United States Ex Rel. Shemesh v. CA, Inc.
89 F. Supp. 3d 67
D.D.C.2015Background
- The United States, intervening via relator Dani Shemesh, sued CA, Inc. under the False Claims Act (FCA) and for breach of contract, payment by mistake, and unjust enrichment based on CA’s pricing/discount disclosures in GSA MAS contract renewals (2007 and 2009) and subsequent performance.
- Government alleges CA made false or misleading CSP representations about average discounts to Commercial End Users (CEUs) and maintenance calculation methods, inducing GSA to approve contract extensions and causing overpayments.
- Key factual allegations: CA reported CEU average discounts of ~44–78% (depending on SIN/CSP), but government’s review of CA sales data showed substantially deeper discounts to CEUs (e.g., 55–72% or free maintenance at times); CA also allegedly failed to comply with the Price Reduction Monitoring Clause and improperly excluded some sales (e.g., certain ELAs) from discount calculations.
- CA moved to dismiss under Rules 12(b)(6), 9(b), and 12(b)(1), arguing the government’s allegations are mere contract-interpretation disputes, not false statements, lack specificity, and that contract-dispute jurisdiction bars common-law claims. CA relied on contract documents incorporated by reference.
- The court denied the motion: it concluded the government sufficiently pleaded falsity, scienter (at least reckless disregard), materiality, and Rule 9(b) particularity; factual disputes over contract interpretation precluded dismissal; and the CDA did not bar the breach claim because the FCA allegations involve fraud, allowing quasi-contract claims given the allegation the contract was fraudulently induced.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Falsity of CSP disclosures | CSPs and modification statements misrepresented average CEU discounts, maintenance pricing, and compliance with Price Reduction Clause, causing inflated claims | Claimed statements conform to contract terms/definitions (averages, enumerated exclusions, ELAs); disputes are contract interpretation, not falsity | Denied dismissal: pleadings sufficiently allege falsity; disputed contract interpretation raises factual issues for later stages |
| Scienter under FCA | CA recklessly or knowingly failed to monitor/accurately report discounts and thus knew or recklessly disregarded falsity | CA acted under a reasonable (objectively) interpretation of ambiguous disclosures, negating scienter | Government pleaded scienter adequately (reckless disregard); facts to be developed preclude dismissal |
| Materiality of misrepresentations | False discount disclosures induced GSA to approve extensions and led to overpayments; Price Reduction Clause ineffective or improperly applied | Contract ceiling and agency-level negotiations, plus Price Reduction Clause, would have prevented harm; misstatements not material | Allegations of inflated contract prices and ineffective monitoring suffice to plead materiality |
| Rule 9(b) particularity & jurisdiction over common-law claims | Complaint specifies time, documents, CSPs, and examples of false statements; quasi-contract claims allowed because contract was fraudulently induced | Complaint lacks sufficient detail on specific pay options/times; CDA channels non-fraud contract disputes away from district court; quasi-contract unavailable where express contract exists | Rule 9(b) satisfied for FCA claims; CDA does not bar breach claim because FCA fraud alleged; quasi-contract claims may proceed given allegation contract was invalidly induced |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: plausible claim required)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- United States v. Kellogg Brown & Root Servs., Inc., 800 F. Supp. 2d 143 (D.D.C. 2011) (FCA pleading/materiality and when contract interpretation requires factual development)
- United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321 (D.C. Cir. 2005) (claims submitted under contract obtained by fraud constitute false claims)
- United States ex rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999) (survey of fraud-in-the-inducement FCA liability)
- United States ex rel. Frascella v. Oracle Corp., 751 F. Supp. 2d 842 (E.D. Va. 2010) (statements during performance that there were "no changes" to pricing construed to refer to actual discounts)
- United States ex rel. K & R Ltd. P'ship v. Mass. Hous. Fin. Agency, 530 F.3d 980 (D.C. Cir. 2008) (ambiguous contract language and FCA liability)
- Kowal v. MCI Commc'ns Corp., 16 F.3d 1271 (D.C. Cir. 1994) (Rule 9(b) particularity requirements)