UNITED STATES OF AMERICA et al v. SIEMENS AG et al

Filing 160

MEMORANDUM AND/OR OPINION SIGNED BY HONORABLE TIMOTHY J. SAVAGE ON 1/13/14. 1/14/14 ENTERED AND COPIES E-MAILED.(ti, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
UNITED STATES OF AMERICA, ex rel.
WILLIAM A. THOMAS
v.
SIEMENS AG, et al.

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CIVIL ACTION

NO. 09-4414

MEMORANDUM OPINION
Savage, J.

January 13, 2014

In this qui tam action brought under the False Claims Act (“FCA”)1 in which the
government has declined to intervene, the defendant Siemens Medical Solutions USA, Inc.
(“SMS”) has moved for summary judgment, arguing that the relator, William Thomas
(“Thomas”), cannot prevail on his claims because there is no genuine dispute as to any
material fact regarding whether SMS made any knowingly false statements or omissions
in obtaining the contracts at issue, or that the statements or omissions were material or
induced the government to enter into the contracts with SMS. Thomas counters that there
are genuine issues of material fact regarding SMS’s submission of false and incomplete
information submitted to the government.2 He insists that he need not establish that the
government relied upon the false statements in awarding the contracts.

1

31 U.S.C. §§ 3729-3733 (2003). In May 2009, Congress passed the Fraud Enforcem ent Recovery
Act, Pub. L. No. 111-21, 123 Stat. 1617 (2009), which am ended the FCA. The May 2009 am endm ents do
not apply. See United States ex rel. Thomas v. Siemens AG, 708 F. Supp. 2d 505, 512 n.6 (E.D. Pa. 2010).
2

31, 33.

Relator’s Mem . of Law in Opp’n to Def.’s Mot. for Sum m . J. (“Rel.’s Resp. Br.”) (Doc. No. 107) at

In his second amended complaint,3 Thomas contends that SMS, and its then
affiliate, Acuson Corporation (“Acuson”), fraudulently induced the government to pay more
than it would have paid for the purchase of capital medical equipment (“CME”). Thomas
claims that SMS misled the Veterans Administration (“VA”) in the contract bidding process
by misrepresenting the extent of the pricing discounts given to other customers. The
alleged false statements were made on Discount and Pricing Information (“DPI”) forms
submitted to VA that were required by federal procurement regulations known as the
Federal Acquisition Regulation (the “FAR”). The discounts reported on the DPI forms are
relied upon by the government in negotiating the price for goods it purchases. The
government uses the discount information to obtain a “fair and reasonable price.”
After briefing on the summary judgment motion was completed, the government,
although it has declined to intervene in this action, submitted a Statement of Interest
describing its role in the procurement of the contracts at issue. Relying on the declaration
of Maureen Regan, who manages the auditors and management analysts of the Office of
Contract Review (“OCR”) of VA’s Office of Inspector General (“VAOIG”), the government
represents that VA had complete, contractually required information regarding the two
contracts that had been audited.
Despite the government’s unequivocal statement that it was not defrauded, Thomas
has cobbled together facts that he perceives as suspicious and probative of fraud. But, he
has been unable to fit them together to prove that fraud occurred. He has failed to present
facts controverting the government’s own admission that it had not been misled and had
3

The original com plaint was filed under seal on Septem ber 7, 2004, in the U.S. District Court of the
Virgin Islands, Civil Action No. 2004-116. The com plaint was am ended twice before it was transferred to this
district on August 10, 2009, when SMS’s m otion to transfer was granted.
2

not been harmed. Thomas could have conducted discovery of the government, but chose
not to do so.
After reviewing the evidence in the light most favorable to Thomas and drawing all
reasonable inferences in his favor, we conclude that SMS is entitled to judgment as a
matter of law. Thomas has failed to produce sufficient evidence to present a factual issue
as to whether: (1) SMS made any false statements; (2) the omissions or false disclosures
were material to VA’s decision to award the contracts; or (3) the government was actually
misled or induced into awarding any of the contracts at issue. Although he points to
several sales transactions where a commercial customer had received a higher discount
than what SMS or Acuson had apparently disclosed to VA, Thomas has not proffered
evidence showing or tending to show that in each instance the disclosure of additional or
accurate information would have affected VA’s negotiating position and led VA to have
negotiated a greater contract discount than what was actually obtained. Therefore,
because there is no evidence from which a reasonable jury could find that the government
was defrauded, we shall grant SMS’s motion for summary judgment.
Background
The Parties
SMS manufactures and sells CME, such as ultrasound systems, computedtomography (“CT”) scanners, magnetic-resonance imaging (“MR”) scanners, and nuclear
medicine (“NM”) equipment to private hospitals and educational institutions, directly and
through hospital group-purchasing organizations (“GPOs”), and to governmental agencies.
Acuson, which was acquired by SMS’s parent and became an independent SMS affiliate
in 2000, manufactured and sold ultrasound equipment. Acuson was merged into SMS in
3

2002. Before the acquisition, SMS and Acuson had done business independently with
federal, state and local governments, and commercial customers. After becoming an
affiliate of SMS and before merging into SMS, Acuson continued to administer its own
contracts with the federal government.
Thomas began his career in the medical device industry at Acuson, selling
cardiovascular ultrasound equipment from 1989 to 2000. He was a marketing manager
for two years before becoming a district sales specialist. After leaving Acuson in 2000, he
worked at Broadlane, Inc., a GPO for hospitals and healthcare organizations. There, as
Vice President of Capital Medical Equipment Contracting Services, he provided purchasing
services to groups of hospitals, clinics, outpatient centers and private healthcare offices.
In early 2004, two years after Acuson had been merged into SMS, Thomas began working
at SMS. As Senior National Accounts Manager for GPO contracts, he negotiated and
managed diagnostic imaging contracts with Premier, a GPO. After notifying SMS in August
of 2008 of his intention to pursue claims for violations of the FCA for its alleged unlawful
pricing and discount practices with respect to the government,4 Thomas accepted an early
retirement package from SMS in October 2008.
The Contracting Process
The contracts at issue are direct-delivery, multiple award, fixed price, indefinite
delivery/indefinite quantity (“IDIQ”) contracts that were administered by VA’s National

4

Thom as notified SMS via a letter. He did not serve SMS with the com plaint until January 29, 2009,
m ore than five m onths later.
4

Acquisition Center (“VANAC”).5 In this type of contract, the price is fixed at a level
negotiated below specified catalog or list prices.6 A vendor awarded this type of contract
is guaranteed an opportunity to compete for specific sales when a government facility
seeks to purchase equipment. 48 C.F.R. §§ 16.505(b), 504(a)-(c). A multiple award
contract permits a government contracting officer to award a contract to more than one
vendor whose offers meet the award criteria in the contract solicitation. 48 C.F.R. §§
16.504(c), 500. “Fixed price” guarantees the unit prices for a certain period of time. 48
C.F.R. §§ 16.201, 202-1, 202-2. IDIQ means that the government is not committed to
buying a minimum quantity of CME from any awardee. 48 C.F.R. §§ 16.504(a), 501-1,
501-2(b)(2), 501-2(b)(3).7
The process for awarding direct-delivery, multiple award, fixed price, IDIQ contracts
is aimed at negotiating a fair and reasonable price, not the lowest price. After VANAC
announces a solicitation for CME, vendors submit initial solicitation responses on required
DPI forms.8 VANAC contracting officers seek additional information, sometimes by way
of an audit, from the vendors. Then, the contracting officer conducts a pricing analysis in
order to make a “price-reasonableness” determination, negotiates a “fair and reasonable

5
Thom as contends there are six contracts at issue, while SMS contends that only three of the six are
at issue. W e address this dispute later. In any event, all but one of the six contracts that Thom as cites were
adm inistered by VANAC.
6

Def.’s ex. 9 (solicitation for ultrasound contract) at Bates 00214701-02; Def.’s ex. 10 (solicitation for
nuclear m edicine contract) at Bates 00228526; Def.’s ex. 11 (solicitation for CT/MR contract) at Bates 00286.
7

Def.’s ex. 9 at Bates 00214703; Def.’s ex. 10 at Bates 00228529; Def.’s ex. 11 at Bates 00284; Decl.
of Maureen Regan, Manager of VAOIG, Office of Contract Review (“Regan Decl.”) (ex. 1 to Governm ent’s
Statem ent of Interest) (Doc. No. 124-1), ¶ 4; Def.’s Statem ent of Undisputed Facts (Doc. No. 101), ¶¶ 30-36;
Expert Rep. of Nancy Darr (“Darr Rep.”), ¶¶ 21-27.
8

The DPI form is Standard Form 1449, Solicitation/Contract/Order for Com m ercial Item s. The notice
of contract award incorporates the com pleted SF 1449/DPI form . 48 C.F.R. § 12.204(a).
5

price,” and ultimately awards a base, or “umbrella,” contract to approved vendors. The
prices agreed to in these contracts represent the “ceiling” prices for CME purchased under
the umbrella contracts. Later, at the second step of the procurement process, when a VA
facility needs particular CME, the awardees of the umbrella contracts are eligible to
compete for the sale. At this stage, the contracting officer chooses the vendor based on
a “best value” determination, that is, he selects the vendor that best meets VA’s needs in
terms of price and several other factors.9 The contracting officer may negotiate a price
under the “ceiling” prices set in the umbrella contract.10
The two levels of the process may be described as the initial “qualifying” or contract
stage where the vendor qualifies to bid for future sales, and the later “transactional” stage
where the vendor competes with other vendors in negotiating with VA for the sale.11 Thus,
the placing of a vendor on a qualified vendors list does not necessarily result in
government sales, but only entitles that vendor to compete with other qualified vendors for
sales at the subsequently requested configurations and volume.
In reviewing solicitation responses and making determinations for awarding direct
delivery CME contracts, federal government contracting officers must follow the guidance

9
Darr Rep., ¶¶ 30-32. Under the FAR, “best value” is defined as “the expected outcom e of an
acquisition that, in the Governm ent’s estim ation, provides the greatest overall benefit in response to the
requirem ent.” 48 C.F.R. § 2.101.
10

See Def.’s ex. 74 (July 15, 2002 em ail from Lindsey of VAOIG to Sasala enclosing a chart
com paring transactional discounts to contract discounts in connection with audit of SMS’s response to CT and
MR CME solicitation).
11

Second Am . Com pl., ¶ 19 (sales prices of CME are “typically negotiated at two different levels,”
where contracts are negotiated at “set prices for a particular length of tim e . . . under which custom ers are
entitled to certain m axim um prices . . . for certain product[s].”); Thom as Dep. at 117-22, 127; Relator’s Resp.
to SMS’s Statem ent of Undisputed Facts (Doc. No. 106), ¶ 7.1 (the “‘two-tier’ m odel was applicable to SMS
sales of CME to the Governm ent as well as to GPOs and others”).
6

and rules contained in the FAR, Title 48 of the Code of Federal Regulations, Chapter 1.
To assist in obtaining a fair and reasonable price on CME from vendors, the FAR requires
that the purchasing agency obtain information regarding discounts given to the vendor’s
other customers that result in lower net prices than those offered to the government. The
information is obtained initially from the vendor’s disclosures on the DPI form, which
requires the vendor to state the percentage discount from the price list that it is offering the
government. See DPI, ¶ 4.a. Then, the contractor must answer whether it has:
in effect, for any customer or any class, discounts and/or
concessions, including but not limited to the following,
regardless of price list, which results in lower net prices than
those offered the government in this offer?
Id., ¶ 4.b.
The DPI sets out, by way of example, a non-exclusive list of these discounts:
“rebates of any kind”; “multiple quantity unit pricing plan”; “cumulative discounts of any
type”; “products that may be combined for maximum discounts”; and “other.” Id., ¶ 4.b.
In addition, the vendor must report the “best discount” from its price list that it offers
to private hospitals, educational institutions, governments, original equipment
manufacturers, and buying groups in six different discount categories: regular discount;
quantity discount; aggregate discounts; prompt payment; FOB point; and other. Id., ¶ 4.c.
The form contains no instructions on how to complete it. Nor does it define the
terms it uses. It does not specify whether the government is seeking information regarding
contract-level or transaction-level discounts.12
12
As explained above, sales prices of CME can be negotiated at two different levels: at the contract
level where ceiling prices are fixed, and at the transaction level, where VA m ay negotiate a price under the
“ceiling” prices at the tim e of purchase. As discussed later, SMS argues that the distinction between contractlevel and transaction-level discounts is im portant because VA accepted m ultiple interpretations of the

7

The contracting officer is not required to obtain the best price the vendor offers any
other customer. Nonetheless, when determining “price reasonableness” or a “fair and
reasonable price” in negotiating these type of contracts, the contracting officer wants to
know the discounts vendors are offering their commercial customers who have comparable
contractual arrangements. At the same time, the contracting officer knows that the
government does not enter contracts under the same terms and conditions that
commercial customers do. For example, the government does not commit to purchase
from a single vendor or for a minimum volume or quantity. Additionally, the government has
an opportunity to get a greater discount at the second or transactional stage. Furthermore,
it is more costly to prepare and submit a proposal, and negotiate and administer a contract
with the government than with a private-sector customer.13
In making a price reasonableness determination, the contracting officer considers
information other than the vendor’s catalog/price list. He or she also takes into account the
discount price information on the DPI; the vendor’s prior pricing; a comparison of proposed
prices for the same or similar items offered by other contractors, both in the current
solicitation and in previous ones; and market research. He or she must also consider
several contract-specific factors, such as speed of delivery, warranty terms, limitations of
the vendor’s liability, contract length, and expected quantities. 48 C.F.R. §§ 12.209,
13.106-3(a), 15.402(a).

disclosures required on the DPI and did not require SMS or Acuson or any other vendor to com plete the DPI
in any particular way. According to SMS, disclosure of the best com parable contract discounts it gave to
private custom ers was acceptable because there are no specific instructions on how to com plete the form and
how to disclose discounts.
13

Darr Rep., ¶ 35.
8

If the contracting officer is unable to make a price reasonableness determination or
reach his or her negotiation objectives on the basis of the vendor’s DPI and the other
information mentioned above, he or she must seek clarification or additional disclosures
from the vendor.

48 C.F.R. § 15.403-3(a)(1).14

One way to obtain this additional

information is for the contracting officer to request the audit office to conduct an audit as
part of the price reasonableness analysis. Id. § 15.404-2(a), (c). In an audit, the VAOIG
auditor thoroughly reviews the vendor’s commercial discount and pricing data. He or she
can request the vendor to produce actual sales data or summaries of sales data, or
examine the vendor’s information on site.

Vendors are often required to provide

explanations for the transactions that exceed the discount offered the government.15 The
auditor then provides the contracting officer with a detailed report, which often includes
recommended negotiation terms.
During the time period in question, VA’s policy was to refer for audit responses to
a solicitation for a contract estimated at a value of at least $9 million. Consequently,
vendors knew that there would be an audit of the solicitation responses where the contract
exceeded $9 million. That is what happened here. The responses to VA’s solicitations in
2001 for ultrasound CME and in 2002 for CT and MR CME were audited, and SMS and
Acuson had received advance notice from VANAC that their solicitation responses would

14

Vendors seeking contracts for CME are exem pt from the requirem ent of providing certified cost or
pricing data, which is highly detailed data regarding the vendor’s costs and m argin. See 48 C.F.R. §§
15.402(a)(2),15.403-1(b), 15.403-3, 2.101. W hen cost or pricing data are required, the vendor m ust execute
a Certificate of Current Cost or Pricing Data. Id. § 15.406-2.
15

Darr Rep., ¶ 43.
9

be audited.16
The purpose of performing the price reasonableness analysis is “to develop a
negotiation position that permits the contracting officer and the [vendor] an opportunity to
reach agreement on a . . . price that is fair and reasonable to both the Government and the
[vendor].” 48 C.F.R. § 15.405(a), (b). The contracting officer’s objective is to get prices
and discounts that are “comparable” to the vendor’s best price.17
Before negotiating with the vendor, the contracting officer establishes objectives,
such as price, warranty terms and quality, to assist him or her in setting the government’s
initial negotiation position. 48 C.F.R. § 15.406-1. To establish these objectives, the
contracting officer analyzes the vendor’s DPI disclosures, clarifications and supplemental
submissions, and any OIG audit report. Id.
The contracting officer is vested with broad discretion to negotiate the terms of the
contract. 48 C.F.R. § 15.405 (“[T]he contracting officer is responsible for exercising the
requisite judgment needed to reach a negotiated settlement with the offeror and is solely
responsible for the final price agreement.”). Id. The ultimately agreed-upon price need not
be “within the contracting officer’s initial negotiation position.” Id. After analyzing and
weighing the available information regarding price and other factors, he or she makes a

16

See Def.’s ex. 26 (Dec. 1, 2000 em ail from Hibbits to Les Friend and Sam Patton) (stating that VA
“inform ed us that they will be auditing both [SMS and Acuson] in January or February” for the ultrasound
solicitation); Def.’s ex. 43 (Jan. 18, 2001 pre-award review letter from VAOIG to Acuson regarding ultrasound
CME solicitation response); Def.’s ex. 52 (Jan. 10, 2002 letter from VANAC to SMS, alerting SMS to opening
of CT/MR solicitation and stating that “[m ]ost of the expected offers will have to be subm itted for a preaward
audit”); Def.’s ex. 53 (Jan. 15, 2002 em ail from VA to SMS, Phillips and GE Corporation giving advance notice
of audit of responses to CT/MR CME solicitation because value of contract award estim ated to be m ore than
$9 m illion); Rel.’s ex. 76 (Apr. 25, 2002 pre-award review letter from VAOIG to SMS for CT/MR CME
solicitation response).
17

Regan Decl., ¶ 5.
10

final determination of whether the final negotiated price is fair and reasonable to the
government and the vendor, and whether to recommend that the contract be awarded. Id.
The contracting officer must document, in a Price Negotiation Memorandum, the principal
elements of the negotiated agreement, including the most significant factors upon which
the prenegotiation objectives and final negotiated agreement were based, and the source
and type of data used to support the price reasonableness determination. 48 C.F.R. §
15.406-3(a).
In determining “best value” at the transactional stage, VA considers each vendor’s
product price, past performance, product quality, availability of required features, reliability
of service, compliance with technical requirements and ability to meet delivery time
requirements.18
While many of these factors are also considered in a “price reasonableness”
determination, the primary differences between the two analyses are when the particular
determination is made and the type of competition the vendor faces.

