U.S. ex rel. Stebner v. Stewart & Stevenson Serv.

• Decision Date: 30 January 2004
• Docket Number: No. C.A.H-96-3363.,C.A.H-96-3363.
• Citation: 305 F.Supp.2d 694
• Parties: UNITED STATES of America, ex rel. Werner STEBNER, Plaintiff-Relator, v. STEWART & STEVENSON SERVICES, INC. and Mclaughlin Body Company, Defendants.
• Court: U.S. District Court — Southern District of Texas

305 F.Supp.2d 694

UNITED STATES of America, ex rel. Werner STEBNER, Plaintiff-Relator, v. STEWART & STEVENSON SERVICES, INC. and Mclaughlin Body Company, Defendants.

No. C.A.H-96-3363.

United States District Court, S.D. Texas, Houston Division.

January 30, 2004.

Michael F. Hertz, Washington, DC, Jill O. Venezia, Office of U. S. Attorney, Stuart M. Nelkin, Nelkin and Nelkin, Houston, TX, for Plaintiffs.

Daniel M. McClure, Fulbright & Jaworski, Glen M. Boudreaux, Kirklin Boudreaux et al., Houston, TX, for Defendants.

MEMORANDUM AND ORDER

HOYT, District Judge.

I. INTRODUCTION

This is a qui tam action that alleges that the defendants have committed fraud against the United States in violation of the False Claims Act ("FCA"). 31 U.S.C. § 3729 et seq. The Court accepts jurisdiction under 28 U.S.C. § 1331. The plaintiff-relator ("relator") is Werner Stebner and the defendants are Stewart & Stevenson Services, Inc. ("S & S") and its subcontractor, McLaughlin Body Company ("MBC"). Pursuant to Rule 56 of the Federal Rules of Civil Procedure, the parties have submitted cross motions for summary judgment. The Court has reviewed the papers on file and concludes that the relator's motions for summary judgment on the issue of liability should be DENIED and the defendants' motions for summary judgment should be GRANTED.

II. HISTORY

In 1991, the Government awarded S & S a contract to produce 10,843 trucks for the Army. The contract required that the trucks be capable of resisting corrosion damage during the initial ten years of service life. To evaluate resistance, the contract required an Accelerated Corrosion Test ("ACT"). In 1995, the ACT revealed corrosion problems. Seeking to establish conditional acceptance criteria while resolving the corrosion issue, S & S and the Government executed the first of several bilateral modifications on January 19, 1996. Modification P00067 called for a root cause analysis and the submission of a corrective action plan. The modification authorized the Government to withhold partial payments while conditionally accepting trucks until S & S submitted and implemented an acceptable corrective action plan. Moreover, it gave the Government the right to cease conditional acceptance if S & S failed to sufficiently resolve the corrosion issue. S & S selected its employee, the relator, to lead the investigation and produce the final corrosion report. Prior to submitting his report, the relator met with S & S managers and Government representatives. His report disclosed that S & S and MBC's facilities were producing "junk" and were incapable of meeting the contract's requirements. The relator and S & S disagreed about the level of detail to include in the final report. S & S subsequently removed the relator from the investigation and reassigned the reporting task. On April 2, 1996. S & S submitted the final corrosion report. It identified more than a dozen potential corrosion causes and it proposed various actions for corrosion prevention. It did not, as the relator preferred, reveal every deficiency in the production process and each instance of additional corrosion discovered during the investigation.

After testing repairs that were made under the corrective action plan, the Government, on September 25, 1996, exercised its right to cease conditional acceptance. In response, S & S offered a ten-year warranty on repaired trucks if the Government would continue accepting them. Meanwhile, on October 8, 1996, the relator filed an FCA Complaint with this Court under seal; the United States declined to intervene. Accepting S & S's offer, the Government executed Modification P00124 on November 13, 1996. In addition to resuming acceptance, the Government agreed to release all previously withheld funds. Since this event, the Government has awarded S & S two additional contracts for trucks, and the repaired ones remain under warranty against corrosion.

III. PARTY CONTENTIONS

A. Werner Stebner's Argument

The relator contends that S & S violated the FCA by submitting payment claims for trucks supplied under its contract with the Government while failing to ensure complete compliance with the contract's terms. Specifically, the relator contends that S & S submitted DD250 invoices and progress payment requests for trucks known to be incapable of meeting the contract's corrosion resistance requirements. Moreover, the relator contends that S & S's subcontractor, MBC, violated the FCA by falsely certifying to S & S that its products and processes conformed to the Government's contract. Finally, the relator contends that S & S violated the FCA by accepting MBC's false certifications.

B. S & S and MBC

S & S contends that it submitted no false claims for payment. Supporting this contention, S & S asserts that the DD250 invoices do not certify perfect compliance and that the progress payment invoices reflect manufacturing costs rather than payment for any particular truck. S & S and MBC jointly contend that the certifications provided by MBC were exclusively for S & S. MBC's certifications were not submitted to the Government nor did they impact the Government's payment decisions. S & S further contends that the Government's knowledge of the manufacturing processes and corrosion issues precludes fraud or falsity. Finally, S & S contends that the relator's FCA claim fails because the Government negotiated specific contractual modifications to solve the corrosion issue.

IV. LEGAL STANDARDS

A. Summary Judgment under Rule 56(c)

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the initial burden of "informing the Court of the basis of its motion" and identifying those portions of the record "which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In adjudicating a motion for summary judgment, the Court must view all facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)).

Once the moving party meets its burden, the nonmoving party must "go beyond the pleadings" and designate "specific facts" in the record "showing that there is a genuine issue for trial." Id. at 324, 106 S.Ct. 2548. An issue is "genuine" if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A failure on the part of the nonmoving party to offer proof concerning an essential element of its case necessarily renders all other facts immaterial and mandates a finding that no genuine issue of fact exists. Saunders v. Michelin Tire Corp., 942 F.2d 299, 301 (5th Cir.1991).

The primary inquiry here is whether the material facts present a sufficient disagreement as to require a trial, or whether the facts are sufficiently one-sided that one party should prevail as a matter of law. Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505. The case's substantive law identifies the material facts. Id. at 248, 106 S.Ct. 2505. Only disputed facts potentially affecting the outcome of the suit under the substantive law preclude the entry of a summary judgment. Id.

B. False Claims Act ("FCA")

The FCA, in relevant part, provides:

(a) Liability for certain acts. — Any person who —

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States 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 ....

31 U.S.C. § 3729(a)(1), (2).

For FCA purposes,

`knowing' and `knowingly' mean that a person with respect to the information —

(1) has actual knowledge of the information;

(2) acts in deliberate ignorance of the truth or falsity of the information; or

(3) acts

in reckless disregard of the truth of falsity of the information, and no proof of specific intent to defraud is required.

31 U.S.C. § 3729(b).

FCA liability arises only from the submission of false or fraudulent "claims." Congress has established that a

`claim' includes any request or demand, whether under a contract or otherwise, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.

31 U.S.C. § 3729(c).

Whether a claim is "false or fraudulent" depends upon the materiality of the alleged falsity or fraudulence at issue. FCA liability does not occur unless the act averred to be false or fraudulent is material to the monetary or property claim submitted to the Government. In fact, FCA liability does not exist if the alleged fraudulent act had no bearing on the Government's payment decision.

V. ANALYSIS

A. S & S submitted no expressly false or fraudulent claims to the Government.

The relator avers that S & S's FCA liability stems from the submission of DD250 invoices and progress payment invoices. The DD250 invoices were payment requests for completed trucks and the progress payment invoices were payment requests for manufacturing cost reimbursements. Such ...