Solomon et al v. Lockheed Martin Corp et al
Filing
110
MEMORANDUM OPINION AND ORDER granting 78 Motion for Summary Judgment filed by Lockheed Martin Corp; granting 82 Motion for Summary Judgment filed by Northrop Grumman Systems Corp. (Ordered by Judge Sidney A Fitzwater on 12/12/2016) (Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES OF AMERICA
ex rel. PAUL J. SOLOMON,
Plaintiff,
VS.
LOCKHEED MARTIN CORP., et al.,
Defendants.
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§ Civil Action No. 3:12-CV-4495-D
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MEMORANDUM OPINION
AND ORDER
In this qui tam action, defendants’ motions for summary judgment present the
question whether plaintiff’s claims are precluded under the pre-2010 public disclosure bar
of the False Claims Act (“FCA”). Concluding that the public disclosure bar precludes the
court from exercising jurisdiction over plaintiff’s FCA claims, the court grants the summary
judgment motions and dismisses this action with prejudice.
I
This is a suit by relator Paul J. Solomon (“Solomon”) against defendants Lockheed
Martin Corporation (“Lockheed”) and Northrop Grumman Systems Corporation
(“Northrop”) under the FCA that arises from the Joint Strike Fighter F-35 program (“JSF
Program”).1 Lockheed was awarded a cost-plus-award-fee contract for the JSF Program and
1
In deciding defendants’ summary judgment motions, the court views the evidence in
the light most favorable to Solomon as the summary judgment nonmovant and draws all
reasonable inferences in his favor. See, e.g., Owens v. Mercedes-Benz USA, LLC, 541
F.Supp.2d 869, 870 n.1 (N.D. Tex. 2008) (Fitzwater, C.J.) (citing U.S. Bank Nat’l Ass’n v.
hired Northrop as a subcontractor for various aspects of production. The contract was
structured so that Lockheed received a base fee for production and received awards based on
performance at the conclusion of various award periods throughout the life of the contract.
The contract required that defendants use an Earned Value Management System (“EVMS”)
to oversee performance and report findings to the government. Defendants and the
government annually developed EVMS Surveillance Plans to guide supervision and audits.
The contract also required that Lockheed regularly update its estimates for the total cost of
the project. If Lockheed met specified goals for cost and performance, it was eligible for
awards at the conclusion of each award period.
Northrop employed Solomon during this time period. He conducted EVMS
compliance reviews, also known as “surveillance audits,” for the JSF program. Through
these audits, Solomon discovered that Lockheed was mismanaging aspects of its budget to
conceal cost overruns in its periodic estimates.
Lockheed shifted money from its
Management Reserve budget—funds set aside for unanticipated work—to reduce cost
overruns. This resulted in misrepresented cost estimates and performance reports filed with
the government.
Solomon reported his findings to auditors from the Defense Contract Management
Agency (“DCMA”). The DCMA initiated an EVMS compliance review of Lockheed’s Fort
Worth facility in late August 2007. Solomon assisted the DCMA with this investigation. In
Safeguard Ins. Co., 422 F.Supp.2d 698, 701 n.2 (N.D. Tex. 2006) (Fitzwater, J.)).
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November 2007 the DCMA released a report detailing Lockheed’s violation of EVMS and
other guidelines, including that Lockheed had “[used] management reserve to alter internal
and subcontractor performance levels and overruns.” Compl. ¶ 22. In March 2008 the
Government Accountability Office (“GAO”) issued a report in which it reached similar
conclusions to those of the DCMA.
Solomon was reassigned from the JSF program in late August 2007. After he was
reassigned, Solomon received an unsigned Memorandum of Agreement (“Memorandum”)
that he contends shows that defendants conspired to misrepresent their cost overruns to the
government. The Memorandum detailed a process for diverting Management Reserve budget
funds to conceal cost overruns. Solomon did not disclose the Memorandum to the
government while he worked at Northrop.
