United States ex rel. Kelly v. Serco, Inc.

• Decision Date: 12 January 2017
• Docket Number: No. 14-56769,14-56769
• Citation: 846 F.3d 325
• Parties: UNITED STATES EX REL. Darryn KELLY, Plaintiff–Appellant, v. SERCO, INC., a New Jersey Corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

846 F.3d 325

UNITED STATES EX REL. Darryn KELLY, Plaintiff–Appellant,

v.SERCO, INC., a New Jersey Corporation, Defendant–Appellee.

No. 14-56769

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 19, 2016 Pasadena, California

Filed January 12, 2017

Derek J. Emge (argued), Emge & Associates, San Diego, California, for Plaintiff–Appellant.

Francis J. Burke, Jr. (argued), Foley & Lardner LLP, San Francisco, California; James M. Harris and Daniel P. Wierzba, Seyfarth Shaw LLP, Los Angeles, California; for Defendant–Appellee.

Before: Richard C. Tallman, Barrington D. Parker, Jr.,^** and Morgan B. Christen, Circuit Judges.

OPINION

TALLMAN, Circuit Judge:

Relator Darryn Kelly brought this qui tam action under the False Claims Act (FCA), 31 U.S.C. §§ 3729 –3733, against his former employer, Serco, Inc., a technology and project management services provider, alleging that Serco submitted fraudulent claims for payment to the United States for work done under a government contract. Kelly also asserted claims for wrongful termination under California law. The district court granted Serco's motion for summary judgment on all of Kelly's claims. We affirm.

I

In 2007, Serco was awarded a $62 million, three-year contract by the Department of Defense, Navy Space and Naval Warfare Systems Command (SPAWAR) to provide project management, engineering design, and installation support services for a range of government projects.¹ The Naval Electronic Surveillance Systems (NESS) Contract was a type of contract that "provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period." 48 C.F.R. § 16.504(a). Pursuant to the NESS Contract, SPAWAR submitted individual Delivery Orders to Serco that detailed the specific work Serco was to perform.

In 2008, the Department of Homeland Security, Customs and Border Protection (DHS) entered into an interagency contract with SPAWAR to upgrade the wireless communications systems situated along the United States–Mexico border. This project became known as the Advanced Wireless Systems Spectrum Relocation Project (AWS Project). The contract required SPAWAR to implement a cost and progress tracking system known as an earned value management system (EVMS), "a project management tool that effectively integrates the project scope of work with cost, schedule and performance elements for optimum project planning and control." 48 C.F.R. § 2.101.

SPAWAR, in turn, subcontracted with Serco to purchase the necessary equipment, perform non-construction upgrades, and provide project management services for the AWS Project. Because these services were covered under the NESS Contract, SPAWAR issued Delivery Orders #0049 and #0054 to Serco under the NESS Contract detailing the work that Serco was to perform on the AWS Project.² Delivery Orders 49 and 54 provided for different periods of performance from September 2009 to January 2012, but were nearly identical in all other respects. Each Delivery Order contained a Statement of Work (SOW) that required Serco to provide project management and cost reports to SPAWAR, including EVM reports, "in accordance with the attached CDRLs [Contract Data Requirements Lists]." The attached CDRLs specified: "Contractor [Serco's] format acceptable. Create reports using MS Office Applications."

Serco's employees manually recorded their hours on Serco's internal accounting system using a single charge code for all tasks they performed on the AWS Project. Serco then compiled the time entries into Microsoft (MS) Excel spreadsheets to create monthly cost reports that it sent to SPAWAR. In January 2010, Serco informed SPAWAR that it could not automate its accounting system or accommodate the thousands of AWS Project task line-items that SPAWAR used in the reports it sent to DHS under its interagency contract. SPAWAR advised Serco that it would accept Serco's monthly cost reports on MS Excel spreadsheets using information that Serco employees tracked and compiled manually. SPAWAR also advised that DHS was aware of Serco's cost tracking format and had approved it.

Serco hired Kelly as an EVM analyst in October 2009 to monitor Serco's performance on the AWS Project and identify any cost or schedule overruns. In April 2011, Kelly informed DHS that Serco's monthly cost reports were unreliable because they tracked costs manually and with a single charge code in violation of the guidelines in the American National Standards Institute/Electronic Industries Alliance Standard 748 (ANSI–748). Kelly also informed DHS that Serco was falsifying its monthly reports to make its actual costs match the expected budget for the AWS Project. That same month, DHS and SPAWAR determined that EVM reports were no longer necessary or cost-justified for the AWS Project. SPAWAR directed Serco to reduce the number of EVM analysts working on the AWS Project. Kelly's supervisors at Serco, unaware of his recent report to DHS, terminated Kelly in May 2011. Following his termination, Kelly's position no longer existed at Serco.

