UNITED STATES of America, EX REL., Aaron J. WESTRICK, Ph.D., Plaintiffs, v. SECOND CHANCE BODY ARMOR, INC., et al., Defendants. United States of America, Plaintiff, v. Toyobo Company, Ltd., et al., Defendants.
Civil Action No. 04-0280 (PLF), Civil Action No. 07-1144 (PLF)
United States District Court, District of Columbia.
July 14, 2017
266 F.Supp.3d 110
PAUL L. FRIEDMAN, United States District Judge
The revised Vaughn Index and the Bridenhagen Declaration provide a “detailed justification,” Valfells, 717 F.Supp.2d at 120, for the redactions. See Bridenhangen Decl., ¶¶ 56-76. The former identifies “the pages where redactions were made, the FOIA exemptions asserted, the date and type of document released, the author(s) and the recipient(s), ... and the information withheld as exempt.” Id., ¶ 80. The Agency withheld the content of Gugino‘s evaluations and his personal information but produced copies of the trustee background questionnaire, application, and performance-review-criteria sheets. See ECF No. 14-4 (Exh. C) at 5-30. Defendant has explained that it did not produce these documents with Gugino‘s personal information because “the public interest is only in the information that would shed light on the United States Trustee‘s execution of its mission to oversee private trustees under
IV. Conclusion
For the reasons stated above, the Court will issue a contemporaneous Order granting summary judgment to Defendant.
Morris, Jeehae Jennifer Koh, Jennifer Lynn Chorpening, United States Department of Justice, Keith V. Morgan, U.S. Attorney‘s Office for the District of Columbia, Washington, DC, for Plaintiffs.
Christopher D. Barraza, Weil, Gotshal & Manges, LLP, Washington, DC, Diane P. Sullivan, Weil Gotshal & Manges, LLP, Princeton, NJ, Jed P. Winer, Pro Hac Vice, Konrad Lee Cailteux, Weil, Gotshal & Manges, LLP, New York, NY, for Defendants.
Thomas E. Bachner, Jr., Eastport, MI, pro se.
Richard C. Davis, Central Lake, MI, pro se.
Stephen M. Kohn, David K. Colapinto, Kohn, Kohn & Colapinto, LLP, Washington, DC, Alicia J. Bentley, Albert Thomas
OPINION
PAUL L. FRIEDMAN, United States District Judge
This matter is before the Court on the motion of the United States for reconsideration [Dkt. 450 in Civil Action No. 04-0280 and Dkt. 184 in Civil Action No. 07-1144] of the Court‘s September 4, 2015 Memorandum Opinion and Order granting in part and denying in part the parties’ cross motions for partial summary judgment on the United States’ common law claims and claims under the False Claims Act (“FCA“),
I. FACTUAL AND PROCEDURAL BACKGROUND
Judge Richard W. Roberts, to whom these two related (but not consolidated) cases were previously assigned, fully recounted their factual and procedural history in several prior opinions. See, e.g., United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 5-7; United States v. Toyobo Co., Ltd., 811 F.Supp.2d 37, 41-44 (D.D.C. 2011); United States ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F.Supp.2d 129, 132-33 (D.D.C. 2010). Nonetheless, the Court sets forth here the facts and procedural posture relevant to the United States’ FCA claims in an effort to clarify the issues for trial.
A. Factual Background
The United States’ Second Amended Complaint in Civil Action No. 04-0280 alleges that Toyobo contracted with Second Chance to sell them defective Zylon fiber for use in bulletproof vests, which Second Chance then sold to the United States under both (1) the Bulletproof Vest Partnership Grant Act of 1998,
In 1995, Toyobo began to communicate with the United States about the use of Zylon fiber for government “ballistic” applications such as bulletproofs vests. US Supp., Ex. 23 at PDF page 143 [Dkt. 195]. In literature Toyobo sent to the United States at that time, Toyobo touted its testing data showing Zylon‘s “superior tensile strength,” “high temperature abrasion resistance,” low “moisture regain,” and “stab[ility] against humidity.” Id., Ex. 24 at PDF pages 147-48. Those conversations led the United States to contract with Second Chance to sell Zylon bulletproof vests on the GSA MAS from 1995 to 2001. See Declaration of Kellie Stoker in Support of United States’ Response to Toyobo‘s Motion for Partial Summary Judgment ¶¶ 4-8 (March 15, 2012) [Dkt. 194-4] (“First Stoker Declaration“).
On March 30, 2001, Toyobo began to learn — through its own internal testing — that Zylon “stored in a warehouse for one year showed a strength lowering of about 20%.” US Supp., Ex. 90 at 1-2 [Dkt. 195-2]; see also May 11, 2016 Hr‘g Tr. at 49:24-49:25 (“[W]e are willing to agree that the beginning of the fraudulent period is March 2001.” (statement of government counsel)). In July 2001, notes from an internal Toyobo meeting show that Toyobo concluded that a “Zylon hydrolysis (?) problem [had] surfaced,” that “[i]t is extremely regrettable that sufficient study was not done in the development stage and we feel responsible,” and that Toyobo must “enlighten the bulletproof customers.” US Supp., Ex. 52 at PDF pages 13-14 [Dkt. 195-2]. It was then that Toyobo created the “Zylon Strength Degradation Improvement Project,” known as “ZKP,” in order to “conduct an investigation to understand” why Zylon degraded under conditions of heat and humidity and “propose urgent measures” to address that degradation. Id., Ex. 95 at PDF page 167.
