Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 1 of 13 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA UNITED STATES OF AMERICA, ex rel., AARON J. WESTRICK, Ph.D., Civil Action No. 04-0280 (PLF Plaintiffs, v. SECOND CHANCE BODY ARMOR, INC., et al., Defendants. UNITED STATES OF AMERICA, Civil Action No. 07-1144 (PLF Plaintiff, v. TOYOBO COMPANY, LTD., et al., Defendants. OPINION AND ORDER This matter is before the Court on the United States second motion for reconsideration [Dkt. 476 in Civil Action No. 04-0280 and Dkt. 206 in Civil Action No. 07-1144] of the Court s September 4, 2015 Memorandum Opinion and Order denying defendants motion for summary judgment on the United States implied false certification claim under the False Claims Act ( FCA, 31 U.S.C. 3729, et seq. See United States ex rel. Westrick v. Second Chance Body Armor, Inc., 128 F. Supp. 3d 1 (D.D.C. 2015, reconsideration denied in part sub nom. United States v. Second Chance Body Armor, Inc., No. 04-0280, 2016
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 2 of 13 WL 3033937 (D.D.C. Feb. 11, 2016. 1 Defendants argue that the Supreme Court s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016 ( Escobar, is an intervening decision that merits reconsideration. Second Chance Body Armor, Inc., Toyobo Company, Ltd., and Toyobo America, Inc. (collectively, defendants oppose the motion. Upon consideration of the parties written submissions, the relevant case law, and the entire record in this case, the Court will grant the United States motion for reconsideration in part and deny it in part. 2 I. FACTUAL AND PROCEDURAL HISTORY The factual and procedural history of this case has been fully recounted in several prior opinions in these cases. 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. As relevant here, the United States amended complaint in Civil Action No. 07-1144 alleges that Toyobo Company, Ltd. and Toyobo America, Inc. (collectively, Toyobo contracted with Second Chance Body Armor, Inc. ( Second Chance and other manufacturers to sell them defective Zylon fiber for use in bulletproof vests, which the manufacturers then sold to the United States under both (1 the Bullet Proof Vest Grant 1 Both related (but not consolidated civil actions in the caption of this case contain identical filings. For reference, the Court in this Opinion will refer to docket numbers from United States v. Toyobo Company, Ltd., Civil Action No. 07-1144. 2 The documents reviewed by the Court in resolving the pending motion include the following: Amended Complaint ( Am. Compl. [Dkt. 73 in Civil Action No. 07-1144]; Second Amended Complaint [Dkt. 408 in Civil Action No. 04-0280]; the United States motion for reconsideration ( Mot. [Dkt. 206]; Toyobo Company, Ltd. and Toyobo America, Inc. s opposition ( Opp. [Dkt. 210]; the United States reply [Dkt. 211]; and Opposition of Pro Se Defendant Thomas E. Bachner, Jr. [Dkt. 483 in Civil Action No. 04-0280]. 2
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 3 of 13 Partnership Act, 42 U.S.C. 379611, et seq., and (2 the General Service Administration s Multiple Award Schedule. Am Compl. 1-5, 14-25; see also Second Amended Complaint 1-5 (Dec. 30, 2013 [Dkt. 408 in Civil Action No. 04-0280]. This conduct forms the basis of the United States three FCA claims and its common law claims of fraud, payment by mistake, unjust enrichment, and breach of contract. See generally Am. Compl.; Second Amended Complaint [Dkt. 408 in Civil Action No. 04-0280]. The contracts between the United States and Second Chance, as well as those between the United States and other vest manufacturers, contained three relevant clauses: (1 a five-year commercial warranty clause that the vests are warranted to provide protection as stated on the protective panel label and to be free of defects in material and workmanship for the applicable warranty period, see Mot., Ex. 81 at 3 [Dkt. 207-32]; (2 a workmanship clause requiring that [a]ny item contracted for must be new, current model at the time of offer, unless otherwise specified[,] and [e]ach article must perform the functions for its intended use, see Declaration of Kellie Stoker in Support of United States Motion for Partial Summary Judgment at Ex. 10, PDF page 64 [Dkt. 100-2]; and (3 a new materials clause that the Contractor represents that supplies and components are new, including recycled (not used or reconditioned and are not of such age or so deteriorated as to impair their usefulness or safety. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 11. 3 3 The Court is aware that the contracts between the United States and vest manufacturers other than Second Chance contained a different general commercial warranty than that quoted in number one of this list. That general commercial warrantee stated that, [f]or five years after date of purchase[, the manufacturer] warrants that the ballistic panels will pass the [National Institute of Justice ( NIJ ] protocol for ballistic intervention and their NIJ designated velocities during an actual occurrence, not necessarily during an NIJ independent laboratory retest procedure. See Declaration of Kellie Stoker in Support of United States Motion for Partial Summary Judgment at Ex. 2, PDF page 8 [Dkt. 100-2]. 3
