Filed: Dec. 19, 2017
Latest Update: Mar. 03, 2020
Summary: Case: 17-10046 Document: 00514278258 Page: 1 Date Filed: 12/19/2017 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals No. 17-10046 Fifth Circuit FILED December 19, 2017 United States of America, ex rel, PAUL J. SOLOMON, Lyle W. Cayce Clerk Plaintiff - Appellant v. LOCKHEED MARTIN CORPORATION; NORTHROP GRUMMAN SYSTEMS CORPORATION, Defendants - Appellees Appeal from the United States District Court for the Northern District of Texas Before REAVLEY, ELROD, a
Summary: Case: 17-10046 Document: 00514278258 Page: 1 Date Filed: 12/19/2017 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals No. 17-10046 Fifth Circuit FILED December 19, 2017 United States of America, ex rel, PAUL J. SOLOMON, Lyle W. Cayce Clerk Plaintiff - Appellant v. LOCKHEED MARTIN CORPORATION; NORTHROP GRUMMAN SYSTEMS CORPORATION, Defendants - Appellees Appeal from the United States District Court for the Northern District of Texas Before REAVLEY, ELROD, an..
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Case: 17-10046 Document: 00514278258 Page: 1 Date Filed: 12/19/2017
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 17-10046
Fifth Circuit
FILED
December 19, 2017
United States of America, ex rel, PAUL J. SOLOMON, Lyle W. Cayce
Clerk
Plaintiff - Appellant
v.
LOCKHEED MARTIN CORPORATION; NORTHROP GRUMMAN
SYSTEMS CORPORATION,
Defendants - Appellees
Appeal from the United States District Court
for the Northern District of Texas
Before REAVLEY, ELROD, and SOUTHWICK, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge.
Paul Solomon brought a False Claims Act action against his employer
Northrop Grumman and against Lockheed Martin for making false claims
against the government. On a motion for summary judgment, the district court
held that it lacked jurisdiction over Solomon’s claims based on the Act’s public
disclosure bar. We AFFIRM.
FACTUAL AND PROCEDURAL BACKGROUND
Paul Solomon worked for Northrop Grumman Systems Corporation.
Northrop was a subcontractor to Lockheed Martin Corporation on the
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development of the F-35 Joint Strike Fighter. Lockheed was awarded a Cost
Plus Award Fee contract for the F-35, which permitted Lockheed to receive
periodic award fees for meeting government performance benchmarks during
the life of the project. Lockheed shared its award fees with its subcontractor
Northrop. Under the Systems Design and Development contract (the “SDD
contract”) for the project, the government required both Lockheed and
Northrop to monitor continually and report costs and performance under a
system known as the Earned Value Management System (“EVMS”). EVMS is
a set of guidelines, metrics, and control systems that allows the government to
maintain real-time awareness of program costs and spending.
To evaluate EVMS metrics, the government required, through the terms
of the SDD contract, that Lockheed submit monthly Cost Performance Reports
(“CPRs”) that included up-to-date Estimates at Completion (“EACs”) for each
portion of the project. EVMS guidelines required that reported EACs be the
“most likely” estimate for the total cost of completing the project. The SDD
contract also required Lockheed to maintain a “management reserve” budget
for unanticipated challenges arising during the project. EVMS and SDD
contract provisions forbid contractors from using management reserve funds
to compensate for cost overruns or improve cost performance metrics.
Northrop submitted reporting data to Lockheed, who in turn submitted
monthly CPRs to the government. The SDD contract provided for the
monitoring and measurement of EVMS compliance in at least two ways. First,
it mandated access for government auditors from the Defense Contract
Management Agency (“DCMA”). Second, under a joint Surveillance Plan
established between Northrop and the DCMA, Northrop was to self-report
EVMS compliance directly to the government through its own employee
auditor.
