U.S. ex rel. Schwedt v. Planning Research Corp.

• Decision Date: 07 July 1995
• Docket Number: No. 94-7091,94-7091
• Citation: 313 U.S.App. D.C. 200,59 F.3d 196
• Parties: , 40 Cont.Cas.Fed. (CCH) P 76,810 UNITED STATES of America ex rel., Mervyn A. SCHWEDT, Appellant, v. PLANNING RESEARCH CORPORATION, a Virginia Corporation, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 196

59 F.3d 196

313 U.S.App.D.C. 200, 40 Cont.Cas.Fed. (CCH) P 76,810

UNITED STATES of America ex rel., Mervyn A. SCHWEDT, Appellant, v.PLANNING RESEARCH CORPORATION, a Virginia Corporation, Appellee.

No. 94-7091.

United States Court of Appeals District of Columbia Circuit.

Argued April 7, 1995.

Decided July 7, 1995.

Appeal from the United States District Court for the District of Columbia(No. 92cv01951).

William G. Kopit, Washington, DC, argued the cause and filed the briefs for appellant.Mervyn A. Schwedt entered an appearance pro se.

Frederick M. Levy, Washington, DC, argued the cause for appellee.With him on the brief was Gregory T. Jaeger, Washington, DC.

Before: EDWARDS, Chief Judge; WALD and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

Mervyn A. Schwedt, Director of the Office of Information Management at the Department of Labor's Pension and Welfare Benefits Administration ("PWBA"), brought this action against Planning Research Corporation("PRC") under the qui tam provision of the False Claims Act("Act"), 31 U.S.C. Sec. 3729 et seq.(1988 & Supp. V 1993).Schwedt claims that in the course of performance of a contract under which PRC was to design a software system for the PWBA, PRC submitted false progress reports about the status and success of the system, inducing the government to pay for various components of the project that it would not otherwise have accepted.The district court dismissed most of Schwedt's complaint and granted summary judgment to PRC on the remainder.SeeUnited States ex rel. Schwedt v. Planning Research Corp., Inc., No. Civ. 92-1951-LFO, slip op. at 8, 10, 1994 WL 118222(D.D.C.Mar. 31, 1994).We hold that Schwedt has made sufficient allegations to proceed on his claim that PRC's progress reports constitute false claims under the Act, for which he may pursue the statutory civil penalty, and on his claim that these progress reports caused the government to accept and pay for various items under the contract that were worthless on their own, for which he may pursue treble damages under the Act.

I.BACKGROUND

In 1989, the PWBA entered into a contract with PRC under which PRC was to design and put into place a computer software system that would link the PWBA's national and field offices.The terms of this agreement are embodied in two documents, a Task Order and a Contract.Under the Task Order, PRC is to complete seven sequential segments, termed "milestones," running from the initial design of the system through production of software and manuals to presentation of a final report.Task Orderat 5-12, reprinted inAppellee's Supplemental Appendix ("S.A.")at 13-20.The Task Order also sets out a series of individual "deliverables," such as the software, training manuals, and reports, each of which is due at a particular stage of the project and is to be paid for upon acceptance by the government.Task Orderat 12, reprinted inS.A.at 20.

The Task Order and Contract establish an acceptance and payment system for each of the deliverables.Upon receipt of the software, for instance, the government has a 20-day "Client Acceptance Period" during which it will "complete review of each deliverable and accept or reject the deliverable in writing.[It] will have the right to reject or require correction of any deficiencies that are contrary to the information contained in the contractor's accepted proposal."Task Orderat 20, reprinted inS.A.at 28.Under the agreement, the government will accept the software only "if it is complete, comprehensive and complies with" the contract specifications.Id.Finally, no payment can be requested or made absent such acceptance: "[a]ny deliverable products under this contract will be accepted or rejected" in writing by the government, Contract p E.1, reprinted inS.A.at 61, and "[p]ayment of invoices will be made based upon acceptance by the Government," Contract p D.a., reprinted in S.A.at 62.

