U.S. ex rel. Garst v. Lockheed Integ. Sol., 98 C 5072.

• Citation: 158 F.Supp.2d 816
• Decision Date: 29 March 2001
• Docket Number: No. 98 C 5072.,98 C 5072.
• Parties: UNITED STATES of America ex rel. Joseph E. GARST, Plaintiff, v. LOCKHEED INTEGRATED SOLUTIONS COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Illinois

158 F.Supp.2d 816

UNITED STATES of America ex rel. Joseph E. GARST, Plaintiff, v. LOCKHEED INTEGRATED SOLUTIONS COMPANY, Defendant.

No. 98 C 5072.

United States District Court, N.D. Illinois, Eastern Division.

March 29, 2001.

COPYRIGHT MATERIAL OMITTED

Nick Tancredi, Tancredi & Assoc., Oakbrook, IL, Lisle, IL, for Plaintiff.

David Marx, Joshua Thomas Buchman, Susan D. Wood, McDermott, Will & Emery, Chicago, IL, for Defendant.

MEMORANDUM OPINION

GRADY, District Judge.

Before the court is defendant's motion to dismiss the plaintiff's amended complaint. For the reasons explained below, the motion is granted.

Background

Joseph Garst is a former employee of the United States Department of Veteran Affairs ("VA") who initiated this qui tam action against Lockheed Integrated Solutions Company ("Lockheed") under the False Claims Act ("FCA"). See 31 U.S.C. § 3729 (West Supp.2000). The action seeks to recover damages and civil penalties on behalf of the United States arising from alleged false or fraudulent claims for payment presented to the VA.

The following facts are drawn from Garst's amended complaint ("complaint"), which we take as true for purposes of deciding this motion. In 1990, the VA issued a Request for Proposal ("RFP") for a nationwide office automation system for the VA. The project was known as "NOAVA," an acronym that stands for Nationwide Office Automation — Veterans Administration. The VA awarded the NOAVA contract to Lockheed, a wholly owned subsidiary of Lockheed Martin Corporation, in 1990. Lockheed hired a subcontractor known as SSDS, Inc.

The RFP required that the NOAVA system be compatible with certain computer systems the VA had already purchased, in particular, the Integrated Supply Management System ("ISMS"), its financial module, PRISM, and a network operating system known as Banyan VINES. It also required that the NOAVA system meet certain security guidelines. Under the contract, the VA was obligated to purchase equipment for the NOAVA contract from Lockheed alone.

According to the complaint, Lockheed made false representations to the VA in order to obtain the NOAVA contract and then failed to deliver on its promises. Lockheed failed to advise the VA that the individual it had identified as bearing primary responsibility for overseeing the NOAVA contract was no longer with the company; Lockheed falsely represented that its system would be compatible with Banyan VINES and would meet the VA's security requirements; Lockheed promised that its network operating system, PC-NFS, would work but it never did Lockheed promised that its system would run ISMS and PRISM but the system was never able to do so in a manner that met the VA's needs; Lockheed represented that it would supply qualified data processing professionals to provide technical support, but supplied unqualified personnel; Lockheed promised to deliver "state of the art" computer hardware, but provided hardware that was behind the "state of the art"; Lockheed represented that it would provide hardware and software efficiently, but delivery was often very delayed and machines arrived without the necessary equipment to make them functional; Lockheed represented that it would pay liquidated damages when equipment was delivered late but never paid those damages; and Lockheed represented that it would provide hardware, software, and services at a competitive price but engaged in "rapacious pricing practices" which caused the VA to spend far more than the market price.

In 1993, Garst submitted a detailed memorandum to the Office of the Inspector General ("OIG") complaining of Lockheed's performance. The OIG conducted an audit of the NOAVA contract and issued a report in September of 1994, finding that the VA did not maintain records adequate to enable oversight of Lockheed's performance of the NOAVA contract or of Lockheed's pricing practices. The OIG report found that about three million dollars was paid to Lockheed in late payment penalties, in part due to deficiencies in Lockheed's billing practices. In addition, the OIG report found that the VA's contracting officer was not authorized to commit the VA to the large expenditures under the NOAVA contract.

Thereafter, Garst and others who complained about the "fraudulent aspects of the Lockheed NOAVA contract" suffered reprisals and were "removed from the communication loop concerning the NOAVA contract." Garst himself was forced out of the VA after he complained.