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In September 2005, Northrop assigned Solomon to serve as “EVMS
Monitor” or EVMS “Focal Point” for the Joint Strike Fighter program. Solomon
drafted the Surveillance Plan on behalf of Northrop, co-signed by his DCMA
counterpart, outlining the ways in which Northrop would comply with its
EVMS contractual obligations. According to Solomon, he had full discretion,
as the Focal Point, “to direct the scope of [his] investigations, including any
accounts or compliance issues that came to [his] attention.” Solomon
submitted his surveillance reports directly to the DCMA. The DCMA
frequently co-signed the reports. Over the course of the project, Solomon
revealed in his surveillance reports that Lockheed and Northrop were
authorizing retroactive application of management reserve funds to improve
cost-performance overruns. According to Solomon, this constituted false cost
variance reporting that led to Lockheed and Northrop being awarded fees they
would not have otherwise received.
In 2007, the DCMA conducted an EVMS audit of Lockheed. In its report,
the DCMA concluded that Lockheed was not in compliance with a number of
EVMS guidelines, including mismanagement and improper use of
management reserve funds to keep “the cost performance index (CPI) from
worsening.” In 2008, the Government Accountability Office (“GAO”) filed a
similar report, noting that Lockheed was “using management reserve funds to
alter its own and subcontractor performance levels and cost overruns.” In
August 2007, Northrop transferred Solomon to a different project. He
nonetheless continued to investigate the F-35 project and was given a copy of
a Memorandum of Agreement (“MOA”) by another Northrop supervisor. The
unsigned MOA between Northrop and Lockheed allegedly indicates Lockheed’s
instructions to Northrop to meet a budget of $3.721 billion despite it being a
“significant performance challenge[.]” If Northrop was unable to meet the
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required target, Lockheed indicated it would use management reserve funds
to increase Northrop’s budget.
Solomon retired in 2008. He filed a qui tam action under the False
Claims Act (“FCA”) in 2012, alleging that both Lockheed and Northrop
submitted false claims to the government. Lockheed and Northrop moved for
summary judgment, arguing that Solomon triggered the FCA’s jurisdictional
bar. The district court held that Solomon was jurisdictionally barred because
his complaint could have been synthesized from public disclosures, and he did
not qualify as an original source because his reports to the government had
been nonvoluntary. Solomon timely appealed.
DISCUSSION
For purposes of appellate review, a challenge under the FCA’s
jurisdictional bar is the equivalent of a motion for summary judgment because
it is necessarily intertwined with the merits. United States ex rel. Jamison v.
McKesson Corp., 649 F.3d 322, 326 (5th Cir. 2011). “We review a summary
judgment de novo, applying the same standard as the district court.”
Id.
Summary judgment is proper “if, viewing the evidence in the light most
favorable to the non-moving party, there is no genuine dispute a[s] to any
material fact and the movant is entitled to judgment as a matter of law.”
Id.
Additionally, the parties do not dispute that because Solomon’s claims concern
events prior to 2010, this case is governed by the FCA’s language immediately
prior to the 2010 amendments to the Act.
Under the FCA, any person who “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or approval” is liable to the
United States Government for civil penalties. See 31 U.S.C. § 3729(a)(1)
(2012). The pre-2010 version of the FCA contains the following jurisdictional
bar, a provision now altered in the current FCA:
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(A) No court shall have jurisdiction over an action under this
section based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing, in a
congressional, administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the news media,
unless the action is brought by the Attorney General or the person
bringing the action is an original source of the information.
(B) For purposes of this paragraph, “original source” means an
individual who has direct and independent knowledge of the
information on which the allegations are based and has voluntarily
provided the information to the Government before filing an action
under this section which is based on the information.