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 4 of 13 In addition to these three contract clauses, the United States alleges that it also expected that its bargain included three other provisions, which Judge Roberts referred to as extra-contractual considerations. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 16. The three provisions are: (1 a 6% catalog guarantee that the manufacturer 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 United States Supp. Brief Pursuant to Court s February 11, 2016 Order at Ex. 1, PDF page 51 [Dkt. 195]; (2 a guarantee that [a]ll Second Chance vests are NIJ 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 Mot., Ex. 28 at 15 [Dkt. 208]. 4 As relevant here, one of the United States theories of FCA liability under 31 U.S.C. 3729(a(1 is that the invoices submitted by Second Chance and other vest manufacturers constituted an implied certification that the Zylon vests would meet each of these contractual and non-contractual requirements. See Mot. at 12-14. Judge Roberts, to whom these cases were previously assigned, denied defendants motion for partial summary judgment on the United States implied false certification claims (1 that arose after the 2002 contract modification was executed and (2 that are based on defendants noncompliance with the 6% catalog guarantee. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 17. 5 In determining that the 6% catalog guarantee survives summary judgment 4 While these provisions did not appear in the contracts between the United States and the vest manufacturers, the United States maintains that they animated the bargain it struck when purchasing the vests. See Mot. at 17-18. 5 The United States modified its contract with Second Chance in 2002 shortly after Second Chance sent the United States its catalog containing the 6% guarantee. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 12. Judge Roberts held 4
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 5 of 13 and must proceed to trial, Judge Roberts cited United States v. Science Applications Int l Corp., 626 F.3d 1257, 1269 (D.C. Cir. 2010, for the proposition that [t]he D.C. Circuit s test for falsity based on an implied certification theory requires the government to prove (1 that Toyobo withheld information about its noncompliance with (2 material contract requirements. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 17 (emphasis added. Judge Roberts found that the 6% catalog guarantee is an ambiguous contract term because the parties offered multiple reasonable interpretation[s], but [n]either party ha[d] put forward evidence that negates [the other s] interpretation. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 16-17. He concluded that a jury must resolve that ambiguity. Id. at 17. Judge Roberts also found that [t]he 6% guarantee is a contract term that might impose a durability requirement. Id. (emphasis added. He explained that defectiveness is different than durability because [a] product is not defective simply because it does not last as long as the parties expect it to, unless the parties have explicitly contracted for a durability requirement, and expressed skepticism that the parties would include a durability requirement in their contracts where, as here, they also included a repair and replace provision. Id. at 14-15. 6 He explained that [n]othing in the language of the contract explicitly guarantees that the vests will function perfectly for the five-year period; indeed the that, [b]ecause the catalog statement was attached to the contract modification, it was properly incorporated into the contractual agreement, and therefore that the statement from the Second Chance catalog ( the 6% guarantee was a term of the contract for all claims after the 2002 contract modification. Id. 6 The repair and replace provision states that, [i]n the event a defect is found, in material or workmanship, in either component or your vest, carrier outershell or panels, during the applicable warranty period,... SECOND CHANCE, in its discretion, without cost to you, will repair or replace the defective part or the entire vest. See Mot., Ex. 28 at 5 [Dkt. 208]. 5
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 6 of 13 [contract] presupposes that some of the vests may not survive the five-year period. Id. at 14. Judge Roberts concluded that a jury must determine whether the 6% catalog guarantee is, in fact, a durability requirement. Id. at 17. As for the implied false certification claims based on defendants noncompliance with other contractual and non-contractual requirements, Judge Roberts did not provide analysis as to why he granted summary judgment to defendants on those claims. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 17. The United States understands that Judge Roberts granted summary judgment to defendants on any implied false certification claim arising (1 before the 2002 contract modification, or (2 based on anything other than the 6% catalog guarantee. Mot. at 10 ( The dismissed claims included all claims based on an implied false certification theory, except for those based on the Second Chance catalog guarantee.... ; see also Reply at 7. The United States moves for reconsideration, arguing that Judge Roberts erred in granting partial summary judgment because the Supreme Court s decision in Escobar significantly clarif[ied] the extent and application of implied false certification theory under the [FCA]. Reply at 7; see also Mot. at 10-11. Specifically, the United States contends that, as a result of Escobar, the case must proceed to trial on each of the six contractual or non-contractual requirements, not just the 6% catalog guarantee. Mot. at 11-12. II. DISCUSSION Motions for reconsideration are not specifically addressed in the Federal Rules of Civil Procedure. While the most analogous rule is Rule 60, which provides relief from a final judgment or order, motions to reconsider interlocutory orders are not governed by Rule 60(b, but rather, such determinations are within the discretion of the trial court. Estate of Klieman 6
