Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 1 of 9 UNITED STATES COURT OF FEDERAL CLAIMS
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1 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 1 of 9 UNITED STATES COURT OF FEDERAL CLAIMS ) AEY, INC., ) Plaintiff, ) ) v. ) No C ) (Judge Lettow) UNITED STATES, ) Defendant. ) ) DEFENDANT S RESPONSE TO PLAINTIFF S MOTION TO DISMISS Pursuant to Rule 7.2(b)(1) of the Rules of the United States Court of Federal Claims (RCFC), defendant, the United States, respectfully submits this response to Plaintiff and Counterclaim Defendant s RCFC 12(b)(6) Motion to Dismiss Defendant and Counterclaim Plaintiff s Cross-Motion for Failure To State a Claim On Which Relief May Be Granted, in which plaintiff, AEY, Inc. (AEY) indicates that it is moving to dismiss Count II of the Government s counterclaims in this case. For the reasons set forth in detail below, AEY s motion to dismiss, which has been filed well over a year after AEY filed its response to the Government s counterclaims, should be denied. I. Factual Background And Course of Proceedings On May 22, 2009, AEY filed a complaint in this Court alleging that the United States Army wrongfully terminated it for default from an ammunition-supply contract in connection with AEY s failure to abide by a contractual provision that prohibited AEY from delivering ammunition from Communist Chinese military companies. See generally Compl. in Action No C (First AEY Action). AEY sought relief in the form of: (1) a declaration stating that AEY was not in breach of contract and that the Army s termination was a breach of contract and was barred by principles of ratification 1
2 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 2 of 9 and estoppel, (2) an order converting the termination for default into a termination for convenience, and (3) an award of fees and expenses. See id. at 10. The Government filed a motion to dismiss the complaint for various failures to state a claim pursuant to Rule 12(b)(6) of the Rules of the United States Court of Federal Claims (RCFC). See Mot. to Dismiss in Action No (docket no. 6). This Court ultimately agreed with the Government as to one of the proposed grounds for dismissal, ruling that DFARS plainly prohibits AEY s indirect acquisition of the ammunition it delivered to the Army from a Communist Chinese military company. AEY, Inc. v. United States, 99 Fed. Cl. 300, 309 (2011). The Court then held, in light of AEY s admissions in its complaint that it had supplied the Army with such materials, that AEY breached its contract with the Army, thereby entitling the Army to terminate the contract for default, and dismissed AEY s complaint. See id. at In the interim between the filing of the Government s motion to dismiss and the Court s ultimate decision, the First AEY Action was stayed in light of the fact that AEY had entered a guilty plea in United States District Court for the Southern District of Florida to one count of conspiring to make false statements, commit wire fraud, and commit a major fraud against the United States in connection with its actions on the contract at issue in this litigation, and, along with many of its principals, was awaiting sentencing. On January 1, 2010, during the pendency of the stay, AEY submitted another certified claim on the contract, this time demanding that the Government pay amounts allegedly owed with respect to task orders, which, it contended, had not been satisfied with Communist Chinese ammunition. See Complaint, Oct. 28, 2010, Exhibits 3, 7. After the contracting officer denied AEY s claim upon the grounds that AEY had 2
3 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 3 of 9 forfeited its claim pursuant to 28 U.S.C. 2514, the special plea in fraud, due to its overarching fraud on the contract at issue see Compl., Oct. 28, 2010, Exhibit 4, AEY filed the instant complaint against the United States in this Court challenging that decision. See generally Compl. On May 15, 2011, the Government filed an answer to AEY s complaint, counterclaiming that: (1) AEY was liable under the special plea in fraud for the forfeiture of all of its claims under the contract as a consequence of having submitted false claims to and practiced fraud against the Government (Count I); and (2) AEY was liable under the False Claims Act (FCA) for damages and civil penalties for knowingly presenting, or causing to be presented false claims for payment to the Government (Count II). AEY filed a response to the Government s Special Plea in Fraud and FCA counterclaims on June 6, See Resp. to Answer, Counterclaim. On July 6, 2011, AEY filed a motion for summary judgment with respect to Count I of the Government s counterclaims. On September 14, 2011, the United States filed a response to that motion, and also cross-moved for summary judgment with respect to Count I. On August 27, 2012, AEY, having obtained multiple enlargements of time to obtain replacement counsel following the withdrawal of its original attorney, filed a response and reply to the Government s cross-motion for summary judgment as to Count I. On the same date, AEY filed the instant 12(b)(6) motion, which apparently seeks the dismissal of Count II. 3
