United States Ex Rel. Ladas v. Exelis, Inc.
2015 WL 3003674
2d Cir.2016Background
- Ladas, former Director of Quality at ITT/Power Solutions, sued under the False Claims Act alleging ITT/Power Solutions/IMS supplied government devices that deviated from contract specs after IMS changed adhesive and application process in 2007 and that ITT continued to certify compliance.
- IMS made process/material changes in 2007; ITT/Power Solutions sent a 2009 "White Paper" and letter to the government describing a process change and asserting no functional impact; no product-qualification testing or government approvals for material/process changes were pursued.
- Ladas was terminated in March 2010 and signed a broad Separation Agreement releasing "all claims" including federal-law claims; he filed the qui tam suit in July 2010; the government declined to intervene.
- District court dismissed the Substitute Second Amended Complaint (SSAC): (1) for lack of standing as to Power Solutions/Exelis based on the Release, and (2) for failing to plead fraud with Rule 9(b) particularity; it also denied further leave to amend.
- On appeal the Second Circuit declined to adopt the district court's view that the Release foreclosed Ladas’s FCA claims (holding the Release unenforceable as a matter of public policy given the record), but affirmed dismissal of the SSAC for failure to plead fraud with requisite particularity and affirmed denial of further leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ladas's Separation Agreement release bars his FCA qui tam claims | Release does not cover qui tam claims or is unenforceable as contrary to public policy | Release broadly bars all claims arising from employment, including federal claims | Release unenforceable as matter of public policy here because government was not put on notice of fraud prior to the release |
| Whether ITT/Power Solutions sufficiently disclosed fraud to government before release | Disclosure was incomplete and misleading; government lacked notice of falsehoods | 2009 White Paper/letter and Independent Monitor Report put government on notice | Government was not sufficiently informed; disclosure did not reveal fraud or false statements |
| Whether SSAC pleaded FCA fraud with Rule 9(b) particularity (false claims/false certifications) | SSAC alleges defective parts, failure to test, and false certifications to government | Allegations are conclusory and fail to identify specific false claims, certifications, dates, or how noncompliance was material to payment | Dismissal affirmed: SSAC fails Rule 9(b); does not identify specific false claims or plausibly allege that delivered devices failed contract specs or that payment was conditioned on the undisclosed defects |
| Whether district court abused discretion by denying leave to amend further | Should be allowed another amendment to cure pleading defects | Ladas had multiple chances and offered no proposed amended complaint; further amendment would be futile | No abuse of discretion: prior opportunities to amend and no particularized proposed cure supported denial |
Key Cases Cited
- United States ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319 (4th Cir.) (release enforceable where government had prior knowledge of allegations)
- United States ex rel. Green v. Northrop Corp., 59 F.3d 953 (9th Cir. 1995) (pre‑filing releases unenforceable when government only learns of fraud via qui tam)
- United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997) (release enforceable where government had full knowledge and investigated)
- Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (FCA liability requires false certification where compliance is prerequisite to payment)
- United States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir. 2009) (release enforceable where employer disclosed allegations to government and government investigated)
- Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000) (qui tam relator asserts rights belonging to the United States)