U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc.

• Decision Date: 16 May 2008
• Docket Number: No. 07-1516.,07-1516.
• Parties: UNITED STATES of America ex rel. David L. WILSON, James Warren, Plaintiff-Appellant, v. KELLOGG BROWN & ROOT, INCORPORATED; KBR, Incorporated; Kellogg Brown & Root Services, Incorporated; Services Employees International, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

525 F.3d 370

UNITED STATES of America ex rel. David L. WILSON, James Warren, Plaintiff-Appellant, v. KELLOGG BROWN & ROOT, INCORPORATED; KBR, Incorporated; Kellogg Brown & Root Services, Incorporated; Services Employees International, Incorporated, Defendants-Appellees.

No. 07-1516.

United States Court of Appeals, Fourth Circuit.

Argued: March 19, 2008.

Decided: May 16, 2008.

ARGUED:

Andrew Grosso, Andrew Grosso & Associates, Washington, D.C., for Appellant. John Martin Faust, Vinson & Elkins, L.L.P., Washington, D.C., for Appellees.

ON BRIEF:

Victor Kubli, Grayson & Kubli, P.C., McLean, Virginia, for Appellant. Vanessa M. Griffith, Vinson & Elkins, L.L.P., Dallas, Texas; Alden L. Atkins, Tirzah S. Fitzkee, Vinson & Elkins, L.L.P., Washington, D.C., for Appellees.

Before WILLIAMS, Chief Judge, WILKINSON, Circuit Judge, and IRENE M. KEELEY, United States District Judge for the Northern District of West Virginia, sitting by designation.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Chief Judge WILLIAMS and Judge KEELEY joined.

OPINION

WILKINSON, Circuit Judge:

This case arises from a qui tam action brought by Relators David L. Wilson and James Warren under the False Claims Act against Kellogg Brown & Root, Inc., Kellogg Brown & Root Services, Inc., KBR, Inc., and Services Employees International, Inc. (collectively "KBR"). Relators allege that KBR fraudulently induced the United States into awarding it an Army task order in connection with its work as a civilian contractor in Iraq. They also allege several employment-related claims stemming from their termination by KBR.

Since initiating this litigation, Relators have consistently sought to shoehorn what is, in essence, a breach of contract action into a claim that is cognizable under the False Claims Act. This misguided journey must come to an end. If every dispute involving contractual performance were to be transformed into a qui tam FCA suit, the prospect of litigation in government contracting would literally have no end. The district court properly recognized this danger, and we affirm its judgment.

I.

A.

This case concerns the contractual relationship between KBR and the United States government. In December 2001, KBR entered into a Logistics Civil Augmentation Program ("LOGCAP") contract with the Department of Defense. The agreement called for KBR, acting as a civilian contractor, to provide operational support to the United States military in wartime situations. In exchange, KBR was to be reimbursed costs (up to an agreed-upon maximum amount) and paid a "base fee" of one percent of those costs. In addition, KBR could be awarded up to an additional two percent of costs based on performance assessments by the Army and its LOGCAP Award Fee Evaluation Board.

Under the LOGCAP contract, the military requested specific services or commodities through various task orders. In Task Order 43, the Army called for KBR to provide transportational services in connection with the conflict in Iraq. In particular, KBR was to transport fuel and other supplies from Kuwait to Iraq and between bases within Iraq. Task Order 43 was also accompanied by several Statements of Work ("SOWs") that further detailed KBR's responsibilities and obligations. KBR commenced performance under Task Order 43 and its SOWs in February 2003.

The LOGCAP contract, Task Order 43, and the various SOWs contained several provisions that imposed general safety and maintenance requirements on KBR. For example, the LOGCAP agreement stated that KBR "will ensure the safety and health of personnel, equipment and supplies that the contractor has direct control over, within the [Area of Operation]." It also established that "[a]ll contractor owned motor vehicles shall meet required vehicle requirements within the [Area of Responsibility]," "shall be properly equipped and designed to ensure protection of [Government] property," and shall "be maintained in a safe operating condition and good appearance."

Similarly, an SOW dated July 11, 2003 — and applicable to Task Order 43 from February 21, 2003 through December 31, 2003 — directed KBR to "provide the equipment, tools, parts and personnel" needed for the "maintenance and repair" of the vehicles used to transport fuel and other supplies under the contract. A subsequent SOW, dated December 19, 2003 — and applicable to Task Order 43 from January 1, 2004 through December 31, 2004 — contained many similar provisions, including the obligation to operate "a vehicle maintenance facility" in the theater of operation.