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 7 of 13 v. Palestinian Auth., 82 F. Supp. 3d 237, 241-42 (D.D.C. 2015 (quoting Keystone Tobacco Co. v. United States Tobacco Co., 217 F.R.D. 235, 237 (D.D.C. 2003; see also FED. R. CIV. P. 54(b ( [A]ny order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties rights and liabilities.. Notwithstanding the broad discretion of a court to reconsider its own interlocutory decisions, however, and in light of the need for finality in judicial decision-making, district courts should only reconsider interlocutory orders when the movant demonstrates (1 an intervening change in the law; (2 the discovery of new evidence not previously available; or (3 a clear error of law in the first order. Estate of Klieman v. Palestinian Auth., 82 F. Supp. 3d at 242 (quoting In re Vitamins Antitrust Litig., No. 99-1097, 2000 WL 34230081, at *1 (D.D.C. July 28, 2000. Within this framework, the United States argues that Escobar is an intervening change in the law in its words, a clarif[ication], see Reply at 7 that would have commanded a different result. Mot. at 9-12. Defendants disagree, arguing that the Supreme Court s decision in Escobar was consistent with the controlling D.C. Circuit decision on which Judge Roberts relied, United States v. Science Applications Int l Corp., 626 F.3d 1257 (D.C. Cir. 2010. See Opp. at 9. For the reasons that follow, the Court concludes that reconsideration is appropriate. A. Implied False Certification Under the FCA The False Claims Act prohibits, inter alia, (A knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval; [and] (B knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement 7
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 8 of 13 material to a false or fraudulent claim. 31 U.S.C. 3729(a(1(A-(B. The elements of a FCA claim under Section 3729(a(1(A are: (1 the defendant submitted a claim to the government, (2 the claim was false, and (3 the defendant knew the claim was false. Pencheng Si v. Laogai Research Found., 71 F. Supp. 3d 73, 91 (D.D.C. 2014 (internal quotation marks omitted. The elements of a FCA claim under Section 3729(a(1(B are: (1 the defendant made or used [or caused to be made or used] a record or statement; (2 the record or statement was false; (3 the defendant knew it was false; and (4 the record or statement was material to a false or fraudulent claim. United States ex rel. Hood v. Satory Global, Inc., 946 F. Supp. 2d 69, 85 (D.D.C. 2013. A claim may be either factually or legally false. A factually false claim is one that is untrue on its face, whereas [a] legally false claim a false certification may be either express or implied. United States ex rel. Barko v. Halliburton Co., --- F. Supp. 3d ----, 2017 WL 1018309, at *6 (D.D.C. Mar. 14, 2017 (internal quotation marks omitted. An implied false certification may arise [w]hen... a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements. Escobar, 136 S. Ct. at 1999. In such cases, those omissions can be a basis for liability if they render the defendant s representations misleading with respect to the goods or services provided. Id. The FCA s scienter requirement is met if the defendant (i has actual knowledge of the information; (ii acts in deliberate ignorance of the truth or falsity of the information; or (iii acts in reckless disregard of the truth or falsity of the information. 31 U.S.C. 3729(b(1(A. The FCA also has a materiality requirement. As explained by the Supreme Court in Escobar, for liability to be proved [u]nder the [FCA], the misrepresentation must be material to the other party s course of action. 136 S. Ct. at 2001. What matters under the FCA is 8
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 9 of 13 whether the defendant knowingly violated a requirement that the defendant knows is material to the Government s payment decision. Id. at 1996. The FCA s materiality requirement is met, inter alia, when: [T]he defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Conversely, if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material. Id. at 2003. The materiality and scienter requirements are rigorous and must be strict[ly] enforce[d]. Id. at 2002. The D.C. Circuit recently interpreted Escobar as mak[ing] clear that courts should continue to police expansive implied certification theories through strict enforcement of the Act s materiality and scienter requirements. United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1031 (D.C. Cir. 2017. In particular, a misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government s payment decision in order to be actionable under the [FCA]. Id. In other words, not just any misrepresentation or half-truth even one about compliance with a statutory, regulatory, or contractual requirement suffices; it must be one that is material to the Government s payment decision. Id.; see also Escobar, 136 S. Ct. at 2002. Here, the Court concludes that reconsideration of Judge Roberts s September 2015 implied false certification analysis is warranted as a doctrinal matter because Escobar expanded the bases for FCA implied false certification liability. Judge Roberts limited his analysis to defendants representations concerning noncompliance with material contract requirements, see United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. 9