In the course of performing the contract, PRC made four deliveries of the software and submitted three progress reports.The first and last of these progress reports represented that the software was "100%" complete; the second represented that each of the four software components was either "99%" or "100%" complete.Progress Report of July 9, 1990, at 2, reprinted inS.A.at 64;Progress Report ofDec. 5, 1990, at 2, reprinted inS.A.at 67;Progress Report ofMar. 11, 1991, at 2, reprinted inS.A.at 70.According to allegations in the complaint and affidavit filed by Schwedt, who was responsible for overseeing the contract, the government rejected the software after testing on each of these occasions.At some point after the fourth delivery, however, the government did accept and pay $145,534 for one of the four sub-parts of the software.During this same period, the government also accepted and paid an additional $364,000 for other non-software deliverables.Over the course of performance, according to allegations in Schwedt's affidavit, PRC submitted two written requests for "equitable adjustments" approaching $2 million in excess of the original contract amount and made two oral demands for payment for the software.SchwedtAff. pp 14-18, reprinted inAppellant's Appendix ("A.A.")at 32-33.The filings do not detail the basis on which PRC claimed entitlement to the equitable adjustments.

In 1992, Schwedt filed this qui tam action, alleging that PRC violated the False Claims Act by "unlawfully and knowingly on no less than four occasions present[ing] and caus[ing] to be presented non-functional and non-compliant software to representatives of the United States while wrongfully and knowingly misrepresenting that said software was compliant and functional."Complaintp 25, reprinted inA.A.at 12.

The district court dismissed the bulk of Schwedt's complaint under Federal Rule of Civil Procedure 9(b) for failure to meet the heightened pleading requirements for fraud and granted summary judgment on the only claim it believed to be adequately pleaded.It held that several of the alleged "false claims"--the $364,000 in payments for unidentified, non-software deliverables and the two requests for equitable adjustment--were not identified with adequate specificity to meet the heightened pleading requirements for fraud.FED.R.CIV.P. 9(b).With respect to the single alleged "false claim" it found to be adequately pleaded--PRC's invoice for the one software component accepted by the government--it concluded that, even if it were a "false claim," Schwedt could not show any damages, because under the terms of the contract the government had to inspect and approve any PRC submission before payment.The district court did not discuss whether the progress reports themselves might constitute "false claims" or "statements" under the Act, and it neglected to address the provision of the Act imposing a civil penalty for the mere submission of a false claim, whether or not that claim brings about any damages.

II.ANALYSIS

The False Claims Act provides that:

Any person who

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval; [or](2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government ...

is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person....

31 U.S.C. Sec. 3729(a)(1988).Thus, the Act imposes two sorts of liability.First, the submitter of a "false claim" or "statement" is liable for a civil penalty, regardless of whether the submission of the claim actually causes the government any damages; even if the claim is rejected, its very submission is a basis for liability.Second, the submitter of the claim is liable for damages that the government sustains because of the submission of the false claim.

A."False Claims"

The Act penalizes the presentation of a "false or fraudulent claim for payment" or the use of "a false record or statement to get a false or fraudulent claim paid."31 U.S.C. Sec. 3729(a).A submission need not be an actual invoice to be a "claim" or "statement" under the Act.As the Supreme Court explained in United States v. Neifert-White Co., 390 U.S. 228, 233, 88 S.Ct. 959, 962, 19 L.Ed.2d 1061(1968), "[t]his remedial statute reaches beyond 'claims' which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money."Each individual false claim or statement triggers the statute's civil penalty.SeeUnited States v. Bornstein, 423 U.S. 303, 313, 96 S.Ct. 523, 530, 46 L.Ed.2d 514(1976).

Schwedt's complaint identifies the false claims on which he bases his action: "on no less than four occasions [PRC] present[ed] and cause[d] to be presented non-functional and non-compliant software to representatives of the United States while wrongfully and knowingly misrepresenting that said software was compliant and functional."Complaintp 25, reprinted inA.A.at 12.In dismissing the bulk of this complaint, the district court failed to consider that the individual progress reports, though not in themselves actual invoices, might constitute "false claims" or "statements" under the Act.

We hold that if, as Schwedt alleges, PRC knowingly submitted false progress reports stating that the software delivered during the same period was complete when in fact it was not, then these progress reports would constitute false statements in support of false claims and would trigger the Act's civil penalty.That the progress reports are not invoices is immaterial.They were submitted during the same period that the software was delivered, and they certify the...