United States District Court, N.D. Alabama, Northeastern Division
UNITED STATES OF AMERICA, ex. rel. PHILIP MARSTELLER and ROBERT SWISHER, Plaintiffs/Relators,
LYNN TILTON, et al., Defendants.
MEMORANDUM OPINION AND ORDER
K. KALLON, UNITED STATES DISTRICT JUDGE
Philip Marsteller and Robert Swisher filed this qui tam
action under the False Claims Act (the “FCA”), 31
U.S.C. §§ 3729 et seq., against their
former employer, MD Helicopters, Inc.; Patriarch Partners,
LLC; Lynn Tilton, MD’s and Patriarch’s Chief
Executive Officer; and Col. Norbert Vergez, alleging that MD
submitted false claims and made materially false statements
in the process of obtaining five different government
contracts for the manufacture and sale of military
helicopters for the United States Army’s Non-Standard
Rotary Aircraft Project Office (“NSWRA”). The
Relators also allege that the Defendants conspired to violate
the FCA. After the Government declined intervention, doc. 17,
and the court unsealed the complaint, Tilton, Patriarch, and
MD moved to dismiss, doc. 65, and Col. Vergez joined the
motion, doc. 63. This court granted the motion and dismissed
the case without prejudice based in part on the court’s
conclusion that, as to the implied certification theory, the
Relators did not adequately allege that the Defendants
violated an express condition of payment. Docs. 77, 78. The
Relators appealed, and during the pendency of the appeal, the
Supreme Court decided Universal Health Servs., Inc. v.
United States ex rel. Escobar, 136 S.Ct. 1989 (2016),
which rejected the contention that the implied certification
theory only applies when a government contract expressly
designates a requirement as a condition of payment. In light
of Escobar, the Eleventh Circuit vacated this
court’s judgment and remanded for further proceedings.
case is currently before the court on the Defendants’
renewed motions to dismiss, docs. 106 and 107, which are
fully briefed and ripe for review, docs. 106; 107; 109; 112;
113; 116; 117. The court finds that the Relators adequately
plead FCA claims based on fraudulent inducement. As a result,
the MD Defendants’ motion to dismiss is due to be
granted as to the FCA claims against MD (Counts I-V) based on
the implied certification theory and the conspiracy claims
(Count VI) against Patriarch, and denied in all other
respects, and Col. Vergez’s motion is due to be denied.
In lieu of dismissing the Relators’ FCA claims based on
the implied certification theory, however, the court will
allow the Relators to amend their complaint to replead the
STANDARD OF REVIEW
8(a) of the Federal Rules of Civil Procedure requires that a
pleading stating a claim for relief provide “a short
and plain statement of the claim showing that the pleader is
entitled to relief.” Fed.R.Civ.P. 8(a). Where a
complaint fails to make such a statement, Rule 12(b)(6)
permits dismissal. To survive a motion to dismiss under Rule
12(b)(6), “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, 677 (2009) (citations and internal quotation marks
omitted). A complaint states a facially plausible claim for
relief “when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Id. (citation omitted). The complaint must establish
“more than a sheer possibility that a defendant has
acted unlawfully.” Id. See also Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (citation omitted).
The Eleventh Circuit instructs that Rule 12(b)(6)
“‘does not impose a probability requirement at
the pleading stage, ’ but instead ‘simply calls
for enough fact to raise a reasonable expectation that
discovery will reveal evidence of’ the necessary
element[s].” Watts v. Fla. Int’l Univ.,
495 F.3d 1289, 1295-96 (11th Cir. 2007) (quoting
Twombly, 550 U.S. at 555). Ultimately, this inquiry
is a “context-specific task that requires the reviewing
court to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 678. While the
court accepts all factual allegations in the complaint as
true, legal conclusions unsupported by factual allegations
are not entitled to that assumption of truth. Id.
because it is “‘well settled’ and
‘self-evident’ that the [FCA] is ‘a fraud
statute, ’” a claim under the FCA must meet the
heightened pleading standard of Rule 9(b). U.S. ex rel.
Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1309 (11th
Cir. 2002) (citation omitted). Rule 9(b) mandates that a
plaintiff must plead fraud with “particularity.”
