Kellogg Brown & Root Serv. Inc. v. United States
| Decision Date | 06 July 2011 |
| Docket Number | No. 09-351C,09-351C |
| Court | U.S. Claims Court |
| Parties | KELLOGG BROWN & ROOT SERVICES, INC., Plaintiff, v. THE UNITED STATES, Defendant. |
Contracts; motion to dismiss pursuant to RCFC 12(b)(6) for failure to state a claim; Government affirmative defense and counterclaims in fraud; affirmative defense that claim unrecoverable because of "taint" of kickbacks; counterclaim for forfeiture under the Special Plea in Fraud (the Forfeiture of Fraudulent Claims Act), 28 U.S.C. § 2514 (2006); counterclaim under the Anti-Kickback Act, 41 U.S.C. §§ 53, 55 (2006); counterclaim under the False Claims Act, 31 U.S.C. § 3729(a)(1) (2006); counterclaim for common-law fraud (rescission and disgorgement); motion to dismiss pursuant to RCFC 9(b) for failure to properly plead fraud.
Thomas A. Lemmer, Denver, CO, for plaintiff. Sandra B. Wick Mulvany, McKenna Long & Aldridge LLP, and John M. Faust, Craig D. Margolis, J. Randall Warden, and Tirzah S. Lollar, Vinson & Elkins LLP, of counsel.
J. Reid Prouty, Washington, DC, with whom was Assistant Attorney General Tony West, for defendant.
This matter is before the court after argument on plaintiff's Motion To Dismiss the Counterclaims of Defendant the United States of America for failure to state claims for which relief can be granted pursuant to RCFC 12(b)(6) and failure to properly plead fraud under RCFC 9(b). Plaintiff's motion calls into question the level of proof required for each of defendant's five counts of fraud, implicating both statutory and common-law remedies, and, specifically, whether receipt of kickbacks from a subcontractor by employees of a prime contractor states a claim under the Special Plea in Fraud or the Forfeiture of Fraudulent Claims Act, 28 U.S.C. § 2514 (2006) (the "forfeiture statute") (Count I), the Anti-Kickback Act, 41 U.S.C. §§ 53, 55 (2006) (the "AKA") (Count II), 2 the False Claims Act, 31 U.S.C. § 3729(a)(1) (2006) (the "FCA") (Count III), or the common-law fraud standards that can trigger rescission and disgorgement (Counts IV and V). Defendant presses a novel affirmative defense that would deny enforcement of a claim based on the "taint" of a condemnable fraudulent practice—in this case, a kickback.
This dispute has its genesis in a United States Army (the "Army") Logistics Civil Augmentation Program ("LOGCAP") Contract Number DAAA09-02-D-0007 (the "LOGCAP III contract") with Brown & Root Services. The contract was novated and transferred to Kellogg Brown & Root Services, Inc. ("KBR" or "plaintiff"), on August 1, 2003. LOGCAP III was an umbrella contract to implement logistics support services for the Army in Kuwait and Iraq prior to and during Operation Iraqi Freedom. The logistics supportservices provided by plaintiff included dining facility ("DFAC"), morale and welfare, laundry, and fuel delivery services. The LOGCAP III contract was a cost-plus-award-fee agreement that incorporated the provisions of 48 C.F.R. (FAR) § 52.216-7 (2000), whereby the Army would reimburse KBR for all costs it incurred in contract performance, including payments to subcontractors, along with a fee determined by subcontract costs.
Beginning in October 2002, Terry Hall was KBR's Regional Food Services Manager for Kuwait and Iraq. Mr. Hall and his staff were responsible for ensuring that subcontractors providing DFAC services were competent, to help craft statements of work for those subcontractors, requisitioning DFAC services—including cost estimates from subcontractors—and overseeing performance of DFAC subcontracts. In early 2003 Luther Holmes became Mr. Hall's deputy.
One of the DFAC subcontractors under Mr. Hall's purview was Tamimi Global Company ("Tamimi"). When Mr. Hall was hired by KBR in 2002, Tamimi already was a KBR subcontractor under the LOGCAP III contract performing DFAC services in Kuwait at Camp Arifjan. In November 2002 Mr. Hall and his superiors at KBR considered terminating Tamimi's subcontract because of an electrical fire at Camp Arifjan for which Tamimi was faulted. However, KBR continued to subcontract with Tamimi.
For purposes of plaintiff's motion to dismiss, all well-pleaded allegations of defendant's affirmative defense and counterclaims are accepted as true. In November 2002 Tamimi's vice-president and chief of operations, Mohammad Shabbir Khan, offered Mr. Hall a kickback, stating that they could "'make a lot of money together.'" Def.'s Am. Answer & Countercls. filed Mar. 15, 2011, ¶ 114 ("Countercls."). At that time Mr. Hall did not accept money from Mr. Khan, but he also did not report the kickback offer to anyone. However, eventually, both Messrs. Hall and Holmes did accept kickbacks from Mr. Khan.
