United States of America, et al v. Armet Armored Vehicles, Inc., et al
Filing
58
MEMORANDUM OPINION. Signed by Judge Jackson L. Kiser on 8/26/14. (ham)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
DANVILLE DIVISION
FRANK SKINNER,
Plaintiff/Relator,
v.
ARMET ARMORED VEHICLES, INC.,
and WILLIAM R. WHYTE,
Defendants.
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Case No. 4:12-cv-00045
MEMORANDUM OPINION
By: Hon. Jackson L. Kiser
Senior United States District Judge
On October 16, 2012, Plaintiff Frank Skinner (“Plaintiff”) filed an action against
Defendants Armet Armored Vehicles, Inc. (“Armet”), and William R. Whyte (“Whyte”)
(collectively “Defendants”) pursuant to the qui tam provisions the False Claims Act, 31 U.S.C. §
3729 et seq. The United States elected not to intervene in the action. (See Notice of Election by
U.S. to Decline Intervention, Aug. 14, 2013 [ECF No. 18].) Plaintiff served both Defendants
with a summons and a copy of the Complaint on May 22, 2014, and Defendants have moved to
dismiss the Complaint.
Before me are Whyte’s Motion to Dismiss for Lack of Personal
Jurisdiction [ECF No. 39], and Armet’s Motion to Dismiss for Failure to State a Claim [ECF No.
41]. The matter has been fully briefed, and the parties appeared before me on July 29, 2014 to
argue their respective positions in open court. For the reasons stated herein, I will grant Whyte’s
Motion to Dismiss, and I will grant in part and deny in part Armet’s Motion to Dismiss. Plaintiff
will be allowed fourteen (14) days to file an amended complaint, if he so chooses. See Fed. R.
Civ. P. 15(a)(2).
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I.
STATEMENT OF FACTS AND PROCEDURAL BACKGROUND1
A. The Contracts
Armet is a designer, manufacturer, and seller of armored vehicles. (Compl. ¶ 2 [ECF No.
3].) Armet was founded in 1993 and has its headquarters in Miramar Beach, Florida. (Id. ¶ 9.)
It has manufactured and sold armored vehicles to police departments, government entities, the
military, and high-net-worth individuals around the world. (Id. ¶ 2.) Whyte is the owner and
Chief Executive Officer of Armet.
(Id. ¶ 10.)
According to Plaintiff, Whyte “personally
manages and supervises all the operations of Armet in Florida, Virginia, and Canada.” (Id.) In
2005, Whyte hired Plaintiff to be President of Armet.2
Following the United States’ invasion of Iraq in 2003, the Department of Defense
conducted the majority of its contracting for operations in Iraq through the United States Joint
Contracting Command in Baghdad, Iraq (“JCCI”). (Id. ¶ 18.) On or about April 17, 2006, JCCI
issued a solicitation of work to acquire twenty-four (24) armored vehicles for use by personal
security forces tasked with protecting American and Iraqi officials traveling in or through Iraq.
(Id. ¶ 19.) Armet and Whyte responded to the solicitation four days later and, four days after
that, JCCI awarded the contract (“0028 Contract”) to Armet at an agreed-upon price of
$4,779,693.36. (Id.) Under the terms of the contract, Armet was to deliver four (4) armored
truck to Iraq within forty-five (45) days, and an additional twenty (20) trucks by July 31, 2006.
(Id.) The contract called for payment per vehicle of approximately $199,000.00. (Id.)
1
The facts are taken from Plaintiff’s Complaint. For consideration of Armet’s 12(b)(6) motion, it is
appropriate to accept Plaintiff’s factual allegations as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
2
Prior to accepting that position, Plaintiff served in the Marine Corps and, following his retirement from
the Marines, began his own bodyguard business. (Compl. ¶ 5.)
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On June 1, 2006, JCCI issued another solicitation to build an additional eight (8) armored
gun trucks. (Id. ¶ 20.) On June 18, 2006, JCCI awarded a second contract to Armet in the
amount of $1,593,231.10. (Id.) Armet was to deliver the gun trucks to Iraq within ninety (90)
days, and the awarded payment per vehicle was $199,000.00. (Id.) Both contracts detailed the
specifics for armoring the vehicles, as the vehicles would routinely be used to ferry individuals
through hostile and dangerous parts of war-torn Iraq. (Id. ¶ 21.)
Despite the 0028 Contract’s requirement that all twenty-four armored gun trucks be
delivered by July 31, 2006, Whyte and Armet failed to ship a single truck by that deadline.
Defendants shipped the first two trucks on August 12, 2006, and the third and fourth on October
17, 2006. (Id. ¶ 25.) Upon delivery of each armored truck, Defendants submitted a “Material
Inspection and Receiving Report,” along with an invoice, to JCCI. (Id. ¶ 26.) Defendants
prepared these reports in their offices in Florida and Virginia.3 (Id.) The United States paid
approximately $199,000.00 per vehicle. (Id. ¶ 27.)
