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United States ex rel. Marsteller v. Tilton

United States District Court, N.D. Alabama, Northeastern Division

September 30, 2019

UNITED STATES OF AMERICA, ex. rel. PHILIP MARSTELLER and ROBERT SWISHER, Plaintiffs/Relators,
v.
LYNN TILTON, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          ABDUL K. KALLON, UNITED STATES DISTRICT JUDGE

         Relators 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;[1] 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. Doc. 85-1.

         This 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 claims.

         I. STANDARD OF REVIEW

         Rule 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.

         Further, 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 marks omitted).

         II. RELEVANT FACTUAL BACKGROUND

         NSRWA 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.

         This 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.

         A. The Afghanistan Air Force Contract

         In 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.

         On 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.

         After 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.

         B. The Afghan CLS Contract

         In 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.

         C. The El Salvador Air Force Contract

         On 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 19.

         While 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.

         D. The Costa Rica Contract

         On 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. at 20-21.

         After 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. Id.

         Because 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 ...


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