Solomon retired from Northrop in August 2008. Following his retirement, he
continued to alert government officials to his findings regarding the JSF program. He wrote
various members of Congress, Department of Defense officials, and the GAO, requesting that
each further investigate the JSF program and reform EVMS implementation and oversight.
In 2011 Solomon first forwarded the Memorandum to the government via Senator John
McCain and the GAO.
Solomon filed this qui tam action on November 7, 2012. Counts I through VI of his
FCA complaint (“complaint”) allege that defendants filed false claims with the government
by concealing the true costs of the JSF program. On October 3, 2014 the government gave
notice that it was declining to intervene. On March 20, 2015 Solomon filed his first amended
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complaint (“amended complaint”).
Defendants initially moved to dismiss Solomon’s claims, but the court ordered that
the parties move instead for summary judgment. See United States ex rel. Solomon v.
Lockheed Martin Corp., 2015 WL 6956578, at *5 (N.D. Tex. Nov. 10, 2015) (Fitzwater, J.)
(“Solomon I”). Defendants now move for summary judgment. Solomon opposes the
motions.
II
The court must first decide whether its jurisdictional analysis must be based on
Solomon’s complaint or his amended complaint, which adds a claim against defendants for
fraudulent inducement.
Although generally an amendment to a complaint relates back to the complaint itself,
an amendment cannot “be used to create jurisdiction retroactively where it did not previously
exist.” Jamison ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 328 (5th Cir. 2011)
(quoting Aetna Cas. & Sur. Co. v. Hillman, 796 F.2d 770, 775 (5th Cir. 1986) (internal
quotation marks omitted). “If [Solomon’s] complaint did not establish jurisdiction . . . his
amendments cannot save it.” Id. The court is therefore confined to the claims in Solomon’s
complaint—which alleged false claims of award fees and conspiracy to submit those false
claims—to decide whether it has jurisdiction.
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III
Under 31 U.S.C. § 3730(e)(4)—known as the FCA “public disclosure bar” or
“jurisdictional bar”—a district court is precluded from exercising jurisdiction over certain
FCA actions that involve publicly disclosed allegations.2 The parties do not dispute that this
case is governed by the version of the FCA in effect prior to the 2010 amendments, because
all of Solomon’s claims concern pre-2010 events. The pre-2010 version of the FCA public
disclosure bar provided:
(A) No court shall have jurisdiction over an action under this
section based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing, in a
congressional, administrative, or Government [Accountability]
Office report, hearing, audit, or investigation, or from the news
media, unless the action is brought by the Attorney General or
the person bringing the action is an original source of the
information.
(B) For purposes of this paragraph, “original source” means an
individual who has direct and independent knowledge of the
information on which the allegations are based and has
voluntarily provided the information to the Government before
filing an action under this section which is based on the
information.
2
In 2010, as part of the Patient Protection and Affordable Care Act, the public
disclosure bar was amended by eliminating the jurisdictional language and modifying other
language. See 31 U.S.C. § 3730(e)(4) (2012); see also United States ex rel. Lockey v. City
of Dallas, 576 Fed. Appx. 431, 435 n.1 (5th Cir. 2014) (per curiam); United States ex rel.
May v. Purdue Pharma L.P., 737 F.3d 908, 915-18 (4th Cir. 2013) (explaining changes to
FCA public disclosure bar under 2010 amendments, and refusing to apply 2010 version
retroactively to action alleging pre-amendment fraud commenced after effective date of
amendments ), cert. denied, ___ U.S. ___, 135 S.Ct. 2376 (2015). All the cases cited and
discussed in this memorandum opinion and order address the pre-2010 version of the FCA.
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31 U.S.C. § 3730(e)(4)(A)-(B) (2006).