On or about November of 2006, Defendants requested a cash advance of approximately
$1,000,000.00 from the United States government. (Id. ¶ 28.) “Defendants told the JCCI that
they needed these funds to continue to produce the armored gun trucks under the two contracts
with the JCCI.” (Id.) JCCI approved a “progress payment” of $824,531.00 for Armet and wired
that amount to Armet’s bank account.4
(Id.)
Despite receiving that payment, Defendants
delivered and billed for only three (3) additional armored gun trucks. JCCI accepted the first two
3
Plaintiff does not allege what role Whyte played in preparing the invoices, and whether his involvement
occurred in Virginia, Florida, or Canada.
4
Plaintiff does not allege where Armet’s bank account is located, from where the transfer originated, or to
where the initial request was sent.
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trucks and paid over $398,000.00 for them, but declined to accept or pay for the third.5 (Id. ¶
29.)
On February 11, 2008, JCCI issued a “Show Cause Notice” to Defendants notifying them
that Armet was in breach of the contract for failure to make delivery of the vehicles as agreed.
(Id. ¶ 30.) Defendants attempted to terminate or renegotiate the contracts in March 2008, and
JCCI terminated the contracts that month. (Id.) In total, of the thirty-two (32) vehicles that
Defendants agreed to deliver under the contracts, Defendants only delivered seven vehicles. (Id.
¶ 31.) JCCI accepted six. (Id.) Defendants billed $1,194,923.36 for those six vehicles, and
received a total of $2,019,454.36 in federal funds from JCCI, including the December 2006
progress payment. (Id.)
In its quotes to JCCI for both contracts, Armet asserted that the vehicles would meet the
ballistic and blast protection standards set forth in the solicitations.
(Id. ¶ 33.)
These
specifications were ultimately adopted in the two contracts entered into by Armet and JCCI. (Id.
¶ 33.)
Nevertheless, “[n]one of the six armored vehicles Defendant[s] delivered to the
Government met the ballistic and blast protection requirements of the Contracts.” (Id. ¶ 32.) In
addition to failing to satisfy the B7 ballistic protection standards and lacking sufficient blast
protection, at least five of the armored vehicles Defendants delivered did not have “run-flat”
tires. (Id.) Plaintiff alleges that Defendants were aware that the armored trucks failed to meet
the contract specifications regarding ballistic and blast protection standards, yet continued to
manufacture, ship, and bill JCCI for the vehicles. (See id. ¶ 35.) Regarding the December 2006
advance of $824,531.00, Plaintiff alleges that Defendants diverted those funds to other business
and personal expenditures rather than use the funds to build and ship the vehicles ordered by
JCCI. (Id. ¶ 36.)
5
Plaintiff does not state what reason, if any, JCCI gave for rejecting the third vehicle.
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B. Plaintiff’s Role with Armet and Uncovering the Fraud
Originally, the vehicles were to be manufactured at Armet’s Florida facility under
Plaintiff’s supervision. (Id. ¶ 38.) Before construction began, however, Whyte moved the
production to Armet’s Ontario facility, and Plaintiff was transferred to Armet’s Danville facility.
(Id.)
After Whyte moved production of the vehicles to Ontario, Armet’s Florida plant
engineer, Scott Verona, informed Plaintiff of several defects in the design of the vehicles. (Id.
¶ 39.)
Following that conversation, Defendants missed their initial deadline to deliver the
vehicles and then immediately manufactured four vehicles within a month’s time. (Id.) Plaintiff
became suspicious of Armet’s ability to comply with the highly specialized contract it had
entered into with JCCI, and Plaintiff spoke with Whyte to verify that the vehicles were being
built according to JCCI’s specifications. (Id.) Whyte became angry at Plaintiff’s inquiry, but
assured him that the vehicles complied with the contract specifications. (Id.)
Plaintiff’s fears were not assuaged. (Id. ¶ 40.) In October 2006, Plaintiff sent the
foreman of Armet’s Danville facility, John Ventimiglia, to Defendants’ Ontario facility to
inspect the operation’s compliance with JCCI’s specifications. (Id.) Ventimiglia reported to
Plaintiff that the vehicles were not meeting the ballistic and blast protection standards. (Id.)
Soon thereafter, Plaintiff reported Defendants’ misconduct to the Federal Bureau of Investigation
(“FBI”). (Id.) Plaintiff began working with the FBI as a confidential informant while the FBI
put together a case against Defendants. (Id.) From the inception of the investigation, Plaintiff
was under explicit instructions to keep his role confidential. (Id.) Numerous government agents
and personnel repeated those instructions during the six-year investigation. (Id.) Ultimately,
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Defendants were indicted by the Government on July 19, 2012, and Plaintiff was released from
his confidentiality directive on that date. (Id.)