31 U.S.C. § 3730(e)(4)(A)–(B) (2006).
We have previously applied the FCA’s jurisdictional bar by using a three-
part test, “asking ‘1) whether there has been a “public disclosure” of allegations
or transactions, 2) whether the qui tam action is “based upon” such publicly
disclosed allegations, and 3) if so, whether the relator is the “original source”
of the information.’” Jamison, 649 F.3d at 327 (citation omitted). The purpose
of the jurisdictional bar is both to promote private citizen involvement in fraud
exposure while also “preventing parasitic suits by opportunistic late-comers
who add nothing to the exposure of fraud.” United States ex rel. Reagan v. E.
Tex. Med. Ctr. Reg’l Healthcare Sys.,
384 F.3d 168, 174 (5th Cir. 2004) (citation
omitted).
I. Original vs. Amended Complaint
The district court first analyzed whether its jurisdictional analysis
should be based on Solomon’s original complaint or instead the amended
complaint which added a fraudulent inducement claim against Northrop and
Lockheed. The court examined only the original complaint because of our
holding that when a plaintiff’s original “complaint did not establish
jurisdiction, it should have been dismissed; his amendments cannot save it.”
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Jamison, 649 F.3d at 328. Solomon fails to raise any arguments on appeal
concerning the district court’s decision to rely only on his original complaint.
Accordingly, we also examine only Solomon’s original complaint in evaluating
the FCA jurisdictional bar.
II. Whether there was a “public disclosure”
Under our test, we compare the allegations contained in Solomon’s
original complaint with public disclosures available at the time the complaint
was filed. Id. at 327. If the complaint could have been synthesized from the
disclosures, then we determine if the complainant was the original source of
the disclosures.
Id. at 331. The first issue, then, is whether there was any
public disclosure of allegations or transactions that pre-dated Solomon’s FCA
complaint. Lockheed and Northrop cite to three potentially relevant public
disclosures in arguing for application of the FCA jurisdictional bar. These are
a 2007 DCMA EVMS compliance report, a March 2008 GAO report, and the
model Joint Strike Fighter Systems Design and Development contract. The
district court presumed that the DCMA and GAO reports were valid public
disclosures, focusing on the second part of the test asking whether Solomon’s
complaint was based upon the disclosures. We also start with the second part
of the test because Solomon does not argue the two reports and the contract
were not public disclosures. Instead, he claims his complaint was not based
upon them.
III. Whether Solomon’s complaint was based upon public disclosures
The second part of the FCA jurisdictional test determines whether the
complaint is “based upon” any public disclosures. See id. Under Jamison, once
the defendants have identified public disclosures that could plausibly be the
source of the FCA complaint, a plaintiff “must produce evidence sufficient to
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show that there is a genuine issue of material fact as to whether his action was
based on those public disclosures.” Id.
A plaintiff’s FCA complaint is based upon public disclosures if “one could
have produced the substance of the complaint merely by synthesizing the
public disclosures’ description of the joint venture scheme[.]”
Id. at 331. The
public disclosures must therefore provide “‘specific details about the fraudulent
scheme and the types of actors involved in it’ sufficient to ‘set the government
on the trail of the fraud[.]’”
Id. at 329 (quoting In re Natural Gas Royalties,
562 F.3d 1032, 1042–43 (10th Cir. 2009)).
We recently adopted a test embraced by other circuits for determining
whether public disclosures contain sufficient indicia of an FCA violation to bar
a subsequently filed FCA complaint. See United States ex rel. Colquitt v. Abbott
Labs., 858 F.3d 365, 374 (5th Cir. 2017) (citing United States ex rel. Springfield
Terminal Ry. Co. v. Quinn,
14 F.3d 645, 654 (D.C. Cir. 1994)). Under this
approach, “the combination of X and Y must be revealed, from which the
readers or listeners may infer Z[.]”
Id. (quoting Springfield Terminal, 14 F.3d
at 654). Z is an inference of fraud under the FCA, while X and Y are two
required elements for the inference: “a misrepresented state of facts and a true
state of facts.” Springfield
Terminal, 14 F.3d at 655. “The presence of one or
the other in the public domain, but not both, cannot be expected to set
government investigators on the trail of fraud.”