A “price

reasonableness” determination is made at the first (qualifying) stage and sets a ceiling on
prices for various CME. The “best value” determination is made later, at the second
(transactional) stage when VA needs a particular item of CME. At the first stage, the
contracts are awarded non-competitively to multiple vendors, and the contract prices
ultimately awarded are based, in part, on information on the DPI about the vendor’s
commercial sales pricing.19 Other factors considered are the vendor’s catalog/price list; the

18

See Def.’s ex. 11 (CT/MR Contract) at Bates 000293; Def.’s ex. 9 (Acuson U/S Contract) at Bates
214707; Def.’s ex. 10 (NM Contract) at Bates 228532; Darr Rep., ¶ 32.
19

Regan Decl., ¶ 4.
11

vendor’s prior pricing; a comparison of proposed prices for the same or similar items
offered by other contractors, both in the current solicitation and in previous ones; market
research; delivery terms; warranty terms; and contract length.
At the second (transactional) stage, all of the vendors who were awarded an
umbrella contract compete with one another to make the actual sale to VA. At this stage,
the contracting officer knows what VA’s needs are, and can select the vendor that best
meets its needs in terms of price and other factors. Because the contracting officer is now
in a position to commit to purchase a certain quantity of CME in a finite amount of time, he
or she can negotiate for a price lower than the contract price.
Thomas seeks to ignore the government’s description of the contracting process,
both generally and specifically in this case. He contends that Regan’s declaration and the
government’s statement of interest based on the declaration are not admissible evidence
because they are documents written by lawyers with no personal knowledge of the
underlying facts in this case. He argues that the declaration is not based on personal
knowledge of the specific representations, negotiations or events in this particular case.
Yet, he concedes that Regan has personal knowledge about VA’s general practices and
negotiation objectives.20 Further, Thomas’s counsel stated at oral argument that “for the
purposes of this argument for summary judgment purposes, the Regan declaration is
information that I think Your Honor can include in your consideration.”21 Despite this
acknowledgment, Thomas did not depose Regan or any other official having knowledge

20

Rel.’s Supp’l Mem . of Law in Opp’n to SMS’s Mots. for Sum m . J., to Preclude Thom as’s Expert
Johnson and to Disqualify Thom as as a Relator (Doc. No. 138) at 10-12.
21

Tr. of Hr’g on Mot. for Sum m . J. (Aug. 27, 2013) (“MSJ Tr.”) at 35.
12

of the process and the contracts.
Regan’s declaration is admissible. She has the requisite personal knowledge. Her
job, both at the time the contracts at issue were audited and now, was and still is to
manage the auditors who conduct pre-award reviews of contract proposals submitted to
VA. When the CT/MR and Acuson ultrasound contracts were audited, she supervised or
managed the auditors of those proposals.22 Although the auditors must comply with the
law in carrying out their job responsibilities, Regan’s description of the process that the
auditors must follow in all direct delivery contracts for CME is a specific, not a generic, one.
Similarly, when she describes the audit process with respect to the specific CT/MR and
Acuson ultrasound audit, she refers to the actual, specific documents and reports produced
in each audit. See Regan Decl., ¶ 9 (referencing audit reports by date). Therefore, her
declaration was made with personal first-hand knowledge.
Thomas also argues that SMS’s expert, Nancy Darr, is not qualified to offer
testimony in this action. Darr worked in healthcare contracting at VA for twenty-three
years, including as a contracting officer and ultimately as Chief Operating Officer of
VANAC from 1993 to 1997.23 She opines that the DPI is ambiguous, subject to differing
interpretations, and does not specifically seek disclosure of the best transactional
discounts as opposed to the best contract discounts. Additionally, she opines that when
negotiating a contract award, the VA contracting officer takes into consideration that the

22

See Regan Decl., ¶¶ 2, 9; Rel.’s ex. 76 (Apr. 25, 2002 letter from VAOIG to SMS pertaining to the
start of the CT/MR audit, with Regan’s nam e listed as a “cc” recipient).
23

Darr Rep., ¶¶ 1-5. Darr was Senior VP for Contracting at Prem ier Purchasing Partners, a GPO,
from 1997 to 2000, and, since 2000, has, as part of her own consulting business, advised contractors on
preparing, negotiating, and adm inistering contracts with VA and other governm ent agencies. Id. ¶¶ 7-8.
13

government does not enter contracts under the same terms and conditions as commercial
customers, such as a commitment to purchase from a single vendor or for a minimum
volume or quantity, and that it is more costly to submit a proposal, and negotiate and
administer a contract with the government than with a private-sector customer.
Thomas contends that because Darr was no longer employed by VA at the time
SMS submitted proposals for the contracts at issue and never worked with DPI forms
“directly” while she was at VA, she is not qualified to testify as to any issues in this case.24
On the contrary, because Darr has more than twenty years of experience at VA, and was
head of VANAC, which entered into the contracts at issue in this case, she is competent
to testify about the general process of solicitation, negotiation and award of the type of
contracts in this case. She is also competent to give her opinion about what kind of
information vendors were required to disclose on the DPI, such as transactional versus
contractual discounts.
The Alleged Fraudulent Scheme
Thomas alleges that SMS was engaged in a “multi-tiered fraud.” He claims that
SMS, “[c]aught in a whirlpool of increasing discount pressure by its commercial customers,”
developed a system to sell its CME without constantly lowering its prices by “withholding
discounting and low price information from customers until absolutely forced to disclose
it, only then to rationalize why the newest lowest price was not available to the inquiring
customer for some fictional reason or other.”25

24

Darr Rep. ¶¶ 2-8, 35-40; Darr Dep. at 23-24, 93.

25

Rel.’s Resp. Br. at 2-3.
14

Specifically with respect to the government, Thomas alleges that SMS either hid its
lowest prices from the government, or, when “caught,” often “justified” those prices with
deceptive, after-the-fact “explanations” that were supposedly unique to the customer
receiving the lower price. When, in pre-award audits, the government attempted to “test
the candor of Siemens’ price disclosures,” SMS produced only select data that
“understated the scope and magnitude of its discounting.” Thomas further claims that
“through a process of repeated delays,” SMS “dragged out its compliance with Government
requests” for specific pieces of information, impeding the government’s ability to investigate
SMS’s disclosures.26
The Contracts at Issue
SMS argues that the only claims remaining in this action are based on three
contracts encompassing four modalities: (1) the 2001 ultrasound contract between Acuson
and VA (“2001 Acuson U/S Contract”)27 ; (2) the 2002 CT/MR contract between SMS and
VA (“2002 CT/MR Contract”);28 and (3) the 2003 nuclear medicine imaging contract
between SMS and VA (“2003 NM Contract”).29 Pointing to the ruling dismissing claims
relating to seventeen other contracts as inadequately pled, SMS contends that Thomas
may not now assert new claims based on those contracts that had not been identified in
the second amended complaint.
Thomas argues that there are three additional contracts at issue: (1) the 2001

26

Id. at 3.

27

Contract # V797P-6915a; Def.’s ex. 12.

28

Contract # V797P-6956a; Rel.’s ex. 35.

29

Contract # V797P-6964a; Rel.’s ex. 52.
15

ultrasound contract between SMS and VA (“2001 SMS U/S Contract”);30 (2) the 2002 multimodality contract between SMS and Defense Supply Center of Philadelphia
(“DSCP”)(“DSCP Contract”);31 and (3) the 2000 nuclear medicine imaging contract between
SMS and VA (“2000 SMS NM Contract”).32 He contends that these contracts were
“repackaged under the authorization of” the three contracts that SMS agrees are at issue.
Specifically, he contends the Acuson U/S Contract “novated” to SMS’s U/S Contract,
resulting in a “merger” of the two ultrasound contracts; and the DSCP contract was merely
an extension of the first three contracts because after they expired, VA continued to
purchase the same CME at the same discount rates under the DSCP contract.
What contracts are at issue is important because it determines what allegedly false
statements must be examined and the scope of any damages.
Background on the Contracts
The three contracts the parties agree are at issue are the 2001 Acuson U/S
Contract, the 2002 CT/MR Contract and the 2003 NM Contract (collectively, “agreed-upon
contracts”).
2001 Acuson U/S Contract
On October 23, 2000, VA issued a solicitation for ultrasound imaging equipment for
the contract period from the later of April 1, 2001 or the date of the award until March 31,
2002, with the option to renew the contract for two additional one-year periods. Priscilla

30

Contract # V797P-6908a; Rel.’s ex. 47.

31

Contract # SPO-200-02-D8314; Def.’s ex. 133. The DSCP is the procurem ent arm of the United
States Departm ent of Defense.
32

Contract # V797P-6881a; Def.’s ex. 134.
16

Ryland, who managed Acuson’s contracts with the government for ultrasound products,
submitted Acuson’s DPI response to this solicitation on December 19, 2000. VA issued
a pre-award audit engagement letter on January 18, 2001. The audit and negotiations
between Acuson and VA took place between January and April of 2001. Acuson submitted
an amended DPI on April 11, 2001, and the contract was awarded on May 2, 2001. The
final audit report was issued on July 10, 2001. This contract originally expired on April 1,
2002. By agreement, the contract was renewed twice for additional one-year periods,
extending the expiration date to March 31, 2004.33
2002 CT/MR Contract
SMS submitted its DPI response to this solicitation on April 9, 2002. VA issued a
pre-award audit engagement letter on April 25, 2002. The audit and negotiations between
SMS and VA took place between April and September of 2002. VAOIG issued a final audit
report on July 25, 2002.34 SMS submitted a revised DPI on August 15, 2002. The contract
was awarded on September 19, 2002. This contract originally expired on March 31, 2003.
By agreement, the expiration date was extended to March 31, 2005.
2003 NM Contract
SMS submitted its DPI response to the solicitation in January of 2003. The contract
was awarded on April 1, 2003 without an audit. Originally due to expire on March 31,
2004, it was extended to August 31, 2006.

33

Def.’s exs. 1, 50; Regan Decl., ¶ 9; Def.’s ex. 22 at Bates 000211132 (VAOIG Sem iannual Report
to Congress covering Apr. 1 - Sept. 30, 2001, listing final audit report date for Acuson ultrasound solicitation
as July 10, 2001).
34

Regan Decl., ¶ 9; Def.’s ex. 22 at Bates 000211327 (VAOIG Sem iannual Report to Congress
covering Apr. 1 - Sept. 30, 2002, listing final audit report date for SMS CT/MR solicitation as July 25, 2002).
17

Thomas contends that the 2001 SMS U/S Contract, the DSCP Contract and the
2000 SMS NM Contract are at issue. SMS argues that they are not.35 We agree with SMS
and now explain why they are not at issue.
2001 SMS U/S Contract
SMS’s DPI response to this solicitation was submitted on December 21, 2000. The
contract was awarded on March 5, 2001. The contract, originally set to expire on April 1,
2002, was extended to March 31, 2004.
Thomas argues that this contract between SMS and VA is at issue because the
Acuson U/S Contract – which is undisputedly at issue – was “merged” into the SMS U/S
Contract. He asserts that the Acuson U/S Contract “novated” to SMS’s U/S Contract after
Siemens acquired Acuson and Acuson changed its name to “Siemens Medical Solutions
USA, Inc.”
Thomas’s position is baseless. First, the acquisition of a company does not mean
the acquired company’s contracts automatically “merge” into the acquiring company’s
existing contracts. Second, it is not accurate that Acuson changed its name to Siemens.36
The document on which Thomas relies – an October 2001 letter from Kathy Sasala37 at
SMS – states that “our company name has officially been changed from Siemens Medical

35

The governm ent agrees with SMS that the agreed-upon contracts are the only ones at issue. See
Governm ent’s Statem ent of Interest (Doc. No. 124) at 3-4.
36

Even if Acuson had changed its nam e to Siem ens, that does not m ean its prior contracts “m erged”
into Siem ens’s contracts.
37

Sasala was a contract specialist in SMS’s Governm ent Accounts departm ent. See Rel.’s Resp.
Br. at 4 n.3.
18

Systems, Inc. to Siemens Medical Solutions USA, Inc.”38 There is no mention of a name
change from Acuson to Siemens.39 More importantly, Thomas offers no legal document
or filing with any governmental body confirming any name change. Third, the Acuson
ultrasound contract neither novated nor merged with the SMS ultrasound contract. There
is no writing demonstrating that there was a novation.
A “novation” is the “displacement and extinction of an existing valid contract” through
the “substitution [of it with] a valid new contract.” McCarl’s, Inc. v. Beaver Falls Mun. Auth.,
847 A.2d 180, 184 (Pa. Commw. Ct. 2004) (citation omitted); Refuse Mgmt. Sys., Inc. v.
Consol. Recycling and Transfer Sys., Inc., 671 A.2d 1140, 1145 (Pa. Super. Ct. 1996). In
other words, an old obligation or an original party is replaced by a new obligation or a new
party. Id. See also Black’s Law Dictionary 1091 (7th ed. 1999) (defining “novation” as the
“act of substituting for an old obligation a new one that either replaces an existing
obligation with a new obligation or replaces an original party with a new party”).
Additionally, for a novation to occur, both contracting parties must intend to extinguish their
obligations under original contract and assent to the substituted contract. McCarl’s, 847
A.2d at 184; Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 148 (3d Cir. 1999);
Publicker Indus., Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1071 (3d Cir. 1979).
Similarly, the FAR defines a “novation agreement” as:
a legal instrument . . . [e]xecuted by the (i) Contractor
(transferor); (ii) Successor in interest (transferee); and (iii)
Government; and (2) By which, among other things, the
transferor guarantees performance of the contract, the

38

Rel.’s ex. 73 (Oct. 26, 2001 SMS Response to DSCP Multi-Modality Solicitation).

39

Acuson becam e a division of Siem ens Medical Solutions USA in 2002. See Hibbits Dep. at 54-55.
19

transferee assumes all obligations under the contract, and the
Government recognizes the transfer of the contract and related
assets.
48 C.F.R. § 2.101. According to the FAR, there is no novation without a document creating
it.
In the two pieces of evidence Thomas points to in support of his novation argument
– a December 2002 letter from Jo Ann Brunetti40 and an August 2003 email written by
JoAnn Sweitzer41 – the only references to the term “novation” were fleeting remarks, having
no legal effect, in an internal email sent by a non-lawyer. They were not describing an
actual novation. An examination of both documents actually shows that the two contracts
did not merge or “novate.”
In the 2002 letter, Brunetti said:
As you know, Acuson was purchased by Siemens two years
ago. In that time, Acuson kept separate contracts from
Siemens. P.J. Ryland and myself were responsible for the
Government contracts for ultrasound. Now that we are fully
integrated with our Siemens counterparts, at contract renewal
it may be more logical to combine contracts. Currently, there
has been a change in responsibilities within our department.
Frank Biddlestone and JoAnn Sweitzer will be managing the
ultrasound contracts for the Government for both Siemens and
Acuson.42
The August 2003 email from Sweitzer stated:
You will note that there are two Ultrasound contracts. These

40

Rel.’s ex. 55 (Dec. 12, 2002 letter from Brunetti to Gross of VANAC). Brunetti and Priscilla (“P.J.”)
Ryland m anaged Acuson’s contracts with the governm ent for ultrasound products.
41
Rel.’s ex. 80 (Aug. 26, 2003 em ail from Sweitzer to Miller and Biddlestone). Sweitzer joined SMS
in 2002. Her duties included adm inistering the 2001 SMS U/S Contract, and later the 2001 Acuson U/S
Contract.
42

Rel.’s ex. 55.
20

will be combined into one contract when I submit our new
proposal in October. In the meantime . . . the VA contract
(797P6915a) is the former Acuson contract that we had
novated. Acuson did not have a contract in place with the
DSCP at the time that we had transferred responsibility, so we
introduced the Acuson products to our Multi-modality contract
with the DSCP. The other contract that we novated ownership
from Acuson is one with the Navy.43
Why Sweitzer, who was not speaking as an attorney or in a legal context, used the
word “novated” is unknown. Nor is there evidence to suggest what she understood the
term to mean. What is clear is that despite Sweitzer’s use of the word “novated,” neither
a novation nor a merger of the Acuson and SMS ultrasound contracts occurred. The
context of the rest of the language in the email and other undisputed evidence demonstrate
that there was no novation. In the two sentences preceding her reference to “novated,”
Sweitzer clearly states that two separate ultrasound contracts still existed. Additionally,
she has since clarified, in an affidavit, that VA did not want to combine the two contracts
and they remained separated “for the life of the contracts.”44
Because the Acuson and SMS U/S Contracts originated from the same VA
solicitation for ultrasound equipment (Solicitation No. M6-Q9-00), the two contracts ran
simultaneously. Both contracts’ original terms ended March 31, 2002, and both were
renewed for two additional one-year terms expiring on March 31, 2004. The SMS U/S
Contract had been awarded two months earlier than the Acuson U/S Contract.45 But, the
two contracts were negotiated by different employees from different divisions of SMS for

43

Rel.’s ex. 80.

44

Def.’s ex. 109 (Nov. 15, 2010 Sweitzer Decl.), ¶ 6.

45

Def.’s ex. 12; Rel.’s ex. 47.
21

different equipment: Ryland and Brunetti negotiated for Acuson; Sasala and Biddlestone,
for SMS.
Importantly, the two contracts continued to exist and operate independently of each
other and were administered separately until both expired in March of 2004.

This

separateness is confirmed by numerous undisputed sources:
!

A July 2004 list of SMS’s contracts shows two separate entries for the Acuson and
SMS U/S Contracts, and reflects that the contract periods for both contracts began
in 2001 and expired on March 31, 2004.46

!

SMS began to administer the Acuson U/S Contract more than six months after it
was awarded for the purpose of billing and receiving payment from the government.
It incurred no new legal obligations or liability by taking administrative responsibility
for the contract. See Modification of Acuson U/S Contract (“designat[ing] SMS,
effective as of January 1, 2002, to act as Acuson’s agent for the purposes of: billing
the government for its purchases of Acuson’s products under [the Acuson
ultrasound] Contract; and receiving payment for such purchases from the
Government. . . . Nothing in this designation shall give rise to any government
liability to SMS under the Contract.”).47

!

In the December, 2002 letter, Brunetti refers to the two contracts as continuing to
operate, but with new personnel at SMS assigned to manage them. Specifically,
she informs a VA contracting officer that she and Ryland would no longer be
“responsible for the Government contracts for ultrasound,” and instead, Biddlestone
and Sweitzer would manage all “ultrasound contracts” that the government has with
“both Siemens and Acuson.” 48

!

In that same letter, Brunetti suggests that “it may be more logical to combine
contracts” three months later “at contract renewal” time, which was April 1, 2003.
However, in an affidavit submitted in this case, Sweitzer confirms that VA did not
want to combine the two contracts and required that they remain separate until they
expired on March 31, 2004.49

46

Def.’s ex. 108 (July 21, 2004 SMS Spreadsheet of SMS contracts) at 9.

47

Def.’s ex. 106 (Aug. 13, 2002 Modification to Acuson U/S Contract).

48

Rel.’s ex. 55 (em phases added).

49

Def.’s ex. 109 (Nov. 15, 2010 Sweitzer Decl.), ¶ 6.
22

!

In the August 2003 email, Sweitzer states that “there are two ultrasound
contracts.”50

!

In that same email, Sweitzer states that the two ultrasound contracts “will be
combined into one contract when I submit our new proposal in October [2003].”
(emphases added). Because both ultrasound contracts were due to expire in March
of 2004, the “new proposal” to which Sweitzer refers is undoubtedly for a completely
new contract for ultrasound equipment with VA, not for combining the two thencurrent contracts.
In sum, the evidence does not prove a novation or merger of the two contracts.

