RICHARD W. ROBERTS, Chief Judge.
The government brought these actions against defendants Second Chance Body Armor, Inc. and related entities (collectively "Second Chance"), Toyobo Co., Ltd. and Toyobo America, Inc. (collectively "Toyobo"), and individual defendants Thomas Bachner, Jr., Richard Davis, Karen McCraney, and Larry McCraney alleging violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733, and common law claims, in connection with allegedly defective body armor material made or sold by the defendants involving federally-funded purchases.
Toyobo and the government each move for partial summary judgment on various claims in both actions.
In Civil Action 07-1144, Toyobo moves for partial summary judgment on "the United States' claims under the False Claims Act (Counts 1, 2, and 3 of the Amended Complaint)" which includes the claims related to the bullet proof vests sold on the General Services Administration Schedule and those reimbursed by the United States through the Bullet Proof Vest Grant Partnership Act. Toyobo Co., Ltd. and Toyobo America Inc.'s Mem. of P. & A. in Supp. of Their Mot. for Partial Summ. J., Civil Action No. 07-1144, ECF No. 95-1 ("Toyobo's Mot. for Partial Summ. J. [95]") at 1. The government moves for partial summary judgment as to "only those vests which were sold to the United States by the Zylon Vest Manufacturers pursuant to the GSA Multiple Award Schedule[,]" and does not address vests sold through the Bulletproof Vest Grant Partnership Act. United States' Mem. of P. & A. in Supp. of its Mot. for Partial Summ. J. Against Defs. Toyobo Co. Ltd. and Toyobo America, Inc., Civil Action No. 07-1144, ECF No. 97-1 ("Gov't Mot. for Partial Summ. J. [97]") at 2 n.3.
Because a genuine dispute as to material facts exists regarding claims for Zylon vests sold off of the General Service Administration's Multiple Award Schedule after a 2002 contract modification took effect, summary judgment will be denied to both the defendants and the government as to those claims. As the undisputed facts entitle defendants to judgment as a matter of law on the claims for the remaining Zylon vests sold off of that Schedule, summary judgment will be granted to the defendants and denied to the government as to those claims. Because a genuine dispute as to material facts exists regarding whether Toyobo disseminated false information into the market, summary judgment will be denied to both the government and the defendants regarding claims for Zylon vests reimbursed through the Bullet Proof Vest Grant Partnership Act.
The background of this case is set forth in United States ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F.Supp.2d 129, 132-33 (D.D.C.2010) and United
The General Services Administration ("GSA"), a federal agency responsible for administering the Multiple Award Schedule ("MAS") contracting program, negotiates contracts for commercial off-the-shelf items and makes those items available to various federal agencies without the need for those agencies to negotiate the prices or terms with contractors for themselves. Defs. Toyobo Co., Ltd. and Toyobo America Inc.'s Statement of Undisputed Material Facts in Supp. of Their Mot. for Partial Summ. J., 04-cv-280, ECF No. 270-2 ("Toyobo's SUMF [270]") at ¶¶ 11-12; Defs. Toyobo Co., Ltd. and Toyobo America, Inc.'s Statement of Undisputed Material Facts in Supp. of Their Mot. for Partial Summ. J., 07-cv-1144, ECF No. 95-2 ("Toyobo's SUMF [95]") at ¶¶ 7-8; United States' Combined Separate Statement of Material Facts (1) in Resp. to the Statement of Undisputed Facts of Defs. Toyobo Co. Ltd. and Toyobo America, Inc. in Supp. of Their Mot. for Partial Summ. J. against the United States; and (2) in Supp. of the United States' Statement of Facts in its Opp'n to Toyobo's Mot. for Partial Summ. J., 04-cv-280, ECF No. 295 ("Govt.'s SUMF [295]") at ¶¶ 11-12. "In 1995, GSA solicited offers to sell body armor on the MAS." Toyobo's SUMF [270] at ¶ 14; Toyobo's SUMF [95] at ¶ 9; Govt.'s SUMF [295] at ¶ 14. Second Chance responded to that solicitation and was subsequently awarded a contract from the GSA. Toyobo's SUMF [270] at ¶¶ 17-19; Govt.'s SUMF [295] at ¶¶ 17-19. "On October 23, 1998, GSA issued a modification of the Second Chance contract to add certain new body armor models to the MAS, one of which, the Ultima, contained Zylon." Toyobo's SUMF [270] at ¶ 20; Govt.'s SUMF [295] at ¶ 20. "On October 25, 1999, GSA issued another modification of the Second Chance contract to add another body armor model, the Tri-Flex, which also contained Zylon." Toyobo's SUMF [270] at ¶ 22; Govt.'s SUMF [295] ¶ 22. Various federal agencies purchased and received Zylon-containing vests from the MAS, and were invoiced directly by Second Chance. Toyobo's SUMF [270] at ¶¶ 28-30; Govt.'s SUMF [295] at ¶¶ 28-30.