Id.
This complaint is based on public disclosures for FCA purposes if the
facts publicly available to Solomon could have been synthesized to form the
same inference he now alleges in his complaint. See
Jamison, 649 F.3d at 331.
The complaint alleges “Lockheed knowingly presented to the government false
cost variance data, including data which incorporated Northrop’s false cost
variance data. This false data was used by the government, directly or
indirectly, in determining how much of an award fee to grant Lockheed.”
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The first of the three potentially relevant public disclosures is the DCMA
report. It found Lockheed had “misapplied [Management Review] budgets to
open, internal, discrete work packages in order to prevent the cost performance
index (CPI) from worsening.” While Lockheed referred “to this practice as a
risk mitigation strategy, the government review team concluded that the
actual purpose was to improve the CPIs of various [Work Breakdown
Structure] elements.” The DCMA report stated that the approach
“misrepresents the actual condition of cost and schedule status.” Id. The effect
was substantial: “EACs of 17 major subcontractors have been routinely altered
by [Lockheed], resulting in unreported overruns of ~$124M.” Similarly, the
March 2008 GAO report stated that the “DCMA [report] found that [Lockheed]
was using management reserve funds to alter its own and subcontractor
performance levels and cost overruns.”
The final disclosure, the Joint Strike Fighter contract, is discussed later.
Lockheed and Northrop argue that the DCMA and GAO findings
comprise both the misrepresented state of facts (X) and the true state of facts
(Y) for an inference of an FCA violation (Z). Solomon argues that his complaint
is not based on these disclosures because neither disclosure expressly or
implicitly alleges fraud. He argues that despite the findings of the report,
“DCMA failed to make the connection between the misuse of Management
Reserve and the fraud.” Solomon’s argument fails. The public disclosures need
not expressly allege fraud. The question is whether the relator could have
synthesized an inference of fraud from the public disclosures. See Jamison,
649 F.3d at 331.
Solomon further argues that the public disclosures do not provide the
necessary components of the Springfield Terminal formula because they fail to
link “the misuse of Management Reserve to Defendants’ scheme to
intentionally and improperly understate the EAC.” Additionally, Solomon
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argues that neither the DCMA nor GAO reports link the receipt of award fees
with understated EACs. This, he argues, is accomplished only through his
provision of the MOA between Lockheed and Northrop, which demonstrates
that not only did Lockheed and Northrop submit false EACs, but they did so
“intentionally.”
By arguing that only the non-public MOA provides a necessary element
of intentionality, Solomon overstates the threshold for an FCA claim. The
language of the FCA conveys congressional intent to prohibit qui tam actions
“when either the allegation of fraud or the critical elements of the fraudulent
transaction themselves were in the public domain.” Springfield Terminal, 14
F.3d at 654 (emphasis added). Thus, the MOA is not relevant to whether
Solomon’s complaint is based on public disclosures. When the elements of a
fraudulent transaction are present in public disclosures, those public
disclosures need not allege fraud in explicit language. See
id.
Public disclosures will be sufficient if they provide details “such that the
defendant’s misconduct would have been readily identifiable” and “furnish
evidence of the fraudulent scheme alleged.” Little v. Shell Expl. & Prod. Co.,
690 F.3d 282, 293 (5th Cir. 2012). The DCMA report states that Lockheed “was
using management reserve funds to alter its own and subcontractor
performance levels and cost overruns.” The report identified Lockheed’s
purpose: “to prevent the cost performance index (CPI) from worsening.” Thus,
the DCMA report sufficiently indicates misconduct and leads at least to an
inference of fraud under the Springfield Terminal test. Applying Little, we
also conclude that the DCMA and GAO reports allege facts that make a
potentially fraudulent scheme readily identifiable: Lockheed and its
subcontractors were violating contracting regulations by using their
management reserve budgets to compensate for over-budget expenditures that
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would have otherwise raised their cost performance indexes and estimates at
completion reported to the government.