Indeed, it proves the contrary. There was no substitution of an old obligation for a new one
or an old party for a new party. Although Brunetti suggested to VA in December of 2002
that the parties “combine” the two contracts as of April 2003, VA did not agree to combine
them. As late as August 26, 2003, Sweitzer confirmed that the two ultrasound contracts
remained separate. Consequently, without VA’s assent to novate the two contracts and
merge them, there could not have been a novation. Thus, because the 2001 Acuson U/S
Contract never legally merged into the 2001 SMS U/S Contract, the DPI form associated
with the former cannot provide a basis for a claim under the latter.
DSCP Contract
SMS submitted its response to the DSCP solicitation on October 30, 2000. The
contract was awarded on February 12, 2002. By agreement, the original expiration date
of February 11, 2003 was extended by four years to February 11, 2007.
Thomas contends that this DSCP contract is at issue because when the 2001
Acuson U/S, 2002 CT/MR and 2003 NM Contracts (the agreed-upon contracts) expired,
VA began purchasing the same CME that it had purchased under those three contracts

50

Rel.’s ex. 80.
23

solely under the DSCP contract. Asserting that “VA treated its own contracts and the
DSCP contract as interchangeable,” Thomas argues that the DSCP contract and the
agreed-upon VA contracts were “integrated” because the terms and conditions of the
expired contracts were applied to the DSCP contract.51
SMS argues that only the three agreed-upon contracts are at issue because false
claims based on all other contracts were dismissed. Additionally, although SMS concedes
that discounts offered to VA were “generally” the same as those offered to DSCP, it
disputes that the agreed-upon VA contracts were integrated into the DSCP contract. It
argues that VA never treated the contracts as “interchangeable” and the contracts were
never integrated. SMS points out that the DSCP Contract was negotiated and executed
by a different, separate federal agency (the Department of Defense), negotiations took
place before the 2002 CT/MR and 2003 NM Contracts were negotiated, and the DSCP and
VA contracts were administered independently of each other.
Thomas argues that even though he neither identified the DSCP contract nor
specified any false statements SMS had made in procuring it in his second amended
complaint, he is not precluded from asserting new claims based on this contract because
we did not specifically prohibit him from bringing claims based on it. In ruling on SMS’s
motion to dismiss, we examined allegations regarding SMS’s false statements made in the
procurement of the agreed-upon contracts, and we considered Thomas’s references to a
listing of numerous other contracts that we had presumed were listed in Exhibit 8 to the

51

Rel.’s Resp. Br. at 5-8 & n.11.
24

complaint.52 We held that merely listing a contract without specifying the false statements
that allegedly induced VA to enter into the contract lacked the requisite particularity to state
a false claim under the FCA. 708 F. Supp. 2d at 515. Thomas now argues that because
the “DSCP contract was not among the contracts listed on Exhibit 8 to Thomas’s Second
Amended Complaint that this Court ruled could not be pursued,” he is not precluded from
bringing a claim based on the DSCP contract, which was listed on Exhibit 3 to the
complaint.53
Thomas is correct that we did not expressly preclude him from presenting claims
based on contracts listed in Exhibit 3 to the second amended complaint and did not
specifically prohibit him from asserting claims based on the DSCP contract. At the motion
to dismiss stage, Thomas never referred to the DSCP contract and created the impression
that Exhibit 8 listed all seventeen additional contracts. Because his merely listing a
contract is insufficient to state a false claim under the FCA, and he did not specify any false
statements SMS allegedly made in procuring the DSCP contract, he cannot now bring a

52

See Opinion on Mot. to Dism iss, United States ex rel. Thomas v. Siemens AG, 708 F. Supp. 2d 505,
515 (E.D. Pa. 2010). W ithout identifying the specific exhibit num bers, SMS argued that there were a “dozen
or m ore contracts that appear in the Com plaint’s exhibits [that] m ust be dism issed for failure to allege with
particularity – indeed, to allege at all – a single false statem ent by SMS in connection with obtaining them .”
Doc. No. 32 at 27. In response, Thom as argued that the court could “infer that each of the contracts listed
in Exhibit 8 to the Com plaint are associated with a prior m isrepresentation.” Doc. No. 41 at 14. In its reply,
SMS referred to the “17 other contracts that are m erely listed in exhibits to the Com plaint.” SMS was correct
when it counted seventeen additional contracts listed in the two exhibits to the com plaint because Exhibit 8
refers to fourteen contracts other than the agreed-upon contracts, and Exhibit 3 refers to three additional
contracts, including the DSCP contract. But, because SMS did not identify the exhibits it m entioned, and
Thom as cited only “Exhibit 8” in its response, we presum ed that Exhibit 8 listed all seventeen of the additional
contracts. Thom as has now alerted us to the contents of Exhibit 3.
53

Rel.’s Resp. Br. at 5 n.6. Exhibit 3 lists the DSCP contract and two other contracts.
25

claim based on that contract because it was listed in a different exhibit.54
In order to bring a claim based on the DSCP contract, Thomas must prove that one
or more of the agreed-upon contracts novated into the DSCP contract. In support of his
position that the agreed-upon contracts became integrated with the DSCP contract, he
points to the following evidence. On September 22, 2004, approximately six months after
the Acuson and SMS U/S Contracts expired, DSCP wrote an amendment to its contract
with SMS giving VA authority to purchase CME off the DSCP contract.55 Ten months
before the DSCP contract was amended, the Acuson and SMS U/S Contracts were
amended, allowing DSCP authority to purchase ultrasound equipment under the VA
ultrasound contracts.56 Additionally, an SMS internal document listing its contracts reflects
that once the Acuson and SMS U/S Contracts expired on March 31, 2004, SMS should
“use DSCP contract” for selling ultrasound products to VA.57
Regarding the 2002 CT/MR contract, Thomas cites a 2005 letter from VANAC to
SMS sent shortly before the contract was set to expire on March 31, 2005. In the letter,
VA notified SMS that if VA received SMS’s DSCP contract by March 31, it would let the
CT/MR contract expire and then order CT/MR equipment off the DSCP contract. On the

54
Thom as also argues that because we allowed him to obtain discovery on the DSCP contract, we
im plicitly ruled that he m ay pursue claim s based on that contract. Allowing discovery on the contract is not
equivalent to allowing claim s based on that contract.
55

Rel.’s ex. 93. Specifically, the am endm ent states that “ordering authority is hereby granted to the
VA National Acquisition Center (VA-NAC), Hines, IL.” Id.
56

The proposed am endm ent to the Acuson and SMS VA ultrasound contracts, which VA subm itted
to Acuson and SMS on Nov. 21, 2003, and which Acuson signed on January 15, 2004, reads: “This
m odification adds DSCP to this contract and allows them to place orders on behalf of their custom ers.” Rel.’s
exs. 54, 56; Def.’s ex. 111.
57

Rel.’s ex. 78 at 9. See also Rel.’s ex. 95 (Sept. 21, 2005 em ail from Sweitzer) (“The [2001 Acuson
U/S Contract] expired. The only contract in place for acquisition of ultrasound orders is the DSCP contract.”).
26

other hand, if it did not receive the DSCP contract before the March 31 expiration date, VA
advised that it would extend the term of the CT/MR contract by one year to March 31,
2006.58
Thomas also points to the similarity of the terms and conditions applied to the CME
ordered under the DSCP contract to the terms and conditions applicable to the expired
ultrasound and CT/MR contracts. In its response to VA’s ultrasound solicitation and
DSCP’s multi-modality solicitation, SMS stated that its discount policy is to offer both
VANAC and DSCP “the same discounts for products under contract.”59 Similarly, SMS’s
manager of contract administration, Thomas Lengel, testified that discounts that had been
offered to VA were “generally the same as [those] offered on the DSCP contract.”60 In fact,
during negotiations for the DSCP contract, SMS increased the discount it offered DSCP
on two MR products from 33% and 34% to 35% “to be in line with” the discount negotiated
on a prior CT/MR contract with VA.61 Additionally, after the DSCP contract was awarded,
SMS expressed its willingness to provide DSCP with the same discounts on the same
products that it had negotiated with VA.62
We conclude that the agreed-upon VA contracts are separate from and never
merged with the DSCP contract. The amendment to the DSCP contract granting VA
authority to purchase off the DSCP contract the same modalities that it had purchased

58

Rel.’s ex. 34 (Feb. 28, 2005 letter from Harvey at VANAC to Sweitzer).

59

Rel.’s exs. 74, 81.

60

Lengel Dep. at 73-74; Decl. of Thom as Lengel (Rel.’s ex. 9), ¶ 1.

61

Rel.’s ex. 39 (Nov. 18, 2000 em ail to Sasala); Rel.’s ex. 88 at Bates 476862.

62

Rel.’s ex. 77 (Nov. 14, 2002 em ail from Sasala to Sweitzer).
27

under the VA contracts does not, by itself, amount to an extension or novation of the
expired VA contracts.
The DSCP contract was negotiated and executed by the procurement arm for the
Department of Defense. The three agreed-upon contracts were negotiated by VANAC, a
different federal agency. The solicitation forms, products, modalities, and contracting
officers who negotiated and awarded the DSCP contract were different from those
connected to the agreed-upon VA contracts. Because the parties to the contracts and the
negotiations leading up to the contract awards were different, and there is no evidence of
coordination, the contracts did not “merge” or become “integrated.”
Because the DSCP and VA contracts were negotiated at different times by different
parties and covered different products and modalities, and SMS submitted different
disclosures to different agencies, any reliance VANAC contracting officers had placed on
SMS’s disclosures cannot be imputed to DSCP’s contracting officers. Nor could SMS’s
“knowing” disclosure of false information to VA’s contracting officers be imputed to DSCP’s
contracting officers. The only way these elements could be imputed from one party to
another party and from one time period to another is if the DSCP contract was a novation
of, or substituted contract for, the other contracts. No novation of the three agreed-upon
contracts happened here. Thus, Thomas cannot prove that, in connection with the DSCP
contract, SMS knowingly made false statements to the government which were capable
of influencing the government’s funding decision and upon which the government relied.
As explained earlier, for a novation to occur, the new contract must be substituted
for an existing valid one. This can occur only when an old obligation is replaced by a new
obligation or an original party by a new party.
28

With respect to the DSCP contract, no new obligations or new parties replaced
existing ones. Just the opposite occurred. An amendment was made to the DSCP
contract between SMS and DSCP, not to the agreed-upon contracts between SMS and
VA. Specifically, on September 22, 2004, DSCP and SMS signed an amendment to the
contract between DSCP and SMS giving VA authority to purchase CME off the DSCP
contract. None of the obligations from the VA contracts, such as discount amount or terms
and conditions, were transferred or substituted by way of this amendment. Additionally,
because the agreed-upon contracts had expired, they were not valid, existing contracts at
the time they purportedly were “extended,” “novated,” or “integrated” into the DSCP
contract.
Thomas has not offered any evidence identifying what CME from the VA contracts
were available and at what price on the DSCP contract. He does not identify what the
actual prices on the DSCP contract were in comparison to the prices for the same CME
under the agreed-upon contracts. Although its practice was to offer VA and DSCP
discounts that were “generally the same” for the same CME, SMS was not required to give
DSCP the same discounts. SMS made a voluntary business decision to do so in most
cases. If anything, SMS lowered prices on CME on the DSCP contract to bring it down to
the levels of the VA contract pricing.63
Additionally, even if VA purchased the same CME off the DSCP contract at the
same prices that it had under the expired contracts, this does not constitute an extension
or integration of the old contracts into the DSCP contract, allowing Thomas to base an FCA

63

See Rel.’s exs. 39, 77.
29

claim on those purchases. Thomas’s fraudulent inducement claim is predicated on SMS’s
knowing misrepresentation of information to DSCP that was material to DSCP’s decision
to enter into its contracts on specific terms. There is insufficient evidence showing how
DSCP decided the pricing terms, including whether it relied on SMS’s allegedly fraudulent
disclosures, or that it would have not agreed to those terms had it known about SMS’s
alleged fraudulent disclosures in negotiating the agreed-upon VA contracts. If SMS’s
disclosures influenced VA’s contracting officers in negotiating pricing terms, it does not
mean they influenced DSCP’s contracting officers. Nor can SMS’s “knowing” disclosure
of false information to VA’s contracting officers be a “knowing” false disclosure to DSCP’s
contracting officers.
The only connection between the expired VA contracts and the DSCP contract
provided by the September 2004 amendment to the DSCP contract was that VA, a party
to the old contracts, was able to order CME off of the DSCP contract. Discounts offered
to VA were “generally” the same as those offered to DSCP. Thus, because no obligations
from the expired agreed-upon contracts were substituted, replaced or extended, the DSCP
contract is not an extension of the VA contracts.
Even assuming the VA and DSCP contracts were “integrated” and the VA contract
pricing was higher than the DSCP contract pricing, Thomas cannot recover damages on
the DSCP contract for the period of time before the CT/MR and NM contracts came into
existence. Thomas’s theory is that because SMS fraudulently induced VA to accept its
higher pricing on the three agreed-upon contracts, the fraud continued when VA continued
to pay the same higher prices when it began ordering off the DSCP contract. But, if the
fraudulently-induced prices did not yet exist because the DSCP contract was negotiated
30

before the CT/MR and NM contracts were negotiated, purchases off the DSCP contract
for that time period cannot be based on the fraud alleged here.
Similarly, as SMS aptly points out, if Thomas were permitted to bring claims based
on the DSCP contract, he would be precluded from seeking damages based on purchases
made under the DSCP contract before the VA contracts expired. Before the VA contracts
expired, they existed independently and simultaneously with the DSCP contract before any
“integration” could have occurred.
2000 SMS NM Contract
This nuclear medicine imaging contract was awarded to SMS on May 8, 2000 and
expired on March 31, 2001.
Even though Thomas does not assert that this contract is at issue, his expert
includes this contract in his damages calculation.64 SMS argues that Thomas should not
be permitted to claim damages arising under this contract because it was negotiated three
years earlier than the 2003 nuclear medicine imaging contract at issue. We agree.
In sum, the 2001 SMS U/S Contract, the DSCP Contract and the 2000 SMS NM
Contract are not at issue. The 2001 SMS U/S Contract is not at issue because the 2001
Acuson U/S Contract never merged or novated into it. Nor may Thomas pursue a claim
based on the DSCP Contract because the agreed-upon VA contracts were never
integrated or merged into it. Thomas may not claim damages arising under the 2000 SMS
NM Contract because it was negotiated three years earlier than the 2003 nuclear medicine
imaging contract at issue. Therefore, the only contracts that are at issue in this action are

64

Def.’s ex. 134 (2000 NM CME award); Expert Rep. of John Johnson (“Johnson Rep.”), ¶ 11 & n.5
(citing 2000 NM award).
31

the three “agreed-upon” VA contracts: the 2001 Acuson U/S Contract; the 2002 CT/MR
Contract; and the 2003 NM Contract.
Most-Favored Customer/Best Price Theory
In addition to his claim that SMS failed to disclose to the government the highest
discounts it was offering commercial customers, Thomas contends, for the first time in his
summary judgment papers, that SMS also had an obligation to give the government its
best discounts. Thomas bases this “best price” theory on: (1) SMS’s use of the term “mostfavored customer” in its correspondence to the government; and (2) references in SMS
internal emails, pre-award audit letters, and Senate testimony given in 2005 by a manager
of VAOIG indicating that the government should get the “best price.”
At oral argument, Thomas’s counsel backed off this theory, conceding that the
government is not entitled to the best price. He characterized “most-favored customer
status” as the “price that . . . Siemens was required to disclose – not give.”65 Additionally,
he agreed that the FAR requires a “fair and reasonable price,” which is different from
“most-favored customer” price.66 But, because Thomas argues at length in his summary
judgment response that SMS was obligated to give VA its “best price,” and his expert
assumed in his damages calculation that VA was entitled to the best price,67 we shall
address this argument.

65

MSJ Tr. at 81, 10.

66

Id. at 82. See also Rel.’s Supp’l Mem . of Law in Further Opp’n to Def.’s Mot. for Sum m . J. (Doc.
No. 157) (“Rel.’s Supp’l Mem . in Opp’n to MSJ”) at 3 n.2 (“[T]he governm ent is not necessarily entitled to
Siem ens’s best price. However, the governm ent is entitled to knowledge of, and Siem ens was required to
identify, the best price.”) (citing Regan Decl., ¶¶ 4-5).
67

See Johnson Dep. at 128-129.
32

Contrary to Thomas’s argument, SMS did not have an obligation to give the
government the highest discounts on the VA contracts at issue. First, “most-favored
customer” language does not appear in any contract or response to solicitation, but only
in cover-letters regarding delivery – not price – terms. Second, a “most-favored customer”
or “best price” has no place in a contract governed by the FAR, which sets a “fair and
reasonable” standard. Third, VA did not expect to receive “most-favored customer”
treatment.
“Most-Favored Customer” Language
Thomas argues that SMS “agreed to confer most-favored customer status on the
government,” and represented that “the government would enjoy most favored customer
pricing and discounts.”68 According to Thomas, “most-favored customer” means that the
vendor is committed to give the government the best price on any product, at any time, no
matter the terms and conditions of the sale. He contends that these representations
“became a contractual obligation by virtue of the incorporation of these representations into
Siemens’ contracts with the Government.”69
In supplemental briefing in opposition to SMS’s motion for summary judgment,
Thomas asserts that his “best price” theory is not based on SMS’s contractual obligation
to give the government its best price, but on its false promises to give the government its
best price for the purpose of inducing the government to award it contracts.70 Thomas’s

68

Rel.’s Resp. Br. at 10,11.

69

Id. at 11.

70

Rel.’s Supp’l Mem . of Law in Opp’n to SMS’s Motions for Sum m . J., to Preclude Thom as’s Expert
Johnson and to Disqualify Thom as as a Relator (Doc. No. 138) at 4.
33

counsel restated this position at oral argument when he said that SMS’s “most-favored
customer compliance promise was breached” after SMS had told VA that it would give it
SMS’s lowest price.71
In support of his contention that SMS was obligated to give the government its “best
price” based on its having granted VA “most-favored customer status,” Thomas points to
letters that SMS sent to VA and DSCP in conjunction with its response to government
solicitations and contract negotiations for various modalities of CME. Each of these letters
contains the following language:
Siemens is compliant with the Government’s Most-Favored
Customer Clause, and delivery for all items shall be 180 days
after receipt of order.72
This language appears under the heading “Equipment Delivery” in SMS’s initial response
to the government’s solicitation for CT/MR CME.73 In other letters enclosing SMS’s initial
responses to solicitations, this language pertaining to delivery terms appears on the cover
letter page with other administrative information about what is enclosed.74 In a letter that
reflects ongoing negotiations for the CT/MR contract, the following additional language
appears: “VANAC RESPONSE: will only accept 120 days after receipt of order. SIEMENS

71

MSJ Tr. at 54:3-6.

72

Only one letter – a response to a joint VA/DSCP solicitation sent in 2006 – does not refer to delivery
term s. See Rel.’s ex. 69 (June 22, 2006 letter from SMS to Harvey enclosing an initial response to a
com bined VA/DSCP solicitation stating that Siem ens is “com pliant with the G overnm ent’s Most-Favored
Custom er Clause”). Because the DSCP contract is not at issue, we need not address it.
73

See Rel.’s ex. 31 (Apr. 9, 2002 letter from Sasala to Harvey at VANAC in response to CT/MR
solicitation).
74

See Rel.’s ex. 50 (Dec. 20, 2000 letter from Sasala to Gross at VANAC in response to SMS U/S
Contract solicitation); Rel.’s ex. 53 (Oct. 25, 2002 letter from Sweitzer to Lee at VANAC in response to SMS
NM contract solicitation).
34

RESPONSE: Siemens will accept term of delivery 120 days.”75
Additionally, Thomas relies upon SMS’s December 10, 2001 response to the DSCP,
the procurement arm for the Department of Defense, not the VA, in connection with the
solicitation for the 2002 DSCP contract, where DSCP asked:
7. Please verify that DSCP is receiving your most favorite [sic]
price for similar guarantees and/or quantities.
SIEMENS RESPONSE: DSCP is receiving our most favored
pricing for like systems.76
SMS argues that the language “Siemens is compliant with the Government’s MostFavored Customer Clause” in the referenced cover letters does not mean that it is an
incorporated term of the contract imposing an obligation to give the government the highest
discounts. It points out that no “most-favored customer” clause appears in any of the
contracts at issue, nor in any other communications between SMS and VA. Additionally,
direct delivery contracts, like the contracts at issue, do not contain “most-favored customer”
clauses because such clauses are inconsistent with the FAR, where “fair and reasonable
price” is the standard. See 48 C.F.R. §§ 15.402, 403-3, 404-1(a)-(d), 405, 406-1.77
After the parties submitted their summary judgment briefs, the government filed a
declaration asserting that in direct delivery, multiple award contracts like the ones at issue,
vendors are not required to give the government the best price. They are only required to
identify “most-favored customer” pricing, or the best price, offered to customers. The
government explains that because VA direct delivery contracts are awarded non75

Rel.’s ex. 29 (Aug. 14, 2002 letter from Sasala to Harvey at VANAC regarding CT/MR solicitation).

76

Rel.’s ex. 92 (author is Sasala).

77

See also Darr Rep., ¶¶ 25-26, 46; Darr Dep. at 135-36, 145.
35

competitively to multiple vendors, VA contracting officers make “price reasonableness”
determinations by comparing the discounts the vendor offers its commercial customers to
the discounts being offered to VA. Consequently, vendors must disclose on their DPI
forms the best pricing they offer their commercial customers and state whether they are
offering VA this best price. Although vendors are required to disclose to VA their “mostfavored customer” pricing, “there is no law, regulation, or contract provision that requires
vendors to offer MFC [most-favored customer] pricing to VA.”78
SMS’s employee, JoAnn Sweitzer, explained that the “most-favored customer”
language in those cover letters was mistakenly included because it was copied from a
template of cover letters from expired contracts executed under a different contractual
scheme.79 There is no evidence that VA relied on this language or expected “most-favored
customer” prices. Indeed, the evidence is to the contrary.
The Summary of Award documents “incorporate” the cover letters into the
contracts.80 But, VA’s solicitation documents are also incorporated into the contracts.
These solicitation documents do not contain a “most-favored customer” clause because
such a standard is inconsistent with the “fair and reasonable price” standard in the
solicitation.81 Additionally, although the cover letter from SMS responding to the ultrasound

78

79

Regan Decl., ¶¶ 4-5.
Sweitzer Decl., ¶¶ 4-5.