The question whether the “public disclosure bar” or “jurisdictional bar” applies is
decided under a summary judgment standard. See Solomon I, 2015 WL 6956578, at *2 (“[a]
challenge under the FCA jurisdictional bar is necessarily intertwined with the merits and is,
therefore, properly treated as a motion for summary judgment.” (quoting Jamison, 649 F.3d
at 326) (internal quotation marks omitted)). Generally, when a summary judgment movant
will not have the burden of proof on a claim at trial, it can obtain summary judgment by
pointing the court to the absence of evidence on any essential element of the nonmovant’s
claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once it does so, the
nonmovant must go beyond its pleadings and designate specific facts demonstrating that
there is a genuine issue for trial. See id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069,
1075 (5th Cir. 1994) (en banc) (per curiam). Applied to § 3730(e)(4)(A), however, this
standard would require that the plaintiff prove a negative—that public documents do not
exist. Accordingly, under the summary judgment standard applicable here,
the defendants must first point to documents plausibly
containing allegations or transactions on which [plaintiff’s]
complaint is based. Then, to survive summary judgment,
[plaintiff] must produce evidence sufficient to show that there
is a genuine issue of material fact as to whether his action was
based on those public disclosures. In evaluating that question,
we view the evidence [plaintiff] produces in the light most
favorable to him.
Jamison, 649 F.3d at 327 (footnote omitted); see also United States ex rel. Lam v. Tenet
Healthcare Corp., 287 Fed. Appx. 396, 399, 402 (5th Cir. 2008) (explaining that district
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court denied defendant’s 2006 motion to dismiss under FCA jurisdictional bar because “there
was an issue of fact on [the] question” whether plaintiffs were “original sources,” and
upholding district court’s granting of defendant’s 2007 motion for summary judgment
because plaintiffs were not “original sources”).
IV
The court must first decide whether defendants have met their initial burden to point
to documents plausibly containing allegations or transactions on which Solomon’s complaint
is based, in other words, documents that plausibly demonstrate that counts I through VI are
“based upon [a] public disclosure,” so as to trigger § 3730(e)(4)(A) (2006).3 Defendants
have submitted evidence of two such potential public disclosures: a November 2007 DCMA
EVMS Compliance Report, and a March 2008 GAO Report.
A
If a qui tam action is “even partly based upon public allegations or transactions,” the
jurisdictional bar applies. United States ex rel. Fried v. W. Indep. Sch. Dist., 527 F.3d 439,
442 (5th Cir. 2008) (citations and internal quotation marks omitted). In determining whether
claims are based upon such allegations, the court asks “whether one could have produced the
substance of the complaint merely by synthesizing the public disclosures’ description of a
scheme.” Little v. Shell Expl. & Prod. Co., 690 F.3d 282, 293 (5th Cir. 2012) (quoting
Jamison, 649 F.3d at 331) (internal quotation marks omitted). But
3
Because counts I through VI are underlying claims of Solomon’s count VII
conspiracy action, the court considers them first.
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[c]orrelation in detail is not the only question. It can be that
disclosures provide specific details about the fraudulent scheme
and the types of actors involved in it such that the defendant’s
misconduct would have been readily identifiable.
An
irreducible minimum is that the disclosures furnish evidence of
the fraudulent scheme alleged.
Id. (quoting Jamison, 649 F.3d at 329-30) (internal quotation marks and brackets omitted).
In other words, the public disclosure need not be identical to the action. Instead, a claim is
“based upon” the disclosure “when both sets of allegations are substantially similar.”
Stennett v. Premier Rehabilitation, LLC, 479 Fed. Appx. 631, 634-35 (5th Cir. 2012) (per
curiam) (citing United States ex rel. Branch Consultants, LLC v. Allstate Ins. Co., 668
F.Supp.2d 780, 796-97 (E.D. La. 2009)).