On October 16, 2012, Plaintiff filed a qui tam action under seal in this Court alleging that
Armet and Whyte violated the False Claims Act, 31 U.S.C. §§ 3729, et seq. (See Mot. to File
Compl. in Camera and Under Seal, Oct. 16, 2012 [ECF No. 1].) The United States elected not to
intervene in Plaintiff’s action. (See Not. of Election to Decline Intervention, Aug. 14, 2013
[ECF No. 18].) Plaintiff obtained service on Armet on September 24, 2013.6 (See Return of
Service, Sept. 14, 2013 [ECF No. 24].) Following two extensions, Plaintiff was able to obtain
service on Whyte on May 22, 2014. (Return of Service, May 22, 2014 [ECF No. 38].) On June
12, 2014, Whyte filed a Motion to Dismiss for Lack of Personal Jurisdiction pursuant to Federal
Rule of Civil Procedure 12(b)(2), and Armet filed a Motion to Dismiss for Failure to State a
Claim pursuant to Rule 12(b)(6). (See Whyte Mot. to Dismiss, June 12, 2014 [ECF No. 39];
Armet Mot. to Dismiss, June 12, 2014 [ECF No. 41].) Both motions were fully briefed by the
parties, and I heard oral arguments on the motions on July 29, 2014.
II.
STANDARD OF REVIEW
When a defendant challenges a court’s power to exercise personal jurisdiction under
Federal Rule of Civil Procedure 12(b)(2), “the jurisdictional question is to be resolved by the
judge, with the burden on the plaintiff ultimately to prove grounds for jurisdiction by a
preponderance of the evidence.” Carefirst of Md., Inc. v. Carefirst Pregnancy Centers, Inc., 334
F.3d 390, 396 (4th Cir. 2003) (citing Mylan Labs, Inc. v. Akzo, N.V., 2 F.3d 56, 59–60 (4th Cir.
1993)). When, as here, a district court is compelled to decide a pretrial jurisdictional challenge
“on the basis of only motion papers, supporting legal memoranda[,] and the relevant allegations
of a complaint” without conducting an evidentiary hearing, “the burden is on the plaintiff to
6
Armet was served again on May 22, 2014. (See Return of Service, May 22, 2014 [ECF No. 37].)
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make a prima facie showing” of personal jurisdiction. Combs v. Bakker, 886 F.2d 673, 676 (4th
Cir. 1989). When making such a determination, a court must “construe all relevant pleading
allegations in the light most favorable to the plaintiff, assume credibility, and draw the most
favorable inferences for the existence of jurisdiction.” Id.; see also Mylan Labs, Inc., 2 F.3d at
60. Although the standard to make a prima facie showing of personal jurisdiction is lenient, a
court does not need to “credit conclusory allegations or draw farfetched inferences.”
Ticketmaster-New York, Inc. v. Alioto, 26 F.3d 201, 203 (1st Cir. 1994).
To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain “sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678. In determining facial plausibility, I must accept all factual allegations in
the complaint as true. Id. The complaint must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief” and sufficient “[f]actual allegations . . . to raise a
right to relief above the speculative level . . . .” Twombly, 550 U.S. at 555 (internal quotation
marks omitted). Therefore, the complaint must “allege facts sufficient to state all the elements of
[the] claim.” Bass v. E.I. Dupont de Nemours & Co., 324 F.3d 761, 765 (4th Cir. 2003).
Although “a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed
factual allegations,” a pleading that merely offers “labels and conclusions” or “a formulaic
recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.
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III.
ANALYSIS
A. Defendant William Whyte’s Motion to Dismiss for Lack of Personal Jurisdiction
In order for a court to exercise personal jurisdiction,7 the defendant must “have certain
minimum contacts with [the forum] such that the maintenance of the suit does not offend
‘traditional notions of fair play and substantial justice.’” Int’l Shoe Co. v. Washington, 326 U.S.