80

See Rel.’s ex. 35 (CT/MR Contract Sum m ary of Award) at Bates 0001306 (“The following award
docum ents are incorporated as part of this contract: . . . cover letter dated 4/9/02. . . .”); Rel.’s ex. 52 (NM
Contract Sum m ary of Award) at Bates 214561; Def.’s ex. 12 (Acuson U/S Contract Sum m ary of Award) at
Bates 214619.
81

See, e.g., Def.’s ex. 10 (NM Contract Solicitation M6-Q7-02) at Bates 2228527, Part V, p. 44 (“The
offeror shall subm it . . . inform ation on prices at which the sam e item or sim ilar item s have previously been
sold in the com m ercial m arket that is adequate for evaluating the reasonableness of the price for this
36

solicitation stated that it was “compliant with the government’s most-favored customer
clause,” the cover letter from Acuson responding to the same solicitation did not. That the
same VA contracting officer authorized the award of the ultrasound contract to Acuson
without the phrase is additional evidence that the inclusion of the phrase in the cover letter
was not a necessary condition for granting the award.
Importantly, SMS uses the “most-favored customer” language in the context of
describing delivery terms or administrative matters. It does not relate to pricing of CME.
SMS’s statement in response to the 2002 DSCP solicitation that “DSCP is receiving
our most favored pricing for like systems” applied to a contract that is not at issue. It did
not apply to the contracts in dispute.
Because the language in the cover letters states that SMS is compliant with a clause
that is not included in any contract document, including any other communications between
SMS and VA, and because direct delivery contracts do not contain “most-favored
customer” clauses, the “most-favored customer” language in the letters sent with the
responses to the contract solicitations at issue did not impose an obligation on SMS to give
VA the “best price.” Furthermore, because the contracts were negotiated under the FAR,
which does not use the “most-favored customer” standard, the contracting officers could
not have been misled by the mention of “most-favored customer” in communications
regarding delivery terms.
“Best Price” Language
Thomas also claims that SMS employees “understood their obligation to accord the

acquisition.”).
37

Government the best price.”82 According to him, this understanding, right or wrong, bound
SMS to give its best price. He also argues that because the government expressed its
“concern that it receive the best price,” both during the pre-award audits and in Senate
testimony given in 2005 by a VAOIG manager, SMS knew it had the obligation to give the
government its best price.83
He points to statements made by SMS personnel as evidence that SMS believed
that the government should get the “best price.” First, Thomas cites a December 10, 2001
response from SMS to DSCP in connection with the solicitation for the DSCP contract.
DSCP’s question and SMS’s response were as follows:
6. Please state if your commercial market receives volume
discounts and how the government’s discount compares
(better/worse and why).
SIEMENS RESPONSE: All volume discounts for Siemens
commercial customers are on a site specific basis so no
comparisons can be made. Government always receives best
pricing in like systems.84
This statement does not apply here. It was submitted in response to the solicitation
for the DSCP contract, which is not at issue.
Second, Thomas also relies on three internal SMS documents in support of his “best
price” claim. The first, a November 2005 email between SMS division managers, states
that “[VA] should be at the best price compared to pricing offered other customers.”85 The

82

Rel.’s Resp. Br. at 12.

83

Id.

84

Rel.’s ex. 92.

85

Rel.’s ex. 79.
38

second, an October 2007 internal email written by SMS’s VP National Accounts, states:
“[W]e have to protect our govt pricing. We have proposed a discount structure that would
step off of the govt pricing.”86 Thomas contends that an unspecified “failed audit set in
motion” this proposal for “corrective price changes.”87 The third document is a Power Point
slide from 2008, which states: “Government ALWAYS gets lowest price” and “Government
NEVER pays more than a commercial customer.”88
All three documents were created in, and pertain to, the period from 2005 to 2008,
after the relevant time period in this case. More importantly, none of them demonstrates
that SMS had a “contractual obligation” or was “contractually bound” to give the
government the best price. They were not representations made to the government. At
most, they reveal SMS’s policy or business decision – not its obligation – to give the
government the lowest price.
In support of his argument that the government communicated to SMS its “concern
that it receive the best price,” Thomas relies on two types of evidence. He cites the
language in the pre-award audit letters for the Acuson ultrasound audit and the SMS
CT/MR audit, in which VAOIG stated that the primary purpose of the audit was to
determine whether the “proposed prices and discounts were equal to or better than those
offered to the offeror’s most-favored customers.”89 Additionally, he refers to testimony
given by VAOIG Director of Contract Review in 2005 before a Senate subcommittee that

86

Rel.’s ex. 84.

87

Rel.’s Resp. Br. at 30-31.

88

Rel.’s ex. 45 at Bates 00062512.

89

Rel.’s exs. 60, 76.
39

the goal of pre- and post-award audits of Federal Supply Schedule (“FSS”) contracts is “to
ensure the Government receives the best possible prices,” and to “evaluate the CSP
[Commercial Sales Practices] information provided by the vendor and determine whether
offered prices are fair and reasonable.”90
Neither the pre-award audit letters nor the Senate testimony supports Thomas’s
theory that the government communicated to SMS that it had, or knew it had, an obligation
to give the government the best price. The language Thomas cites from the pre-award
audit letters refers to the government’s inquiry about the discounts vendors were giving
their commercial customers. It does not impose an obligation on the vendor to offer the
government that price.
The cited Senate testimony does not support the notion that SMS had an obligation
to give VA the best price or that VA was entitled to the best price. Rather, it supports what
SMS acknowledges is the standard – the government determines whether the prices
offered are “fair and reasonable,” and strives to get the best possible price for itself, taking
into consideration factors other than price.91
90

Rel.’s ex. 100 at 2, 3.

91

There are additional reasons this Senate testim ony does not support Thom as’s position. First, it
was given after the relevant tim e period applicable to this action. More im portantly, it refers to FSS contracts,
not direct delivery contracts. FSS contracts work differently than direct delivery contracts. FSS contracts are
m anaged by the General Services Adm inistration (“GSA”). These schedules enable federal agencies to place
purchase orders directly with com m ercial entities under blanket term s and conditions previously negotiated
by the GSA. 48 C.F.R. §§ 8.402(a), 38.101(a); Feldm an, Steven, Government Contract Awards; Negotiation
and Sealed Bidding, Thom son Reuters (2011), § 23:5 at 1103. Only certain elem ents of FSS contracts are
governed by the FAR. The requirem ents of the FAR apply to the solicitation and award of the prim e FSS
contracts. Feldm an, § 23:6. However, the FAR does not apply to blanket purchase agreem ents or orders
placed against FSS contracts. 48 C.F.R. §§ 8.404(a), (d) (“GSA has already determ ined the prices of supplies
. . . under schedule contracts to be fair and reasonable. Therefore, ordering activities are not required to m ake
a separate determ ination of fair and reasonable pricing.”) Additionally, FSS contracts are subject to price
reductions after the governm ent awards a contract if the vendor reduces its catalog prices or increases
discounts given a com m ercial custom er upon which the governm ent contract was based. 48 C.F.R. §§
538.270, 272; 552.238-75. In contrast, the direct delivery VA contracts do not require vendors to offer price
40

The application of Thomas’s “best price” theory underscores its flaws. The vendor
is already required to disclose its best price, which is the price the government would get
under his theory. In his scheme, there would be no room for negotiations. In this case,
SMS disclosed to VA numerous discounts it was giving to non-governmental customers
that were greater than the discounts it was offering VA, negotiations ensued, and VA
accepted SMS’s lower discount offer. The negotiations involved numerous terms of the
contract, not just price. The price may have been adjusted by more favorable other terms,
such as delivery time, quality of product, and customized product features. In other words,
VA did not insist on receiving a greater discount. If it had been entitled to or promised the
“best price,” VA would have awarded the contract based on SMS’s highest commercial
discount without engaging in any negotiations.

Why would VA have gone through

negotiations and accepted less than the lowest price if there was a best price obligation or
promise? That VA awarded a contract based on the lower, offered discount demonstrates
that SMS did not have a contractual obligation to give the government the best price.92
Thomas undercuts his “best price” theory when he asserts in a later filing that his

reductions during the term of the contract. Regan Decl., ¶ 6. Finally, the VANAC adm inisters FSS contracts
for the procurem ent of pharm aceuticals and other healthcare products and services, not high-cost CME. Darr
Rep., ¶ 20.
92

In any event, even if we accepted Thom as’s “best price” theory that SMS had a duty to both disclose
and offer the governm ent its best price in like system s, this would affect only his claim for dam ages, not
liability. W e have concluded, and SMS concedes, that SMS had a duty to disclose its best prices in like
system s. If SMS failed to m eet that disclosure requirem ent, it could be liable under the FCA. To determ ine
dam ages, Thom as would have to show what price the governm ent would have negotiated had SMS disclosed
its best prices.
If we accepted Thom as’s theory that SMS also had a duty to offer the governm ent its best price,
Thom as would not be required to show what price the governm ent would have negotiated had SMS properly
disclosed the pricing inform ation. In that case, VA would have been entitled to the best prices SMS had given
to its non-governm ental custom ers, and dam ages would be based on the difference between the best prices
and the actual prices SMS charged VA. Thus, his “best price” theory would be relevant only with respect to
calculating VA’s dam ages.
41

theory is not in fact based on SMS’s contractual obligation to give VA its best price, but on
the premise that SMS used the promise of giving VA its best price to induce the
government to award it contracts. Changing course, Thomas appears to abandon his
previous argument that the “most-favored customer” language in cover letters contractually
bound SMS to offer the government its best price. His recent theory, like his earlier one,
fails to take into account that no matter what price SMS offered, VA was always entitled
to know the best price SMS gave to its commercial customers. Thus, according to both
SMS and Thomas, SMS could be held liable under a fraudulent inducement theory for
failing to disclose its best price.
We conclude that although it was required to disclose to VA the highest contract
discounts that it gave to private customers, SMS had no obligation to offer VA the “best
price” or greatest discount given to any customer. Thus, liability based on a best price or
most-favored customer theory fails.
Summary Judgment Standard
Summary judgment is appropriate if the movant shows “that there is no genuine
dispute as to any material fact and that the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). Judgment will be entered against a party who fails to
sufficiently establish any element essential to that party’s case and who bears the ultimate
burden of proof at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In
examining the motion, we must draw all reasonable inferences in the nonmovant’s favor.
InterVest, Inc. v. Bloomberg, L.P., 340 F.3d 144, 159-60 (3d Cir. 2003).
The initial burden of demonstrating there are no genuine issues of material fact falls
on the moving party. Fed. R. Civ. P. 56(a). Once the moving party has met its burden, the
42

nonmoving party must counter with “‘specific facts showing that there is a genuine issue
for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)
(citation omitted). The nonmovant must show more than the “mere existence of a scintilla
of evidence” for elements on which she bears the burden of production. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Bare assertions, conclusory allegations or
suspicions are not sufficient to defeat summary judgment. Fireman’s Ins. Co. v. DuFresne,
676 F.2d 965, 969 (3d Cir. 1982). Thus, “[w]here the record taken as a whole could not
lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for
trial.’” Matsushita, 475 U.S. at 587 (citation omitted).
Meaning of “False Claim” Under the FCA
Thomas asserts claims93 under two provisions of the FCA: section 3729(a)(1),
knowingly presenting a false or fraudulent claim for payment or approval to the
government; and section 3729(a)(2), knowingly making a false record or statement to get
a false or fraudulent claim paid or approved by the government.94
To establish a prima facie case under the FCA, the relator must prove that the
defendant made or submitted a materially false statement or claim to the government, and
the defendant knew the statement or claim was false or fraudulent. United States ex rel.
Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103, 109 (3d Cir. 2007); Harrison v.
Westinghouse Savannah River Co. (“Harrison I”), 176 F.3d 776, 788 (4th Cir. 1999). To

93

In the second am ended com plaint, Thom as asserted a claim under § 3729(a)(7), known as a
“reverse false claim ,” and a claim under § 3729(a)(3), alleging that SMS and its parent com pany conspired
to defraud the governm ent by getting a false or fraudulent claim allowed or paid. W e dism issed both of those
claim s. 708 F. Supp. 2d at 515 & n.8.
94

31 U.S.C. §§ 3729(a)(1)-(2) (2003).
43

constitute a “claim” under the Act, the fraudulent statement or action must “have the
purpose and effect of causing the government to pay out money.” Hutchins v. Wilentz,
Goldman & Spitzer, 253 F.3d 176, 183 (3d Cir. 2001) (citation omitted).
This is not a typical false claims action where the defendant is alleged to have given
an inaccurate description of goods or services provided, or requested reimbursement for
goods or services not provided. Indeed, Thomas acknowledges that on invoices to VA for
payment for CME, SMS neither misidentified the CME actually provided to VA nor billed
VA for equipment not supplied. Instead, Thomas pursues a fraudulent inducement theory,
alleging that SMS made false representations and omitted pertinent information that
fraudulently induced the government to enter into the contracts at issue.
A relator may bring an action under the FCA based on invoices submitted to the
government which are deemed false claims because they were for payment pursuant to
contracts that were fraudulently induced.95 The legislative history of the 1986 amendments
to the FCA reveals that Congress recognized this type of claim. S. Rep. No. 99-345, at 9
(1986), reprinted in 1986 U.S.C.C.A.N. at 5266, 5274 (“[E]ach and every claim submitted
under a contract, loan guarantee, or other agreement which was originally obtained by
means of false statements or other corrupt or fraudulent conduct, . . . constitutes a false
claim.”) (emphasis added)). Both prior to and since the FCA was amended in 1986,
numerous courts have acknowledged this type of FCA claim. See, e.g., United States v.
Veneziale, 268 F.2d 504, 505 (3d Cir. 1959) (“[A] fraudulently induced contract may create
liability under the False Claims Act when that contract later results in payment thereunder

95

MSJ Tr. at 65:24-66:5) (relator’s counsel acknowledging standard).
44

by the government. . . .”) (citing United States ex rel. Marcus v. Hess, 317 U.S. 537, 54344 (1943)); United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1173 (9th
Cir. 2006) (“liability will attach to each claim submitted to the government under a contract,
when the contract . . . was originally obtained through false statements or fraudulent
conduct”); United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d
1321, 1326 (D.C. Cir. 2005) (“[C]ourts have employed a ‘fraud-in-the-inducement’ theory
to establish liability under the Act for each claim submitted to the Government under a
contract which was procured by fraud, even in the absence of evidence that the claims
were fraudulent in themselves.”) (citation omitted); United States ex rel. Longhi v. Lithium
Power Techs., Inc., 575 F.3d 458, 467-68 (5th Cir. 2009) (where a contract was procured
by fraud, even when subsequent claims for payment under the contract were not literally
false, they became actionable FCA claims because they “derived from the original
fraudulent misrepresentation”); Harrison I, 176 F.3d at 787-88 (surveying the case law on
fraud-in-the-inducement FCA liability and holding that liability extends to claims made
pursuant to a contract that was obtained through false statements or conduct even if “the
claims that were submitted were not in and of themselves false” because of the “fraud
surrounding the efforts to obtain the contract”); Wilson v. Kellogg Brown & Root, Inc., 525
F.3d 370, 376 (4th Cir. 2008) (recognizing a fraudulent inducement claim under the FCA
based on obtaining a government contract through false statements) (citing Harrison I, 176
F.3d at 787).
To survive summary judgment, Thomas must show that there are genuine issues
of material fact regarding whether SMS made knowingly false statements or omissions.
If he does, then he must demonstrate that there are factual disputes about the materiality
45

of those statements and omissions, and whether they induced the government to enter into
the contracts with SMS.
To establish knowledge under the FCA, a relator must prove that the defendant
acted with actual knowledge, deliberate ignorance, or reckless disregard of the truth or
falsity of information. Hefner, 495 F.3d at 109 (quoting 31 U.S.C. § 3729(b)). Specific
intent to defraud is not required. Id. Yet, Congress has expressed “‘its intention that the
[A]ct not punish honest mistakes or incorrect claims submitted through mere negligence.’”
Id. (quoting United States ex rel. Hochman v. Nackman, 145 F.3d 1069, 1073 (9th
Cir.1998).

Without more than a relator’s subjective interpretation of an imprecise

contractual provision, a defendant’s reasonable interpretation of its legal obligation
precludes a finding that the defendant had knowledge of its falsity. United States ex rel.
K & R Ltd. P’ship v. Mass. Hous. Fin. Agency, 530 F.3d 980, 983-84 (D.C. Cir. 2008);
Wilson, 525 F.3d at 378; United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013,
1018 (7th Cir. 1999). Further, if the defendant knew that despite the government’s
awareness of the statement’s falsity it “was willing to pay anyway,” the defendant “cannot
be said to have knowingly presented a fraudulent or false claim.” United States v.
Southland Mgmt. Corp., 326 F.3d 669, 682 (5th Cir. 2003) (concurring opinion); United
States ex rel. Marquis v. Northrop Grumman Corp., No. 09-7704, 2013 WL 951095, at *2
(N.D. Ill. Mar. 12, 2013) (“[T]he Government’s knowledge and approval of the particulars
of a claim for payment before that claim is presented . . . effectively negates the fraud or
falsity required by the FCA.”) (citation omitted); United States v. Bollinger Shipyards, Inc.,
No. 12-920, 2013 WL 393037, at *6 (E.D. La. Jan. 30, 2013) (where government alleged
the defendant knowingly misled the Coast Guard to enter into a contract for the
46

lengthening of the Coast Guard cutters by falsifying data relating to the structural strength
of the converted vessels, a “fraud in the inducement theory . . . misses the mark” where
“the government acknowledges that it knew” about the design specifications the defendant
proposed to use to construct a vessel and proceeded with the contract with that
understanding); United States Dep’t of Transp. ex rel. Arnold v. CMC Eng’g, Inc., No. 031580, 2013 WL 2318813, at *7 (W.D. Pa. May 28, 2013) (“‘when the government knows
and approves of the facts underlying an allegedly false claim prior to presentment, an
inference arises that the claim was not knowingly submitted, regardless of whether the
claim itself is actually false.’”) (citation omitted)).
“[The FCA] was not intended to impose liability for every false statement made to
the government.” Hutchins, 253 F.3d at 184 (citation omitted). The statute “‘is only
intended to cover instances of fraud that might result in financial loss to the Government.’”
United States ex rel. Sanders v. American-Amicable Life Ins. Co. of Texas, 545 F.3d 256,
259 (3d Cir. 2008) (quoting Hutchins, 253 F.3d at 183). Thus, there is liability under the
FCA only for fraudulent activity or claims that “‘cause or would cause economic loss to the
government.’” Id. (quoting Hutchins, 253 F.3d at 179).
A statement or omission is material if it has a “‘natural tendency to influence or [was]
capable of influencing the government’s funding decision.’” See, e.g., United States ex rel.
A+ Homecare, Inc. v. Medshares Mgmt. Grp., Inc., 400 F.3d 428, 445 (6th Cir. 2005)
(citation omitted); United States ex rel. Berge v. Bd. of Trs. of the Univ. of Ala., 104 F.3d
1453, 1459 (4th Cir. 1997). The materiality inquiry “‘focuses on the potential effect of the
false statement when it was made, not on its actual effect when it is discovered.’” A+
Homecare, 400 F.3d at 445 (quoting United States ex rel. Harrison v. Westinghouse
47

Savannah River Co., 352 F.3d 908, 916-17 (4th Cir. 2003) (“Harrison II”)); Longhi, 575 F.3d
at 458 (to be material, the false or fraudulent statements need only have the “potential to
influence the government’s decisions.”). Additionally, omitted information that a defendant
had no obligation to disclose cannot be deemed material. Berge, 104 F.3d at 1461 (4th
Cir. 1997) (“There can only be liability under the [FCA] where the defendant has an
obligation to disclose the omitted information.”) (citation omitted).

