dismiss is DENIED as to
Counts I, II, and IV-VIII, and GRANTED as to Count III.
SO ORDERED.
S/Nancy G. Edmunds
Nancy G. Edmunds
United States District Judge
Dated: March 9, 2016
I hereby certify that a copy of the foregoing document was served upon counsel of
record on March 9, 2016, by electronic and/or ordinary mail.
S/Carol J. Bethel
Case Manager
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