Fed.R.Civ.P. 9(b). Significantly, an FCA complaint satisfies
Rule 9(b) if it sets forth “facts as to time, place,
and substance of the defendant’s alleged fraud,
specifically the details of the defendants’ allegedly
fraudulent acts, when they occurred, and who engaged in
them.” Hopper v. Solvay Pharm., Inc., 588 F.3d
1318, 1324 (11th Cir. 2009) (citations and internal quotation
RELEVANT FACTUAL BACKGROUND
is “[a] major defense acquisition program”
headquartered at the Redstone Arsenal in Huntsville, Alabama.
Doc. 57 at 13. NSRWA’s mission is to “consolidate
under a single service-level Project Management Office the
procurement, sustainment and technical support of
non-standard rotorcraft for the Department of Defense, allied
countries under foreign military sales (FMS) contracts[, ] or
as directed by the Office of the Secretary of Defense.”
Id. at 13. During the events alleged in the First
Amended Complaint, Col. Vergez served as the Project Manager
for NSRWA. Id. at 3, 13-14. As such, Col. Vergez
“was personally and substantially involved in managing
the process of issuing, selecting, negotiating, pricing, and
awarding all of the FMS contracts obtained by MD that are at
issue in this [action].” Id. at 14.
action relates to five FMS contracts for the manufacture of
military helicopters for allied countries: the Afghani Air
Force in March and September 2011 (Count I and II), the El
Salvadoran Air Force in December 2011 (Count III), the Saudi
Arabian National Guard in June 2012 (Count IV), and the Costa
Rican government in December 2011 (Count V). MD obtained the
first contract for the Afghani Air Force through a
competitive bid process, and the remaining four were
“sole source” contracts, meaning the Army
solicited a bid only from MD. See id.
The Afghanistan Air Force Contract
December 2010, the U.S. Army Aviation and Missile Command
(“AMCOM”), on behalf of the NSRWA, issued a
public request for contractors to submit proposals for the
Army’s FMS purchase of six new “Commercial Off
the Shelf” (COTS) rotary wing primary trainers for the
Afghanistan Air Force (the “Afghan Contract”).
Doc. 57 at 14. In response, MD submitted a formal proposal to
the AMCOM for the sale of six of its MD 530F model
helicopters. Id. at 15. According to the Relators,
“[a]t Tilton’s direction, MD misrepresented to
the Army that its base commercial price for each of its MD
530F Standard Helicopters was [$2.5 million]. In fact,
MD’s actual base commercial price for the helicopters,
per unit, was hundreds of thousands of dollars less.”
Id. The Relators also allege Brian Fifer, MD’s
Chief Financial Officer, sent Tilton a draft financial
statement before MD submitted its proposal, listing the base
price of a generic 530F helicopter at $2.1 million, and
Tilton told Fifer that the price was “way too low,
” and that “[w]e are charging $2.5 [million] to
the army.” Id.
March 3, 2011, Col. Vergez informed Tilton that the Army
would award MD the Afghan Contract. Id. Thereafter,
Tilton traveled regularly to Huntsville to meet with Col.
Vergez, allegedly “to ‘groom’ [Col.] Vergez
as a future employee and to influence [Col.] Vergez to act in
MD’s favor as NSRWA’s program manager by offering
[Col.] Vergez a lucrative job well before his
retirement.” Id. Allegedly, Col. Vergez knew
that Tilton intended to hire him. Id.
the Army formally awarded the Afghan Contract to MD, and
Tilton told MD employees “that Vergez ‘got us
this Afghan contract, . . . and he will drive our Army
business.” Id. at 15-16. Under the Contract,
the Army agreed to pay $2.3 million for each of the six MD
530F helicopters, but in the months thereafter, MD sold the
same model helicopter to three different commercial customers
for the base price of $1.9, $1.9 and $1.55 million.
Id. at 16.
The Afghan CLS Contract
April 2011, AMCOM, on behalf of the NSWRA, issued a sole
source solicitation to MD for the purchase of Contractor
Logistics Support (“CLS”) for the Afghan
Contract, including the operations and maintenance training
for Flight Training Devices (“FTDs”).
Id. at 16-17. And, MD in turn formally submitted its
pricing for the CLS contract, “representing that its
price of $14, 153, 170 was based on ‘commercial
pricing.’” Id. at 18. Thereafter, the
Army awarded the CLS contract to MD at the contract price.