Beginning in late 2002 through the end of 2003, Messrs. Hall and Holmes received a combined $45,000.00 in cash kickbacks from Mr. Khan. "Mr. Hall understood that the money was being provided so that Tamimi would remain in KBR's good graces and continue to get DFAC contracts from KBR." Id. ¶ 115. In 2003 Messrs. Hall and Holmes each accepted $5,000.00 in cash that Mr. Khan delivered to them at an airport in Kuwait. Mr. Khan also gave Mr. Hall an automated teller machine ("ATM") card to withdraw cash from a bank account into which Mr. Khan had deposited another $5,000.00. Mr. Hall used the ATM card to withdraw $3,500.00 in cash. Mr. Holmes withdrew the remaining $1,500.00. Mr. Holmes accepted an additional $10,000.00 in cash from Mr. Khan, which Mr. Holmes gave to his secretary. Towards the end of 2003, Mr. Hall accepted $20,000.00 from Mr. Khan, which purportedly was to be used as an investment in a "Golden Corral" restaurant.However, Mr. Hall made no such investment, and Mr. Khan did not request that the money be paid back.
KBR awarded "master agreement" subcontracts under the LOGCAP III contract to perform DFAC services. When a master agreement was awarded to a subcontractor, KBR would order DFAC services by issuing work releases to the subcontractor. Contractors that were not awarded master agreements by KBR would not be eligible to operate DFACs for KBR. In June 2003 KBR convened a board to determine which subcontractors would be awarded these master agreements. The master agreement approval board included Messrs. Hall and Holmes, as well as other KBR employees. "As Regional Food Services Manager for KBR, had Mr. Hall objected to the award of a master agreement to a contractor, it would have been highly unlikely that such an award would be made." Id. ¶ 117. While the board did not award master agreements to every contractor that sought them, KBR did award master agreements to five contractors, including Tamimi, which was awarded "Master Agreement 3." Id.
In response to Army task orders issued upon the LOGCAP III contract, KBR issued numerous work releases to Tamimi under Master Agreement 3. These task orders include Task Order 59 issued by the Army on August 2003—effective from June 2003 through April 2005—and Task Order 89—effective from May 2005 through August 2006. KBR paid Tamimi approximately $466,290,328.00 for all of the work releases issued under Master Agreement 3. KBR submitted vouchers to the Army for reimbursement of payments made to Tamimi for amounts due under the work releases. In addition to reimbursement vouchers for these direct costs, KBR received a base fee of one percent of direct costs, an award fee of up to two percent of direct costs, as well as a fee for indirect costs. Id. ¶ 118.
In addition to Camp Arifjan, the Army chose KBR to take over performance of DFAC services at Camp Anaconda, Iraq, from Tamimi, the incumbent contractor. KBR decided to continue to use Tamimi to perform DFAC services at Camp Anaconda. The decision to subcontract with Tamimi initially was made by Daniel Petsche, KBR's LOGCAP III subcontracts administrator in Iraq. Although at that time Mr. Petsche did not possess authority to commit KBR to significant contractual expenditures on any one subcontract, he could make provisional agreements with subcontractors and then seek ratification of any such action from his superiors at KBR who did possess the requisite authority. Notably, Mr. Petsche did not possess the authority to commit KBR to the contractual expenditures required by the Camp Anaconda DFAC contract. However, Mr. Petsche made the initial decision to award the Camp Anaconda subcontract to Tamimi, and he did so at the urging of Mr. Halland his direct supervisor, Robert Gatlin. Mr. Petsche had considered awarding the subcontract to another contractor, but "changed his mind based upon the advocacy for Tamimi that he received from Mr. Hall." Id. ¶ 120. Mr. Hall wrote and signed the procurement memorandum for KBR justifying the sole-source Camp Anaconda subcontract award to Tamimi.
Work Release 3 of Master Agreement 3 ("Work Release 3") was the relevant work release through which KBR authorized Tamimi's DFAC services at Camp Anaconda and was effective from August 2003 through December 2005. KBR paid Tamimi approximately $307,630,344.00 under Work Release 3, which KBR sought reimbursement for from the Army, plus its additional fees and indirect costs.
Toward the end of December 2003, KBR fired Mr. Petsche for accepting a gift from another subcontractor—not Tamimi. In February 2004 Mr. Petsche was contacted by David Hadcock, another KBR employee who was reviewing KBR's Camp Anaconda DFAC procurement files for the proper authorization and cost justification for Work Release 3. In an e-mail to Mr. Hadcock, Mr. Petsche characterized the Camp Anaconda DFAC subcontract as "'the mother of all DFAC drug deals'" because of its irregularities and described it as "'predestined and out of control from the start.'" Id. ¶ 124. Because Tamimi's pricing for Camp Anaconda was "'very close to the [amount in the internal KBR] requisition," Mr. Petsche opined that the work release award had been...
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