U.S. ex rel. Compton v. Midwest Specialties, Inc., M-S

Citation142 F.3d 296
Decision Date22 January 1998
Docket NumberNo. 96-4374,M-S,96-4374
PartiesUNITED STATES ex rel. Lyle COMPTON, Plaintiff-Appellee, v. MIDWEST SPECIALTIES, INC.,Enterprises, Inc., Richard D. Kennedy, Kim D. Haman, David Cooper, and Brody Osborne, Defendants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)

David O. Bauer, Asst. U.S. Attorney, Office of the U.S. Attorney, Western Div., Toledo, OH, David T. Cohen (argued and briefed), U.S. Department of Justice, Civil Div., Washington, DC, Richard E. Siferd, Siferd & Siferd, Lima, OH, Douglas N. Letter (briefed), U.S. Dept. of Justice, Civil Div., Appellate Staff, Washington, DC, for Plaintiff-Appellee.

Donald J. Kinlin (briefed), Christine M. McCoy (briefed), Thompson, Hine & Flory, Dayton, OH, Michael F. O'Loughlin (argued and briefed), O'Loughlin & Gudorf, Dayton, OH, for Defendants-Appellants.

Before: BOGGS, MOORE, and FARRIS, ** Circuit Judges.


BOGGS, Circuit Judge.

Defendant Midwest Specialties, Inc., along with an affiliate and several of its officers and employees (collectively, "Midwest"), appeals a district court order granting summary judgment in favor of the United States on claims that Midwest violated the False Claims Act by providing brake shoes for United States Army jeeps that did not conform to contractual testing requirements. We affirm.


In February 1986, Midwest entered into contract DAAE07-86-C-0755 to sell 31,516 jeep brake-shoe kits to the United States Army. The contract required that the brake shoes be welded together with long strips of weld material known as fillet welds. In late March 1986, Midwest requested permission from the Army to "plug weld" the brake shoes instead of fillet welding them. Midwest prepared and submitted to the Army a document marked "Request for Deviation/Waiver MID-0755-1." Among other things, the deviation request added to the contract a quality-assurance testing requirement, presumably (though it is immaterial) to ensure that the plug welds would be as durable as the originally specified fillet welds. The quality testing requirement in Midwest's deviation request reads as follows: "Add: Test per Method I or II (attached)." Midwest then attached pages from a deviation request submitted in connection with a different contract several years earlier, as well as schematic diagrams depicting the two required testing methods. The attached pages described both the testing specifications and the frequency of the required testing:

1. Slot Welded assembly to be tested to verify that it shall withstand, without failure or cracking, a shear force of 5,000 pounds applied at both ends of the assembly in the tangential direction of the table at points of application. Test sample size shall be three out of the first ten; and thereafter, one out of every 250.

2. Each Slot Welded assembly to be checked to verify that the surfaces of table and web shall conform within 0.005 inches from the ideal. The frequency of inspection will be changed when a level of confidence is established that Midwest Specialties, Inc., has met the required design condition on a repeated basis. The Quality Assurance Representative [a Defense Department contracting employee] can then establish a random sampling check.

Joint Appendix ("J.A.") at 353.

The Army approved Midwest's deviation request and issued a contract modification incorporating the terms of deviation request MID0755-1. The Army's approval document states that the "purpose of this modification is to incorporate deviation # 0755-1 (DD Form 1694 attached)," referring to Midwest's form request for deviation. However, this document did not actually attach Midwest's deviation request. In January 1987, Midwest entered into another contract (# DAAE07-87-C-0839) to sell 2,552 additional jeep brake shoes to the Army. The Army then approved Midwest's request to plug weld and test these brake shoes under the same terms as the first jeep brake-shoe contract.

Midwest does not appear to dispute that it did not test one out of every 250 brake-shoe kits manufactured for the Army as required under the contract. This lack of testing did not stop Midwest from delivering the kits, however; between 1987 and 1988, Midwest delivered to the Army 34,068 plug-welded brake-shoe kits under the two contracts at issue. As each batch of brake-shoe kits was delivered, Midwest presented a separate invoice to an Army contracting officer (Gary Martin)--13 in all--each of which included a statement that the brake shoes conformed to the contracts. Mr. Martin approved these invoices, and as a result the government paid Midwest a total of $1,369,042.40.