4 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 4 of 9 I. AEY s Motion To Dismiss Should Be Denied A. Applicable Standard To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 667 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 445 (2007)). When reviewing a motion to dismiss for failure to state a claim, the Court must accept as true the complaint s undisputed factual allegations and should construe them in a light most favorable to the plaintiff. Cambridge v. United States, 558 F.3d 1331, 1335 (Fed. Cir. 2009). If the plaintiff has not alleged a set of facts constituting a claim to relief, the complaint will be dismissed for failure to state a claim upon which relief can be granted under RCFC 12(b)(6). B. AEY s Motion To Dismiss Should Be Denied As Untimely The Rules of this Court specifically provide that a motion asserting failure to state a claim upon which relief can be granted must be made before pleading if a responsive pleading is allowed. RCFC 12(b) (emphasis supplied). In this case, AEY has filed its motion to dismiss well over a year after it filed its pleading response to the Government s counterclaims. Thus, AEY s motion to dismiss Count II of the Government s counterclaims, filed well over a year after it responded to them, and, indeed, after it had filed a motion for summary judgment as to Count I, is over one year out of time. As such, AEY s motion to dismiss should be denied upon that basis and without consideration of the arguments contained therein. 4
5 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 5 of 9 C. AEY s Contention That The Government s Special Plea In Fraud And False Claims Act Counterclaims Are Barred By Operation Of RCFC 13(a) And Claim Preclusion Have No Merit.. Even if this Court were to permit AEY to proceed by way of motion to dismiss, AEY s submission offers no legally cognizable reason that the Government s counterclaims in this action should be dismissed for failure to state a claim. Although it focuses upon Count II in its motion to dismiss, AEY actually appears to contend that the Government was required to bring both of its fraud counts as compulsory counterclaims in the First AEY Action, such that, by operation of the Rules of this Court and notions of claim preclusion, they may not now be brought in the instant action. See Pl. Mot. at 2-3. For the reasons set forth in detail below, AEY s position with respect to compulsory counterclaims and claim preclusion like its late-filing of its 12(b)(6) motion to dismiss reflects a fundamental misunderstanding of basic principles of law and civil procedure, rather than a valid basis for dismissal. Rule 13(a) of the RCFC provides, in relevant part, that [a] pleading must state as a counterclaim any claim that... [a]rises out of the same transaction or occurrence that is the subject of the opposing party s claim. RCFC 13(a). According to the Rules, a pleading is a complaint, an answer to a complaint, an answer to a counterclaim designated as a counterclaim, a reply to any offset or plea of fraud contained in the answer, a third-party pleading permitted under RCFC 14; and a reply to an answer. RCFC 7(a). The Federal Circuit has noted that Rule 7(a) [of the Federal Rules of Civil Procedure] 1 lists the types of pleadings permissible in [F]ederal cases. A motion to 1 In general, the rules of [the Court of Federal Claims] are patterned on the Federal Rules of Civil Procedure, making precedent under the Federal Rules of Civil Procedure... relevant to interpret rules of [the Court of Federal Claims]. Klamath Tribe Claims 5