Toyobo's SUMF [270] ¶ 6; Govt.'s SUMF [295] at ¶ 6. The parties disagree as to the proper interpretation of this warranty and as to which, if any, additional agreements between the parties bear on the current dispute.
The Bullet Proof Vest Grant Partnership Act ("BPVGPA") program is a partial reimbursement program for state, local, and tribal law enforcement agencies. Toyobo's SUMF [95] at ¶ 42; Toyobo Co., Ltd. and Toyobo America Inc.'s Statement of Undisputed Material Facts in Supp. of Their Mot. for Partial Summ. J., 04-cv-280, ECF No. 343-2 ("Toyobo's SUMF [343]") at ¶¶ 5, 8; United States' Resp. to Defs. Toyobo Co., Ltd. and Toyobo America Inc.'s Statement of Undisputed Material Facts in Supp. of Their Mot. for Partial Summ. J., 04-cv-280, ECF No. 357-1 ("Govt.'s SUMF [357]") at ¶¶ 5, 8. The program operated following seven essential steps. First, Second Chance sent at least one Zylon vest to the National Institute of Justice ("NIJ") for the NIJ to certify that the vest complied with the NIJ's Ballistic Resistance of Body Armor Standard. Second, the Bureau of Justice Assistance ("BJA") placed the Zylon vest, along with other NIJ certified vests, on a list of approved vests. Third, a law enforcement agency used the BJA's online platform to inform the BJA that the agency intended to purchase approved vests. Fourth, the law enforcement agency purchased the approved vests from the vest manufacturer. Fifth, when it received the vests from the vest manufacturer, the law enforcement agency confirmed to the BJA that the agency purchased the vests. Sixth, the agency, after providing proof of purchase, requested reimbursement from the federal government's BPVGPA fund. Seventh, the law enforcement agency received a partial reimbursement for the costs of the purchased vests. See Toyobo's SUMF [343] at ¶¶ 5-27; Toyobo's SUMF [95] at ¶¶ 36-58; Govt.'s SUMF [357] ¶¶ 5-27.
The government alleges that Zylon vests provided through these programs were defective and resulted in false claims being submitted to the government. Specifically, the government claims that some vests containing Zylon degraded spontaneously and at a rate unpredictable to the purchasers, making the vests unusable. Toyobo acknowledges some degradation of the Zylon fiber, but argues that this degradation and its behavior concerning the Zylon degradation issue do not constitute false claims under the FCA. Now, both parties move for partial summary judgment.
Under Federal Rule of Civil Procedure 56(a), a party may move for summary judgment on an individual claim or part of a claim. Fed. R. Civ. P. 56(a). Summary judgment is appropriate where the pleadings,
The government presents allegations under the False Claims Act, 31 U.S.C. § 3729(a)(1)-(3)(2004).
Toyobo argues that it is entitled to partial summary judgment on the False Claim Act counts related to the bullet proof vests sold through the GSA MAS program because the government cannot prove that Toyobo, or Second Chance, submitted a "false or fraudulent claim." Toyobo's Mot. for Partial Summ. J. [270] at 13; Toyobo's Mot. for Partial Summ. J. [95] at 1314. The government argues that Second Chance, and/or Toyobo, submitted "false or fraudulent claims" by (1) knowingly providing defective bullet proof vests to the government, (2) providing vests that did not meet performance benchmarks over time, (3) withholding degradation information and releasing manipulated data, and
United States v. Toyobo Co. Ltd, 811 F.Supp.2d 37 (2011), discussed at length the legal standard for falsity. That opinion noted that opinion noted that
Id. at 45. While that opinion resolved various motions to dismiss and looked no further than the pleadings, there must be sufficient evidence at the summary judgment stage to enable a reasonable jury to find in favor of the movant. See Anderson, 477 U.S. at 252, 106 S.Ct. 2505. Accordingly, Toyobo, as the movant, must demonstrate that the government lacks sufficient evidence to prove that Toyobo, or Second Chance, submitted a claim that was "false or fraudulent" within the meaning of the statute. See Walsh, 905 F.Supp.2d at 84.