310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). These “minimum
contacts” can give rise to personal jurisdiction under a theory of general or specific jurisdiction.8
“Where Congress has authorized nationwide service of process by federal courts under specific
federal statutes, so long as the assertion of jurisdiction over the defendant is compatible with due
process, the service of process is sufficient to establish the jurisdiction of the federal court over
7
“As prerequisites to exercising personal jurisdiction over a defendant, a federal court must have
jurisdiction over the subject matter of the suit, venue, ‘a constitutionally sufficient relationship between
the defendant and the forum,’ and ‘authorization for service of a summons on the person.’” ESAB Group
v. Centricut, Inc., 126 F.3d 617, 622 (4th Cir. 1997) (quoting Omni Capital Int’l v. Rudolph Wolff & Co.,
484 U.S. 97, 104 (1987)). There is no dispute that there is subject matter jurisdiction over this suit, as the
case arises under the False Claims Act (“FCA”), a federal statute. See 28 U.S.C. § 1331 (2014); 31
U.S.C. § 3732(a) (2014). Likewise, venue is proper because the FCA provides that venue is appropriate
where, “in the case of multiple defendants, any one defendant can be found, resides, transacts business, or
in which any act proscribed by [31 U.S.C. § 3729] occurred.” 31 U.S.C. § 3732(a) (2014). It is
undisputed that Armet was located and transacted business in Danville, Virginia, and thus that this court
is an appropriate venue. Finally, the FCA authorizes the district court to issue a summons and that it may
be “served at any place within or outside the United States.” Id. Because Whyte was served with a
summons in Canada, the statute is satisfied. The only remaining question, therefore, is whether there is a
“constitutionally sufficient relationship between the defendant and the forum.” ESAB Group, 126 F.3d at
622.
8
General jurisdiction attaches when a defendant is shown to have had “continuous and systematic”
contacts with the forum. CFA Inst. v. Inst. of Chartered Fin. Analysts of India, 551 F.3d 285, 292 n.15
(4th Cir. 2009). “[T]he threshold level of minimum contacts sufficient to confer general jurisdiction is
significantly higher than for specific jurisdiction.” ALS Scan, Inc v. Digital Serv. Consultants, Inc., 293
F.3d 707, 715 (4th Cir. 2002). Specific jurisdiction, on the other hand, exists where a defendant’s alleged
liability arises from or is related to an activity conducted within the forum. Mitrano v. Hawes, 377 F.3d
402, 406−07 (4th Cir. 2004). When specific jurisdiction is asserted, the minimum contacts analysis
focuses on the relationship between the defendant, the forum, and the litigation, while the “constitutional
touchstone remains whether the defendant purposefully established minimum contacts with the forum
State.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).
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the person of the defendant.” Hogue v. Milodon Eng’g, Inc., 736 F.2d 989, 991 (4th Cir. 1984);
see also ESAB Group v. Centricut, Inc., 126 F.3d 617, 626 (4th Cir. 1997).
In this case, the FCA authorizes nationwide and worldwide service of process. See 31
U.S.C. § 3732(a). As a result, when determining whether the exercise of personal jurisdiction
comports with due process, the relevant inquiry is “whether the defendant[] [has] minimum
contacts with the United States as a whole,” United States ex rel. Thistlethwaite v. Dowty
Woodville Polymer, 976 F. Supp. 207, 210 (S.D.N.Y. 1997), and “not the traditional inquiry of
whether the defendant[] [has] minimum contacts with the forum state.” United States v. Gwinn,
Case No. 5:06-cv-00267, 2008 WL 867927, at *16 (S.D.W. Va. Mar. 31, 2008).
This is
commonly referred to as the “national contacts” test. See ESAB Group, 126 F.3d at 626
(holding that, under RICO statute which permits nationwide service of process, personal
jurisdiction was proper even though defendants did not have sufficient minimum contacts with
forum state to justify personal jurisdiction under Federal Rule of Civil Procedure 4(k)(1)(A)).
Where the analysis involves conduct on behalf of a corporation, a court must also consider the
nature of a defendant’s contacts with the United States.
It is axiomatic that “[a]n individual and a corporation of which that individual is the
principal are separate legal entities.” Birrane v. Master Collectors, Inc., 738 F. Supp. 167, 169
(D. Md. 1990) (citing United States v. Van Diviner, 822 F.2d 960, 963 (10th Cir. 1987)). In
certain circumstances, however, a corporation’s activities may give rise to personal jurisdiction
over its principals. As the Birrane court noted:
If the grounds exist for “piercing the corporate veil” generally, the
corporate veil can be pierced for jurisdictional purposes. Absent
such grounds, however, there is no basis whatsoever for holding
that merely because a corporation transacts business in the state,
contracts to supply goods or services in the state, or has other
substantial contacts with the state, an individual who is its
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principal should be deemed to have engaged in those activities
personally. . . . An individual who has chosen simply to transact
business in a state through a valid and viable corporation has not
necessarily “purposefully avail[ed]” himself of “the privilege of
conducting activities within . . . [that] State” in his individual
capacity.
Id. (internal citations omitted). In the absence of such a showing, Whyte’s actions (as pleaded)
must be analyzed separate and apart from Whyte’s actions taken on behalf of Armet. See Calder
v. Jones, 465 U.S. 783, 790 (1984) (“Petitioners are correct that their contacts with California are
not to be judged according to their employer’s activities there. On the other hand, their status as
employees does not somehow insulate them from jurisdiction. Each defendant’s contacts with
the forum State must be assessed individually.”).