Thus, to survive

summary judgment on materiality, Thomas must point to information omitted from the DPI
that was capable of influencing VA in the negotiations and award of the contracts at issue.
To prevail under his fraudulent inducement theory, Thomas must prove not only that
the omitted information was material but also that the government was induced by, or
relied on, the fraudulent statement or omission when it awarded the contract. Hess, 317
U.S. at 543-44. In essence, the essential element of inducement or reliance is one of
causation. Thomas must show that the false statements upon which VA relied, assuming
he establishes that it did, caused VA to award the contract at the rate that it did.
In Hess, an FCA fraudulent inducement claim was established because the federal
government would not have approved funding payments to the defendant electrical
contractors pursuant to contracts they obtained with local municipalities had its agents
known that the defendants obtained the contracts through fraudulent collusive bid-rigging.
The Supreme Court held that because the contracts were awarded “as the result of the
fraudulent bidding,” the defendants “caused the government to pay claims” that were false.
Id. at 543 (emphasis added). In other words, to establish FCA liability for fraudulent
inducement, the false statement must have “caused” or “induced” the government to enter
into a contract, such that but for the misrepresentation, the government would not have
48

awarded the contract and would not have paid the claim. Harrison I,176 F.3d at 794
(relator stated claim for fraud-in-the-inducement where he alleged the defendant made
intentional misrepresentations to the government about matters material to the
government’s decision to grant a subcontract, and these false statements caused the
government to pay “claims” at a higher cost than it would have paid absent the fraud);
Veneziale, 268 F.2d at 506 (“The [FCA] claim before us now is certainly ‘grounded in fraud’
in that a fraudulent misrepresentation induced the government to assume the obligation
which it has had to perform.”); United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d
456, 461 (5th Cir. 1977) (to prove the defendant made a false claim by misrepresenting its
qualifications for government employment, relator had to “demonstrate that the government
was misled” by defendant’s misrepresentation of its qualifications on its application and
hired defendant on that basis).
Once it is determined that a contract has been procured by fraud, then each claim
– though not false on its face – that is submitted under the falsely procured contract
constitutes a false claim. As stated in Hess, once it was shown that the government
entered into the contract “because of” the collusive bidding, the:
fraud did not spend itself with the execution of the contract. Its
taint entered into every swollen estimate which was the basic
cause for payment of every dollar paid by the [Public Works
Administration] into the joint fund for the benefit of
respondents. The initial fraudulent action and every step
thereafter taken, pressed ever to the ultimate goal – payment
of government money to persons who had caused it to be
defrauded.
Id. at 543-44.
Thomas argues that he need not prove that the government relied on the statement

49

because the inducement or reliance element is duplicative of the materiality element. He
states that it “would serve no purpose to require a relator to show that a statement has a
natural tendency to influence or was capable of influencing the government if the relator
also had to prove the government was in fact induced to act. The cases under the FCA
don’t require that.”96 He further argues that all he must show to make out a fraudulent
inducement claim is that the defendant misrepresented pricing information to the
government. He contends that once a misrepresentation is shown, “as a matter of law,
there is a causal connection between [SMS’s] failure to provide [pricing] information and
the resulting transaction.”97 Citing Hess, he argues that if there is fraud in just one stage
of the contracting process, this causes a “taint” to enter into every subsequent part of the
process, such that the “initial fraudulent action and every step thereafter taken” are
reachable under the FCA.”98
Thomas is correct that in a typical FCA case, such as one based on government
payment for goods or services not provided, there is no reliance or inducement
requirement. In those cases, the “submitter of a ‘false claim’ or ‘statement’ is liable for a
civil penalty, regardless of whether the submission of the claim actually causes the
government any damages; even if the claim is rejected, its very submission is a basis for
liability.” Bettis, 393 F.3d at 1326 (citation omitted). But, for a claim based on the
fraudulent inducement of a contract, a plaintiff is also required to show that the government

96

Rel.’s Resp. Br. at 46.

97

MSJ Tr. at 54-56. See also MSJ Tr. at 47, 89, 90 (“[A]ttem pted fraud is as wrongful as
accom plished fraud . . . . W e subm it that the plaintiff . . . is not required to prove that the governm ent was
defrauded to m ake out a false claim . Sim ply subm itting a false statem ent . . . without paym ent is sufficient.”).
98

Rel.’s Supp’l Mem . in Opp’n to MSJ at 2-3.
50

relied on, or was induced by, a material false statement in deciding to award a contract.
Consequently, a defendant in a fraudulent inducement case is liable for each claim
submitted to the government under the contract only if that contract was procured by fraud.
Bettis, 393 F.3d at 1326.

See also S. Rep. No. 99-345, at 9, reprinted in 1986

U.S.C.C.A.N. at 5274 (“each and every claim submitted under a contract . . . which was
originally obtained by means of false statements . . . constitutes a false claim”) (emphasis
added).
As the Hess Court explained, FCA liability based on facially true claims submitted
under the contract was predicated on the threshold showing that collusive bidding caused
the government to award the contract. 317 U.S. at 543. Only then could the “taint” of the
initial fraudulent action reach every subsequent claim submitted under the contract. Thus,
before Thomas can claim that any purchase made pursuant to the contracts at issue
constituted a false claim, he must first show that fraudulent statements made by SMS
induced the government to enter into a contract that it would not have entered into but for
the misrepresentations.
Requiring reliance in a fraudulent inducement case makes sense. In a typical FCA
claim, the rationale for finding liability even in the absence of the government’s actual loss
of funds is that the FCA covers all fraudulent attempts to cause the government to pay
money. United States ex rel. Quinn v. Omnicare, Inc., 382 F.3d 432, 438 (3d Cir. 2004)
(citing Harrison I, 176 F.3d at 788); United States v. Neifert-White Co., 390 U.S. 228, 232
(1968). A claim for payment that is false on its face is a classic example of an attempt to
cause the government to pay money based on false pretenses. In contrast, in a fraudulent
inducement case each claim for payment is not false on its face. The liability in that
51

instance attaches to the “facially true” claim for payment because it “derived from the
original fraudulent misrepresentation.” Longhi, 575 F.3d at 467-68. If a false statement
did not actually cause the government to award the contract, then the claims paid under
the contract did not derive from an original fraudulent misrepresentation. A false statement
made in the process of procuring a contract is not the same as a false claim for payment
submitted to the government.

Thus, the FCA requires the plaintiff in a fraudulent

inducement case to establish that the decision to award a contract was actually, not just
potentially, based on a false statement.
Put another way, in an ordinary FCA case, a defendant who has merely attempted
to obtain payment from the government by submitting a claim containing a materially false
statement will be held liable under the FCA, even if the government rejects the claim and
pays out no money. In contrast, in a fraudulent inducement case, a defendant who
attempts to induce a contract award by making a materially false statement will not be held
liable for making a false claim unless the government relied on and was induced by the
false statement to award the contract. An attempted fraud is not enough - it must be an
accomplished fraud.
In summary, materiality and inducement are separate and distinct elements.
Proving materiality does not prove inducement or reliance. Even if the false statement is
material, there is no violation unless the government relied on it. Thus, Thomas must
prove both materiality and inducement to make out a fraudulent inducement claim under
the FCA.
Thomas relies on United Stated ex rel. Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir.
2009), and United States v. Eghbal, 475 F. Supp. 2d 1008 (C.D. Cal. 2007), as supporting
52

his argument that he need not prove that VA was actually misled by SMS’s statements or
omissions. The Grubbs and the Eghbal cases do not support his position. Grubbs is not
a fraudulent inducement case. It involved a typical false claim scenario where the
defendants allegedly submitted requests for payment to Medicare for services that had not
been rendered. The court stated that the “complaint need not allege that the Government
relied on or was damaged by the false claim” because the FCA “exposes even
unsuccessful false claims to liability.” 565 F.3d at 189. This statement is accurate with
respect to non-fraudulent inducement cases.
Eghbal is a false certification case99 that involved the Department of Housing and
Urban Development’s (“HUD”) insuring lenders against loss on mortgage loans made to
eligible home buyers. In the event the borrower defaulted and the lender foreclosed, the
lender could submit a claim to HUD for the balance due on the loan. Because HUD would
not insure a loan for a home for which the down payment had been paid by the seller, the
seller had to sign a certification that he had not contributed to any of the down payment.
The defendants were real estate investors who sold properties to borrowers who received

99

Recently, Thom as asserted that standards from a false certification claim apply to this case. See
Relator’s Identification of False Statem ents by Def. (“Rel.’s ID of False Statem ents”) (Doc. No. 154), ¶ B.1
(stating that SMS falsely certified com pliance with the governm ent’s requirem ent to certify that all statem ents
m ade by it in its offers were “current, com plete and accurate”); MSJ Tr. at 14, 93 (“The governm ent has been
cheated because a false certification was given to it . . . . These defendants have certified that their
inform ation is accurate, com plete and they have offered -- they have disclosed inform ation. Those are
certifications as well.”).
This is not a false certification case. Vendors seeking contracts for CME are exem pt from the
requirem ent of providing certified cost or pricing data. See 48 C.F.R. §§ 15.402(a)(2),15.403-1(b), 15.403-3,
2.101(b). For the sam e reasons the standards for a typical FCA claim do not apply to a fraudulent inducem ent
case, the standards for a false certification claim do not apply to this case. In a false certification case, an
actionable certification is a “condition of paym ent,” satisfying the requisite nexus between the false statem ent
and false claim . See United States ex rel. W ilkins v. United Health Grp., Inc., 659 F.3d 295, 309 (3d Cir. 2011)
(“[U]nder a false certification theory, either express or im plied, a plaintiff m ust show that com pliance with the
regulation which the defendant allegedly violated was a condition of paym ent from the Governm ent.”).
53

HUD-insured mortgage loans. The defendants signed false certifications stating that they
had not contributed to any of the down payments when in fact they had. Id. at 1010-11.
Although the court stated that “[r]eliance is not an element necessary to establish FCA
liability,” id. at 1013, n.7, it stated that the government still had to prove that it “would not
have guaranteed the loan ‘but for’ the false statement [that the sellers had not contributed
to any of the down payment].” Id. at 1014 (citations omitted). The court held that the
government had to prove that the false statement actually affected its decision to provide
the insurance. Thus, although the court did not use the term “reliance,” it concluded that
the government had to prove that it had been misled by the defendant’s false statement.
Finally, in addition to proving that SMS knowingly made a materially false statement
that induced the government to award it a contract, in order to prevail on his claims under
the FCA and recover damages, Thomas must show loss causation. He must establish that
VA suffered damages because of SMS’s false or fraudulent conduct. See Longhi, 575
F.3d at 467 (the fraud must have caused the government to pay out money that it
otherwise would not have paid); United States ex rel. Purcell v. MWI Corp., 824 F. Supp.
2d 12, 16 (D.D.C. 2011) (“damages are measured as the difference between what the
government actually paid and what the government would have paid had it known of the
falsity of the defendant’s claim”) (citing United States ex rel. Schwedt v. Planning Research
Corp., 59 F.3d 196, 200 (D.C. Cir. 1995)).
SMS contends that Thomas must show both that a false statement or omission
caused VA to award a contract at an inflated price and the contract price caused the
invoices at the point of sale to be inflated. It argues that Thomas has no evidence that the
government could or would have negotiated a higher contract discount had it seen the
54

higher discounts that SMS purportedly omitted from its DPI forms and audit disclosures.
It further asserts that because the government had an opportunity to negotiate additional,
greater discounts at the transactional stage when purchasing an actual item of CME, and
most, if not all, of the transactions had higher discounts than the contract rate, Thomas
cannot show a causal link between the contract price and the final, actual price VA
separately negotiated at the transactional level for each purchase order.

Because

individualized “best value” determinations determined the final prices for CME for each
transaction, SMS contends that this is an intervening factor that breaks the chain of
causation from a false statement to the ultimate claim for payment.100
Thomas contends that competitive negotiation at the transactional level does not
cure SMS’s fraud. He argues that the “lower discounts in the contracts tainted the
negotiated prices at the transaction level,” and that one cannot determine what the best
value at the transactional stage would have been because the price arrived at in the first
stage was higher than it should have been.100 He argues that if the government “knew the
floor in the first stage,” there is more room to negotiate in the second stage. He claims that
when SMS submitted an invoice for payment at the transactional stage, the price on that
invoice was “infected” by the price that was obtained at step one of the process. He can
prove the “infection” if the false statement pertains to price, because any statement
regarding price has a natural tendency to mislead.101
Because a “best value” analysis, which the government applies at the transactional
100

Def.’s Br. in Support of MSJ at 23-24; MSJ Tr. at 8-9.

100

Rel.’s Supp’l Mem . in Opp’n to MSJ at 2-4.

101

MSJ Tr. at 11, 13, 18, 32, 53-54, 58, 65, 72, 77-78.
55

stage, necessarily starts from the contract price, it is possible that if a contract award
contains lower discounts than the government would have obtained absent the fraud, this
could affect the final, negotiated transactional price. However, before reaching this issue,
Thomas must show that a knowingly false, material statement or omission caused VA to
award a contract with a lower discount than it otherwise would have obtained.
Specific Schemes and False Statements
Thomas alleges that in its DPI responses to VA solicitations for capital medical
equipment contracts and in its responses to the audits of those solicitation responses, SMS
made false representations by omitting greater discounts it had given to non-governmental
customers. He contends that SMS was required to disclose on its DPI forms all discounts
it gave to non-governmental customers, including discounts given at the transactional
level.102 More specifically, he contends that SMS failed to disclose discounts it had given
Broadlane and other GPOs that were greater than what SMS had stated on the DPI forms;
and it failed to disclose its highest discounts in the course of an audit. He also alleges that
in its effort to deceive the government, SMS failed to identify and produce several contracts
it had with Broadlane.
SMS’s Alleged Schemes
Thomas alleges that SMS tried to hide information about higher discounts it had
given to non-governmental customers by “engag[ing] in a studied practice of trip, stumble
and delay in responding to the Government’s inquiries regarding the sale of CME to

102

MSJ Tr. at 51-52, 72; Rel.’s Supp’l Mem . in Opp’n to MSJ at 1 & n.1.
56

commercial customers.”103 As evidence of this deception, he points to what he contends
is SMS employees’ awareness that their “lack of candor” in dealing with the government
“exposed them to risk.”104
Thomas contends that once “caught” and forced to disclose the higher discounts
during the audit process, both Acuson and SMS employed a scheme using pretextual
codes in sales data to falsely justify, often after the fact, why the discounts to commercial
customers were greater than those being offered to the government. At Acuson, the
scheme used “Y Codes.” At SMS, the vehicle was called “justifications.”
Thomas also alleges that SMS falsely induced the government to enter into these
contracts by calling the government its “most favored customer” and falsely promising to
give the government its “best price.” He asserts that his “best price” theory is not based
on SMS’s contractual obligation to give the government its best price, but on its false
promise to give the government its best price in order to induce the government to award
it contracts.
SMS counters that there are no facts from which one could reasonably infer that
SMS knowingly submitted any false statements to the government. It contends that the
undisputed facts show that the DPI did not have an unambiguous plain meaning and that
VA accepted multiple interpretations of the disclosures required and did not require SMS,
Acuson or any other vendor to complete the DPI in any particular manner. SMS argues
that it completed the DPI with its understanding that the DPI required disclosure of the

103

Rel.’s Resp. Br. at 19 n.30.

104

Id. at 20.
57

highest comparable contractual discounts, while Acuson interpreted the DPI as requiring
disclosure of the highest comparable transactional discounts.105 According to SMS,
disclosure of the best comparable contract discounts it gave to private customers was
acceptable because there were no specific instructions on how to complete the form and
to disclose discounts.
SMS explains that discounts given as part of group buys, which SMS entered into
with Broadlane and other GPOs, are not comparable to the contractual or transactional
discounts negotiated with the government and other non-GPO purchasers. Group buys
are a means of aggregating buyers of CME in order to secure higher discounts from a
vendor. These arrangements involve a commitment to buy off of a limited list of specific,
fixed-configuration packages of CME at a set price in a short period of time. They often
include sole-source agreements, obilgating all of the GPO’s members to purchase covered
equipment solely from that vendor within a period of time, and “committed” or “compliant”
agreements, requiring members to purchase a minimum volume of equipment or a certain
percentage of their buying needs from a single vendor. SMS’s transaction costs and risks
for the sale of CME offered in a group buy are lower than those for the sale of CME to the
government. First, because there is only one stage of price negotiation for a group buy as
compared to the two-tier negotiation process when selling CME to the government, SMS
spends less time negotiating for a sale. This also reduces SMS’s risks of losing the sale
because it does not need negotiate again at a transactional stage. Second, because the
group buy aggregates buyers, SMS does not have to negotiate each configuration and its

105

For an explanation of the difference between contractual and transactional discounts, see the
section on the contracting process, supra at 7-8 & n.12.
58

respective price with each individual buyer, also resulting in less negotiation time. Third,
because a Group Buy is limited to a discrete number of system configurations, there is
more certainty and predictability in the production process, reducing the cost of
manufacturing. Finally, IDIQ contracts never impose a quantity commitment and are in
effect for a longer period of time than group buys.106
SMS adds that because VA never informed SMS that it was completing the DPI
incorrectly and still awarded it the three contracts after two full audits and one full review
of its disclosures, incorporating the final DPI submission into the respective contracts, SMS
could not have known that its DPI was false or incorrect. In other words, having learned
during the audits how SMS treated the discounts for disclosure purposes, VA implicitly
accepted SMS’s interpretation of the DPI requirements.
SMS also contests each alleged false statement or omission that Thomas alleges
was made. Alternatively, it argues that even if there is a factual issue as to the truth or
falsity of any statements made or omitted, Thomas has not proffered sufficient evidence
to show that any of the statements or omissions was material to VA’s decision to award the
contracts or that VA relied on, or was misled by, the purportedly missing or false
information. Put another way, it contends that Thomas was required, but failed, to produce
affirmative evidence to show that SMS’s alleged promises to give the government the “best
price” and its omissions of higher discounts actually induced VA to award the contracts at
issue.
SMS argues that Thomas has introduced no evidence, fact or expert, showing that

106

SMS’s Statem ent of Undisputed Facts, ¶¶ 22-23, 78, 101.
59

any purported false statements or omissions caused VA to enter into the contracts at
inflated prices. Nor has he produced evidence that the contracts resulted in inflated prices
at the point of sale of CME. VA applied an individualized “best value” determination when
it separately negotiated the price on each CME purchase after the contract was awarded,
that is, at the second tier, transactional stage. A “best value” determination involves
consideration of many factors other than contract price. SMS contends that VA actually
received discounts on CME that were greater than those in the contract. Because Thomas
did not take discovery of the government on the relationship between the alleged false
statements and the prices that the government would have negotiated had VA had the
correct information, SMS contends that he has not met his burden to show loss causation.
Scheme to Withhold Damaging Information from the Government
In support of his allegation that SMS tried to keep damaging information about SMS
from the government, Thomas points to two emails VAOIG sent to SMS in connection with
two audits – one of the CT/MR contract and the other of a contract not at issue – and an
email string between SMS employees regarding production of documents in connection
with an audit of another contract not at issue. In the first email from VAOIG, sent on May
13, 2002 in connection with a solicitation not at issue (No. M6-Q1-01), Brenda Lindsey, a
management analyst at VAOIG’s Office of Contract Review, stated that she was “still
awaiting the spreadsheet with the explanations for those discounts that are higher than
what is offered to the government.”107 In VAOIG’s second email, sent on June 26, 2002,
Brenda Palmatier, another management analyst at VAOIG’s Office of Contract Review,

107

Rel.’s ex. 75.
60

noted that SMS had missed several deadlines for producing sales data in connection with
the CT/MR pre-award audit.108 In the email string between Kathy Sasala and Les Friend,
SMS employees,109 Sasala wrote that she did not want to spoil the birthday of another
employee because VAOIG told her that if required, it would obtain a “friendly subpoena”
in order to get copies of SMS’s contracts with GPOs. Friend’s initial response was: “Kathy
you are going to love Leavenworth.”110
The emails from VAOIG show nothing more than a delay in responding. They do
not establish, directly or indirectly, that SMS concealed or ultimately failed to produce
information about CME sales. Nor is there any evidence that SMS withheld information
from the government that was material to its decision to award a contract that it otherwise
would not have awarded. The emails between Sasala and Friend were comments about
documents pertaining to an X-Ray equipment audit of a proposal for a contract that is not
at issue.
Indeed, it is undisputed that SMS sought to comply with VAOIG’s request for
information. Friend directed Sasala to provide copies of the GPO contracts to VAOIG, with
confidential names redacted, obviating the need for VAOIG to have to issue a “friendly
subpoena.” Thus, any implication that SMS withheld the requested information is not
supported by any evidence, direct or indirect.