On July 5, 2001, Toyobo sent the first of quarterly (and later, semi-annual) letters to “valued customers” including vest manufacturers and “[f]ederal scientists,” see US Supp. at 8, which described in very general terms Toyobo‘s Zylon so-called “aging test” under conditions of heat and humidity. See id., Exs. 6-22 at PDF pages 81-141 [Dkt. 195].5 The first of those letters frankly stated the result of Toyobo‘s preliminary testing — evidenced by attached graphical data — that “the strength of Zylon fiber decreases under high temperature and humidity conditions” of 80 and 60 degrees Celsius and 80% humidity, id., Ex. 6 at PDF page 82, but it also stated that Toyobo “expect[ed] almost no strength loss at about 40 degree C even at 80% humidity.” Id. On July 19, 2001, Toyobo sent another letter to “valued customers,” concluding that, despite that testing data, Toyobo “understand[s] that ZYLON
By December 2001, Toyobo‘s internal ZKP project had compiled much more detailed and troubling findings about Zylon degradation than the anodyne data Toyobo communicated to vest manufacturers and federal scientists before and after that date. Toyobo and Second Chance convened a “crisis management meeting” on December 13, 2001, at which Toyobo researchers in the ZKP project produced data showing that Second Chance‘s bulletproof vests made with Toyobo‘s Zylon fiber degraded by 7% in less than two years, an amount of degradation which — according to the handwritten notes of Second Chance executive and pro se defendant in this case, Thomas Edgar Bachner, Jr. — would “put [defendants] out of express warranty before 5 years.”7 See Declaration of Jennifer L. Chorpening in Support of United States’ Opposition to Defendant‘s Motion for Partial Summary Judgment, Ex. 19 at PDF pages 3, 10 [Dkt. 111]. Toyobo also compiled an internal report dated December 14, 2001, which cited “residual solvent (phosphoric acid)” as “the cause” of Zylon‘s degradation under conditions of heat and humidity, and suggested that “[i]t is important to reduce residual phosphorus amount” for “strength retention.” US Supp., Ex. 49 at PDF pages 92, 94 [Dkt. 196]. A separate internal Toyobo report dated December 18, 2001, stated that, “[f]or the primary usage of Zylon in bulletproof vests, deterioration of strength under hot and humid conditions (in particular, deterioration of strength when the environment where it is used has temperatures near 40°C and is humid) is an extremely serious problem.” Id., Ex. 65 at PDF page 159 [Dkt. 196]. In the months following the “crisis management meeting” and these internal reports, Toyobo offered and Second Chance accepted substantial rebates worth millions of dollars on its Zylon purchases. See, e.g., id., Ex. 138 at 23-24 [Dkt. 195-5].8
The government‘s allegations that the vest manufacturers were aware by mid-2001 that Zylon was defective [] yet continued to sell Zylon vests through 2005 are insufficient to aver that Toyobo and the vest manufacturers agreed to anything. Moreover, the notion that Toyobo conspired with the vest manufacturers is inconsistent with the government‘s allegations that Toyobo misrepresented the extent and severity of Zylon‘s degradation to the vest manufacturers to induce them to continue to sell their vests to the government.
United States v. Toyobo Co., Ltd., 811 F.Supp.2d at 51.
The United States’ did not finalize its own testing of Zylon, under conditions of heat and humidity until September 20, 2005, years after Toyobo‘s internal research produced conclusions concerning the rates and causes of Zylon degradation. See US Supp., Ex. 64 at 2 [Dkt. 195-2].
B. Claims Brought by the United States
These facts generally form the basis of the claims brought by the United States: that Toyobo, Second Chance, and certain individual officers of Second Chance violated the False Claims Act,
The United States relied on all four theories in instituting its suit against Toyobo and Second Chance in Civil Action No. 04-0280, see Second Amended Complaint ¶¶ 287-97 [Dkt. 408 in Civil Action No. 04-0280], and in its suit against Toyobo alone in Civil Action No. 07-1144, concerning Toyobo‘s actions with respect to the other vest manufacturers. See Am. Compl. ¶¶ 239-48. The four theories also cut across vests sold by Second Chance and the other vest manufacturers to (1) the United States through the GSA MAS and (2) state, local, and tribal authorities through the BPVGPA. See Second Amended Complaint ¶¶ 287-97 [Dkt. 408 in Civil Action No. 04-0280]; Am. Compl. ¶¶ 239-48.
With respect to the express and implied false certification claims, the United States identifies six things with which it asserts Second Chance and the other vest manufacturers falsely certified their compliance: (1) three express provisions of the GSA MAS contracts and (2) three “extra-contractual considerations” for those contracts. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 16. While not entirely coextensive, these same six contractual provisions or extra-contractual considerations are generally the same “assurances” that, it alleges, caused state, local, and tribal authorities to purchase vests from defendants and seek reimbursement from the United States under the BPVGPA. Id. at 20-21. For example, when the state of Pennsylvania purchased vests for which it would seek reimbursement from the United States under the BPVGPA, it executed contracts with Second Chance and the other vest manufacturers in which those manufacturers attested that the vests would “be free of any defects affecting durability, serviceability or the safety of the user” and “be warranted for a minimum of five (5) years to meet the ballistic-resistant and deformation requirements of [National Institute of Justice (“NIJ“) ] ....” See United States’ Opposition to Defendant‘s Motion for Partial Summary Judgment, Ex. 85 at PDF page 5 [Dkt. 109-14].