B
Having identified the documents on which defendants rely, the court now turns to
Solomon’s complaint. The court considers together counts I through VI, which center on
alleged misuse of Lockheed’s Management Reserve budget funds over three award periods
between September 2006 and October 2007. Solomon alleges that his audits revealed that,
in each award period, Lockheed impermissibly shifted funds from the Management Reserve
budget to the general operating budget in order to conceal cost overruns. This resulted in the
government’s awarding Lockheed performance bonuses for which it was not qualified.
These allegations are also included in the central findings of the November 19, 2007
DCMA report—and subsequently in the GAO report. In the executive summary, DCMA
lists the significant findings, including that Lockheed “use[d] management reserve funds to
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alter its own and subcontractor performance levels and cost overruns.” Lockheed App. [80]
91.4 DCMA ultimately concluded that Lockheed “failed to demonstrate proper use of [the
management reserve] budget . . . and misapplied [management reserve] budgets . . . solely
for the purpose of keeping the cost performance index (CPI) from worsening.” Id. at 33.
These conclusions are more than substantially similar to Solomon’s primary claims: they are
virtually identical.
Solomon’s principal argument in response is that his claims cannot have been based
on the public reports because he alleges that the opposite is true: the public reports were
based on his knowledge and assistance. But this misunderstands the question before the
court. The question is not whether Solomon actually derived his allegations from the public
disclosures but whether he “could have produced the substance of the complaint merely by
synthesizing the public disclosures’ description of a scheme.” Shell, 690 F.3d at 293
(emphasis added).
Solomon also maintains that he submitted additional evidence that was not included
in the DCMA report, including the Memorandum, which he alleges is a smoking gun
showing a conspiracy between Northrop and Lockheed to defraud the government. This new
evidence is likewise insufficient to avoid the jurisdictional bar. The only new information
in the Memorandum concerns the conspiracy allegations, not the underlying false claims
4
Due to the number of filings that relate to the two pending summary judgment
motions, the court for clarity will identify in brackets the docket number of the brief, or
appendix, or other pleading cited. In this instance, for example, the docket number of the
cited appendix is 80.
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allegations.
Solomon has failed to produce sufficient summary judgment evidence to create a
genuine issue of material fact concerning whether counts I through VI are based on the public
disclosures that defendants rely on to invoke the “public disclosure bar” or “jurisdictional
bar.”
C
Nor has Solomon produced sufficient summary judgment evidence to create a genuine
issue of material fact concerning whether he is an “original source” of the information
contained in the DCMA report. See 31 U.S.C. § 3730(e)(4)(A) (2006). “To qualify [as an
original source], a relator must have direct and independent knowledge of the allegations
underlying his complaint, and also must have voluntarily provided the information to the
Government.” Shell, 690 F.3d at 294 (quoting 31 U.S.C. § 3730(e)(4) (2006)). It is
undisputed that Solomon provided multiple items of information to the government. As
evidence of his original source status, Solomon points to his surveillance reports between
2005 and 2007, his advising the DCMA review team how to investigate the Fort Worth
facility, and the Memorandum he discovered after his reassignment. But the court need not
determine whether Solomon’s knowledge of the information he provided was “direct and
independent” because Solomon has failed to create a genuine issue of material fact regarding
whether his disclosures were voluntary.
To raise a genuine fact issue concerning the voluntariness of his disclosures, Solomon
must submit evidence that would permit a reasonable trier of fact to find that he acted with
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freedom from compulsion that would constrain his choice. See Shell, 690 F.3d at 294; see
also United States ex rel. Fine v. Chevron, U.S.A., Inc., 72 F.3d 740, 743-744 (9th Cir. 1995)
(en banc).5 Defendants’ primary argument is that Solomon was constrained by the duties of
his employment, so any disclosure was involuntary. Solomon made disclosures both during
and after his involvement with the JSF Program, so the court will consider them separately.
D
1
Solomon’s primary disclosures arose from his repeated surveillance audits—and
subsequent reporting to the government—while working as Northrop’s EVMS specialist.