A claim is "factually false if it invoices for services that were not rendered." Hockett, 498 F.Supp.2d at 64. The government argues that invoicing after "[t]he knowing sale of defective bullet proof vests to the United States is a violation of the FCA[,]" because the invoices are factually false. Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 25; see Gov't Opp'n to Toyobo's Mot. for Partial
Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 26. Toyobo argues that "Second Chance's standard commercial warranty cannot render Second Chance's invoices to federal agencies for vests purchased off of the MAS factually false." Toyobo's Mot. for Partial Summ. J. [270] at 14; see Toyobo's Mot. for Partial Summ. J. [95] at 16. The government's factual falsity arguments rely on legal obligations, i.e. obligations to comply with contractual guarantees, performance metrics, and other contract terms — all obligations that if violated sound in legal falsity, but do not sound in factual falsity. See Hockett, 498 F.Supp.2d at 64 (noting that a claim "is factually false if it invoices for services that were not rendered," and providing an example of factual falsity where the defendant submitted a claim stating "that patient X stayed [in a hospital receiving services] for five days where [the patient] really stayed for three"). Contra Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 23-30 (erroneously arguing various legal obligations as basis for factual falsity). The government does not allege that Toyobo invoiced for 200 bullet proof vests and sent only 150 bullet proof vests; nor does the government allege that Toyobo invoiced for bullet proof vests and instead sent raincoats. The government's claim here is not that it did not receive bullet proof vests, but that the bullet proof vests in this case did not comply with express and implied agreements. Accordingly, the government's reliance on a factual falsity theory of liability as to the GSA MAS counts is misplaced, but its supporting arguments are assessed below under a legal falsity theory.
A claim "may be legally false because of an express false certification or an implied false certification." Hockett, 498 F.Supp.2d at 64 (citing In re Cardiac Devices Qui Tam Litig., 221 F.R.D. 318, 345 (D.Conn.2004) and United States ex rel Mikes v. Straus, 274 F.3d 687, 697-98 (2d Cir.2001). "[A]n express false certification [is] `a claim that falsely certifies compliance with a particular statute, regulation or contractual terms, where compliance is a prerequisite for payment.'" Toyobo, 811 F.Supp.2d at 45. Also, a claim may be legally false if "the contractor withheld information about its noncompliance with material contractual requirements." Sci. Applications Int'l Corp., 626 F.3d at 1269. For example, courts have found claims to be legally false when a company falsely labeled radio kits claiming that the products met certain specifications in the contract, which they did not meet, United States v. Bornstein, 423 U.S. 303, 307, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976); when a company failed to test certain brake shoes, but submitted claims to the government claiming that the brake shoes were tested in accordance with the contractual requirements, United States ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 304 (6th Cir.1998); and when a company
The dispute between the parties over alleged express false certifications raises two questions: (1) what comprised the content of the contractual agreement between Second Chance and the GSA, and (2) what is the nature and legal effect of the warranty on the bullet proof vests provided by Second Chance through the GSA MAS program.
"Where parties to a contract have executed a completely integrated written agreement, it supersedes all other understandings and agreements with respect to the subject matter of the agreement between the parties, whether consistent or inconsistent[.]" Daisley v. Riggs Bank, N.A., 372 F.Supp.2d 61, 68 (D.D.C. 2005) (quoting Masurovsky v. Green, 687 A.2d 198, 202 (D.C.1996)). "Determining whether an agreement is integrated requires examining `the intent of the parties at the time they entered into the agreement.'" Id. (citing Piedmont Resolution, LLC, v. Johnston, Rivlin, & Foley, 999 F.Supp. 34, 50 (D.D.C.1998). "The first and most important step in ascertaining that intent is examination of the contract itself, for if a document is facially unambiguous, its language should be relied upon as providing the best objective manifestation of the parties' intent." Id. (citing Hercules & Co., Ltd. v. Shama Rest. Corp., 613 A.2d 916, 927 (D.C.1992)) (internal quotation marks omitted).
