U.S. ex rel. Bettis v. Odebrecht Contractors

• Decision Date: 11 January 2005
• Docket Number: No. 04-5051.,04-5051.
• Citation: 393 F.3d 1321
• Parties: UNITED STATES of America ex rel. Alva BETTIS, Appellant v. ODEBRECHT CONTRACTORS OF CALIFORNIA, INC., et al., Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

393 F.3d 1321

UNITED STATES of America ex rel. Alva BETTIS, Appellant v. ODEBRECHT CONTRACTORS OF CALIFORNIA, INC., et al., Appellees

No. 04-5051.

United States Court of Appeals, District of Columbia Circuit.

Argued November 22, 2004.

Decided January 11, 2005.

Appeal from the United States District Court for the District of Columbia (No. 99cv02879).

Herbert V. McKnight, Jr. argued the cause for appellant. With him on the briefs was Altomease R. Kennedy.

Howard S. Scher, Attorney, U.S. Department of Justice, argued the cause for amicus curiae the United States of America in support of appellant in part. With him on the brief were Peter D. Keisler, Assistant Attorney General, Kenneth L. Wainstein, U.S. Attorney, and Douglas N. Letter, Counsel.

Samuel J. Waldon argued the cause for appellees. With him on the brief was Ryan E. Bull. David A. Super entered an appearance.

Before: EDWARDS, SENTELLE, and GARLAND, Circuit Judges.

Opinion for the Court filed by Circuit Judge EDWARDS.

HARRY T. EDWARDS, Circuit Judge.

Under the qui tam provisions of the False Claims Act ("FCA" or "Act"), 31 U.S.C. §§ 3729-3733 (2000), any person may initiate a lawsuit in the name of the United States for substantive violations of the Act. The United States, through its relator Alva Bettis ("Bettis"), brought this action in the District Court against Odebrecht Contractors of California, Inc., et al. ("Odebrecht"), alleging that Odebrecht submitted false claims to the Government in connection with a public works construction contract it had with the U.S. Army Corps of Engineers ("Corps").

In advancing his claim, Bettis relies on the fraud-in-the-inducement theory of liability under the FCA. Under that theory, every claim submitted under a fraudulently induced contract constitutes a "false claim" within the meaning of the Act (i.e., is automatically tainted), even without proof that the claims were fraudulent in themselves. Bettis argues that Odebrecht fraudulently induced the Corps to award it the disputed contract by submitting an intentionally undervalued bid and making other false representations in order to win the contract, with the intention of subsequently obtaining upward modifications to the contract price.

The District Court granted summary judgment for Odebrecht, relying on two alternative grounds. First, the court rejected Bettis's fraud-in-the-inducement claim as a matter of law. The court held that, where it is alleged that the defendant has submitted a fraudulently deflated bid in order to obtain a contract, a FCA action cannot succeed without proof that one or more requests for payment under the contract were fraudulent in themselves. The United States, as amicus curiae, contests the District Court's legal analysis on this point, arguing that the fraud-in-the-inducement theory of FCA liability properly applies to allegations of fraudulently deflated bids. In the alternative, the District Court concluded that, as a matter of fact, the evidence presented by Bettis was insufficient to permit the inference that Odebrecht fraudulently induced the Corps to award it the contract.

We conclude that the evidence presented by Bettis would not permit a reasonable jury to conclude that Odebrecht fraudulently induced the Government to award it the contract. We therefore affirm the judgment of the District Court on this ground alone.

I. BACKGROUND

On March 1, 1993, the U.S. Army Corps of Engineers ("Corps") solicited bids for construction of the Seven Oaks Dam and Appurtenances in San Bernardino County, California. In preparing the solicitation, the Corps divided the construction into 150 separate tasks, referred to as bid items, and estimated the quantity of each bid item that would be required during construction. Contractors prepared a unit price for each bid item that included any indirect costs (e.g., labor, equipment, overhead) and a profit margin. The final price for each bid was calculated by multiplying the bidder's unit price for each bid item by the Corps' quantity estimate and then summing the totals of all of the bid items. The final bid price was only an estimate, because the winning bidder was to be paid based on the actual quantities required during construction, not the Corps' estimated quantities. Bidders were, however, bound by their unit prices and assumed the risk if these prices turned out to be too low.

Odebrecht submitted a bid of $167,777,000. The sealed bids were opened on July 7, 1993, and Odebrecht's bid was the lowest, coming in about $29 million below the second lowest bid, which had been submitted by a joint venture involving Tutor-Saliba Corporation and others ("Tutor-Saliba"), and almost $36 million below the Corps' cost estimate (without profit) of $203,771,540.