108

Rel.’s ex. 63.

109

Sasala was a contract specialist in SMS’s governm ent accounts departm ent, and Friend was a vice
president for SMS’s Southeast region. See Rel.’s Resp. Br. at 4 n.3. and 20 n.31.
110

Rel.’s ex. 87.
61

Y Codes Scheme
According to Thomas, “Y Codes” were pretextual codes used by Acuson in its sales
data to justify higher discounts given to certain customers rather than others, especially the
government.111 They were used to explain why the higher discounts were given to those
other customers by fabricating qualifying conditions to justify the difference. Thomas
alleges that the use of Y Codes was SMS’s “primary device to explain away the greater
discounts accorded commercial customers (versus the government).”112
In the 1990's, Acuson faced “enormous pricing pressure” from the prevalence of
discounting and increases in discount rates by competitors.113 Thomas contends that, on
one hand, sales representatives were motivated to book as much sales revenue as
possible without regard to profit margin and, on the other hand, management wanted to
control discounts to improve profit margins. One way to minimize discounts was to prevent
customers, especially the government, from learning about higher discounts given to other
customers.114
To support his Y Codes theory, Thomas relies on the following: (1) his own affidavit;
(2) the Declaration of Don Birdsey, who, from 1989 to 2001, was a sales representative
and regional sales manager for the sale of ultrasound equipment, first at Acuson and then

111

Thom as alleges that SMS continued Acuson’s practice of using Y Codes by em ploying
“justifications” in its sales data.
112

Rel.’s Resp. Br. at 23 (citing Thom as Aff., ¶ 20 and Birdsey Decl.); Rel.’s ID of False Statem ents,

¶ C.1.
113
Hibbits, who was Director of National Accounts at Acuson, testified that the reason for the
“enorm ous am ount of pricing pressure” was that Acuson’s ultrasound system cost two to three tim es m ore
than other system s because it was the first com puterized system in the industry. Hibbits dep. at 140-41, 163.
114

Rel.’s Resp. Br. at 8-10; Rel.’s ID of False Statem ents, ¶ C.2.
62

at SMS; (3) the deposition testimony of Victoria Hibbits, a former Acuson employee; and
(4) a fax from Ralph Gross.115
According to Birdsey, in order to “make the sale,” he and other salespersons were
giving higher discounts to large commercial customers than to the government. Hibbits
instructed them to use Y codes at Acuson, called “justifications” at SMS, to conceal from
the government that private customers were getting better pricing. Sales personnel were
directed – often after a sale was finalized and the equipment had been delivered – to ask
Acuson’s “Quote Department” to “create another, backdated quote . . . that would include
a specified ‘Y code.’”115 Neither the sales quote nor the terms of sale were changed.
Rather, according to Thomas, the Y Code was a false explanation for why the discount was
given in order to rationalize why it was higher than that given the government. Often the
customer receiving the discount was not aware of the stated reason or justification for the
discount. Additionally, Acuson sales personnel were instructed to use Y Codes more often
in anticipation of and in connection with government audits.116
Hibbits and Bertrand, SMS’s 30(b)(6) witness, explained the evolution of Acuson’s
use of Y Codes. The practice was developed to explain to a third-party information vendor,
MD Buyline, why the terms and conditions for CME sales to commercial and noncommercial customers were not identical. Third-party information vendors, like MD
Buyline, provide to its subscribers, individual hospitals, information needed to purchase
medical equipment meeting the buyer’s particular technical, clinical, economic and other
115

Birdsey Decl. (Nov. 4, 2010); Thom as Aff. (Nov. 4, 2010), ¶ 20; Rel.’s ex. 57.

115

Birdsey Decl., ¶¶ 1, 4-8.

116

Id.; Thom as Aff., ¶¶ 6-7, 9-10.
63

requirements at the best price. In exchange for its services, MD Buyline required its clients
to provide it with the quote and final purchase order with respect to each purchase of CME.
MD Buyline compiled and sold this data.117
MD Buyline sold Acuson’s and other vendors’ transaction data, listing each vendor’s
last thirty transactions, including the discounts given. The highest discount listed became
“the new floor” price which MD Buyline would recommend that its clients demand from that
seller. In earlier years, the listing did not account for variables that affected the size of the
discounts. The reported prices did not explain why one customer was given a higher
discount on the same or similar equipment than that given to another customer. For
example, some of the discounts were given due to trade-ins, different number of systems
purchased, promotionals, fourth quarter opportunities and luminary sites.118
Acuson asked MD Buyline to stop reporting pricing information without sufficient
detail to distinguish one discount from another. By late 1991, MD Buyline agreed to report
why certain discounts were given as long as Acuson better detailed its transactions.
Consequently, Acuson developed Y Codes in order to give MD Buyline more detailed
pricing information to better understand Acuson’s various discounts.119
Y Codes identified the different types of customers and defined the differences
between the terms of the various transactions. Eventually, they were used for both
commercial and government accounts. According to Thomas and Birdsey, the Y Code

117

Hibbits dep. at 138-48; Bertrand dep. at 58-60, 442-43.

118

A “lum inary” is willing to discuss and recom m end the CME to other purchasers at trade shows or
educational program s. Rel.’s ex. 41; Hibbits dep. at 108.
119

Hibbits dep. at 138-48; Bertrand dep. at 58-60, 442-43.
64

system was used later at SMS, where they were called “justifications.”120 Not every
transaction received a Y Code.121
Thomas acknowledges that there is “nothing inherently improper about creating a
system to categorize discount levels based on legitimate reasons” or “anything inherently
wrong with having justifications for giving discounts.”122 Indeed, he himself had provided
Y Codes for many transactions. He claims that when he did, he honestly believed that the
customer deserved that particular discount based on a specified Y Code category.123
Acuson used the following Y Codes to identify discounts: (1) Volume - purchasing
more than one product and/or system; (2) Committed Compliance - large number of
hospitals and facilities within a single medical system committed to buying the CME; (3)
Group Buy - leader of an affiliation of hospitals enters into a contract with a CME
manufacturer, which allows the affiliated hospitals to buy CME at discounted prices “loosely
based on the terms negotiated at the group buy”; (4) Demonstration Site - customer agrees
to provide on-site demonstrations for potential customers to observe how to use the
equipment; (5) Customer Referral Site (Luminary) - large, nationally recognized customers
with clinical expertise willing to discuss and recommend the CME to other at trade shows
or educational programs; (6) Image Acquisition Site - customers willing to produce images
from their use of an imaging product and allow Acuson to use them in their marketing and
120

Birdsey Decl., ¶¶ 3-4, 9. Although SMS agrees that it provided post-sale explanations to the
governm ent regarding the basis for discounts given on various transactions, it does not agree that they were
ever called “justifications.” Bertrand dep. at 66-68, 434, 442-43; Hibbits dep. at 137-38; 148-51.
121

Hibbits dep. at 108, 149. See also Hibbits dep. at 96-98, 108, 138-51; Bertrand dep. at 58-59, 6568, 434, 436-37, 442-43.
122

Thom as’s Resp. to SMS’s Statem ent of Undisputed Facts, ¶ 20.1; Thom as dep. at 115-16.

123

Thom as dep. at 174-75, 117.
65

educational materials; (7) Educational Site - customers providing seminars on site to train
physicians how to use CME; (8) R&D Site - customer does a clinical trial on site and
provides feedback to seller on product; (9) Extended Warranty and Service Options; (10)
Trade-ins and Used Equipment; (11) Promotions; (12) Fourth Quarter Opportunities; (13)
Payment of Administrative Fees.124
Thomas admits that while at Acuson, he offered customers discounts based on the
first nine of these Y Codes, and that competitors in the industry offered discounts on the
same basis.125 He considers these legitimate reasons for giving an additional or higher
discount. He concedes that based on these Y Code categories, commercial customers
frequently received legitimately larger or additional discounts that reduced a product’s price
to below the price offered the government.126
Thomas acknowledges that he had occasionally “inadvertently neglected” to provide
a Y Code for a transaction. Yet, he argues it is improper to correct an incomplete and
misleading record of the transaction at a later time. He inexplicably claims it was wrong
for the Quote Department to require him to provide a proper Y Code after the sale had
been finalized, even where he had failed to provide one when he should have.127 At the
same time, he incongruently concedes that if the government requested an after-the-fact
justification for the higher discount, there would be “nothing inherently wrong with”

124

Rel.’s ex. 41 (list of Y Codes); Rel.’s ex. 37 (list of “Sales Category Definitions” for different
discounts); Hibbits dep. at 143, 148-50.
125

Thom as dep. at 93-108, 280-82.

126

Thom as dep. at 147-48.

127

Thom as dep. at 174-76.
66

supplying a Y Code for that transaction.128
Nevertheless, despite his current position, Thomas admits having provided post-sale
justifications for commercial transactions that received discounts higher than offered the
government and other commercial customers. For example, in 2004, Thomas and Larry
Hedgepeth were tasked with providing MD Buyline with actual post-sale explanations for
certain high discounts SMS had provided to MD Buyline members. Specifically, Thomas
had to determine whether discounts SMS had previously given to certain members of MD
Buyline were justifiably higher than discounts being offered later to other MD Buyline
members.129 Thomas provides no explanation for his conflicting opinions.
In support of his allegation that Y Codes were pretextual, post-sale explanations for
giving non-governmental customers higher discounts, Thomas points to two circumstances
where, in his view, employees of Acuson and SMS were unable to come up with a
legitimate Y Code or justification for the higher discount. Specifically, he contends that in
October of 2004, Kristy Carpenter, National Accounts Manager for SMS’s Acuson Division,
told Thomas that she was involved in a VA audit of the Division’s ultrasound equipment
sales and that she was “hard-pressed to explain to the government why over 85% of the
division’s sales to private customers contained discounts that exceeded those given to the
government.”130 She told him she was “using the usual Y Codes” to explain the higher
discounts.131

128

Thom as dep. at 152-53.

129

Def.’s ex. 5 (Aug. 13, 2004 em ail from Larry Hedgepeth); Thom as dep. at 682-83.

130

Thom as Aff., ¶ 20.

131

Id.; Rel.’s Rep. Br. at 16.
67

Even if Carpenter’s statements related to a contract at issue, they do not show that
Acuson made any false statements. Just because Carpenter may have been “hard
pressed to explain” the higher discounts does not mean that there was no valid explanation
for them. Nor does her “using the usual Y Codes” mean that they did not apply to each
transaction to which she assigned them. Nothing in her comments can be construed as
meaning that the codes did not accurately and truthfully explain the reason for each higher
discount.
The second circumstance Thomas cites is in connection with the 2002 CT/MR audit,
where, in response to VA’s request for commercial CT transaction sales data, an SMS
employee told another employee that he “would not be able to prove special conditions for
every order.”132 SMS argues that this statement made by one SMS employee does not
show that another SMS employee would not be able to provide the special condition for
each order, or that a special condition did not exist for every order.
This communication between two SMS employees does not prove that the discounts
were unjustified or inexplicable. The employee was directed to examine notes on the
purchase order in SMS’s SAP data system to find the explanation for the discounts. He
was not instructed to fabricate reasons for them. Additionally, there is no evidence that the
information was not ultimately located and provided. Finally, there is no evidence that the
codes used were fabrications.
SMS’s Alleged False Statements
We shall now address each of the false statements that Thomas alleges SMS and

132

Rel.’s ex. 64 (July 3, 2002 em ail string between Arne Grafweg and Les Friend); Rel.’s ID of False
Statem ents, ¶ C.3.
68

Acuson made in violation of the FCA.
False Statements on the DPI and in the
Pre-Award Audit for the Acuson Ultrasound Solicitation133
Thomas contends that VAOIG’s questioning several of Acuson’s explanations for
higher discounts given to certain customers in the course of the Acuson ultrasound audit
proves that Y Code justifications were pretextual. He points to the DPI for the ultrasound
solicitation in which Acuson offered VA a 43% discount on Sequoia and Aspen ultrasound
equipment.134 Acuson reported on the DPI that, except for Kaiser and Tenet, Acuson did
not “have in effect, for any customer or any class, discounts . . . which result in lower net
prices than those offered the Government in this offer.”135 When the transactional data
produced in the audit showed that Acuson had given discounts on Sequoia equipment
ranging from 45% to 56%, and discounts on Aspen equipment ranging from 45% to 59%,
VAOIG asked Acuson to provide it with reasons for the discrepancies between those
discount levels and the 43% offered VA. Acuson’s explanation was that those customers
who had received the higher discounts were participating in a “Partnership Program” with
Acuson, such as agreeing to be a demonstration, customer referral, image acquisition or
educational site.136

133

Rel.’s Resp. Br. at 26-27; Relator’s ID of False Statem ents, ¶¶ A.4, A.5, C.

134

Def.’s ex. 29 at Bates 217239.

135

Id. at Bates 217240.

136

Rel.’s ex. 57 (April 10, 2001 Fax from Ralph Gross to P.J. Ryland enclosing draft VAOIG report)
at Bates 214638-69. Also in connection with the Acuson ultrasound audit, a few weeks earlier VA had asked
Acuson to explain why Educational Institutions were receiving a 48% quantity discount – which Acuson listed
on page 4 of its DPI – and how VA could be eligible for this higher discount. Acuson responded by explaining
that these custom ers agreed to be a dem onstration, custom er referral, im age acquisition or educational site.
See Def.’s exs. 29, 38, 39.
69

VAOIG then sought to conduct a survey of ten commercial customers who received
higher discounts, contacting four of them. Representatives of all four customers told
VAOIG that they had not signed an agreement to be part of any “partnership” program with
Acuson and had not yet performed any tasks necessary to be part of the program. Two
denied any awareness of being in the partnership program at all.137
In its draft audit report, VAOIG concluded: “We believe that the programs mentioned
above are sales strategies to increase the sales officials’ accounts. . . . Based on our
conversations with the [four] customers, we concluded that they were not performing any
duties that would make them non-comparable to the Government.”138
The undisputed evidence demonstrates that VA could not have been misled by
Acuson’s allegedly inadequate disclosures in the DPI and the pre-award audit. The issues
were fully reviewed by and resolved with the VA contracting officer prior to the contract
award and after accepting Acuson’s revised disclosures, which Thomas does not contend
were deficient or false. On April 10, 2001, Ralph Gross, the VA contracting officer, faxed
excerpts of VAOIG’s draft audit report to Ryland, who managed Acuson’s contracts with
the government for ultrasound products and submitted Acuson’s DPI response to VA’s
ultrasound solicitation. Gross characterized the auditor’s findings as determining that the
“Discount and Pricing Information [on] page 3 was not accurate[,] complete or current.”139
He then noted that Acuson gave several commercial customers discounts as high as 56%
on Sequoia products and 59% on Aspen products, as compared to the 43% discount
137

Rel.’s ex. 57 at Bates 214639.

138

Id.

139

Id. at Bates 214637 (em phasis in original).
70

offered VA. He referred Ryland to the auditor’s response to Acuson’s rationale for giving
higher discounts to commercial customers.140
In the same fax, using the information in the draft audit report, Gross then
negotiated with Ryland. Gross demanded greater discounts, stating: “Taking the middle
of the discounts offered [to Acuson’s commercial customers and the government, VA]
needs to have the discounts for Sequoia increased to 48% and the Aspen to 50%.”141 The
next day, Acuson submitted an amended DPI, this time offering a 48% discount on both
Sequoia and Aspen systems. Three weeks later, as a result of the negotiations, VA
awarded Acuson the ultrasound contract, with the 48% discount on both the Sequoia and
Aspen systems.142
When informed of VAOIG’s findings about Acuson’s commercial customers’ denial
of participation in the partnership programs, Acuson disputed VAOIG’s conclusions. It
explained to VAOIG that it had contacted the wrong people at the four customer sites.
Acuson gave VAOIG different contact information identifying people at each customer site
who were familiar with the company’s participation in the partnership programs.143
Whether VAOIG contacted the four commercial customers using the new contact
information is not relevant to our inquiry. If VAOIG contacted the four persons identified
by SMS, it either did or did not confirm that the customers participated in the partnership

140

Id.

141

Id.

142
Def.’s ex. 47 (April 11, 2001 letter from P.J. Ryland to Ralph Gross enclosing am ended Acuson
ultrasound DPI); Def.’s ex. 19 (am ended Acuson ultrasound DPI); Def.’s ex. 12 (2001 Acuson Ultrasound
Contract Award).
143

Hibbits dep. at 157, 162-63; Bertrand dep. at 556-60.
71

program. If VAOIG did not contact them, Gross relied on the auditor’s draft report, which
concluded that the customers did not participate in the program. Either way, when Gross
negotiated the contract, he had the information he considered necessary.
Basing his negotiating position on VAOIG’s findings, Gross negotiated new discount
terms in his letter to Acuson, which enclosed the draft auditor’s report. Although Gross
knew that the auditor had determined that the DPI was “not accurate, complete or current,”
and that, in the auditor’s view, customers who were receiving higher discounts than the
offer made to VA were not performing any duties that would make them non-comparable
to the government, he still engaged in a typical post-audit negotiation. Knowing that
Acuson had given a 56% discount on Sequoia products and 59% on Aspen products, as
compared to the 43% discount offered VA in the initial DPI, Gross did not demand the
highest discount rate Acuson had given other customers. Instead, he took the “middle of
the discounts offered.”144 Acuson responded to the counteroffer the next day, offering a
higher discount than in its original DPI, but a lower discount than Gross demanded. Three
weeks later, the contract was awarded on the terms of Acuson’s last offer.145
What Gross did was consistent with how the typical audit and negotiation process
between VA and a commercial vendor works. As Regan explained:
Pre-award reviews of proposals are performed by OCR at the
request of VA contracting officers. During the pre-award
review, vendors are required to produce commercial sales
transaction data and other information . . . . [which] was used
to determine whether the disclosures included with the
144

Compare Sequoia 56% com m ercial custom er rate with 48% rate dem anded; and Aspen 59%
com m ercial rate with 50% rate dem anded. See Rel.’s ex. 57.
145

This negotiating strategy confirm s that the “m ost-favored custom er” standard did not apply to this
type of contract.
72

proposal were accurate, current, and complete. The
information is used by OCR to determine if the prices being
offered are fair and reasonable and to make recommendations
to the contracting officer for use during negotiations.
It is not uncommon for the pre-award review to find that the
information contained in the proposal was not accurate,
current, or complete. . . .146
As part of the process, OCR examines the vendor’s disclosures of commercial sales
transaction data to: (1) determine whether the DPI was accurate, current, and complete;
(2) determine whether prices being offered are fair and reasonable; and (3) make
recommendations to the contracting officer for negotiations to obtain a fair and reasonable
price. That is precisely what Gross and the VAOIG auditor did. The fact that the auditor
determined that the DPI was “not accurate, complete or current” does not render the
vendor’s disclosures false. Pursuing a typical post-audit negotiation strategy, Gross began
negotiating a better price immediately after the auditor informed him that Acuson’s
disclosures were “not accurate, complete or current.”
Regan confirmed that the negotiating process in which the government and Acuson
engaged was typical with respect to the 2001 Acuson ultrasound pre-award audit. She
stated that the transactional sales data Acuson produced in support of the offer to VA
“showed that discounts offered to commercial customers were greater for all product lines
than those being offered the Government.”147 She explained that the pre-award review
“also included an in-depth review and analysis of programs that Acuson represented

146

Regan Decl., ¶¶ 7-8.