Kelly filed suit against Serco as a qui tam relator under the FCA, asserting the following claims for relief: (1) submitting false claims for payment in violation of the FCA under a theory of implied false certification, (2) making false records material to a false or fraudulent claim in violation of the FCA, (3) conspiring to violate the FCA, (4) retention of overpayments in violation of the FCA, and (5) unlawful termination in violation of public policy under California common law.³

The district court granted summary judgment in favor of Serco on all of Kelly's claims. The district court also denied as moot Serco's motion to strike the opinion and deposition testimony of Kelly's expert, Kevin Martin, on whether Serco's compliance with ANSI–748 was incorporated by reference into the Delivery Orders and whether Serco's internal system was capable of complying with ANSI–748. This timely appeal followed.

II

We have jurisdiction to review the district court's grant of summary judgment under 28 U.S.C. § 1291. Strategic Diversity, Inc. v. Alchemix Corp. , 666 F.3d 1197, 1205 (9th Cir. 2012). "We review de novo the district court's grant of summary judgment." Id. "Viewing the evidence in the light most favorable to the nonmoving party, we must determine whether there are genuine issues of material fact and whether the district court correctly applied the relevant substantive law." Id. (quotation marks omitted). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249–50, 106 S.Ct. 2505 (citations omitted).

"To survive summary judgment, the relator must establish evidence on which a reasonable jury could find for the plaintiff." United States ex rel. Aflatooni v. Kitsap Physicians Serv. , 314 F.3d 995, 1001 (9th Cir. 2002) (citation and alterations omitted). "If the facts make a claim ‘implausible,’ the non-movant must present ‘more persuasive evidence than would otherwise be necessary’ in order to defeat a summary judgment motion." United States ex rel. Anderson v. N. Telecom, Inc. , 52 F.3d 810, 815 (9th Cir. 1995). "The district court's grant of summary judgment may be affirmed if it is supported by any ground in the record, whether or not the district court relied upon that ground." Summers v. Teichert & Son, Inc. , 127 F.3d 1150, 1152 (9th Cir. 1997).

"The district court's exclusion of evidence in a summary judgment motion is reviewed for an abuse of discretion." Orr v. Bank of Am., NT & SA , 285 F.3d 764, 773 (9th Cir. 2002) (citing Gen. Elec. Co. v. Joiner , 522 U.S. 136, 141, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997) ). Thus, "we must affirm the district court unless its evidentiary ruling was manifestly erroneous and prejudicial." Id. (citing Joiner , 522 U.S. at 142, 118 S.Ct. 512 ).

III

Kelly's principal contention on appeal is that the district court erroneously granted summary judgment on his FCA claim alleging that Serco submitted false or fraudulent claims for payment under an implied false certification theory of liability. See 31 U.S.C. § 3729(a)(1)(A). The FCA's qui tam provision permits a private person (known as a "relator") to bring a civil action on behalf of the United States against any individual or company who has knowingly presented a false or fraudulent claim for payment to the United States. Id. § 3730(b); see id. § 3729(a)(1)(A) (imposing civil liability on "any person who ... knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval").⁴ The FCA encourages insiders to disclose fraud by awarding successful qui tam plaintiffs a portion of any judgment, plus reasonable attorneys' fees and costs. Id. § 3730(d).

Under the implied false certification theory advanced by Kelly, a defendant's act of submitting a claim for payment "impliedly certifies compliance with all conditions of payment." Universal Health Servs., Inc. v. United States ex rel. Escobar , ––– U.S. ––––, 136 S.Ct. 1989, 1995, 195 L.Ed.2d 348 (2016). The district court determined that "it is only possible for a claimant to implicitly certify compliance with a law, rule, or regulation if there is a relevant ‘statute, rule, regulation, or contract’ in place that conditions payment of the claim on compliance with that underlying law, rule or regulation." It therefore analyzed whether any statute, regulation, or contractual provision conditioned Serco's right to payment on its compliance with ANSI–748.

The Federal Acquisition Regulation (FAR) provides that government contracts that require a contractor to use an EVMS must include a form clause stating that the EVMS shall...