In his complaint, Solomon alleges that “his responsibilities included performing ‘surveillance
audits’ of Northrop’s EVM System.” Compl. 5. He maintains, however, that he was not
obligated to disclose the results of his audits to the government because he was not a
government employee. Instead, he contends that he was a “paradigmatic whistleblowing
insider” who reported fraud committed by his own employer. P. Resp. Br. to Northrop Mot.
[91] 46 (internal quotation marks omitted).
5
Solomon contends that Shell declared that only disclosures by someone “employed
specifically to disclose fraud” are nonvoluntary. P. Resp. Br. to Northrop Mot. [91] 44. The
court disagrees. In determining whether a government auditor could voluntarily disclose, the
court wrote: “the fact that a relator was employed specifically to disclose fraud is sufficient
to render his disclosures nonvoluntary.” Shell, 690 F.3d at 294 (citations and internal
quotation marks omitted). But this is not a conclusion that only this situation would render
a disclosure nonvoluntary, as Solomon maintains. Instead, the court recognized that a
government employee employed to disclose fraud would, by definition, be compelled to
report to the government. See id. In this context, the compulsion to report is the critical trait
of a nonvoluntary disclosure. Id.
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No reasonable trier of fact could agree with Solomon’s view of the evidence. The
2006 and 2007 plan agreed upon by Northrop and DCMA required that Northrop “[p]rovide
timely indications of actual and/or potential problems,” and that the “required external cost
and schedule reports . . . [c]ontain information that depicts actual conditions.” Northrop App.
[85] 124-25. As the surveillance monitor for Northrop, Solomon was responsible to
implement the plan. Although it may have been Solomon’s primary duty to ensure that the
project met costs and performance goals, this does not alter the fact that Solomon had an
affirmative duty as a Northrop employee to report to the government any EVMS fraud that
he uncovered.
Despite his contention to the contrary, Solomon has not created a genuine fact issue
concerning whether he was an internal whistleblower whom the FCA “encourag[es] . . . to
root out fraud.” Graham Cty. Soil & Water Cons. Dist. v. United States ex rel. Wilson, 559
U.S. 280, 295 (2010). Solomon needed no encouragement because he was obligated under
the terms of his employment to report his findings to the government. Because of this
employment obligation, “[t]he incentive of a qui tam action as an anti-fraud device is lost and
the putative relator’s further participation in the government’s investigation is necessarily
fueled by other forms of self-interest.” United States ex rel. Paranich v. Sorgnard, 396 F.3d
326, 341-42 (3d Cir. 2005).
2
Solomon also seeks to avoid the public disclosure bar based on these disclosures made
after his reassignment from the JSF Program: a letter to Representative Henry Waxman
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(“Representative Waxman”); two letters to Senator John McCain (“Senator McCain”);
documentation submitted to GAO “FraudNet;” and a letter to Katrina McFarland (“Secretary
McFarland”), Assistant Secretary of Defense for Procurement. Except for the Memorandum,
which he first provided to the government in 2011, Solomon’s post-JSF Program disclosures
contained substantially similar information and documents to his prior disclosures. As noted,
the focus of an original source inquiry is whether the relator “has voluntarily provided the
information to the Government.” 31 U.S.C. § 3730(e)(4)(B) (2006) (emphasis added).
Implicit in this requirement is that a given piece of information cannot be both voluntarily
provided and involuntarily provided. It follows that once a relator involuntarily provides
information to the government, he may not subsequently voluntarily provide the same
information.
A reasonable trier of fact could only find that Solomon’s post-JSF Program
disclosures simply rehashed evidence that he had already submitted to the government in his
role with the JSF Program. In letters to Representative Waxman6 and Senator McCain,7
6
For example, Solomon wrote to Representative Waxman:
LM has been non-compliant with EVMS guidelines and with its
internal procedures. The guidelines preclude a contractor from
using Management Reserve (MR) to offset accumulated cost
overruns. LM has reported cost overruns that were subsequently
reduced by using MR. By doing so, it has managed the data and
reports in order to obtain higher award fees and mask the real
cost overrun. LM has also ignored an EVMS guideline by
understating the most likely program Estimate at Completion
(EAC).