147

Id., ¶ 11.
73

distinguished VA from commercial customers who received larger discounts.”148 Regan
then concluded that:
the pre-award review[] provided the respective contracting
officer[] with information and analysis regarding the
commercial sales practices for . . . Acuson with specific
recommendations to the contracting officer[] that identified
discounts that [he] should seek to obtain during contract
negotiations. The discounts recommended were not always
equal to or better than the MFC discounts the vendor[] offered
[its] commercial customers. Once a contracting officer has the
information, analysis, and recommendation provided by the
pre-award review, he or she has the authority to negotiate and
reach agreement with the vendor on contract pricing.149
Aware of all of the facts that Thomas asserts were fraudulent, the government has
made it clear that VA had not been misled and cheated. Counsel for the government
stated:
Insofar as the allegation is that the government entered into a
contract under some misapprehension or under some kind of
fraudulent circumstance, that doesn’t appear to be the case
because those contracts were audited. . . . The government
had the information that it wanted when it entered into the
terms of the contract.”150
At the time it awarded the contract, VA was aware that the transactional sales data
produced by Acuson in support of its offer to VA revealed higher discounts offered to
commercial customers than were being offered the government.
Additionally, after conducting “an in-depth review and analysis of programs that
Acuson represented distinguished VA from commercial customers who received larger

148

Id.

149

Id., ¶ 12.

150

See Tr. of Hr’g on Order to Show Cause W hy Thom as Should Not be Disqualified as a Relator
(Dec. 14, 2010) at 227.
74

discounts,”151 VAOIG concluded that: (a) Acuson’s DPI was “not accurate, complete or
current”; (b) the customers with higher discounts were not, in fact, “performing any duties
that would make them non-comparable to the Government”; and (c) the Partnership
Programs cited by Acuson as the basis for the higher discounts were actually “sales
strategies to increase the sales officials’ accounts.”152 Nonetheless, VA continued with the
negotiation process, ultimately reaching an agreement with Acuson based on pricing terms
between Acuson’s original offer and the highest discount Acuson gave its comparable
commercial customers.
At oral argument on SMS’s motion for summary judgment, Relator’s counsel
asserted, for the first time, that the audit for the Acuson ultrasound contract was
“preliminary,” “stopped in midcourse,” and never completed.153 He offered no evidence to
support this argument. In fact, Regan confirmed that a final pre-award audit report of the
Acuson ultrasound solicitation was issued on July 10, 2001.154
Thomas’s counsel further argued that even if the audit had been completed,155 the
evidence still shows that the government was cheated because the Acuson U/S contract
151

Regan Decl., ¶ 11.

152

Rel.’s ex. 57 at Bates 214637, 214639.

153

MSJ Tr. at 19-20, 26-28.

154

Regan Decl., ¶ 9. See also Def.’s ex. 22 at Bates 000211132 (VAOIG Sem iannual Report to
Congress covering Apr. 1 - Sept. 30, 2001, listing final audit report date for Acuson ultrasound solicitation as
July 10, 2001).
155

W hen asked why he did not have the final audit report, Thom as’s counsel stated that he did not
request the governm ent to produce it during discovery because he “didn’t think [the relator] needed it.” MSJ
Tr. at 25, 30. Subsequently, Thom as tried to blam e SMS for the lack of production of the audit reports. See
Rel.’s Supp’l Mem . in Opp’n to MSJ at 5 n.4 (com plaining that SMS has “not produced any evidence relating
to the nature of the governm ent audits”). But, as Thom as’s counsel concedes, it is the relator’s burden to
prove his allegations. MSJ Tr. at 65. Additionally, the governm ent, not SMS, is in possession of the final audit
reports.
75

was awarded before the audit was finalized,156 and the final audit did not uncover specific
discounts that SMS improperly failed to disclose.157 But, Thomas has not identified any
higher discounts that were not disclosed or discovered during the course of the audit that
would have affected the contracting officer’s award decision. The only undisclosed
discounts that Thomas points to, which were identified by his damages expert, pertain to
the SMS CT/MR audit, not the Acuson ultrasound audit.158
In sum, there is no evidence that any of Acuson’s disclosures or omissions in its DPI
or during the pre-award audit were false. Nor has Thomas produced any evidence that VA
was misled into awarding Acuson the ultrasound contract. Although the record reveals that
VAOIG initially questioned Acuson’s explanations for why some commercial customers
were receiving higher discounts than what Acuson offered VA, Thomas has adduced no
evidence showing that the omitted information regarding the higher discounts on the DPI
or Acuson’s providing allegedly false reasons for the larger discounts had any effect on
VA’s ultimate decision to award the contract after additional facts became known. Without
any testimonial or documentary evidence that VA’s contracting officer was not provided the
information he required and that additional disclosures would have affected his negotiating
position and enabled him to have negotiated a higher contract discount than actually
obtained, the original DPI alone cannot support a false claim under the FCA. On the
contrary, the only evidence bearing on materiality and reliance is the Regan declaration

156

Although the Acuson U/S Contract was awarded before the final audit report was issued, the
contracting officer had the authority to cancel the contract if the final audit report contained inform ation that
would have negatively im pacted his award decision. Regan Decl., ¶ 12.
157

MSJ Tr. at 20, 24, 39-40, 44-45; Rel.’s Supp’l Mem . in Opp’n to MSJ at 5 & n.4.

158

Johnson Rep., ¶ 39.
76

that undisputedly establishes that VA neither relied on nor was misled by false information
in the DPI or the audit. Thomas has not produced any evidence that disputes or tends to
dispute Regan’s statements. Thus, there is no genuine issue of fact from which a
reasonable jury could conclude that the government relied on and was misled by the
information SMS supplied.
False Statements on the DPI for the SMS NM Solicitation
Thomas asserts that SMS “lied” when it represented on its DPI for the NM
solicitation that its highest discounts to non-governmental customers was a 56% “Regular
Discount” because SMS had given Broadlane a 66% discount on the same equipment.159
On its NM DPI, SMS identified its October 2002 “catalog/pricelist” as the basis for
its offer to VA.160 In its answers to the NM DPI Questions 4.a and b, SMS disclosed that
it had in effect discounts higher than the 60% discount it was offering the government. The
questions and answers were:
4. Discounts
a. Discount offered for Product Line . . . is 60% from price list
indicated in #2 above. . . .
b. Do you have in effect, for any customer or any class, discounts
and/or concessions, including but not limited to the following,
regardless of price list, which results in lower net prices than those
offered the government in this offer?
Yes
No X rebates of any kind, including year-end or end of
contract
*Yes X No

multiple quantity unit pricing plan

159

Rel.’s Resp. Br. at 17; Rel.’s ID of False Statem ents, ¶¶ A.2., A.10; Rel.’s ex. 23.

160

See Rel.’s ex. 28 at Bates W T004618 (SMS’s answer to NM DPI Question 2.a).
77

Yes

No X cumulative discounts of any type which cover items
offered

Yes
No X products that may be combined for maximum
discounts
*Siemens does offer multiple quantity unit pricing plans to customers or
any customer class when a minimum volume quantity is committed to be
purchased. Value may range from 1% to 5% additional discount from list
price depending on the commitment made by the customer class.161

Ignoring SMS’s answer that it had given the above discounts, Thomas attacks
SMS’s answer to Question 4.c, which asked:
c. List below the best discount, using percentages, and/or concessions
(regardless of quantity and terms and conditions) to other than the
Department of Veterans Affairs from the price list in #2 above. If Not
Applicable, please indicate N/A for the category.
A table of customer categories and types of discounts follows this question, where
the applicant must report the “best discount” from its “price list” that it offers to private
hospitals, educational institutions, governments, original equipment manufacturers and
buying groups in six different discount categories: regular discount; quantity discount;
aggregate discounts; prompt payment; FOB point; and other. In its response, SMS listed
56% as its highest “regular discount” to someone other than VA.162
SMS properly did not list the 66% discount to Broadlane. SMS documents created
at the time of the solicitation response indicate that the 60% contract discount offered to
the VA was the highest comparable commercial discount SMS offered.163 Broadlane’s

161

Rel.’s ex. 28 at Bates W T004619.

162

Rel.’s ex. 28 at Bates W T004620.

163

See Def.’s ex. 90.
78

prices were configured differently than VA’s because they were part of a group buy, where
all of Broadlane’s member entities had to purchase off of a limited list of fixed-configuration
packages of NM equipment at a set price, and they had to purchase these items solely
from SMS within a short time period. Consequently, instead of having access to SMS’s full
catalog/price list of equipment, the group buy members were restricted to purchasing NM
systems on the group buy list and could not upgrade or purchase accessories beyond
those expressly listed. In contrast, SMS offered VA a percentage discount off of SMS’s
full catalog of NM CME, without restrictions or limits on which systems and accessories VA
could purchase. Thomas agrees that Broadlane group buys differ from government
contracts.164
The only configuration for nuclear imaging CME that SMS sold to Broadlane that
had an effective discount rate close to 66% was the configuration for the E. Com Variable
Angle System, which had an effective discount rate of 64.69%. To account for these
different configurations, SMS disclosed in answer to Question 4.b that it had “in effect, for
any customer or any class, discounts, . . . regardless of price list, which results in lower net
prices than those offered the government in this offer.” (emphasis added). Responding to
question 4.c, which asks for the “best discount” “from the price list,” SMS did not list the
Broadlane discount because members of that group buy were not permitted to purchase
CME off of SMS’s full catalog/price list of NM CME. In other words, no percentage

164

See Thom as dep. at 231:3-20 (“A Broadlane com m itted group-buy contract is worth its weight in
gold. That is because it involves large hospital system s (Tenet, KP, HAGC and UHS), where they are
com m itting 100 percent of their purchases from one to two years. You either win it all or you’re shut out in the
cold.”).
79

discounts were given off of a catalog/price list like they were for VA.165 Therefore, because
the response was correct, SMS’s representation that its highest discount to nongovernmental customers was a 56% “Regular Discount” cannot be deemed a false
statement.
False Statements on the DPI for the CT/MR Solicitation
MR CME
Thomas claims that SMS lied when it represented on its DPI for the 2002 CT/MR
solicitation that its highest MR CME discount to a non-governmental customer was 35%
when, in fact, Broadlane received a 50.5% discount on that same equipment.166 He relies
on a pricing sheet for a specific group buy configuration connected to a Broadlane
Committed MR Group Buy, which refers to a discount given to Broadlane in connection
with a group buy in 2003. The specific transaction covered a Magnetom Symphony 1.5T
with Sprint Gradient, which was quoted on March 10, 2003.167 The DPI for the MR
solicitation was submitted between March 12, 2002 and April 12, 2002, and the MR
contract was awarded to SMS on September 19, 2002.168 Therefore, SMS’s disclosures
to VA regarding MR CME had occurred prior to the discount quoted to Broadlane.
There is no obligation to forecast or predict a discount the vendor might give or
contemplates giving in the future.

165

Similarly, the vendor is not required to give the

Def.’s exs. 10, 23, 90, 99, 100, 120, 131; Rel.’s exs. 28, 40, 67.

166
Rel.’s ex. 19 (SMS MR DPI) at Bates W T00543; Rel.’s ex. 21 (Broadlane Com m itted MR Group
Buy agreem ent); Rel.’s ID of False Statem ents, ¶¶ A.4, A.5, A.11.
167

Def.’s ex. 121 at Bates W T000555 (Ex. 5 to the SAC).

168

Rel.’s exs. 19, 35.
80

government a discount on future deliveries under an existing contract when it gives a
greater discount to a non-governmental customer after the date of the government
contract. In her declaration, Regan explained that even if the vendor offers a higher
discount to a non-governmental customer during the life of a direct delivery contract, such
as the CT/MR contract, the vendor is not required to offer VA price reductions during the
term of the contract.169 Thus, because it is undisputed that the Broadlane discount
postdated the MR DPI, there is no false statement in the DPI.
CT CME
Thomas claims that SMS lied when it disclosed on its DPI for the CT solicitation that
the highest CT CME discount it was giving to a non-governmental customer was 32%.
According to Thomas, SMS had given Broadlane a 42% discount on that equipment.170
As explained earlier, the VA and the Broadlane contracts were not comparable and
the pricing schemes were different. Broadlane’s prices were part of a group buy and were
fixed differently than VA’s.171
More importantly, the only Broadlane configuration that received a higher effective
discount than 32% was for the Somatom Volume Zoom, which had an effective discount
of approximately 42%.172 But, SMS did not offer this product in response to the CT/MR

169

Regan Decl., ¶ 6.

170

Rel.’s ex. 33 at Bates 000334 (SMS CT DPI); Rel.’s ex. 26 (Sept. 1, 2001 Agreem ent for CT
Scanners Between Broadlane and SMS); Rel.’s ID of False Statem ents, ¶¶ A.4, A.5.
171

As explained supra at 5, in IDIQ contracts, the price is fixed at a level negotiated below specified
catalog or list prices.
172

The 42% effective rate com es from the difference between a list price of $1,514,364 and a net
price of $875,000 ($639,364/$1,514,364 = 42%). Rel.’s ex. 25 (internal Broadlane docum ent). This price was
offered to Broadlane in August of 2001, whereas the SMS CT DPI was disclosed in March 2002.
81

solicitation. Nor was this product in the CT/MR contract.173 Consequently, this item was not
comparable to the CME that SMS was offering to sell to VA. Thus, SMS’s failure to list the
42% discount to a non-governmental customer for a product not covered by the solicitation
and the contract cannot constitute a false statement.174
In any event, the government was aware, at the time it negotiated the contract, that
SMS gave discounts higher than 32% to commercial customers. In connection with the
CT/MR pre-award audit, SMS disclosed that many of its discounts to commercial
customers were higher than 32%.175 Even assuming VA did not know about the specific
42% discount given to Broadlane on the Somatom Volume Zoom, Thomas has not
proffered any evidence that VA would have negotiated a lower price had it known about
that particular discount on a product SMS did not offer to VA. In other words, any discount
for this product is not relevant to negotiating the price of dissimilar CME.
Therefore, because there is no evidence that such a disclosure would have affected
VA’s negotiating position and its decision to award the contract, the failure to disclose a
higher discount on non-comparable equipment does not constitute a false claim under the
FCA.

173

See Rel.’s ex. 33 at Bates 000333 (SMS CT DPI) (listing only Som atom Balance, Som atom
Balance and Som atom Sensation 4 CT scanners as products “included in this Discount Schedule”); Rel.’s ex.
35 at Bates 0001306-1308 (Sum m ary of Award for CT/MR Contract).
174

At oral argum ent, Thom as conceded that there could be no false claim based on om ission of a
discount on a particular item of CME if that CME had not been awarded on the um brella contract, or was not
ultim ately purchased at the transactional level. MSJ Tr. at 74-75.
175

See Def.’s ex. 71 (SMS audit disclosures on CT CME com m ercial accounts).
82

False Statements in the CT/MR Audit
Failure to disclose nine sales transactions reflecting greater discounts on CT CME
Relying on his expert’s opinion, Thomas asserts that during the CT/MR audit, SMS
failed to disclose nine sales transactions in which SMS had provided discounts ranging
from 35% to 43% on CT scanning equipment to non-governmental customers, all of which
were higher than the 32% discount offered VA.176
Assuming the expert is correct, these few omissions are insignificant. The discounts
were not as great as many other discounts SMS disclosed to VA. During the CT/MR audit,
SMS disclosed many transactions reflecting discounts much greater than 43%.
Specifically, SMS disclosed more than 200 transactions for CT scanner equipment, more
than half of which were greater than the 32% contract discount rate offered the
government, and some were more than double.

In the numerous communications

between VAOIG and SMS personnel, the auditor expressly acknowledged the disclosed
higher transactional discounts, including an 89% discount.177
Because the nine allegedly omitted discounts were less than many disclosed
discounts, they were not material to VA’s decision to award the CT/MR contract. Indeed,
Thomas has not shown that VA relied on the alleged omissions. There is no evidence that

176

Johnson Rep., ¶ 41 and Table 6 (listing nine com m ercial CT transactions discounted m ore than
35%). In conducting his analysis, Johnson used current SAP data, which does not reflect the transaction
discounts as they existed at the tim e of the audit in 2002, but rather as they existed in 2010. Consequently,
any changes to the transaction discounts m ade between 2002 and 2010 would be reflected in the current SAP
data. Johnson does not dispute this. Johnson Dep. at 167-68.
177

See Def.’s ex. 74 (July 15, 2002 em ail from Lindsey of VAOIG to Sasala) (stating that she has
“evaluated the transactional data” SMS provided and attaching her own “analysis sheet” reflecting a “9 to 89%”
“Range of Discounts in Transaction Data” on CT scanners). See also Regan Decl., ¶ 10 (stating that during
the CT/MR audit VAOIG identified “actual discounts given to com m ercial custom ers at the tim e of purchase
[that] were significantly higher” than the “contract discounts being offered VA.”).
83

had VA known of the nine transactions reflecting discounts of 35% to 43%, it would have
negotiated or insisted upon a lower price. Nor is there any evidence that VA was misled
into awarding the CT/MR contract at the negotiated price.

Therefore, because the

discounts on the nine allegedly omitted transactions were lower than a multitude of other
discounts SMS disclosed to VA and there is no evidence that the information would have
affected VA’s decision to award the contract at the negotiated prices,178 the omission of
these nine transactions does not prove fraudulent inducement under the FCA.179

Failure to disclose and produce contracts for CT CME with Broadlane
Thomas claims that SMS employee Friend lied when, in response to Brenda
Palmatier’s180 inquiry during an audit, he stated that “Broadlane/Tenet are not on contract.
The products are sold only through Group Buys.” Thomas contends this statement was
false because there was an “Agreement for CT Scanners between Broadlane, Inc. and

178

See Regan Decl., ¶ 12 (“[T]he pre-award review[] provided the respective contracting officer[] with
inform ation and analysis regarding the com m ercial sales practices for Siem ens . . . with specific
recom m endations to the contracting officer[] that identified discounts that [he] should seek to obtain during
contract negotiations.”). In sum m arizing Regan’s declaration, counsel for the governm ent stated:
Insofar as the allegation is that the governm ent entered into a contract
under som e m isapprehension or under som e kind of fraudulent
circum stance, that doesn’t appear to be the case because those contracts
were audited. . . . The governm ent had the inform ation that it wanted when
it entered into the term s of the contract.
Tr. of Hr’g on Order to Show Cause W hy Thom as Should Not be Disqualified as a Relator (Dec. 14, 2010)
at 227.
179

Johnson also lists nineteen MR CME sales transactions reflecting discounts greater than the 35%
contract discount rate offered the governm ent that SMS allegedly om itted from the CT/MR audit disclosures.
Johnson Rep., ¶ 41 and Table 7. Sim ilar to the CT CME sales transactions, SMS disclosed m ore than 100
transactions for MR scanner equipm ent, m ore than half of which were greater than the 35% contract discount
rate offered the governm ent, and m any of which were m ore than double the 35% rate. See Def.’s ex. 70
(SMS audit disclosures on MR com m ercial accounts).
180

Brenda Palm atier was a m anagem ent analyst at VAOIG’s Office of Contract Review.
84

Siemens Medical Solutions USA, Inc., dated September 1, 2001.”

He points to a

Broadlane spreadsheet listing several contracts between Broadlane and SMS, proving that
SMS had at least one contract with Broadlane for CT/MR CME.181
Palmatier’s request to Friend was as follows:
Re: #6 - Please . . . provide the requested information in
reference to our review of the CT/MRI commercial contracts.
1. We don’t see CT/MRI referenced in the Broadlane/Tenet or
the Consorta agreements. Do those two GPOs have contracts
with Siemens for CT/MRI equipment? If so provide the
documents.182
Friend responded:
Item Six.
Broadlane/Tenet are not on contract. The products are sold
only through Group Buys. Additionally many of the pricing
reviews that you selected where [sic] part of special purchases
as outlined below under “Sales Category Definitions”.
*
*
Sales Category Definitions

*

*
*
*
Group Buys: From time to time, Group Purchasing
Organizations may request that the Seller participate in Group
Buy programs, whereby Seller provides designated Products
to a defined group of participating members at additional
discounts (over and above any established contract discounts)
for a limited period of time. Typically there is a minimum
committed volume of business over the time period.183

181

Rel.’s Resp. Br. at 20; Rel.’s ID of False Statem ents, ¶ A.7; Rel.’s ex. 38 (July 2, 2002 em ails
between Palm atier and Friend); Rel.’s ex. 37 (July 8, 2002 letter from Friend to Palm atier at Bates 0001708);
Rel.’s ex. 24 (Sept. 1, 2001 CT Scanners Agreem ent between Broadlane and SMS); Rel.’s ex. 43 at Bates
0002703 (Broadlane spreadsheet).
182

Rel.’s ex. 38.