The government claims that the contract between Second Chance and the GSA included (1) Second Chance's five year warranty, (2) a guarantee in Second Chance's catalog stating that the "Zylon vests would lose no more than 6 percent of their ballistic performance over five years[,]" (3) a new material clause in the original solicitation stating 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[,]" (4) a workmanship clause in the 1998 GSA contract modification with Second Chance that stated "each article must perform the functions of its intended use," (5) "a five year guarantee on the protective qualities of ballistic panels [that] was standard in the body armor industry," and (6) the expectation that vests sold as NIJ certified "would continue to stop bullets they had been designed to stop throughout the warranty period." Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 22-23; see Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [109] at 25. Toyobo does not dispute that the contractual agreement included the five year warranty, the new material clause, and the workmanship clause. Toyobo Co., Ltd. and Toyobo America Inc.'s Reply Mem. of P. & A. in Further Supp. of Their Mot. for Partial Summ. J., 04-cv-280, ECF No. 306 ("Toyobo's Reply [306]") at 710; Toyobo Co., Ltd. and Toyobo America Inc.'s Reply Mem. of P. & A. in Further Supp. of Their Mot. for Partial Summ. J., 07-cv-1144, ECF No. 113 ("Toyobo's Reply [113]") at 7-12. However, Toyobo does dispute the government's contention that the statements in Second Chance's catalog, the industry standard, or the expectations of NIJ are a part of the contractual agreement. Toyobo's Reply [306] at 8-11; Toyobo's Reply [113] at 11-12.
The original contract agreement between the GSA and Second Chance establishing the first non-Zylon bullet proof
Toyobo's Mot. for Partial Summ. J. [270], Ex. 15, ECF No. 270-18 ("Second Chance's 8/1/96 Award Contract") at 2. The language quoted above is "facially unambiguous" as to the parties' intent for the government's solicitation, Second Chance's offer, and the "Award/Contract" letter to serve as the complete and integrated terms of the contractual agreement. See, e.g., Daisley, 372 F.Supp.2d at 68; Washington v. Thurgood Marshall Academy, Civil Action No. 03-2570(CKK), 2006 WL 1722332 at *9 (D.D.C. June 19, 2006); see also, Toyobo's Mot. for Partial Summ. J. [270], Ex. 13, ECF No. 270-16 ("Carol Batesole Dep.") at 35:24 — 36:3 (negotiating party for the GSA agreeing that the government's solicitation, Second Chance's offer, and the Award/Contract letter "encompassed the contract between Second Chance and the GSA"). Any term alleged to be a part of the contractual agreement between GSA and Second Chance, then, must be found in the government's solicitation, Second Chance's offer, the "Award/Contract" letter, or a subsequent modification of the contract.
Regarding in turn each disputed provision of the contract, the government and Toyobo first disagree about the incorporation of statements made in Second Chance's catalog. Generally, "when a document incorporates outside material by reference, the subject matter to which it refers becomes part of the incorporating document just as if it were set out in full." Tower Ins. Co. of New York v. Davis/Gilford, 967 F.Supp.2d 72, 80 (D.D.C.2013) (quoting BP Amoco Corp. v. NLRB, 217 F.3d 869, 874 (D.C.Cir.2000)). The government asserts that the catalog statements were part of the contractual agreement because they were included with a 2002 modification to the original GSA MAS contract. See Gov't Opp'n [293] at 6 (citing Gov't SUMF [295] ¶ U.S. Fact 21) ("This catalog guarantee was another express warranty that was incorporated into the GSA contract."); see also Gov't SUMF [295], Ex. 74, ECF No. 297-3 ("Second Chance Catalog Statement") at 1 ("This modification is being submitted to add new items, delete obsolete ones, and have our current pricelist incorporated. Two copies of all product literature and properly marked pricelists are attached."). Because the catalog statement was attached to the contract modification, it was properly incorporated into the contractual agreement. See, e.g., Tower Ins. Co. of New York, 967 F.Supp.2d at 80; Maryland Nat. Capital Park and Planning Comm'n v. Lynn, 514 F.2d 829, 833 (D.C.Cir.1975) ("It is a general rule that reference in a contract to extraneous writings renders them part of the agreement for indicated purposes[.]"). Accordingly, the following statement from the Second Chance catalog ("the 6% guarantee") was a term of the contract for all claims after the 2002 contract modification:
Second Chance Catalog Statement at 5.