The three provisions of the contracts between the United States and Second Chance — as well as those between the United States and other vest manufactur-
The three “extra-contractual considerations” that the United States alleges animated the bargain it struck when purchasing the vests from Second Chance and the other vest manufacturers are: (1) a 6% “catalog guarantee” that Second Chance “guarantees its vests to perform at this level [in V50 ballistics performance] within normal statistical variation (+/-6%) during the five-year guaranteed life of the vest,” see US Supp., Ex. 1 at PDF page 51 [Dkt. 195]; (2) a guarantee that “[a]ll Second Chance vests are [National Institute of Justice] certified to the most recent standards,” id.; and (3) a guarantee that “[t]he protective properties of the PANELS are warranted for five (5) years from date of purchase.” See United States Second Motion for Reconsideration, Ex. 28 at PDF page 15 [Dkt. 208]. Importantly, only Second Chance‘s catalog and not the catalogs of any other vest manufacturer contained the 6% guarantee. See First Stoker Declaration ¶ 9, 17 [Dkt. 194-4]. Second Chance made the 6% catalog guarantee in the “product literature” it attached to a June 5, 2002 letter to GSA proposing a contract “modification” for its GSA MAS contract. See United States Motion for Partial Summary Judgment, Ex. 6 at PDF page 23 [Dkt. 258-5 in Civil Action No. 04-0280].
C. Procedural Posture
In September 2015, Judge Roberts granted in part and denied in part defendants’ motion for partial summary judgment, and denied the United States’ motion for partial summary judgment. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 22.12
With respect to the United States’ FCA claims related to the BPVGPA, Judge Roberts stated that “Toyobo‘s motion for partial summary judgment as to the BPVGPA counts will be denied.” United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 21. In his opinion, Judge Roberts discussed only
Judge Roberts‘s treatment of the United States’ FCA claims related to the GSA MAS is more complex because he addressed each of the United States’ four theories discussed above, see supra at 117-18, but he did so only with respect to Second Chance‘s contracts with the United States to sell vests on the GSA MAS and not the contracts of the other vest manufacturers.13 First, Judge Roberts granted summary judgment to defendants on the United States’ factual falsity theory because the United States has not alleged that defendants “invoice[d] for services that were not rendered.” See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 9 (quoting United States ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F.Supp.2d 25, 64 (D.D.C. 2007)). He explained that “[t]he government does not allege that Toyobo invoiced for 200 bullet-
proof vests and sent only 150 bulletproof vests; nor does the government allege that Toyobo invoiced for bulletproof vests and instead sent raincoats.” Id. at 10. Rather, he said, the claim is not that the government did not receive bulletproof vests but “that the bulletproof vests ... did not comply with express and implied agreements.” Id. Reliance on a factual falsity theory therefore was “misplaced.” Id.14
Second, Judge Roberts granted summary judgment to defendants on the United States’ express and implied false certification theories, except with respect to claims (1) “that arose after the 2002 [Second Chance] contract modification was executed” and (2) that are based on noncompliance with the 6% catalog guarantee. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 17. Judge Roberts granted summary judgment to defendants for all vests sold before 2002 because that is when Second Chance included the 6% guarantee in the catalog it sent to the United States and, relying on the catalog, the United States modified its GSA MAS contract with Second Chance. Id. Judge Roberts did not explicitly address the United States’ express or implied false certification claims with respect to vest manufacturers other than Second Chance.
Judge Roberts focused his reasoning on the 6% catalog guarantee because he found that it is an “ambiguous” term of Second Chance‘s GSA MAS contract. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 16-17. He explained that the parties offered mul-
Beyond the 6% catalog guarantee, Judge Roberts rejected the three contract provisions and the two other “extra-contractual considerations” as bases for express or implied false certification claims and granted summary judgment to defendants on these claims. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 14-16. He explained that: (1) “Nothing in the language of the [contract‘s general commercial] warranty explicitly guarantees that the vests will function perfectly for the five-year pe-
riod; indeed the warranty presupposes that some of the vests may not survive the five-year period,” id.; (2) the United States “has not alleged” that defendants failed to comply with the contract‘s new materials clause by, for example, “us[ing] old materials in the construction of the vests,” id. at 15; (3) the workmanship clause cannot impose a durability requirement because it refers to the “intended use” of the vests, begging the question of whether the parties intended the vests to last for five years, id. at 15-16; and (4) “there is no evidence that the[] extra-contractual considerations” of NIJ certification and protective properties “were a part of, or otherwise informed, the actual contracting.” Id. at 16.