In Plaintiff’s Complaint, he makes several references to Whyte. The problem, however,
is that all of these actions were taken by Whyte in his capacity as owner and CEO of Armet. For
example, Plaintiff alleges that Whyte directed that the production of the armored cars be moved
to Ontario, and that Plaintiff be relocated to Virginia. (See Compl. ¶ 38.) Further, Plaintiff
alleges that Whyte and Armet submitted invoices and a request for a payment advance to JCCI.
(See Compl. ¶¶ 26–28.) At no point, however, does Plaintiff ever indicate what actions, if any,
Whyte took in his individual capacity.
Accordingly, Plaintiff cannot establish general or specific jurisdiction over Whyte. To
make a showing of general jurisdiction, Plaintiff would need to establish that Whyte has some
systematic and continuous connection with the United States. This could be done by pleading
that Whyte owns property in the United States or that he (in his individual capacity) regularly
transacts business here.9 See, e.g., Vision Motor Cars, Inc. v. Valor Motor Co., 981 F. Supp. 2d
9
Although Plaintiff contends he has made such a pleading, I disagree. In fact, in his brief, Plaintiff
displays the flaw of his argument—his apparent contention that Armet and Whyte are the same entity for
jurisdictional purposes. He argues, “[I]t is evident that Relator established that Whyte’s company”
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464, 469 (M.D.N.C. 2013).
Alternatively, Plaintiff could establish specific jurisdiction by
pleading facts sufficient to show that Whyte’s liability under the FCA arose from his activities in
or directed towards the United States. In the absence of such a showing, however, Plaintiff fails
to make even a prima facie showing of personal jurisdiction.
The primary case cited by the parties supports the conclusion that, at present, Plaintiff has
not adequately pleaded facts sufficient to establish personal jurisdiction over Whyte. In United
States ex rel. Thistlethwaite v. Dowty Woodville Polymer, Inc., 976 F. Supp. 207 (S.D.N.Y.
1997), Jeffrey Thistlethwaite brought an action under the qui tam provisions of the FCA against
an English company and two employees of that company, both of whom were English residents.
See id. at 209. The individual defendants moved to dismiss the complaint on the grounds that
the court lacked personal jurisdiction over them. Id. The court ultimately determined that there
was personal jurisdiction because the individual British defendants “participated in the
negotiation of [the] contracts [at issue] and travelled repeatedly to Oklahoma and California to
meet with representatives of the United States parties to those contracts.” Id. at 210.
In the present case, however, there is no claim that Whyte traveled to the United States to
negotiate the contracts, nor is there an allegation that the entity with whom Whyte negotiated
was in the United States. At most, Plaintiff pleads that Whyte contracted with JCCI, “the United
States Joint Contracting Command in Baghdad, Iraq.”
(Compl. ¶ 3 (emphasis added).)
Moreover, the contract stipulated that the completed vehicles were to be delivered to Iraq, not to
the United States. (See id. ¶¶ 19–20.) Finally, Plaintiff does not indicate to where or to whom
the invoices and requests for payment were sent. He only alleges that the invoices and attendant
paperwork were prepared at Armet’s offices, including the Danville, Virginia, location. (See id.
maintained offices in the United States and regularly transacted business there. (See Pl.’s Br. in Opp. to
Whyte’s Mot. to Dismiss pg. 11, June 26, 2014 [ECF No. 50] (emphasis added).)
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¶ 26.) He does not indicate what role Whyte played in the production of these invoices; he
simply lumps Whyte and Armet together to make the conclusory statement that they “prepared
these forms for submission to the JCCI in their offices, including their office in Danville,
Virginia.” (Id.)
This would be a closer question if Plaintiff had alleged that Whyte negotiated the
contracts with JCCI in the United States, that he prepared the invoices in the United States, or
that he sent them to the United States, but that is not included in Plaintiff’s Complaint. Even if
Whyte’s actions were similar to those of the Thistlethwaite defendants, there is simply no
allegation that any aspect of the negotiation, contracting, manufacture, or payment actually took
place in the United States. Accord Vision Motor Cars, Inc. v. Valor Motor Co., 981 F. Supp. 2d
464, 470 (M.D.N.C. 2013) (holding no personal jurisdiction over individual defendant with no
ties to North Carolina). “[J]urisdiction over [Whyte], as an officer of [Armet], cannot be
predicated solely upon this Court’s jurisdiction over [Armet] itself.” Mates v. N. Am. Vaccine,
Inc., 53 F. Supp. 814, 821 (D. Md. 1999). Under the facts as Plaintiff presented them in his
Complaint, there is simply no basis to assert jurisdiction over Whyte in his personal capacity.