6 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 6 of 9 dismiss is not one of them. It is not a pleading directed to issues of fact triable by a jury. Richardson v. Stanley Works, Inc., 597 F.3d 1288, 1297 (Fed. Cir. 2010) (citing United States v. Anderson, 584 F.2d 369, 372 n.4 (10th Cir. 1978)) (emphasis supplied). Indeed, it is well established that, because a Rule 12(b)(6) motion is not a pleading, the compulsory-counterclaim rule of 13(a) does not come into play when a defendant files only a motion to dismiss. Mellon Bank, N.A. v. Ternisky, 999 F.2d 791, 795 (4th Cir. 1993); accord Horn v. Hardart Co. v. Nat l Passenger R.R. Corp., 843 F.2d 546, 549 (D.C. Cir. 1988); Lawhorn v. Atl. Refining Co., 299 F.2d 353, (5th Cir. 1962). To the extent that AEY may attempt to assign significance to the fact that this Court elected under Rule 12(d) to treat the Government s motion to dismiss in the First AEY Action as a motion for summary judgment, it is equally well established that a motion for summary judgment, like a motion to dismiss, is also not a pleading under the Rules. See, e.g., Trotter v. Jack Anderson Enters., Inc., 818 F.2d 431, 436 (5th Cir. 1987), In re Calloway, 429 B.R. 802, 816 n.27 (Bkrtcy. N.D. Ala. 2010), Petaway v. City of New Haven Police Dep t., 541 F. Supp. 2d 504, 507 (D. Conn. 2008), Marcello v. Maine, 489 F. Supp. 2d 82, 84 (D. Me. 2007). Thus, because the Government did not file a pleading in the First AEY Action, there is no legally cognizable basis for AEY now to maintain that the Government is precluded by application of RCFC 13(a) from filing its Special Plea in Fraud and False Claims Act counterclaims in this case. AEY s appeal to the doctrine of claim preclusion fares no better. The Federal Circuit has stated that when a final judgment has been entered on the merits of a case, [i]t is a finality as to the claim or demand in controversy... not only as to every matter Committee v. United States, --- Fed. Cl. ---, 2012 WL , at *6 n.9 (July 16, 2012) (quoting Pac. Nat l Cellular v. United States, 41 Fed. Cl. 20, 25 n.3 (1998)). 6
7 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 7 of 9 which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. Phillips/May Corp. v. United States, 524 F.3d 1264, 1268 (Fed. Cir. 2008) (citing and quoting Nevada v. United States, 463 U.S. 110, (1876)). In the First AEY Action, the issue was solely one of contract interpretation. AEY claimed that the Army wrongfully terminated it for default as a result of having misinterpreted DFARS , which prohibited AEY from satisfying its contract obligations by delivering ammunition acquired, directly or indirectly, from a Communist Chinese military company. See generally Compl. May 22, Specifically, in a context where AEY admitted delivering Chinese-manufactured ammunition to the Government, AEY contended that its actions did not contravene DFARS because no Communist Chinese military company had played any part in the transactions in which AEY had acquired the ammunition. See, e.g., id. 23. The Government disagreed, reasoning that the DFARS clause in question effect[s] a broad ban against the acquisition of any qualifying goods... regardless of when such ammunition was manufactured or at what stage the ammunition was acquired in the contractual chain. AEY, 99 Fed. Cl. at 308. For its part, the Court also resolved this issue as a matter of pure contract interpretation on the Government s motion to dismiss. See AEY, 99 Fed. Cl. at 309 ( Because the text is plain in this regard, the court need look no further ). Whether AEY presented false claims to the Government in violation of the special plea in fraud or the FCA in connection with the ammunition in question, and whether AEY caused the Government to be defrauded in a specific dollar amount by presenting such claims are questions that obviously do not, and could not, inform any of the contract 7
8 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 8 of 9 interpretation issues in the First AEY Action. As such, they are plainly not admissible matter[s] which might have been offered for the purpose of defeating AEY s proffered interpretation of the parties contract and sustaining the default termination. Within the plain meaning of Phillips/May, therefore, claim preclusion does not apply to bar either of the Government s counterclaims in this case. Because AEY has merely misunderstood the law, and has failed to offer any valid reason why the Government s Special Plea in Frauds and False Claims Act counterclaims should be dismissed from this action, its attempt to obtain the dismissal of the Government s fraud counterclaims should be rejected by the Court. CONCLUSION For the reasons set forth in detail above, we respectfully request that this Court deny AEY s motion to dismiss. Respectfully submitted, STUART F. DELERY Acting Assistant Attorney General JEANNE E. DAVIDSON Director s/ Kirk T. Manhardt KIRK T. MANHARDT Assistant Director s/ A. Bondurant Eley A. BONDURANT ELEY Trial Attorney Commercial Litigation Branch Civil Division United States Department of Justice P.O. Box 480 Ben Franklin Station Washington, DC Tele: (202)
9 Case 1:10-cv CFL Document 41 Filed 09/27/12 Page 9 of 9 Fax: (202) September 27, 2012 Attorneys for Defendant 9
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