Finally, with respect to the United States’ fraudulent inducement FCA claims related to the GSA MAS, Judge Roberts held that “[t]he government has not presented any evidence that suggests that [it] relied on the allegedly manipulated data when making the contract modifications to add Zylon vests to the GSA MAS,” i.e., “that Toyobo‘s allegedly manipulated data caused the government to place the Zylon vests on the GSA MAS.” United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 19. Judge Roberts found the lack of reliance dispositive and granted summary judgment to defendants on the United States’ fraudulent inducement FCA claims related to the GSA MAS “[b]ecause ... the government cannot bear its burden to prove that false claims were submitted or fraudulently induced in relation to those Second Chance Zylon vests placed on the GSA MAS before 2002.” Id. (emphasis added). He there-
The United States moved for reconsideration “on three issues” in Judge Roberts‘s September 4, 2015 Memorandum Opinion and Order on summary judgment, arguing: (1) its fraudulent inducement analysis conflicted with Judge Roberts‘s 2011 Memorandum Opinion and Order resolving defendants’ motion to dismiss, United States v. Toyobo Co., Ltd., 811 F.Supp.2d 37 (D.D.C. 2011); (2) its fraudulent inducement analysis failed to address two declarations of GSA Specialist Kellie Stoker demonstrating the United States’ reliance on defendants’ alleged misconduct; and (3) its express and implied false certification analysis failed to address “several warranties” in the GSA MAS contracts with vest manufacturers other than Second Chance that constitute “express language setting forth a five-year durability requirement.” Mot. at 2-3.
In his February 11, 2016 Memorandum Opinion and Order, Judge Roberts denied the United States’ motion for reconsideration on the first issue “insofar as they assert a conflict with an earlier ruling and a failure to consider other manufacturers’ warranties.” United States v. Second Chance Body Armor Inc., 2016 WL 3033937, at *5. Judge Roberts reserved ruling on the United States’ second issue and ordered supplemental briefing concerning: “(1) what, if any, information the government had that was contradicted by data that Toyobo withheld; (2) how, if at all, the withheld data contradicted the data within the government‘s possession; and (3) what, if any, duty Toyobo had to disclose the withheld data in order to avoid making a fraudulent omission.” Id. at *5. Judge Roberts did not address the United States’ third issue for reconsideration. The parties then submitted supplemental briefs concerning the issues Judge Roberts identified.17
II. DISCUSSION
“Motions for reconsideration are not specifically addressed in the Federal Rules of Civil Procedure. While the most analogous rule is
Within this framework, the United States argues that Judge Roberts committed a clear error of law by failing to consider the United States’ two declarations from GSA Contract Specialist Kellie Stoker, the first dated March 15, 2012, and the second dated June 20, 2013. See Mot. at 2-3; see also First Stoker Declaration [Dkt. 194-4]; Second Stoker Declaration [Dkt. 97-11]. It also argues that Judge Roberts‘s express and implied false certification analysis failed to consider several of the warranties or assurances, or extra-contractual considerations, in the contracts with vest manufacturers other than Second Chance.
A. BPVGPA
In its motion, the United States does not seek reconsideration of Judge Roberts‘s ruling with respect to its FCA claims related to the BPVGPA. Nevertheless, it appears that there clearly is some confusion over what portion of those claims remain for trial. At the May 11, 2016 hearing, counsel for the United States expressed her understanding that Judge Roberts had denied Toyobo‘s motion for summary judgment “in its entirety as to those claims ... for Zylon vest sales by manufacturers that were reimbursed under — by the Federal Government under the [BPV] program[.]” May 11, 2016 Hr‘g Tr. at 28:20-28:24; see also id. at 33:07-33:14; United States Reply in Support of its Second Motion for Reconsideration at 19 (chart showing United States’ understanding of live claims) [Dkt. 211]. Counsel for the United States also stated: “[W]e have struggled with [Judge Roberts‘s summary judgment] opinions and I am not clear what he is trying to say. ... I think there was simply a misunderstanding as to the scope of” the BPVGPA claims. May 11, 2016 Hr‘g Tr. at 38:05-38:16.
The Court now clarifies which BPVGPA claims survive summary judgment. As noted, Judge Roberts stated in his September 2015 opinion that defendants’ motion for summary judgment on the BPVGPA claims “will be denied.” United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 21. In his February 11, 2016 opinion, he reiterated that he “denied Toyobo‘s partial motion for summary judgment on the [BPVGPA] count.” United States v. Second Chance Body Armor Inc., 2016 WL 3033937, at *3. Judge Roberts also stated in his September 2015 opinion, however, that the United States “conceded” in its opposition to defendants’ motion for partial summary judgment that its BPVGPA claims rested solely on a fraudulent inducement theory of FCA liability. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 20 n.5. This Court does not agree that there was any such concession.
A review of the United States’ Opposition to defendants’ motion for summary judgment indicates that the United States did not cabin its BPVGPA claims to a fraudulent inducement theory of FCA liability. See United States’ Opposition to Defendant‘s Motion for Partial Summary Judgment at 6-8, 23-25 [Dkt. 109]. To the contrary, the United States explained in its Opposition that its BPVGPA claims rested on defendants’ noncompliance with “warranties, catalog guarantees, or implied warranties” contained in the contracts
The Court therefore holds that defendants’ motion for summary judgment on the United States’ BPVGPA claims is denied, except with respect to its express and implied false certification theories of FCA liability. The United States may proceed to trial on its BPVGPA claims with respect to common law fraud and unjust enrichment, as well as the FCA theory of fraudulent inducement.