Id. The Relators allege that as of the award date,
“[Col.] Vergez had already begun to actively promote MD
to the Army and informed Tilton on that date that he had set
up a meeting for her to meet with then Deputy Assistant
Secretary of Defense Gary Reid.” Id. During
the meeting, Ms. Tilton gave Assistant Secretary Reid a model
of an MD Afghan trainer worth hundreds of dollars, and Col.
Vergez directed MD to prepare a false invoice showing that
the model was valued at $12.99. Id.
The El Salvador Air Force Contract
September 26, 2011, AMCOM, on behalf of the NSRWA, issued
another sole source solicitation to MD for 3 MD 500E
helicopters for the El Salvador Air Force. Id. at
18. The solicitation requested “that MD provide a sales
history (i.e. information on the prices at which the
same or similar items had previously been sold to other
commercial customers).” Id. In response, MD
only disclosed an October 2011 sale to the Columbus, Ohio
Police Department for the base price of approximately $1.8
million, and left out other prior sales, including one in May
of a new MD 500E helicopter for $1.55 million. Id.
Allegedly, the incomplete disclosure prevented the Army from
effectively negotiating “a reasonable and lower price,
” resulting in the Army agreeing to an inflated price
of over $7.2 million for the three helicopters, ground
support equipment, tools, and spares. Id. at 18-19.
Ultimately, the El Salvador Air Force Contract required the
Army to pay a base price of $1.8 million per helicopter with
additional payment conditions imposed by MD. Id. at
negotiations for El Salvador Air Force Contract were ongoing,
“Tilton provided free private transportation to [Col.]
Vergez aboard her jet.” Id. at 19. On February
15, 2012, approximately two months after the Contract was
finalized, “[Col.] Vergez notified the Army for the
first time that he was disqualified from engaging in
procurement activities involving MD because of an offer of
employment.” Id. at 21.
The Costa Rica Contract
December 7, 2011, the Army Command-Redstone Arsenal, on
behalf of the NSRWA, issued a Request for Information
“to identify potential contractors to produce and
deliver two new COTS rotary wing aircraft to be delivered to
the Government of Costa Rica.” Id. at 20.
Allegedly, MD misrepresented in its proposal that the base
price of a MD 600N helicopter was $2.35 million. Id.
MD submitted its proposal, Carl Schopfer, MD’s Chief
Operating Officer and President, advised Tilton that Costa
Rica had decided that, in lieu of purchasing the two
helicopters through an FMS contract with the Army, it wanted
to purchase them directly from MD. Id. at 22. In an
e-mail about the prospective purchase, Schopfer wrote:
“Costa Rica has the Army bid and it will be hard to
change prices at this point. The up side is that we bid 2,
350, 000 for the base price and not the 2, 315, 000 current
commercial price . . . .” Id. Tilton then
directed MD personnel to tell the Costa Rica officials that
if Costa Rica purchased the helicopters through the Army,
instead of directly from MD, it could have a “finished
contract in 30 days” if it was a sole source contract.
Id. The Relators allege that Tilton wanted to keep
the Costa Rica deal an FMS contract through the NSRWA to
conceal the actual commercial price of the helicopters.
the FMS sale of the two helicopters took several more months
than originally promised, the President of Costa Rica wrote
to the U.S. Embassy inquiring about the progress of the sale.
Id. at 26. For her part, Tilton asked Col. Vergez to
remedy the delay, and he “promised to remove the
obstacle” and told Tilton “that MD would have the
Costa Rica FMS contract no later than July 31, with delivery
by mid-August.” Id. However, the Army did not
execute the contract to supply the two helicopters until
August. Id. at 27. MD did not submit its formal FMS
pricing proposal to the NSRWA for the Costa Rica FMS contract
until October 2012, and the proposal included MD’s
inflated base price of $2.35 million per helicopter.
Id. at 28. Allegedly, MD “cherry-picked”
higher priced commercial purchases to provide to the Army for
its price evaluation, and “failed to disclose all the
pricing data that the Army contracting officer had requested
. . . .” Id. Relying on this “incomplete
disclosure, ” the Army accepted ...