In 1998, Garst filed this complaint under the qui tam provision of the False Claims Act ("FCA"), which authorizes private individuals to file suit against any entity alleged to have presented a false or fraudulent claim for payment to the federal government. See 31 U.S.C. § 3730(b). After these private individuals, known as "relators" or "qui tam plaintiffs," file their complaints under seal, the government then has an opportunity to investigate and decide whether to intervene. 31 U.S.C. § 3730(b)(2). If the government decides not to intervene, the complaint is unsealed and the suit proceeds. The relator is entitled to a share of the proceeds if the action is successful, the amount depending, in part, on whether or not the government intervenes. 3730(b)(1), (d)(1) (if the government joins the suit the relator is eligible to receive between fifteen and twenty-five percent of the judgment). Here, the government elected not to intervene, so the relator is eligible to collect thirty to thirty-five percent of the proceeds if the action is successful.

The defendant brings this motion to dismiss on the grounds that: (1) the relator has not pled fraud with particularity; (2) he has not stated a claim under the False Claims Act; (3) and the six year statute of limitations on the only bill presented (June of 1992) ran before the complaint was filed in August of 1998.

Analysis

A. Count I: Violations of § 3729(a)(1), (2), and (7).

Because the FCA prohibits entities from presenting "false or fraudulent claims" for payment to the government, the relator must meet the heightened pleading requirement of Federal Rule of Civil Procedure 9(b) that the alleged fraud "be stated with particularity." United States ex rel. Robinson v. Northrop Corp., 149 F.R.D. 142, 145 (N.D.Ill.1993). This has been taken to mean that the plaintiff must plead the "who, what, when, and where" of the fraud. Id.

Lockheed argues that the complaint fails to provide sufficient information to allow Lockheed to defend itself. For example, the complaint fails to identify what part of § 3729 the defendant violated and further fails to specify any claims for payment that Lockheed presented which were false or fraudulent. Moreover, Lockheed points out that the relator has failed to allege fraud with any particularity: the plaintiff has not identified any individuals who committed fraud, provided any specific dates, nor stated where the alleged fraud occurred.

In his Response, the relator does not identify the specific provisions of § 3729 that Lockheed allegedly violated, nor does he point to any particular false claims. The relator simply restates some of the general allegations in his complaint, relying primarily on his general claim that Lockheed induced the VA to enter into a $298 million contract with false promises about the quality of its equipment and technical expertise. As to Lockheed's argument that he has not pled fraud with particularity, the relator responds that he cannot be expected to supply information that is within Lockheed's control, and that the requirements of Rule 9(b) should be somewhat relaxed in this case because of the ten year duration of the contract.

Because the relator does not dispute Lockheed's conclusion that he only intended to state claims for alleged violations of 31 U.S.C. § 3729(a)(1), (2), and (7) in Count I, we will analyze liability only under these subsections.

1. § 3729(a)(1) and (2)

Under subsections (1) and (2), the relator must allege that the defendant knowingly presented a false claim for payment to the government, or that it presented a false statement or record in order to obtain payment. See United States ex rel. Bustamante v. United Way/Crusade of Mercy, Inc., No. 98 C 5551, 2000 WL 690250, at *4 (N.D.Ill. May 25, 2000) (setting forth the elements of § 3729(1) and (2) separately). Moreover,

"[K]nowingly" means the person (or entity): (1) had actual knowledge of the falsity of the information at issue; (2) acted in deliberate ignorance of the truth or falsity of that information; or (3) acted in reckless disregard of the truth or falsity of the information. 31 U.S.C. § 3729(b). Innocent mistakes or negligence are not actionable under this section. [Citations omitted].... In short, the claim must be a lie.

Hindo v. University of Health Sciences, 65 F.3d 608, 613 (7th Cir.1995).

The defendant is correct that no specific false or fraudulent claims or records have been alleged. Only one claim for payment was alleged at all — a claim for $26,000 for 430 hours of work done to install Lockheed's network. But there is no allegation that the 430 hours of work billed was not actually done. see id. (finding that a claim was not fraudulent where there was no contention the work was not done), or that Lockheed knowingly misrepresented to the VA that its installation had been successful. Cf. U.S. v. Hydroaire, Inc., No. 94 C 4414, 1995 WL 86733, at *4-5 (N.D.Ill. Feb. 27, 1995) (fraud was sufficiently alleged where the complaint stated that the defendant had certified that its product met the requirements of the contract and requested payment, but in fact the defendant knew the product was deficient).

The relator has cited no case for the proposition that he need not identify the false claims or records specifically, nor does he address the Seventh Circuit case cited by Lockheed, Midwest Grinding Co., Inc. v. Spitz, which held that dismissal of a fraud claim was proper where the plaintiff failed to identify the...