B. Defendant Armet’s Motion to Dismiss for Failure to State a Claim
In adopting the False Claims Act (“FCA”), “the objective of Congress was broadly to
protect the funds and property of the government.” Rainwater v. United States, 356 U.S. 590,
592 (1958). To that end, the FCA imposes civil liability on any person who “knowingly
presents, or causes to be presented, to [the United States government] a false or fraudulent claim
for payment or approval,” or who “knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or approved by the Government.” 31
U.S.C. § 3729(a) (2014). To plead an FCA claim, “a relator must plausibly allege four distinct
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elements: ‘(1) [] there was a false statement or fraudulent course of conduct; (2) made or carried
out with the requisite scienter [knowledge]; (3) that was material; and (4) that caused the
government to pay out money or to forfeit moneys due (i.e., that involved a ‘claim’).’” United
States ex rel. Rostholder v. Omnicare, Inc., 745 F.3d 694, 700 (4th Cir. 2014) (quoting Harrison
v. Westinghouse Savannah River Co., 176 F.3d 776, 788 (4th Cir. 1999)). Under the FCA, “the
term ‘false or fraudulent claim’ includes those instances ‘when the contract or extension of
government benefit was obtained originally through false statements or fraudulent conduct.’
That is, the fraud may be in the inducement.” United States ex rel. Wilson v. Kellogg Brown &
Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008) (quoting Harrison, 176 F.3d at 787).
“To satisfy the first element of an FCA claim, the statement or conduct alleged must
represent an objective falsehood. As a result, mere allegations of poor or inefficient management
of contractual duties are not actionable under the [FCA]. Likewise, imprecise statements or
differences of interpretation growing out of a disputed legal question are similarly not false under
the FCA.” Id. at 376−77 (internal quotations and citations omitted).
Congress crafted the FCA to deal with fraud, not ordinary
contractual disputes. The FCA plays an important role in
safeguarding the integrity of federal contracting, administering
strong medicine in situations where strong remedies are needed.
Allowing it to be used in run-of-the-mill contract disagreements
. . . would burden, not help, the contracting process, thereby
driving up costs for the government and, by extension, the
American public.
United States ex rel. Owens v. First Kuwaiti Trading & Contracting Co., 612 F.3d 724, 726−27
(4th Cir. 2010); see also Wilson, 525 F.3d at 373.
The second element of an FCA claim—the requisite scienter—“does not demand
‘specific intent to defraud’ and can be satisfied by proving ‘reckless disregard of the truth or
falsity of the information.’” Owens, 612 F.3d at 728 (quoting 31 U.S.C. §§ 3729(b)(1)(A)(iii),
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(b)(1)(B)). The knowledge element may also be satisfied by showing “deliberate ignorance of
the truth or falsity of the information,” or “actual knowledge of the information,” 31 U.S.C.
§§ 3729(b)(1)(A)(i), (ii). Knowledge is an important element of the statute because “[t]he FCA
is a fraud prevention statute.” United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013,
1019 (7th Cir. 1999). The statute—and the knowledge element in particular—does not permit a
qui tam relator to “shoehorn what is, in essence, a breach of contract action into a claim that is
cognizable under the [FCA].” Wilson, 525 F.3d at 373.
Plaintiff’s Complaint sets forth three instances that Plaintiff contends gives rise to FCA
liability. First, Plaintiff alleges that Defendants entered into the contract with JCCI even though
Armet was not able to meet the ballistic and blast protection standards set forth in the
solicitations (the “fraud in the inducement” claim). Second, Plaintiff alleges that Defendants
falsely certified that the vehicles complied with the contract specifications each time it sent JCCI
an invoice (the “invoices” claim). Finally, Plaintiff asserts that Defendants falsely claimed in its
application for a progress payment that the funds would be used to manufacture JCCI’s vehicles;
instead, Defendants used the money to manufacture other orders and to pay incidental business
and personal expenses unrelated to JCCI’s contracts (the “progress payment” claim).
i. Fraud in the Inducement
The Supreme Court has held that the FCA may be used to impose liability on those who
fraudulently induce the government to enter into a contract. “In these cases, courts . . . [have]
found False Claims Act liability for each claim submitted to the government under a contract,
when the contract or extension of government benefit was obtained originally through false
statements or fraudulent conduct.” Harrison v. Westinghouse Savannah River Co., 176 F.3d
776, 787 (4th Cir. 1999). In the leading case on fraud in the inducement under the FCA, the
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Supreme Court held that liability attached to each claim submitted under contracts that were
obtained through fraud or misrepresentation. See United States ex rel. Marcus v. Hess, 317 U.S.
537, 542 (1943) (overruled by statute on other grounds).