Second, the government and Toyobo disagree about incorporating the industry standard into the contract. The government does not point to anything in the government's solicitation, Second Chance's offer, or the "Award/Contract" that explicitly incorporates the government's interpretation of the five year industry standard. See Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 22 (citing deposition testimony about the advent of the five year warranty). Thus, the industry standard is not an explicit term of the contractual agreement.
Third, the government and Toyobo disagree about incorporating into the contractual agreement NIJ's expectations about the longevity of the bullet proof vests. Specifically, the government seems to argue that because vests bearing the "NIJ Certified" label were expected to perform at a certain level, Toyobo should be held liable under the FCA because some vests deteriorated below the expectations that come with an "NIJ Certified" label. Id. at 22. However, the government again does not point to anything in the government's solicitation, Second Chance's offer, or the "Award/Contract" that expressly incorporates the expectations of NIJ, nor does the government argue that Toyobo gained the "NIJ Certified" label for its vests through faulty means. See id. at 22-23 (citing deposition testimony from NIJ officials). NIJ expectations, at least as the government has presented them, are not explicit terms in the contractual agreement.
That leaves the five year commercial warranty, the workmanship clause, the new material clause, and the Second Chance Catalog statement as the contractual language upon which the government may rely to prove its express false certification theory. The essence of the government's argument is that Toyobo, and Second Chance, made false claims after furnishing to various government agencies bullet proof vests that they knew did not comply with those four contractual provisions. Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 22-26; Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [109] at 2425. Specifically, the government argues that these contractual terms individually or in tandem created an explicit obligation for the bullet proof vests to perform at a specified level for five years, at which level some of the vests did not perform; and further that Toyobo and Second Chance knew when the vests were sold to federal agencies that the vests would not meet the expected performance level during the five year period. Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 25-26; see also Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [109] at 24-25. The government finds this explicit obligation in the obligation-creating language found in the four noted contract terms.
At the heart of this case is a dispute over the meaning of the word
The word warranty, or a derivative of it, appears in two of the contract terms properly relied on by the government. See Second Chance's 8/1/96 Award Contract at 5 ("WARRANTY PROVISIONS: 5 years on ballistic panels, 2 years on carriers"), and Second Chance Catalog Statement at 5 ("Second Chance warrants its ballistic armor for 5 years to perform as stated on the label to protect against the designated projectiles for each level."). The parties do not dispute that the warranty language in these contract terms referred to Second Chance's standard commercial warranty, although the parties disagree about the interpretation of the standard commercial warranty. See Toyobo's SUMF [270] ¶ 6; Gov't SUMF [295] ¶ 6. Furthermore, the parties agree that
Toyobo's SUMF [270] ¶ 6; Gov't SUMF [295] ¶ 6. The parties' obligations under the warranty are facially unambiguous. If at any point within the five-year period the bullet proof vests became defective, the owner was to send the vest to Second Chance to be repaired or replaced. Nothing in the language of the warranty explicitly guarantees that the vests will function perfectly for the five-year period; indeed the warranty presupposes that some of the vests may not survive the five-year period. It may very well be a poor business decision to put a product into the market with a warranty that the manufacturer knows the product cannot satisfy, but poor business decisions do not necessarily create an express false certification claim under the FCA.
The government conflates two distinct ideas: defectiveness and durability. 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 — a requirement that cannot be found in the standard commercial warranty here. See Walsh v. Ford Motor Co., 588 F.Supp. 1513, 1535-1538 (D.D.C.1984). In Walsh,
The new material clause and the workmanship clause do no more than the warranty provisions do to advance the government's argument that some vests were defective because they deteriorated during the five year warranty period. The operative language in the new material clause provides 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." Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 22. The government has not alleged that Second Chance used old materials in the construction of the vests, but instead alleges that "[t]he vests deteriorated unpredictably and invisibly, and so impaired their usefulness or safety." Id. at 23. However, the plain language of the new material clause would require some nexus between a falsely described condition of the vests, and their component materials at the time of delivery and the resulting impairment to establish falsity. That is, the government would have to allege and show that the vests were old, worn out, or in poor condition when delivered, impairing their safety or usefulness. The government does not claim that the vests were in poor condition because the vests were old or created from used material when they were received. Instead, the government claims that with no prior warning from the defendants, the vests deteriorated during the life of the vest. Because a durability requirement cannot be read into the language of the new material clause, the new material clause cannot provide the basis for an express false certification claim under the FCA.