B. GSA MAS
In his September 4, 2015 Memorandum Opinion and Order, Judge Roberts addressed Second Chance‘s 6% catalog guarantee and Second Chance‘s 2002 contract modification with GSA. He did not deal with the United States’ GSA MAS claims concerning vest manufacturers other than Second Chance. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 22; see also supra note 16. The Court therefore finds it appropriate to reconsider Judge Roberts‘s September 4, 2015 Memorandum Opinion and Order with respect to the United States’ GSA MAS claims relating to the other vest manufacturers. In doing so, the Court will also address the two arguments the United States raises in its motion for reconsideration: (1) whether the declarations of Kellie Stoker satisfy the materiality and reliance prongs of a fraudulent inducement FCA claim; and (2) whether the “several warranties” in the United States’ GSA MAS contracts with other vest manufacturers may impose durability requirements sufficient to support express or implied false certification FCA claims.
1. Fraudulent Inducement
To survive summary judgment on a fraudulent inducement claim, the United States must point to false or omitted information in the course of the defendants’ contracting or contract negotiations with the United States that was capable of influencing the United States in the negotiation and award of the GSA MAS contracts at issue. The Court ordered supplemental briefing concerning the materiality issue, as well as the predicate issue of whether the United States can demonstrate “that Toyobo made fraudulent representations or omissions.” United States v. Second Chance Body Armor Inc., 2016 WL 3033937, at *4. The Court will address the
a. False or Omitted Information
“Fraudulent inducement exists where a contract was procured by fraud or when a party to a contract makes promises at the time of contracting that it intends to break.” United States ex rel. Barko v. Halliburton Co., 241 F.Supp.3d 37, 61 (D.D.C. 2017). To prevail under a fraudulent inducement theory, the government must prove that it was induced by, or relied upon, the fraudulent statement or omission when it awarded a contract or, as in this case, when it agreed to contract modifications. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 18. “[F]raudulent inducement claims simply require an initial false representation to the government.” United States ex rel. Keaveney v. SRA Int‘l, Inc., 219 F.Supp.3d 129, 141-42 (D.D.C. 2016). A person contracting with the United States violates the False Claims Act when he or she procures the contract by fraud in the inducement. United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321, 1326 (D.C. Cir. 2005).
With respect to Second Chance, the Court recently explained that there is a genuine issue of material fact about whether Second Chance‘s “ambiguous” 6% catalog guarantee in its June 5, 2002 letter requesting modification of its GSA MAS contract “impose[s] a durability requirement.” See Opinion and Order at 10 (Mar. 31, 2017) [Dkt. 212]. “Whatever the ambiguous 6% catalog guarantee means, it is for the jury to decide.” Id. If a jury were to determine that Second Chance guaranteed Zylon‘s durability in its catalog, then such a guarantee would surely constitute a false representation because Toyobo had testing data demonstrating that Zylon would not satisfy the 6% catalog guarantee, and Second Chance was aware of Toyobo‘s data at the time it made the guarantee. The Court therefore is satisfied that there is a genuine issue of material fact about whether Second Chance made a false representation in its 6% catalog guarantee.19
By contrast, vest manufacturers other than Second Chance never made a 6% catalog guarantee, but — as the Court will discuss infra at 127-29 — Toyobo failed to disclose its testing data to them and, in turn, to the United States. Whether the United States can ground its fraudulent inducement FCA claim against Toyobo on those omissions requires a finding that either the vest manufacturers or Toyobo had a “legal obligation” to disclose the testing data to the United States in the course of their GSA MAS contracting, contract negotiations, or contract modifications. See United States ex rel. Ervin & Associates, Inc. v. Hamilton Sec. Grp., Inc., 370 F.Supp.2d 18, 54 (D.D.C. 2005) (false representation under FCA includes “failure to disclose information only where
The Court concludes that, as of July 2001, Toyobo had a legal obligation to disclose the full scope of its Zylon testing data to the United States during the course of the other vest manufacturers’ negotiations with the United States about modifications to GSA MAS contracts, and that Toyobo‘s omission or omissions therefore constituted false representations for the purposes of the United States’ fraudulent inducement FCA claim. Of course, the vest manufacturers other than Second Chance did not know about Toyobo‘s testing data at the time they contracted with the United States under the GSA MAS and modified those contracts, see United States’ Separate Statement of Undisputed Material Facts in Support of its Motion for Partial Summary Judgment at Fact 188, PDF pages 77-83 [Dkt. 97-2], so they are not liable under the FCA. But the FCA‘s provisions, “considered together, indicate a purpose to reach any person who knowingly assisted in causing the government to pay claims which were grounded in fraud, without regard to whether that person had direct contractual relations with the government.” United States ex rel. Marcus v. Hess, 317 U.S. 537, 544-45, 63 S.Ct. 379, 87 L.Ed. 443 (1943), superseded by statute on other grounds, Act of Dec. 23, 1943, Pub. L. No. 78-213, 57 Stat. 609, as recognized by Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 412, 131 S.Ct. 1885, 179 L.Ed.2d 825 (2011); see also
Toyobo is subject to liability for fraudulent inducement stemming from the GSA MAS contracts that the other vest manufacturers struck with the United States because Toyobo knowingly disclosed positive information about Zylon to the government while omitting the most damaging information about Zylon in its possession. At least as early as December 2001, Toyobo had knowledge of Zylon testing data demonstrating that degradation under conditions of heat and humidity was an “extremely serious problem” for Zylon‘s use in ballistics applications. US Supp., Ex. 65 at PDF page 159 [Dkt. 196]. Its testing data even suggested that “the cause” of degradation was “residual solvent (phosphoric acid).” Id., Ex. 49 at PDF pages 92, 94. Yet Toyobo‘s letters to vest manufacturers and to federal scientists used bland, inconclusive language about the negative data. Id., Exs. 7-8, PDF pages 87, 90 [Dkt. 195]. Its public statements as late as June 2005 affirmed that Zylon was appropriate “for ballistic use” but denied that the presence of phosphorus was a cause of Zylon‘s degradation. Id., Ex. 86 at PDF page 125 [Dkt. 195-2]. These facts, taken together, place Toyobo‘s conduct squarely within the purpose of the FCA as the Supreme Court articulated in United States ex rel. Marcus v. Hess.