When ordering supplies or services through a task order, the military issues a DD Form 1155 to be executed by the civilian contractor. A DD Form 1155 is a standard document in which the contractor expressly accepts "the terms and conditions" of the numbered purchase order and "agrees to perform the same." In the present case, such "terms and conditions" include the safety and maintenance provisions noted above.

Although KBR started performing under Task Order 43 in February 2003, it did not execute a corresponding DD Form 1155 until July 24, 2003. This DD Form 1155, however, was effective February 20, 2003 (when KBR commenced performance). According to Relators, KBR could not have been paid for its work in connection with Task Order 43 until it signed the relevant DD Form 1155.

In September-October 2003, KBR hired David Wilson and James Warren to drive supply trucks in Iraq. Both Wilson's and Warren's employment contracts contained an arbitration clause in which each agreed to participate in the company's Dispute Resolution Program and arbitrate "any and all claims that [the employee] might have against [KBR] related to [one's] employment, including [one's] termination."

During their time in Iraq, Wilson and Warren drove a 300-mile convoy route between Base Cedar II, which is located south of Baghdad, and Base Anaconda, which is north of Baghdad. According to Relators, KBR neglected to perform several routine maintenance procedures on the trucks in their convoy. For example, they allege that KBR failed to change the oil or replace the fuel filters and damaged windshields of the convoy trucks. Although Wilson and Warren acknowledge that KBR operated maintenance depots at both military bases, they claim that the maintenance crews did little more than "change a tire" and a "bit of electrical work."

Based on their observations, Wilson and Warren complained to superiors about what they considered the lack of proper maintenance. In addition, after a series of thefts from the convoy trucks, they complained to KBR about inadequate security.

KBR terminated Wilson on March 29, 2004, and Warren three days later. Wilson and Warren claim they were discharged because of their complaints to management about the poor maintenance and security.

B.

On May 21, 2004, Wilson and Warren filed suit against KBR under the qui tam provisions of the False Claims Act ("FCA"). See 31 U.S.C. §§ 3729-3733 (2000). In addition to their FCA claims, Relators also alleged several employment-related counts, including wrongful termination, quantum meruit, and retaliatory termination in violation of the FCA.

After their initial set of FCA claims were dismissed by the district court,¹ Relators moved for leave to file a third amended complaint. In this proposed complaint, Relators alleged that KBR fraudulently induced the United States into awarding it Task Order 43 by knowingly misrepresenting that it would comply with the order's maintenance requirements. The crux of Relators' claim is a DD Form 1155 signed by KBR in July 2003. According to Relators, when KBR signed the DD Form 1155, and thereby accepted the task order subject to its terms and conditions, KBR knew it had not (since February 2003) and would not fulfill the applicable maintenance and safety requirements under the contract. Thus, Relators posit, the completed form constituted a fraudulent representation by KBR to the United States in order to receive payment under Task Order 43. Because such payments were contingent on KBR's execution of the DD Form 1155, Relators contend that KBR fraudulently induced the United States in violation of the FCA.

After conducting a hearing, the district court denied the motion for leave to file an amended complaint, deeming it futile under Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Specifically, the district court held that the amended complaint failed to state a claim under Fed.R.Civ.P. 12(b)(6) since the DD Form 1155 executed in July 2003 did not constitute a "false statement or fraudulent course of conduct" under Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 788 (4th Cir.1999) ("Harrison I"). Instead, the court explained, Relators' allegations were "at best a claim for breach of contract that the government has not asserted." In the alternative, the court held that Relators had not pled fraud with sufficient particularity under Fed. R.Civ.P. 9(b).

With respect to the employment counts, KBR filed a motion to stay the claims on the ground they were subject to binding arbitration pursuant to Relators' employment contracts. The district court granted the motion, finding that Relators and KBR had agreed to arbitrate such employment disputes and that the arbitration agreements were enforceable under either the Federal Arbitration Act or Texas state law.

The district court entered a final judgment on the FCA and employment counts on April 30, 2007. Relators presently appeal (1) the district court's denial of the motion for leave to file a third amended complaint and (2) the district court's decision to stay the employment counts pending arbitration. We address each issue in turn.

II.

Relators first contend that the district court erred when it denied their motion for leave to file a third amended complaint. As noted above, the complaint alleged that KBR fraudulently induced the United States into awarding...