The workmanship clause provides that: "[a]n item contracted for must be new, current model at the time of offer, unless otherwise specified. Each article must perform the functions for its intended use." Gov't SUMF [295], Ex. 23, ECF No. 295-2 ("10/13/1998 Contract Modification") at 2; United States' Separate Statement of Undisputed Material Facts in Supp. of its Mot. for Partial Summ. J. or in the Alternative, Summ. Adjudic'n of Issues Against Defs. Toyobo Co., Ltd. and Toyobo America Inc., 07-cv-1144, ECF No. 97-2 ("Gov't SUMF [97]") at ¶ U.S. Fact 32. The government argues that "[a] deteriorated vest does not perform the functions of its intended use." Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 23. The intended use for bullet-proof vests is to stop bullets. There is no dispute between the parties that some of the vests performed this function, and some of them did
Even if the term "warranty" were ambiguous, which the government does not explicitly argue, the government would need to put forward objective evidence of extra-contractual statements that inform the meaning of the warranty. See Mesa Air Grp., Inc. v. Dep't of Transp., 87 F.3d 498, 503 (D.C.Cir.1996) ("However, when a court determines that a contract's factors in determining the intentions of the parties in constructing the agreement. To be sure, the existence of an ambiguity must be demonstrated by objective evidence." (citations omitted)). Presumptively, the government would offer the industry standard and NIJ expectation evidence that was excluded from consideration in the analysis above. Taking the government's factual assertions regarding the industry standard and NIJ expectation evidence as true, there is no evidence that these extra-contractual considerations were a part of, or otherwise informed, the actual contracting for Second Chance vests to be placed on the GSA MAS. The government's broad assertion that "[h]ad the United States known that the Second Chance Zylon vests were defective and would not meet the above benchmarks, the United States would not have accepted or paid for the vests" makes perfect sense, but the government does not substantiate with record evidence that its assertion stemmed from a falsewarranty. Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 26-27; see also Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [109] at 35.
In defending against Toyobo's motions for partial summary judgment, the government also relies on the 6% guarantee in the Second Chance catalog. This guarantee applies only to those claims after the 2002 contract modification — the time at which the Second Chance catalog was properly incorporated into the terms of the agreement between the parties. The plain language of the Second Chance catalog statement guaranteed that the vests would not fail to perform at the certified V-50 level within "normal statistical variation (+/-6%) during the five year guaranteed life of the vest." Second Chance Catalog Statement at 5. Toyobo argues that the 6% guarantee is "an explanation of how Second Chance would interpret its standard commercial warranty," i.e., if the vests deteriorated below 6% of the certified V-50 level, the vest would be replaced or repaired consistent with the standard commercial warranty. Toyobo's Mot. for Partial Summ. J. [270] at 17. This may be a reasonable interpretation of the 6% guarantee, especially in light of the warranty language that appears on the same page of the Second Chance Catalog as the 6% guarantee. See Second Chance Catalog Statement at 5. However, the government's reading of the 6% guarantee as an independent term of the agreement may also be a reasonable interpretation of the guarantee language. Neither party has put forward evidence that negates either interpretation of the 6% guarantee. "If there is more than one interpretation that a reasonable person could ascribe to the contract, while viewing the contract in context of the circumstances surrounding its making, the contract is ambiguous."
The D.C. Circuit recently held
Sci. Applications Int'l Corp., 626 F.3d at 1269. Relying on an implied false certification theory, the government argues that "[t]he invoices submitted by Second Chance constituted an implied certification that the Zylon vests would meet their five-year warranty of ballistic performance and the 6% catalog guarantee." Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 31. The government also argues that Second Chance's alleged failure to meet industry standards and NIJ-compliance testing standards rendered the invoices impliedly false certifications. Id. at 34.
The 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 non-compliance with (2) material contract requirements. Sci. Applications Int'l Corp., 626 F.3d at 1269. The underlying dispute here — whether a material contract requirement existed that the bullet-proof vests meet certain benchmarks for a five-year period — implicates the second prong of the D.C. Circuit's test.