In the present case, Plaintiff has not pleaded all that is necessary to make a fraud-in-theinducement claim. Most notably, Plaintiff does not allege in the Complaint that, at the time
Defendants entered into the contracts with JCCI, they knew they would not be able to
manufacture the armored cars to the contracts’ specifications. At most, the Complaint alleges
that Armet was not able to meet the ballistic and blast protections standards, but Plaintiff wholly
fails to plead that Whyte and Armet were aware of its inability to comply at the time it entered
into the contracts. In order to make out an FCA claim, Plaintiff is required to plead and prove
that Defendants knew any such statement was false at the time they made the statement. Accord
Harrison, 176 F.3d at 781, 791 (holding that the plaintiff’s allegation that the defendant
represented that a particular project would take 1.5 years to complete, even though it knew it
would take significantly longer, constituted a false statement under the FCA).
In paragraphs 3 and 4 of his Complaint, Plaintiff alleges that Armet “failed to meet the
delivery deadlines for these thirty-two vehicles,” and that, “[d]espite having full knowledge that
these vehicles were substandard . . . , Armet continued to supply the Government . . . .” (Compl.
¶¶ 3−4.) These allegations, while serious, do not establish that Armet and Whyte knew they
would be unable to fill the contracts on time and to specification when they entered into the
contracts with JCCI. Moreover, although the Complaint details the contracting process and
protection specifications at length (see Compl. ¶¶ 18−24), Plaintiff fails to allege the extent of
Defendants’ knowledge (when they entered into the contracts) about their ability to comply with
the requirements. The most Plaintiff alleges regarding Defendants’ knowledge is his allegation
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that Defendants “knew that each of the seven armored vehicles that they delivered to JCCI failed
to meet the ballistic and blast protection requirements of the Contracts . . . .” (Compl. ¶ 34.) At
most, these allegations would support a breach of contract claim, but they do not satisfy the
knowledge requirement necessary to establish fraud in the inducement.
Plaintiff makes an attempt to plead the element of scienter for this claim. In paragraph 47
of the Complaint, he states: “Armet, by fraudulently misrepresenting its capacity to make
compliant products in order to get contracts with the U.S. Government and its agencies
knowingly presented false or fraudulent claims for payment, approval, credit or reimbursement
and used or caused to be used false records or statements material to a false or fraudulent
claim . . . .” (Compl. ¶ 47.) This conclusory statement, which is completely lacking in factual
support, is exactly the type of pleading the Supreme Court cautioned against in Iqbal and
Twombly.
Without further evidentiary support, Plaintiff’s single, conclusory allegation is
insufficient to state a claim under the FCA for fraud in the inducement. Insofar as Plaintiff
asserts such a claim, it is dismissed without prejudice. Plaintiff will be granted leave to amend
his Complaint.
ii.
Invoices
Plaintiff’s claim that Defendants fraudulently certified that the vehicles complied with the
contract when they submitted the invoices and the Form DD-250s to JCCI presents a much more
typical FCA claim than the fraud-in-the-inducement version. Like the prior claim, however, I
find that Plaintiff has failed to plead the necessary elements.
An FCA claim requires, at the most basic level, a “false statement or fraudulent course of
conduct.” Harrison, 176 F.3d at 788. Although Defendants’ arguments regarding whether Form
DD-250s may form the basis for an FCA claim are interesting, they are ultimately irrelevant.
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The gravamen of Plaintiff’s allegations is that Defendants submitted invoices and Form DD-250s
to JCCI for each vehicle they delivered. The Complaint does not allege that JCCI was billed for
vehicles that were not delivered. Thus, the invoices accurately represented the quantity of goods
that were delivered to Iraq. There is no allegation that any statement regarding quantity was
false.
Rather, Plaintiff contends that, because the vehicles did not meet the contract
specifications regarding ballistic and blast protection, the invoices were “false.”
Notably,
however, Plaintiff does not allege what statements regarding quality, if any, were included with
the invoices and DD-250s. If, for example, the invoice or DD-250 indicated that the vehicles
complied with the contracts, then Plaintiff likely would have stated an FCA claim. But he has
not made any such allegation. Rather, Plaintiff pleads nothing more than a “run-of-the-mill”
breach of contract claim.
Under the Complaint as written, Defendants properly billed for
completed vehicles; those vehicles simply did not meet JCCI’s specification. In the absence of
some false statement made in conjunction with the invoices, Plaintiff has not pleaded an FCA
claim. Contrary to Plaintiff’s claim in his brief, the Complaint does not allege that “Armet
stated, in each of its invoices to the JCCI, that its ballistic armor had been tested and that its
armored vehicles met the ballistic and blast protection standards the [c]ontracts required.” (Pl.’s
Br. in Opp. to Armet’s Mot. to Dismiss, at pg. 10, June 26, 2014 [ECF No. 52].) No fair reading
of the Complaint supports Plaintiff’s contention.