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 10 of 13 Supp. 3d at 17, while Escobar now permits liability to attach to material misrepresentations concerning noncompliance with statutory, regulatory, or contractual requirements. Escobar, 136 S. Ct. at 1999. The Court therefore will address each of the six contractual and non-contractual requirements with which the United States alleges defendants did not comply in light of Escobar. B. Which Implied False Certification Claims Will Proceed to Trial By his September 4, 2015 decision in this case, Judge Roberts permitted the United States to proceed to trial on its implied false certification claim concerning the 6% catalog guarantee because he found it to be an ambiguous contract term and a term that may impose a durability requirement that is in tension with the contract s repair and replace provision. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 16-17. The Court agrees. While the three express clauses of the contract the five-year commercial warranty, the workmanship clause, and the new materials clause do not impose a durability requirement, the 6% catalog guarantee may. As noted, the catalog guarantee states that the vest manufacturer 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 United States Supp. Brief Pursuant to Court s February 11, 2016 Order at Ex. 1, PDF page 51 [Dkt. 195] (emphasis added. Whatever the ambiguous 6% catalog guarantee means, it is for the jury to decide and Escobar offers no reason to alter that holding. Turning now to the three express contractual requirements (1 the five-year commercial warranty clause, (2 the workmanship clause, and (3 the new materials clause of the United States contracts with Second Chance and other vest manufacturers the Court finds 10
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 11 of 13 that Escobar provides no basis for reconsideration of Judge Roberts s implied false certification analysis. Before Escobar, this Circuit held in United States v. Science Applications Int l Corp. that, in order to establish the existence of a false or fraudulent claim on the basis of implied certification of a contractual condition, the FCA plaintiff here the government must show that the contractor withheld information about its noncompliance with material contractual requirements. 626 F.3d at 1269 (emphasis added. Judge Roberts applied United States v. Science Applications Int l Corp. and concluded that the 6% catalog guarantee was the only term of the contract that could give rise to an implied false certification claim under the FCA. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 12, 17. The Supreme Court in Escobar did not change the legal principle on which Judge Roberts relied as articulated in United States v. Science Applications Int l Corp. that noncompliance with material contractual requirements is a basis for an implied false certification claim under the FCA. 626 F.3d at 1269. Instead, Escobar expanded that principle beyond express contract terms, holding: When... a defendant makes representations in submitting a claim but omits its violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for liability if they render the defendant s representations misleading with respect to the goods or services provided. Escobar, 136 S. Ct. at 1999 (emphasis added. There therefore is no reason to revisit Judge Roberts s conclusion that the United States cannot base its implied false certification claim on any of the three express contractual requirements. Looking next beyond the express contract language to what Judge Roberts described as the extra-contractual considerations that were not explicit terms of the contract but may have otherwise informed[] the actual contracting, United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 16, the Court concludes that Escobar 11
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 12 of 13 warrants reconsideration but commands the original result. As just discussed, Escobar warrants reconsideration because it expanded the basis for an implied false certification claim under the FCA and demands that the Court now consider whether defendants noncompliance with statutory or regulatory requirements also provides a basis for liability. 136 S. Ct. at 1999. Nonetheless, applying Escobar, the Court concludes that these extra-contractual considerations (1 a guarantee that vests would meet NIJ regulations and (2 a guarantee that the vests would have certain protective properties, see supra at 4 were not material to the United States payment decision under the FCA. Judge Roberts explained that unlike the 6% catalog guarantee the government... does not point to anything in [its] solicitation, Second Chance s offer, or the Award/Contract that expressly incorporates the expectations of NIJ or certain protective properties. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d at 13. This record led Judge Roberts to find that there is no evidence that these extra-contractual considerations were a part of, or otherwise informed, the actual contracting. Id. at 16. Escobar again offers no reason to alter that holding, especially because the Supreme Court in Escobar directed courts to emphasize the FCA s materiality requirement in their analysis. 136 S. Ct. at 2002-03. It is plain to the Court that, if neither the NIJ guarantee nor protective properties guarantee was material to the United States contracting decisions as Judge Roberts noted, then those guarantees were similarly not material to the United States payment decisions. The United States implied false certification claim under the FCA therefore is limited to its theory that the 6% catalog guarantee was a durability requirement. 12
Case 1:07-cv-01144-PLF Document 212 Filed 03/31/17 Page 13 of 13 IV. CONCLUSION For the foregoing reasons, it is hereby ORDERED that the United States second motion for reconsideration [Dkt. 476 in Civil Action No. 04-0280] is GRANTED IN PART and DENIED IN PART; and it is FURTHER ORDERED that the United States second motion for reconsideration [Dkt. 206 in Civil Action No. 07-1144] is GRANTED IN PART and DENIED IN PART. SO ORDERED. DATE: March 31, 2017 /s/ PAUL L. FRIEDMAN United States District Judge 13