"Although the focus of the FCA is on false `claims,' courts have employed a `fraud-in-the-inducement' theory to establish liability under the Act for each claim submitted to the Government under a contract which was procured by fraud, even in the absence of evidence that the claims were fraudulent in themselves." United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 393 F.3d 1321, 1326 (D.C.Cir.2005) (citation omitted).
United States ex rel. Thomas v. Siemens AG, 991 F.Supp.2d 540, 569 (E.D.Pa.2014) (citing United States ex rel. Marcus v. Hess, 317 U.S. 537, 543-44, 63 S.Ct. 379, 87 L.Ed. 443 (1943)). Toyobo presents two preliminary arguments as to why the fraudulent inducement theory should not be considered in this case at all.
First, Toyobo argues that "to proceed under a fraudulent inducement theory, the United States must prove that the 1995 contract was `originally obtained ... through fraud.'" Toyobo's Mot. for Partial Summ. J. [270] at 23 (citing United States ex rel. Head v. Kane Co., 798 F.Supp.2d 186, 196-97 (D.D.C.2011)); see also Toyobo's Mot. for Partial Summ. J. [95] at 26-27. The government argues that "[a] party can be fraudulently induced to modify or extend a contract[,]" and that the government was in fact fraudulently induced to modify the contract to add Zylonvests. Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 41-42 (citing United States ex rel. Frascella v. Oracle Corp., 751 F.Supp.2d 842, 855-56 (E.D.Va. 2010) and Veridyne Corp. v. United States, 86 Fed.Cl. 668 (2009)); see also Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [109] at 35-36. Because each contract modification provided an opportunity for Second Chance to add new products to the GSA MAS program and a new opportunity for reliance on allegedly false statements, there is no reason to limit the opportunities for fraudulent inducement to the original 1995 contract. If false statements were used to induce the government to make bullet-proof vests available to various federal agencies, those statements are a violation of the FCA whether they induced the government to make the initial contract or any subsequent modifications.
Next, Toyobo argues that the fraudulent inducement theory cannot be applied to it in this case because Toyobo did not actually contract with the government itself. See Toyobo's Mot. for Partial Summ. J. [270] at 25-26; Toyobo's Mot. for Partial Summ. J. [95] at 28-29; Toyobo's Reply [306] at 16-17. However, Toyobo's attempt to limit the fraudulent inducement theory in such a way is at odds with that theory's history in FCA doctrine. The apparent genesis, or at least the prominent beginning, of the fraudulent inducement theory under the FCA is found in United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943), superseded by statute on other grounds as recognized in Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 131 S.Ct. 1885, 1893-94, 179 L.Ed.2d 825 (2011). See Odebrecht Contractors of Cal., Inc., 393 F.3d at 1326
Regarding the parties' substantive arguments, the government claims that "Toyobo's withholding of key degradation information and releasing data that it had manipulated in order to present a more favorable degradation trend line" substantiate a claim under the fraudulent inducementtheory. Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [293] at 44-45; see also Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [109] at 3738. Assuming that the government is correct that Toyobo manipulated data to present a more favorable degradation trend line and that the government became aware of the data at some point before a contract modification, the government would still need to demonstrate that it relied on the manipulated data when making the decision to initially contract or modify the contractual agreement. See United States ex rel. Thomas, 991 F.Supp.2d at 569-70. The government has not presented any evidence that suggests that the government relied on the allegedly manipulated data when making the contract modifications to add Zylon vests to the GSA MAS. Indeed, Toyobo has presented evidence which suggests that the data was not relied upon by the government during the contract modifications. See Carol Batesole Dep. at 55:1 — 55:13 (the negotiating party for the GSA explaining that price, not scientific data served as the basis for contract modifications). Because the government has not presented any evidence that Toyobo's allegedly manipulated data caused the government to place the Zylon vests on the GSA MAS, the government's fraudulent inducement theory as to those counts cannot survive.
Because Toyobo has sufficiently demonstrated that the government cannot bear its burden to prove that false claims were submitted or fraudulently induced in relation to those Second Chance Zylon vests placed on the GSA MAS before 2002, Toyobo's Motions for Partial Summary Judgment [95, 270] on Counts 1, 2, and 3 related to the vests placed on the GSA MAS will be granted. Because a genuine dispute as to material facts exists as to those Zylon vests purchased through the GSA MAS after the 2002 contract modification, specifically under the legal falsity analysis, Toyobo's Motions for Partial Summary Judgment [95, 270] on Counts 1, 2, and 3 related to those vests will be denied.