Some courts have ascribed to an “implied certification” theory under the FCA, meaning
that the submission of an invoice “implies” that the goods for which the government has been
billed meet the relevant contractual specifications. See Harrison, 176 F.3d at 786 & n.8. The
Fourth Circuit has noted that such claims are “questionable” in this Circuit. Id.; see also United
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States ex rel. Herrera v. Danka Office Imaging Co., 91 Fed. App’x 862, 864 n.3 (4th Cir. 2004)
(unpublished). Nevertheless, even if an “implied certification” theory were valid in this Circuit,
Plaintiff has failed to plead it. Under such a theory, “[t]here can only be liability under the False
Claims Act where the defendant has an obligation to disclose omitted information.” United
States ex rel. Berge v. Bd. of Trustees of the Univ. of Alabama, 104 F.3d 1453, 1461 (4th Cir.
1997). Plaintiff has not alleged any facts sufficient to show that, under its agreement with JCCI,
Armet’s invoices were understood to imply compliance with the contracts. Moreover, there is no
allegation that Defendants omitted information that was supposed to be included in the invoices
or on the DD-250. In the absence of any facts to support the claim, there can be no violation of
the FCA under an “implied certification” theory.
Therefore, Plaintiff’s Complaint wiil be
dismissed without prejudice as to the alleged violation of the FCA vis-à-vis the submission of
invoices. Plaintiff will be granted leave to amend his Complaint.
iii.
Progress Payment
The final theory on which Plaintiff bases a claim of an FCA violation is his assertion that
“Defendants obtained the December 2006 advance progress payments of $824,531.00 based on
Defendants’ representations that they needed the funds to produce the armored gun trucks under
the [c]ontracts.
Instead of using those funds to build and ship more armored gun trucks,
however, Defendants intentionally diverted the funds to other business and personal
expenditures.” (Compl. ¶ 36.) Unlike Plaintiff’s other claims, he has adequately pleaded an
FCA violation in regards to this claim.
Plaintiff alleges that Defendants, “citing cash-flow problems, submitted a . . .
Contractor’s Request for Progress Payment, Form 1443, to the JCCI seeking an advance or
progress payment of $1 million from the United States government. Defendants told the JCCI
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that they needed these funds to continue to produce the armored gun trucks under the two
[c]ontracts with the JCCI.” (Id. ¶ 28.) The government ultimately approved a partial advance
payment and remitted $824,531.00 to Armet. (Id.)
Rather than using these funds to manufacture the vehicles, Plaintiff alleges that Whyte
and Armet diverted the funds to pay personal expenditures. (Id. ¶ 36.) In other words, when
Whyte and Armet told the government they needed $1 million to manufacture the vehicles, they
lied. That lie was for the sole purpose of inducing the government to pay out money, and the
government complied. Plaintiff alleges that this was done “intentionally.” (Id.) Thus, Plaintiff
has alleged an intentional, material false statement that “caused the government to pay out
money . . . .” Rostholder, 745 F.3d at 700. He has pleaded a valid FCA claim, and Armet’s
Motion to Dismiss will be denied on that count.
IV.
CONCLUSION
Plaintiff has not pleaded any facts to establish the nature and extent of Whyte’s contacts
with the United States in his personal capacity. Absent grounds to pierce the corporate veil,
Whyte’s actions as a corporate officer for Armet cannot—standing alone—form the basis of
personal jurisdiction over Whyte individually. For this reason, Whyte’ motion to dismiss for
lack of personal jurisdiction will be granted. Plaintiff will be afforded fourteen (14) days to
amend his Complaint, if he so chooses.
Regarding Armet’s 12(b)(6) motion, Plaintiff has not alleged that Defendants knew, at the
time they entered into the contracts with JCCI, that they would be unable to meet their
obligations under the contracts. Thus, absent the necessary allegation of scienter, Plaintiff has
not pleaded a fraud-in-the-inducement claim under the FCA. With regard to the invoices and
DD-250s, there is no factual allegation regarding what statements, if any, were made in
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conjunction with these filings. Likewise, there is no factual support for the allegation that
Defendants knew the vehicles they were delivering to JCCI did not comply with the contracts.
In the absence of some false statement or the requisite knowledge, Plaintiff has not alleged a
violation of the FCA. Armet’s Motion to Dismiss will be granted as to these claims. The
Motion will be denied, however, with respect to the claims arising from Armet’s request for a
progress payment. Plaintiff has adequately pleaded the necessary elements of an FCA claim, and
that claim will survive. Plaintiff will be afforded fourteen (14) days to amend his Complaint, if
he so chooses.
The Clerk is directed to forward a copy of this Memorandum Opinion and the
accompanying Order to all counsel of record.
Entered this 26th day of August, 2014.
s/Jackson L. Kiser
SENIOR UNITED STATES DISTRICT JUDGE
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