183

Rel.’s ex. 37 (July 8, 2002 letter from Friend to Palm atier) at Bates 0001708, 1710.
85

Thomas asserts that Friend’s statement that “Broadlane/Tenet are not on contract”
was false. He points to the testimony of SMS’s 30(b)(6) witness, Bertrand, who testified
that a group buy is a “specific type of contract” that Broadlane had with SMS.184
Friend made no false statements. He responded to Palmatier’s question regarding
the existence of a Broadlane/Tenet contract by differentiating between contracts and group
buys. He described the deal with Broadlane as a group buy arrangement and explained
how group buys work. See July 8, 2002 letter (describing group buys as when the “Seller
provides designated Products to a defined group of participating members at additional
discounts (over and above any established contract discounts) for a limited period of time
. . . [and] [t]ypically there is a minimum committed volume of business over the time
period”). He did not deny that SMS had any deals with or sold CT/MR CME to Broadlane.
On the contrary, he disclosed to VA that SMS sold products to Broadlane via group buys,
and VA understood that SMS sold CME to Broadlane. Whether it is called a contract or
a group buy arrangement is immaterial.

Therefore, Friend’s statement that

“Broadlane/Tenet are not on contract” because SMS’s products “are sold [to Broadlane]
only through Group Buys” was not false.
The Broadlane spreadsheet that Thomas cites does not prove that SMS had any
contracts with Broadlane for CT/MR CME that it did not disclose to VAOIG.

The

spreadsheet reflects one “group buy” between Broadlane and SMS for multiple modalities
that included CT equipment in effect from March 1, 1996 through December 31, 2004.185

184

Bertrand dep. at 633-35.

185

Rel.’s ex. 43 at Bates 0002710. The spreadsheet also reflects two other group buys with SMS for
CME that did not include CT equipm ent.
86

It does not contradict Friend’s statement that Broadlane is not on contract because SMS’s
products are sold to Broadlane only through group buys.
Even if the statement was not correct, it was not material and the VA did not rely on
it in awarding the contract. SMS expressed its view to VA that its group buy arrangements
were not comparable to the contracts VA was seeking. The arrangements were not
hidden. SMS informed VA about the existence of its group buy deals with Broadlane. VA
could have required SMS to produce them. It did not.186

Failure to disclose higher discounts for CT/MR CME given to Broadlane
Thomas claims that as part of its scheme to disclose only selective data, SMS
omitted Broadlane’s discounts from its response to the VA CT/MR audit and to the 2002
DSCP solicitation. He cites an email exchange between Sasala and Brenda Lindsey at VA
and SMS’s response to the 2002 DSCP solicitation.187 He also points to assurances SMS
representatives gave him during negotiations for contracts for CME while he was Vice
President of Capital Medical Equipment Contracting Services at Broadlane.
Neither the documents nor the alleged statements made by SMS employees
demonstrate that SMS omitted any material information during the CT/MR audit. The email
exchange discusses information about Alliance, another GPO, not Broadlane. Alliance had
no relationship to the CT/MR audit.
186

See Regan Decl., ¶ 12 (“[T]he pre-award review[] provided the respective contracting officer[] with
inform ation and analysis regarding the com m ercial sales practices for Siem ens . . . with specific
recom m endations to the contracting officer[] that identified discounts that [he] should seek to obtain during
contract negotiations.”); Statem ent by counsel for the governm ent (“The governm ent had the inform ation that
it wanted when it entered into the term s of the [CT/MR] contract”). Tr. of Hr’g on Order to Show Cause W hy
Thom as Should Not be Disqualified as a Relator (Dec. 14, 2010) at 227.
187

Rel.’s Resp. Br. at 20; Rel.’s ID of False Statem ents, ¶ A.8; Rel.’s ex. 36 (July 10, 2002 em ails
between Lindsey and Sasala); Rel.’s ex. 88 (SMS’s response to DSCP m ulti-m odality contract solicitation).
87

The second set of documents is SMS’s response to the 2002 DSCP solicitation, in
which SMS discloses sales of CME to two other GPOs, Premier and Shared Services. The
DSCP contract is not at issue. But, even if it were, Thomas does not proffer any evidence
that DSCP requested information about SMS’s sales of CME to Broadlane or that such
information was relevant or material to the 2002 DSCP solicitation.
In fact, in connection with the 2002 CT/MR audit, SMS disclosed five transactions
in which it had given Broadlane group buy discounts on CT equipment that exceeded the
discounts SMS was offering VA.

In these disclosures, SMS explained why the

transactional discounts were higher than the contract discount offered to VA.188 There is
no evidence that anything was withheld.
Regarding the statements made to him during negotiations for group buy
agreements, Thomas asserts that he “demanded” and “insisted” that SMS offer “the best
possible discounts for Broadlane’s customers” that were “greater than those offered to the
Government” if it wanted “an opportunity to win Broadlane contracts.”189 SMS negotiators
allegedly “assured [him] that the discounts they offered to Broadlane were greater than
discounts offered to other customers, including the Government.”170 He claims these
communications occurred in May and August of 2001 with Hibbits, Ryland and Friend in
connection with negotiations for two ultrasound equipment contracts, and in negotiations
from June through December of 2002 with Friend, Ryland and Tom McCausland, head of

188

Def.’s ex. 71 (SMS audit disclosures on CT CME com m ercial accounts).

189

Thom as Aff., ¶¶ 12-14.

170

Id., ¶ 12.
88

SMS’s Customer Solutions Group171 for eight CT/MR scanners, nuclear imaging and
ultrasound equipment contracts.

This resulted in SMS winning the two ultrasound

contracts, and four of the eight multi-modality contracts, awarded in January of 2003, after
the CT/MR and ultrasound contracts at issue in this case had been awarded.172
These statements are vague, unsubstantiated representations.

Thomas has

produced no evidence that the discounts offered to Broadlane were actually greater than
discounts offered the government. Thomas has produced no evidence of a specific
discount on a specific piece of equipment given to Broadlane that was not disclosed to the
government, or that a non-disclosed higher discount given to Broadlane was for the sale
of CME under comparable terms and conditions. Thus, these assertions do not support
a claim that SMS failed to disclose to VA greater discounts than those given to Broadlane.
In summary, the two documents and the statements by SMS representatives that
Thomas cites do not provide a basis from which one could conclude that SMS failed to
disclose information about Broadlane when it should have or that the information was
material.

171

Except for Hibbits, Thom as did not depose these SMS negotiators nor subm it any declarations
from them . Thom as did not question Hibbits during her deposition about com m unications between Hibbits
and Thom as while he was at Broadlane.
172

Thom as Aff., ¶¶ 12-14. In the sam e affidavit, Thom as states that these negotiations took place
at different tim es. In one paragraph of the affidavit, Thom as alleges that he negotiated with SMS for MR
scanner contracts between June and Decem ber 2002, while in another paragraph he alleges these
negotiations took place in March 2002. Compare Thom as Aff., ¶ 25 with ¶ 14. In fact, it was in March 2002
that SMS offered VA a 35% discount on MR scanner equipm ent, and VA awarded SMS the contract at that
rate in Septem ber 2002. See Rel.’s exs. 19, 35. It was in June through Decem ber 2002 that SMS offered
Broadlane higher than 50% discount rates in negotiating for MR equipm ent. See Rel.’s ex. 21; Def.’s ex. 121.
W hether Thom as is m istaken about when the negotiations took place goes to his credibility, which
is a jury question. W e do not take into consideration these discrepancies and self-contradictions.
89

False Statement in the Response to the 2002 DSCP Solicitation
Thomas contends that on October 29, 2001, in connection with the 2002 DSCP
Contract solicitation, SMS falsely represented to DSCP that the “majority of our commercial
business comes from members of” two GPOs: Premier Purchasing Partners and Shared
Services Healthcare, Inc.173 He claims that this misrepresentation became apparent when,
three months later, on February 8, 2002, in connection with a VA X-Ray CME audit, SMS
listed Premier and Novation as its top two customers in its “Top 10 Commercial (GPO)
Customers for the Period January 1, 2001 - December 31, 2001.”174 The later “Top 10" list,
which names SMS’s top ten GPO customers and their respective sales volume for X-Ray
equipment, shows that Premier and Shared Services accounted for only 42% of the sales.
According to Thomas, this contradicted SMS’s earlier representation in its October 29,
2001 submission to DSCP that Premier and Shared Services accounted for the majority
of its GPO business.
The statements that Thomas is comparing relate to the 2002 DSCP contract and
the 2002 X-Ray equipment audit. As we discussed earlier, neither of these contracts is at
issue.
In any event, the October 29, 2001 statement in response to the 2002 DSCP
Contract solicitation is not false. Contrary to Thomas’s contention, the statement is not
contradicted by the later “Top 10" list because the two do not relate to the same type of
CME. Rather, each is a response about different and unrelated equipment.

173

Rel.’s Resp. Br. at 21; Rel.’s ID of False Statem ents, ¶ A.9; Rel.’s ex. 91 (Oct. 29, 2001 letter from
Sasala to Dennan at DSCP).
174

Rel.’s ex. 98 (Feb. 8, 2002 letter from Sasala to Palm atier at VA).
90

The October 29, 2001 statement that the majority of SMS’s GPO business came
from Premier and Shared Services was made in connection with the October 2002 multimodality DSCP contract solicitation. It describes SMS’s top two GPO purchasers in five
different modalities: X-Ray, ultrasound, CT, MR and nuclear imaging, and reflects data
through only October 29, 2001. In contrast, the list of SMS’s “Top 10 Commercial (GPO)
Customers for the Period January 1, 2001 - December 31, 2001" was produced on
February 8, 2002 in connection with a 2002 X-Ray equipment audit.175 It reflects the top
ten GPO purchasers of X-Ray equipment only for all of 2001, not the top ten purchasers
of multiple modalities, including X-ray equipment, for part of 2001. Additionally, SMS gave
VA yet another “Top 10 GPO” list on July 16, 2002. It was in connection with the CT/MR
audit, which showed Premier and Novation as the top two purchasers of CT and MR
equipment from April 1, 2001 to March 31, 2002.176
Because the two statements pertain to different contracts, modalities and time
periods, the statement made on October 29, 2001 in connection with the DSCP contract
solicitation is not false. It cannot form the basis of a false claim relating to other contracts.
To show that SMS withheld higher GPO discounts from the government, Thomas
points to an SMS internal comparative compilation of the largest discounts given during the
2005 SMS fiscal year.177

According to Thomas, the compilation shows that the

government’s discounts were often less than half of the highest commercial discount, and
did not reach the average discount given to GPO customers. He maintains that this
175

This was produced in response to Solicitation No. M6-Q1-01.

176

Def.’s ex. 126 (July 16, 2002 em ail from Sasala to Lindsey).

177

Rel.’s ex. 46 (Discounts Sum m ary) at Bates 000121619; Second Am . Com pl., ¶ 34, ex. 6.
91

compilation proves that the government was “not treated as a ‘most-favored’ customer.”178
As evidence of SMS’s knowledge that it was providing greater discounts to commercial
customers than to the government, Thomas cites a February 1, 2005 SMS National
Accounts meeting in Palm Springs, where the vice president of Strategic National
Accounts, Robert Miller, allegedly presented the internal compilation of GPO and
government discounts to SMS employees and warned them that SMS was “at significant
risk of adverse consequences from the government” because of these improper
discounting practices.179
Because it does not separate individual contract and transaction discounts, the chart
does not show which GPO was given the highest contract or transactional discount. The
entries on the chart reflect several pieces of data that have been averaged. Specifically,
the right side of the chart shows the average contract discount awarded for each product
modality for each GPO and the government. Multiple product lines and discounts from
multiple contracts are included in the calculation. The chart reflects that the government
received an average contract discount of 33% across all modalities and all product lines
in fiscal year 2005 (October 1, 2004 - September 30, 2005), and between 30% and 44%
discounts on individual modalities and product lines. Three GPOs received higher
average discounts: Novation, 34%; HPG, 35%; and Kaiser, 42%.
The left side of the chart lists the average transactional discounts across all
modalities and all product lines. The average of these averaged discounts is 40%. The
highest average transactional discount for a single modality is 58%, which is for ultrasound
178

Rel.’s Resp. Br. at 22-23.

179

Thom as Aff., ¶ 24; Rel.’s Resp. Br. at 28.
92

equipment. Additionally, the “Discount HI-LO Range” column on the chart reflects the
highest to lowest transactional discount for each modality. The highest discount ranges
from 75% for ultrasound CME to 48% for nuclear imaging CME.180
Thomas is comparing the transactional discount figure of 75% for unspecified
ultrasound CME to the government’s average contract discount of 33% across all
modalities and all product lines and the government’s 30% to 44% contract discounts on
individual modalities. His superficial analysis is fallacious and misleading. Because the
chart averages multiple data and does not segregate individual contract or transaction
discounts, one cannot determine which discounts were given to which GPO for which
modality or product. Thomas has made no attempt to obtain and analyze the various
components that were used to compute the averages. The figures reflected do not allow
for a comparison of any discounts given to any GPO and the government. Thus, the chart
does not prove that SMS withheld higher GPO discounts from the government.181
Even if we assume the chart provided a basis for comparing commercial discounts
to government discounts, there is no evidence that the government did not know about
these larger discounts. To the contrary, the only evidence in the record is that SMS told
VA that it offered higher discounts to non-governmental customers.182

180

Bertrand dep. at 746-51; Rel.’s ex. 46.

181

Thom as argues that SMS’s Rule 30(b)(6) witness was not prepared to testify as to the basis of the
discount data on the chart. Although it is true that Bertrand could not explain the documentation behind every
chart entry, e.g., he was not sure how m any contracts were considered for each m odality, nor did he know
what inform ation was in each contract upon which the chart was based, he did explain the sources of the data
that led to the com pilation of the figures on the chart. Thus, he knew a sufficient am ount of inform ation to be
able to dem onstrate that the chart was not a reliable or relevant source of inform ation from which to conclude
what inform ation SMS disclosed to the governm ent about the contracts at issue here or when it was disclosed.
182

See, e.g., Def.’s ex. 71 (SMS audit disclosures on CT CME com m ercial accounts); Def.’s ex. 70
(SMS audit disclosures on MR CME com m ercial accounts).
93

Even if the government did not know about the discounts listed in the chart, there
is no evidence that this information was pertinent to, or even in existence at the time of, the
negotiations of the contracts at issue. Those contracts were negotiated between April of
2001 through April of 2003. The chart reflects discount data from October 1, 2004 to
September 30, 2005. Hence, the chart and the information cited in it could not have been
used in the negotiations because the information in it did not exist.183

False Statement on the DPI for the 2006 Joint VA/DSCP Multi-Modality Solicitation
Thomas’s last false claim allegation relates to another contract that is not at issue.
He argues that on its DPI submitted in response to the 2006 joint VA/DSCP multi-modality
solicitation,184 SMS misrepresented the discounts it had given to commercial customers.
Thomas points to one statement of SMS’s 30(b)(6) designee that someone at VAOIG
informed SMS that its DPI submission was “incorrect.”167
More than six months after VAOIG sent SMS its pre-award audit letter,168 SMS
resubmitted its DPI, changing its answer from “No” to “Yes” on questions of whether SMS
had in effect discounts that result in lower net prices than what it was offering the
government. In the cover letter to DSCP submitting the amended DPI, SMS explained that
it revised its DPI because it “determined that the division personnel who completed the

183

Additionally, because it reflects transactions through the end of Septem ber 2005, the chart could
not have been presented at the February 2005 National Accounts m eeting as Thom as represents. See
Second Am . Com pl., ¶ 34 and ex. 6; Thom as Aff., ¶ 24; Rel.’s ex. 46; Bertrand dep. at 746-51.
184

This was Solicitation No. M6-Q8-06 for CT, MR, X-Ray and ultrasound CME, which began in 2006.

167

Bertrand dep. at 303; Rel.’s ID of False Statem ents, ¶ A.6.

168

Rel.’s ex. 27 (July 27, 2006 pre-award review letter for Solicitation No. M6-Q8-06).
94

[DPI] sheets misunderstood the requirements. The information provided in Section 4 of the
DPIs represented data averaged at the modality level rather than reflecting discounting
practices at the product level.”169
Thomas asserts that because SMS only offered discounts at the product level and
not at the modality level, its explanation that it mistakenly thought that the DPI required
reporting of modality level discounts was “a contrivance.”170 Thomas also notes that the
DPI forms never mention the word “modality,” further demonstrating that SMS’s rationale
for its purported mistake is dubious.171
The joint VA/DSCP multi-modality solicitation is not at issue. Thomas does not
assert that it is. Thus, it cannot form the basis of a false claim in this action.
Conclusion
There are no genuine issues of material fact as to whether any of the nine
statements was false. SMS submitted unrefuted evidence that these statements were true
and that SMS employees did not knowingly submit any false statements. Nor are there
disputed issues as to whether any of alleged false statements was material to the
government’s decision-making. Most importantly, in this action based upon a theory of
fraudulent inducement, Thomas has failed to adduce sufficient evidence showing a
genuine issue for trial on whether the government was misled into awarding the contracts
to SMS and Acuson because it relied on any false statement or omission. Without any

169

Rel.’s ex. 42 (Feb. 22, 2007 letter from Thom as Lengel, SMS Contract Adm inistration Manager,
to DSCP) at Bates 0002519.
170

171

Rel.’s Resp. Br. at 29-30.
Id.
95

evidence of inducement or reliance, Thomas cannot sustain a false claim cause of action
based on a fraudulent inducement theory.
Thomas incorrectly contends that all he must do is to show that SMS submitted a
false statement to VA. He insists he need not prove causation or inducement. He is
incorrect.
In discovery, SMS produced evidence explaining how the contracting process for
the sale of CME to the government worked, both generally and specifically with respect
to the contracts at issue. Included in this discovery was undisputed evidence of what
information the government expected and required to be disclosed on the DPI. Thomas
made no attempt to dispute this evidence.
Specifically, the undisputed evidence shows that at the time it incorporated SMS
and Acuson’s final DPI submissions into the contracts at issue, VA accepted different
interpretations of the DPI. This happened twice after full audits, and once after full review
of the DPI disclosures, without complaint by VA that the methodology was wrong. SMS
has presented uncontradicted evidence that VA did not expect all transactional discounts
to be listed on the DPI.172 During the audits, SMS disclosed hundreds of individual
commercial transactions that received higher discounts than SMS disclosed on its DPI.
For the vast majority of them, the government did not mention or ask about them. Nor did
it request SMS to justify why they were not on the DPI. Thus, when SMS completed the
DPI for its NM submission in a similar fashion to the CT/MR DPI, it had no reason to
believe that its method of disclosure was not correct.

172

See Def.’s ex. 74 (July 15, 2002 em ail from Lindsey of VAOIG to Sasala enclosing a chart
com paring transactional discounts to contract discounts in connection with CT/MR audit).
96

In fact, as to the three contracts at issue, VA incorporated the final DPI into the
respective contracts. As Regan declared, the government confirmed that it had complete,
contractually required information and it had verified the information necessary to negotiate
the contracts This evidence, which is fatal to Thomas’s claim, has not been challenged
and stands undisputed.
For whatever reason, Thomas took no discovery of the government. It appears his
strategy was to proffer facts unrelated to the claims in this case to create a suspicion that
SMS had acted in a fraudulent manner, without producing evidence that would prove or
confirm his suspicion that the government was defrauded by any materially false statement
or omission when it awarded the contracts at issue. He intentionally avoided gathering
evidence from the government. If this was his strategy, it failed.
Thomas has not produced any evidence that the government relied upon or was
misled by any material false statements or omissions made by SMS when it awarded the
contracts at issue.

Therefore, because there is insufficient evidence from which a

reasonable fact finder could find that the government was defrauded, SMS is entitled to
summary judgment on all of Thomas’s claims.

97