Toyobo‘s legal obligation to completely disclose its testing data is rooted in the common law of fraud. “[W]here a common-law principle is well established,” such as the meaning of the word “fraudulent” in the FCA, see
While Toyobo had no direct contractual relationship with the United States — only Second Chance and the other vest manufacturers did — from 1995 to 2005 Toyobo publicly and privately shared information on a regular basis with the United States generally and federal scientists specifically. See supra at 115-17. As far back as Toyobo‘s 1995 communications with the United States, Toyobo emphasized Zylon‘s performance in conditions of “high temperature” as well as “moisture” and “humidity.” See, e.g., US Supp., Ex. 24 at PDF pages 147-48 [Dkt. 195]; id., Ex. 51 at PDF page 2 [Dkt. 195-2]. Those representations — presumably Toyobo‘s true beliefs at the time — were part of the basis for the United States agreeing with Second Chance to enter into contracts for Second Chance to sell Zylon bulletproof vests on the GSA MAS. See First Stoker Declaration ¶¶ 4-8. But as the record demonstrates, Toyobo had reason to change its view but failed to fully disclose what it knew.
From 1995 until March 2001, Toyobo‘s communications with the United States took the form of promotional materials. In March 2001, Toyobo‘s internal Zylon testing showed degradation relating to aging. US Supp., Ex. 90. at 1-2 [Dkt. 195-2]. Beginning in July 2001, Toyobo‘s testing data began to show degradation related to Zylon‘s use in conditions of heat and humidity, and Toyobo thought it should “enlighten the bulletproof [vest] customers” about what it had learned.” Id., Ex. 52 at PDF pages 13-14. At the same time, Toyobo began sending regular letters and emails to the United States concerning its testing data. See, e.g., id., Exs. 6-22 at PDF pages 81-141 [Dkt. 195]; see also supra at 115-16. And by December 2001, Toyobo‘s ZKP project had extensive data supporting its conclusions — memorialized across multiple reports — that Zylon‘s performance declined 7% over two years under conditions of heat and humidity, at least in part due to the presence of phos-
From July 2001 until July 2005, Toyobo partially disclosed the degradation problem to vest manufacturers and the United States, including to federal scientists.. It explained the degradation problem in bland, non-urgent language through a series of quarterly (and later, semi-annual) letters, as well as in various public statements that contained the bare minimum amount of Zylon testing data to illustrate the degradation problem. US Supp., Exs. 6-22 at PDF pages 81-141 [Dkt. 195].20 Those letters and public statements failed to communicate Toyobo‘s findings — reached in December 2001 — that (1) degradation under conditions of heat and humidity was an “extremely serious problem” for Zylon‘s use in ballistics applications, id., Ex. 65 at PDF page 159 [Dkt. 196], and (2) “the cause” of degradation was “residual solvent (phosphoric acid).” Id., Ex. 49 at PDF pages 92, 94. The Court considers Toyobo‘s quarterly updates to be partial and perhaps misleading disclosures because they identify Zylon‘s degradation in conditions of heat and humidity but fail to communicate what Toyobo knew to be the severity and cause.
In addition to simply downplaying the problem of Zylon degradation, the Court finds that Toyobo made several statements to the United States that one could charitably consider partial disclosures, but a jury may find to be outright misdirection. First, Toyobo failed to mention its December 2001 phosphorus testing data at two critical junctures: (1) in August 2002 when a federal scientist indicated he was looking into phosphorus as a potential cause of the degradation, id., Ex. 47 at PDF page 119 [Dkt. 195-1]; id., Ex. 48 at PDF page 122; and (2) in July 2005 when Toyobo issued a press release stating that it was “not aware of any legitimate scientific evidence showing” that phosphoric acid is responsible for Zylon‘s degradation. Id., Ex. 86 at PDF page 125 [Dkt. 195-2]. Second, it appears that Toyobo attempted to divert a federal scientist‘s attention from degradation issues during a May 2003 email exchange in which Toyobo averred that it had “improve[d] [the] heat/humidity problem.” Id., Ex. 51 at PDF page 2. But from what rate of degradation had Zylon “improved“? No record evidence substantiates the alleged improvement — nor could it, given the testing data contained in the record. Third, Toyobo continued from 2001 through 2005 to represent that Zylon was appropriate “for ballistic use,” id., Ex. 86 at PDF page 125, even though its December 2001 testing revealed the opposite. These partial statements “suppress or conceal [] facts within [the speaker‘s] knowledge which materially qualify those stated.” See Kapiloff v. Abington Plaza Corp., 59 A.2d at 518 (internal quotation marks omitted).