In late 1989, the brakes on an Army jeep apparently failed when the welds on one of its Midwest brake shoes failed. 1 The Army therefore commenced an investigation of the brake shoes delivered by Midwest. The Army subjected a sample of 18 brake-shoe kits to the Method I test and a sample of 54 kits to the Method II test; the results (as described in an Army memorandum issued on January 22, 1990) indicated that roughly 78 percent of the brake shoes failed to pass muster under the Method I test, and more than 60 percent of the brakes failed the Method II test. The Army investigators concluded that "a rework is needed to upgrade the strength of the [brake] assembly...." See J.A. at 389. As a result, on March 15, 1990, the Army sent out an "inspection emergency" message to all military bases and embassies around the world ordering that jeeps equipped with brake shoes manufactured by Midwest be "deadlined" until replacement brake shoes could be installed. See id. at 322. Since the transmission of that message, all Midwest brake shoes have been removed from Army jeeps, and those brake shoes are now sitting in warehouses at various United States military installations around the world.


One theme of Midwest's appeal is that the district court's summary-judgment ruling came as a surprise, with insufficient opportunity for discovery and briefing. We therefore recount in detail the procedural history of this case. In February 1991, Lyle Compton (a former employee of Midwest) filed this action under the qui tam provisions of the False Claims Act, 31 U.S.C. § 3729 et seq., alleging a number of violations of the False Claims Act other than the jeep brake shoe issue described above. In a qui tam action, a private relator files a lawsuit on behalf of the United States and may collect a portion of the government's recovery. See, e.g., United States ex rel. Taxpayers Against Fraud v. General Electric Co., 41 F.3d 1032, 1035 (6th Cir.1994). The United States intervened in September 1992, and in December 1992 filed an amended complaint including allegations relating to the jeep brake shoes.

Over the next two years or so, the government served Midwest with various interrogatories and document requests. The government also took the deposition of Richard Kennedy, Midwest's president. There is no evidence in the joint appendix that Midwest served the government with any discovery requests at all, though in its brief Midwest asserts that it asked the government to produce certain documents relating to the technical requirements for the brake-shoe kits. Midwest also did not notice any depositions in the case.

After a discovery conference in early April 1995, the district court ordered the parties to brief three legal questions: (1) whether Midwest's presentation to the government of claims for payment under the jeep brake-shoe contracts would render Midwest liable under the False Claims Act if Midwest knowingly and materially failed to perform the tests required under the contracts; (2) whether, if so, the government would be entitled to recover the full contract price; and (3) what obligations Midwest assumed to test the brake-shoe kits by virtue of the contracts. The parties agree that the court stayed discovery pending the briefing of these questions, although the court's order does not include any provision staying discovery.

On May 26, 1995, Midwest and the government each filed a brief pursuant to the district court's briefing order. Midwest submitted a four-page brief devoted solely to the question of the proper measure of damages--in effect, addressing only the second question identified in the district court's order. The government submitted a 22-page "motion for partial summary judgment and memorandum of law," to which were attached 13 exhibits. The government argued in its partial summary judgment brief that the contracts in question required Midwest to test one of every 250 brake shoes, that it was undisputed that Midwest did not actually perform the required production testing, and that Midwest's act of submitting invoices for the untested brake shoes constituted a violation of the False Claims Act. In sum, the government's brief addressed the first and third questions identified in the district court's briefing order.

On June 21, 1995, the government took a position on the district court's second question by filing a brief in opposition to Midwest's brief on the measure of damages. Midwest then filed a brief on July 6, 1995, arguing alternatively that the contracts imposed no testing requirement or that Midwest complied with any applicable requirements. Midwest attached nine exhibits, including government documents, to this brief. On July 31, 1995, the government filed a reply brief on the liability issues discussed in its partial summary judgment brief, and on August 1, 1995, Midwest filed a reply brief on the damages issues discussed in its opening brief. The government then filed a surreply brief on the damages question on August 10, 1995.

On September 26, 1995, the district court granted summary judgment in favor of the government "on the issue of whether defendant was required to perform weld shear tests on one out of every 250 brake shoes sold under the jeep contracts...." The next day, the district court issued an order finding...

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