Tutor-Saliba commenced a series of bid protests seeking to prevent Odebrecht from being awarded the contract. On March 29, 1994, following the resolution of the bid protests, Odebrecht was awarded the contract. The Corps issued Odebrecht a notice to proceed with construction on April 20, 1994, and Odebrecht began construction shortly thereafter.

During the course of construction, Odebrecht requested and received a number of "equitable adjustments" to the contract price. Equitable adjustments are used to keep a contractor whole when the Government modifies the contract or, under some Government contracts, for changed circumstances. See 48 C.F.R. §§ 52.243-4, 52.243-5 (2003). They are not available for reasons unrelated to a change, such as to compensate a contractor who has underestimated his bid or encountered unanticipated expenses or inefficiencies. Pac. Architects & Eng'rs Inc. v. United States, 203 Ct.Cl. 499, 491 F.2d 734, 739 (1974). Ultimately, by August 31, 2003, the Government had paid Odebrecht nearly $268 million, an amount that exceeded the bid price by more than $100 million. Even so, Odebrecht maintains that it sustained a loss in excess of $30 million on the project.

It is undisputed that the Corps was satisfied with Odebrecht's work on the project. Indeed, in 1999, the Corps awarded Odebrecht its Civil Works Construction Contractor of the Year award for Odebrecht's "exceptional performance" on the project.

In 1999, relator Alva Bettis, who had been employed as a project scheduler by a consulting firm retained by the Corps to monitor the dam's progress, commenced this action in the District Court, alleging that Odebrecht violated the FCA. The complaint was filed under seal and in the name of the United States, pursuant to the qui tam provisions of the FCA. See 31 U.S.C. § 3730(b). After the Government declined to exercise its right to intervene and proceed with the action under § 3730(b), the complaint was unsealed and served.

In June 2002, Bettis filed his Third Amended Complaint, which included seven counts in which he claimed that Odebrecht violated the FCA. In Count I (the only count relevant to this appeal), Bettis pressed a fraud-in-the-inducement claim, alleging that Odebrecht fraudulently induced the Corps to award it the contract. Specifically, Bettis alleged that Odebrecht violated the Act by submitting an intentionally low bid — at which price Odebrecht knew or should have known that it could not have completed the project — with the intention of seeking adjustments to the price after winning the contract. On October 24, 2002, the District Court issued an order dismissing the count without prejudice. See United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., Civ. A. No. 99-2879, slip op. at 4-13 (D.D.C. Oct. 24, 2002) ("Mem. Op."), reprinted in Joint Appendix ("J.A.") at 39, 42-51. The court explained that the count failed to state a claim, because Bettis failed to allege that Odebrecht "submitted any claim for payment in excess of its bid price," and because a "relator cannot hold [a] defendant liable under the FCA merely for obtaining the contract based on an intentionally undervalued bid." See id. at 12, J.A. at 50.

Bettis thereafter filed a Fourth Amended Complaint in which he amended and re-alleged Count I. The amended complaint alleged that Odebrecht violated the Act by submitting an intentionally undervalued bid in order to win the contract with the intention of seeking false modifications to the price, and then submitting false modifications. Upon completion of discovery, Odebrecht moved for summary judgment on all counts, and Bettis moved for summary judgment on Count I.

The District Court granted summary judgment for Odebrecht on all counts. See United States ex rel. Bettis v. Odebrecht Contractors of Cal., Inc., 297 F.Supp.2d 272 (D.D.C.2004). Regarding Bettis's fraud-in-the-inducement claim, the court first held, consistent with its earlier memorandum opinion, that Bettis's claim failed as a matter of law, because his claim rested on "the flawed legal argument that he can prevail on a mere showing that [1] [Odebrecht] fraudulently induced [the Corps] to enter into the contract by submitting a low bid intending to seek additional monies, and [2] that [Odebrecht] obtained monies above and beyond the contract price." Id. at 280-81. According to the court, as to the second element, "there must be a claim for money to which the contractor is not legitimately entitled" — in other words, a showing that the actual claims submitted under the contract were themselves fraudulent. Id. at 281 (internal quotation marks and alterations omitted). Alternatively, the District Court held that, even under Bettis's legal theory, his claim failed as a factual matter because "the facts upon which [Bettis] relies do not permit an inference that [Odebrecht] fraudulently induced [the Corps] to sign the contract by submitting a bid that it knew or should have known was false, intending to seek subsequent adjustments." Id. at 283. Finally, the District Court concluded that the evidence did not permit an inference that any of the requests for adjustments submitted by Odebrecht were themselves...