For these reasons, the Court concludes that these partial disclosures triggered Toyobo‘s duty to disclose its large amount of contrary testing data. See Kapiloff v. Abington Plaza Corp., 59 A.2d at 518 (“[W]hen one undertakes to speak, ... he must make a full and fair disclosure.“) (internal quotation marks omitted). The Court finds that Toyobo‘s partial disclosures to the United States — at the same time as the United States was contracting with the other vest manufacturers under the GSA MAS — to be fraudulent omissions. The United States therefore has demonstrated a genuine issue of material fact concerning the predicate for its fraudulent inducement FCA claim against Toyobo — namely, “that Toyobo made fraudulent representations or omissions.” United States v. Second Chance Body Armor Inc., 2016 WL 3033937, at *4.
One final dispute among the parties is the date that marks the beginning of the alleged fraud. The United States urges that March 2001 is the correct date, but the Court disagrees. Toyobo‘s testing data from March 2001 demonstrated that Zylon degraded due to age, not due to its exposure to conditions of heat and humidity. US Supp., Ex. 90 at 1-2 [Dkt. 195-2]. That distinction is important because the most harmful data that Toyobo never disclosed to the United States concerned the severity of Zylon degradation due to its exposure to conditions of heat and humidity, not due to age. See supra at 127-29. The Court therefore finds that July 2001 is the earliest date on which Toyobo learned of testing data showing that Zylon degraded under conditions of heat and humidity. US Supp., Ex. 52 at PDF pages 13-14 [Dkt. 195-2]; see also id., Ex. 95 at PDF page 167.
Once the United States has established that a defendant made a false representation or omission, the FCA also requires proof that the omitted or false information was material and that the United States was “induced by, or relied on, the fraudulent statement or omission when it awarded the contract.” United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 18 (quoting United States ex rel. Thomas v. Siemens AG, 991 F.Supp.2d 540, 569 (E.D. Pa. 2014), aff‘d, 593 Fed.Appx. 139 (3d Cir. 2014)). “In essence, the essential element of inducement or reliance is one of causation. [The government] must show that the false statements upon which [the government] relied, assuming [it] establishes that it did, caused [the government] to award the contract at the rate that it did.” Id.; see also D‘Agostino v. ev3, Inc., 845 F.3d 1, 7-8 (1st Cir. 2016) (“[T]he elements of [] fraudulent inducement claims include not just materiality but also causation; the defendant‘s conduct must cause the government to make a payment or to forfeit money owed.“).
The Court concludes that the Stoker declarations create genuine issues of material fact as to the United States’ reliance. Kellie Stoker is a GSA employee who “had primary responsibility” for all of the GSA MAS contracts at issue in this case between 2005 and 2013. Second Stoker Declaration ¶ 1.21 In her declarations, Ms. Stoker detailed the contract modifications with all of the vest manufacturers,
Ms. Stoker also suggests in her declarations that the GSA did not seek or consider scientific information about Zylon‘s properties such as strength and degradation when awarding or modifying contracts, only pricing and warranty: “As part of the solicitation process with GSA, vendors are required to make certain representations about prices offered to commercial customers, prices that will be offered to government customers, and agree to other terms and conditions, including, but not limited to, providing a warranty on their products.” Second Stoker Declaration ¶ 2. Carol Batesole, Stoker‘s colleague at GSA with substantially similar responsibility for MAS contracts, answered “no” at her deposition when asked if “GSA [did] any sort of testing or product evaluation to determine whether any particular model included on the commercial price list was appropriate to be added to the [MAS].” See Toyobo‘s Motion for Partial Summary Judgment, Ex. 13 at 28:21-25 [Dkt. 270-16 in Civil Action No. 04-0280]. She explained that, in her personal negotiations with Second Chance over its MAS contract, “most things had to do with pricing, delivery terms, basic discount, quantity discount, [and] aggregate discount.” Id. at 29:5-29:12.