The government alleges that Toyobo fraudulently induced contracts between various agencies and Second Chance
Second, Toyobo argues that no false statements were made. Toyobo's Mot. for Partial Summ. J. [343] at 18; Toyobo's Mot. for Partial Summ. J. [95] at 30. Toyobo suggests that "it would have been impossible for Toyobo to have made any statements to induce the government with respect to its BVPA reimbursements" because "[t]he only relevant representation made to the government when law enforcement agencies sought BVPA reimbursement was that the vests were on the BJA's list of NIJ-certified vests." Toyobo's Mot. for Partial Summ. J. [343] at 18; Toyobo's Mot. for Partial Summ. J. [95] at 30. The government argues that it was fraudulently induced to make reimbursements due to false statements made by Toyobo that were relied on by the various agencies when they selected vests. Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [357] at 25; Gov't Opp'n to Toyobo's Mot. for Partial Summ. J. [109] at 3839. Specifically, the government alleges that Toyobo "assured the industry that it had not found any serious indication of Zylon strength
Third, Toyobo argues that the fraudulent inducement theory should not extend to third parties and that the nexus between Toyobo and the "claim" that was presented to the government is too attenuated. Toyobo's Mot. for Partial Summ. J. [343] at 1819; Toyobo's Mot. for Partial Summ. J. [95] at 31-32. Since demonstrating falsity under a fraudulent inducement theory does not necessarily require a contractual relationship between the government and the party alleged to have engaged in the fraudulent inducement, Toyobo's third party liability argument is insufficient in and of itself to warrant partial summary judgment. Toyobo's argument that the nexus between the government and Toyobo on the BPVGPA counts is too attenuated may deserve further attention if the government sufficiently proves that Toyobo disseminated false information. However, there is no need to reach this issue now. If the government cannot prove that Toyobo actually disseminated false information, which is currently in dispute, then there may be no reason to turn to Toyobo's attenuation argument. This issue cannot be properly resolved on the current motion for partial summary judgment because reaching the question requires resolution of a genuine dispute as to material facts.
Because a genuine dispute as to material facts exists, Toyobo's motion for partial summary judgment [343] will be denied, and Toyobo's motion for partial summary judgment [95] as to the BPVGPA counts will be denied.
The government "seeks partial summary judgment, or in the alternative, summary adjudication of issues, on liability only with respect to a portion of the United States' claims for violations of FCA Sections 3729(a)(1) and (2)." Gov't Mot. for Partial Summ. J. [344] at 1; see also Gov't Mot. for Partial Summ. J. [97] at 2. Only the vests related to the GSA MAS program are at issue in the government's motion. Gov't Mot. for Partial Summ. J. [344] at 1 n.1; see also Gov't Mot. for Partial Summ.
For the foregoing reasons, it is hereby
ORDERED that Toyobo's Motion for Partial Summary Judgment in Civil Action 04-280[270], and Toyobo's Motion for Partial Summary Judgment in Civil Action 07-1144[95], be, and hereby are, DENIED in part and GRANTED in part. Summary judgment is granted as to the government's claims related to Zylon vests sold off of the GSA MAS before the 2002 contract modification, but denied as to the government's claims related to Zylon vests sold off of the GSA MAS after the 2002 contract modification. It is further
ORDERED that Toyobo's Motion for Partial Summary Judgment in Civil Action 04-280[343] be, and hereby is, DENIED. It is further
ORDERED that the United States' Motion for Partial Summary Judgment in Civil Action 04-280[344] be, and hereby is, DENIED. It is further
ORDERED that the United States' Motion for Partial Summary Judgment in Civil Action 07-1144[97] be, and hereby is, DENIED. It is further
ORDERED that all pending motions in limine in Civil Action 04-280, namely, ECF Nos. 374, 375, 376, 377, 378, 379, 380, 381, 382, 383, 384, 385, 386; and Civil Action 07-1144, namely, ECF Nos. 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, be, and hereby are, STAYED. The parties shall confer and file a joint status report no later than 11/4/2015 detailing which motions in limine still must be resolved after this Opinion and setting forth a proposed schedule on which these cases should proceed.