Solomon finally argues that this information, by itself, is insufficient
because technical violations of EVMS guidelines and contract provisions do not
necessarily trigger FCA violations. He argues that a necessary piece of the
puzzle is that estimates at completion were the basis for the government
issuing award fee bonuses at various phases of the project. Without this
awareness, misuse of management reserve budgets to inflate cost performance
indexes does not support financial loss to the government. Solomon asserts
that only the nonpublic MOA provides that piece. To the contrary, Northrop
argues that the model Joint Strike Fighter System Design and Development
contract, which Solomon concedes was publically available at the time he filed
his complaint, explicitly cites cost performance index reporting as a criteria for
the disbursement of award fees.
Solomon argues that “[t]he simple fact that the model SDD contract was
available on a government website does not mean that anyone with an
understanding of Defendants’ EVMS discrepancies would ever think to search
for the model contract.” We are not concerned however, with the overall
probability of someone inferring fraudulent activity from the public
disclosures. The focus is on whether they could have made the inference. See
Jamison, 649 F.3d at 331.
Solomon has failed to “produce evidence sufficient to show that there is
a genuine issue of material fact as to whether his action was based on those
public disclosures.” Id. at 327.
IV. Whether Solomon qualifies as an original source
Even though Solomon’s complaint was based upon public disclosures, his
FCA complaint may proceed if he is the original source of the publically
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disclosed information. Id. We use a two-part test in determining the original
source exception: “(1) the relator must demonstrate that he or she has direct
and independent knowledge of the information on which the allegations are
based and (2) the relator must demonstrate that he or she has voluntarily
provided the information to the Government before filing his or her qui tam
action.”
Reagan, 384 F.3d at 177 (quotation marks and citation omitted).
The test is stated in the conjunctive, meaning a negative answer to either
will require dismissal of the complaint. The district court declined to reach the
question of direct and independent knowledge because it held that Solomon did
not voluntarily report the information. We decide the opposite question, which
is permitted because we can resolve the appeal on any ground that was
presented to the trial court. Breaux v. Dilsaver, 254 F.3d 533, 538 (5th Cir.
2001). Solomon does not present any arguments concerning direct and
independent knowledge on appeal, but he did brief the issue on summary
judgment below.
“Knowledge is direct if it is ‘derived from the source without interruption
or gained by the relator’s own efforts rather than learned second-hand through
the efforts of others.’” Jamison, 649 F.3d at 332 (quoting
Reagan, 384 F.3d at
177). Additionally, “knowledge is independent if it ‘is not derived from the
public disclosure.’”
Id. (citations omitted).
Solomon’s FCA claim alleges both the improper use of management
reserves and the connection of those budget alterations to obtaining award fee
bonuses. Even if we assume Solomon had direct and independent knowledge
about the improper use of management reserves, he lacked direct knowledge
about the connection between management reserves and award fee bonuses.
Because the model SDD contract was publically available and tied cost
performance to award fees, Solomon must have direct and independent
knowledge of the connection between cost performance and award fees as
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described in the contract. Solomon himself concedes that based on his own
level of knowledge, he could only “suspect” that there might be some
relationship between cost performance and award fees. He explicitly states
that he needed to ask another Northrop supervisor “whether there was any
connection between cost variance numbers and Award Fees[.]” After the
supervisor allegedly denied such a connection, Solomon only recognized the
connection between cost performance and award fees by reading the SDD
contract.
Knowledge can only be independent if it is not derived from the public
disclosure. Id. Here, the record makes clear Solomon derived his knowledge
about the connection between cost performance and award fees from portions
of a contract that were publically disclosed before he filed his complaint. He
fails to demonstrate that he is the original source of the model SDD contract.
Accordingly, we lack jurisdiction to hear Solomon’s claims under the
FCA’s public disclosure bar.
AFFIRMED.
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