Stoker‘s statement that, in deciding whether to award or modify MAS contracts, the GSA only considered pricing and whether vest manufacturers “provid[ed] a warranty on their products” suggests that the GSA did not care whether Zylon degraded over time and under conditions of heat and humidity. On the other hand, Ms. Stoker also states that “agencies within the United States” would have used Toyobo‘s Zylon testing data to conduct further tests and, if it obtained bad results, terminated GSA MAS contracts with those vest manufacturers using Zylon vests. Second Stoker Declaration ¶ 13; see also id. ¶ 12 (GSA removed Zylon-containing vests from GSA MAS once it learned that Zylon “degrades unpredictably and quickly over time“). The August 2002 and May 2003 email exchanges between federal scientists and Toyobo show that the United States was already conducting this exact testing itself, which suggests that the United States was considering more than just pricing and warranty factors when making contracting and payment decisions under the GSA MAS. See US Supp., Ex. 51 at 1 [Dkt. 195-2]. The Stoker declarations thus create a genuine issue of material fact as to whether defendants’ false statements or omissions were capable of influencing the United States in the negotiations and award of the GSA MAS contracts or con-
The Court rejects Toyobo‘s argument in its supplemental brief — for which it cites no legal authority — that because “there is no evidence of a single Toyobo statement about Zylon in GSA‘s possession or that any GSA contracting officer ever saw any statement by Toyobo ... there can be no ‘partial disclosure’ from Toyobo to the GSA.” Ds Supp. at 5. It is sufficient under the FCA that Toyobo made its partial disclosure to the United States generally and not GSA specifically because to hold otherwise would permit defendants to escape liability when they make false statements to governmental actors other than those making payment decisions. In other words, the federal scientists who emailed Toyobo in August 2002 and May 2003 would have communicated directly or indirectly with Stoker and Batesole if Toyobo had communicated the full scope of its Zylon testing data to those scientists at the time. See US Supp., Ex. 47 at PDF page 119 [Dkt. 195-1]; id., Ex. 51 at PDF page 2 [Dkt. 195-2].
The Court finds that the Stoker declarations demonstrate that there is a genuine issue of material fact as to whether defendants’ false representations or omissions would have changed the United States’ payment decision. The Court therefore will deny summary judgment to defendants’ on all of the United States’ fraudulent inducement FCA claims relating to GSA MAS contracts.
2. Express and Implied False Certification Claims
The United States asks the Court to reconsider Judge Roberts‘s September 4, 2015 Memorandum Opinion and Order with respect to the express and implied false certification claims in light of “several warranties provided by body armor manufacturers to GSA.” Mot. at 2-3. As discussed supra at 120-22, Judge Roberts limited the United States’ express and implied false certification claims to those (1) “that arose after the 2002 [Second Chance] contract modification was executed” and (2) that are based on defendants’ noncompliance with the Second Chance 6% catalog guarantee. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 17. The United States now argues that “several warranties” beyond the 6% contract guarantee also support express or implied false certification claims, such as the three contract provisions and the two other “extra-contractual considerations.” Mot. at 17-18; see also supra at 118-20 (quoting the language of those provisions and considerations).
The Court concludes that reconsideration is not warranted on this issue. The Court has already extensively reconsidered the United States’ implied false certification claim against Second Chance and the other vest manufacturers in light of Escobar, see Opinion and Order at 11-12 (Mar. 31, 2017) [Dkt. 212], and addressed precisely the arguments the United States raises here. In its March 31, 2017 Opinion and Order, the Court found no basis to revisit Judge Roberts‘s holding that the “the 6% catalog guarantee was the only ‘term of the contract’ that could give rise to an implied false certification claim under the FCA,” id. at 11 (quoting United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 12, 17), or that the “extra-contractual considerations ... were not material to the United States’ payment decision under the FCA.” Id. at 12. In addressing the implied false
That analysis with respect to implied false certification also controls the applicability of the contractual provisions and extra-contractual considerations to the United States’ express false certification claim because both claims turn on defendants’ noncompliance with those provisions. The United States contends in its motion for reconsideration that Judge Roberts “never analyzed the different representations made by the other body manufacturers as to durability.” Mot. at 16-17 (emphasis added). This Court‘s Opinion and Order concerning implied false certification clarifies that only the 6% catalog guarantee, and none of the other provisions or extra-contractual considerations may impose a durability requirement. See Opinion and Order at 10 (Mar. 31, 2017) [Dkt. 212]. That conclusion applies equally to the United States’ express false certification claims because, if there is no genuine issue of material fact as to whether those provisions or considerations impose a durability requirement, noncompliance with them cannot be a basis for the United States’ express false certification theory of FCA liability.
For these reasons, the Court therefore limits the United States’ express false certification claim under the FCA to its theory that the 6% catalog guarantee was a durability requirement.
III. CONCLUSION
For the reasons set forth in this Opinion, the Court will grant the United States’ motion for reconsideration in part and deny it in part. Toyobo‘s alleged fraud for all claims could have begun no earlier than July 2001, the earliest date on which Toyobo learned of testing data showing that Zylon degraded under conditions of heat and humidity. Whether the evidence presented by the United States at trial will support a finding of liability that early or not until Second Chance made the 6% catalogue guarantee sometime between June 5, 2002, and July 1, 2002, remains to be seen. Regardless, only the following claims survive summary judgment and shall proceed to trial:
- Common law claims of fraud and unjust enrichment against all defendants concerning both the BPVGPA and the GSA MAS;
- Fraudulent inducement under the FCA against all defendants concerning both the BPVGPA and the GSA MAS;
- Express and implied false certification under the FCA against all defendants concerning only the GSA MAS and limited to the United States’ theory that the Second Chance‘s 6% catalog guarantee was a durability requirement.
An Order consistent with this Opinion shall issue this same day.
SO ORDERED.
PAUL L. FRIEDMAN
UNITED STATES DISTRICT JUDGE