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Solomon summarized the allegations that were the focus of his surveillance report and this
lawsuit. His letter to Secretary McFarland similarly was nothing more than a re-allegation
of his claims to a different government audience.
Solomon contends that the post-JSF Program disclosure of the Memorandum is a
prototypical voluntary provision.
This position fails to consider the content of the
Memorandum. Solomon submits the Memorandum as evidence both of cost concealment
efforts—Counts I through VI—and of a conspiracy to conceal costs—Count VII. But the
Memorandum cannot support either position. First, as noted above, a whistleblower cannot
involuntarily disclose and subsequently voluntarily disclose information. Second, evidence
of a conspiracy is irrelevant, because the conspiracy count cannot exist without underlying
claims.
Accordingly, defendants are entitled to summary judgment dismissing counts I
P. Resp. App. to Lockheed Mot. [101-3] 516.
7
Solomon’s allegations in his first letter to Senator McCain closely resembled those
made to Representative Waxman:
Not surprisingly, NG failed to achieve their contractual targets
and LM issued additional budget to NG. The award fee criteria
between the JSF contracting officer and LM for certain periods
provided for part of the award fee to be based on improved cost
and/or schedule performance. After additional budget was
transferred by LM from MR to NG, improved cost performance
was reported in the CPRs. I am unable to determine if the
contractors received higher award fees based on that reported,
improved performance.
Id. at 522.
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through VI.
V
The court now turns to count VII. Defendants are entitled to summary judgment
dismissing count VII because secondary liability for conspiracy under § 3729(a)(3) cannot
exist without a viable underlying claim. See Pencheng Si v. Laogai Research Found., 71
F.Supp.3d 73, 98 (D.D.C. 2014) (“[T]here can be no conspiracy to commit fraud in violation
of the FCA if an underlying false claim has not been adequately alleged.”); United States ex
rel. Coppock v. Northrop Grumman Corp., 2003 WL 21730668 at *14 n.17 (N.D. Tex., July
22, 2003) (Fitzwater, J.). The FCA provides in § 3729(a)(3) that any person who “conspires
to defraud the Government by getting a false or fraudulent claim allowed or paid . . . is liable
to the United States Government for a civil penalty[.]” Liability for conspiracy under the
FCA is governed by traditional principles of civil conspiracy. See United States v. Murphy,
937 F.2d 1032, 1039 (6th Cir. 1991) (containing general discussion of civil conspiracy in
FCA context). A claim for civil conspiracy is generally not viable without the commission
of an underlying wrongful act:
[C]onspiracy allegations, however, do not set forth an
independent cause of action; instead, such allegations are
sustainable only after an underlying tort claim has been
established. See Halberstam v. Welch, 705 F.2d 472, 479
(D.C. Cir. 1983) (“Since liability for civil conspiracy depends
on performance of some underlying tortious act, the conspiracy
is not independently actionable; rather, it is a means for
establishing vicarious liability for the underlying tort.”). In the
context of the present case, for example, individuals alleging
false arrest must prove that they were unlawfully arrested in
order for their conspiracy claims to become cognizable.
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McCarthy v. Kleindienst, 741 F.2d 1406, 1413 n. 7 (D.C. Cir. 1984); see also K & S P’ship
v. Cont’l Bank, N.A., 952 F.2d 971, 980 (8th Cir. 1991) (securities fraud case). Therefore,
in the instant case, where FCA conspiracy liability is based on an underlying claim that has
been dismissed, the § 3729(a)(3) claim must also be dismissed.
*
*
*
For the reasons explained, defendants’ motions are granted, and this action is
dismissed with prejudice by judgment filed today.
SO ORDERED.
December 12, 2016.
_________________________________
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
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