U.S. ex rel. Wilkins v. North American Constr., No. CIV.A. H-95-5614.

CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
Writing for the CourtRosenthal
Citation173 F.Supp.2d 601
PartiesUNITED STATES of America, ex rel. Patrick WILKINS, Plaintiffs, v. NORTH AMERICAN CONSTRUCTION CORPORATION, CH & A Corporation, et al., Defendants.
Docket NumberNo. CIV.A. H-95-5614.
Decision Date27 November 2001
173 F.Supp.2d 601
UNITED STATES of America, ex rel. Patrick WILKINS, Plaintiffs,
v.
NORTH AMERICAN CONSTRUCTION CORPORATION, CH & A Corporation, et al., Defendants.
No. CIV.A. H-95-5614.
United States District Court, S.D. Texas, Houston Division.
November 27, 2001.

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Hays Jenkins, Jr., Office of U.S. Attorney, Houston, TX, Michael F. Hertz, Department of Justice, Civil Division, Ben Franklin Station, Elizabeth A. Rinaldo, U.S. Dept. of Justice, Civil Division, Washington, DC, for United States of America, Patrick Wilkins.

Ronald Hornberger, Lewin Plunkett, Plunkett and Gibson, San Antonio, TX, Alan J. Sobol, O'Connell, Flaherty & Attmore, LLC, Hartford, CT, David M. Bizar, David Patrick Long, Patton Boggs LLP, Dallas, TX, Mary Elizabeth Bosco, David J. Farber, Patton Boggs, Washington, DC, David J. Beck, Beck, Redden and Secrest, Houston, TX, James A. Bensfield, Peter Hutt, Gregory Brown, Heidi A. Sorensen, Miller & Chevalier, Washington, DC, for North American Construction Corporation, CH & A Corporation, GAB Business Services Inc., EVI Cherrington Environmental Inc., Energy Ventures Inc., Weatherford International Inc.

AMENDED MEMORANDUM OPINION AND ORDER

ROSENTHAL, District Judge.


On June 13, 2000, this court issued a memorandum opinion and amended order in this case. See 101 F.Supp.2d 500 (S.D.Tex.2000). This court withdraws that memorandum opinion to clarify the basis for the discussion on materiality in a civil False Claims Act suit. This amended memorandum opinion is substituted in its place. The parts of the opinion that do not discuss materiality, and the outcome, remain the same.

In 1995, relator Patrick Wilkins, a former chief operating officer of a subcontractor to a drilling contract with the Army Corps of Engineers, filed this suit under the qui tam provisions of the False Claims Act, 31 U.S.C. §§ 3729-3730 (Supp. 2001) ("FCA"). Wilkins filed suit under seal so that the United States government could investigate his allegations and determine whether to exercise its statutory right to intervene and prosecute this lawsuit. 31 U.S.C. § 3730(b)(3) (Supp.2001). Three years later, the government completed its review and filed its complaint upon intervention. In that complaint, the government adopted most, but not all, of the relator's claims and added claims the relator had not raised.

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Defendants, the general contractor and two subcontractors, subsequently moved to dismiss both complaints for failure to plead with sufficient particularity under Federal Rule of Civil Procedure 9(b) and failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). In response to defendants' motions and this court's orders, the United States filed two amended complaints and the relator filed an amended complaint. Defendants then moved to dismiss the government's second amended complaint and the relator's first amended complaint, urging that no further opportunities to amend should be allowed.

The complaints include three sets of allegations. The first centers on the government's contention that the two subcontractor defendants submitted "hidden" or "padded" waste costs in an October 1992 proposal to the Army Corps of Engineers for drilling, and that all three defendants later included these hidden costs in requests for progress payments, in violation of the False Claims Act, 31 U.S.C. § 3729(a)(1) and (a)(2). (Counts IV and V, Government's Second Amended Complaint, Docket Entry No. 95, at 44-46). Defendants move to dismiss the claims based on the hidden waste costs. (Docket Entry Nos. 107 and 111).

The second set of allegations is based upon a Request for Equitable Adjustment defendants submitted to the Army Corps of Engineers in May 1994. The government and the relator both allege that for the purpose of obtaining an equitable adjustment, defendants falsely claimed that the government was liable for costs related to differing site conditions and that the government had superior knowledge about these site conditions. Based on these claims, the government asserts causes of action against the general contractor under the Contract Disputes Act, 41 U.S.C. § 604 (Count I, Second Amended Complaint, Docket Entry No. 95, at 42) and against all defendants for violations of the False Claims Act, 31 U.S.C. § 3729(a)(1) and (a)(2) (Counts II and III, id., at 43-44); conspiracy to have the government pay false claims under 31 U.S.C. § 3729(a)(3) (Count VI, id., at 46-47); and common law fraud (Count VII, id., at 47-48). The relator asserts causes of action under 31 U.S.C. § 3729(a)(1), (2) and (3). Each defendant has moved to dismiss all the REA-based claims against it. (Docket Entry Nos. 105, 107, 109, 110, 111, and 113).

The third set of allegations involves the relator's claim that the parent company of one of the subcontractors is liable, both under an alter ego theory and independently. The parent company defendant has moved to dismiss this claim. (Docket Entry No. 105).

In their motions to dismiss the government's second amended complaint, the two subcontractor defendants assert that as a matter of law, the government has not sufficiently pleaded that the subcontractor defendants made false statements about waste removal costs in the bid proposal and contract. All defendants assert that the government has not sufficiently pleaded that they made false statements in connection with the Request for Equitable Adjustment ("REA"). All defendants assert that the relator's complaint should be dismissed on the same grounds as the government's second amended complaint. One of the defendants also asserts that the relator's complaint should be dismissed as superseded to the extent the government adopted it and as deficiently pleaded to the extent it asserts claims the government did not adopt.

This court entered a preliminary order dated March 31, 2000, on these claims. (Docket Entry No. 143). On June 13, 2000, this court issued a Memorandum

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Opinion and Amended Order. See 101 F.Supp.2d 500 (S.D.Tex.2000). This court now issues this Amended Memorandum Opinion and Order, setting out in greater detail the reasons for those rulings. This Amended Memorandum Opinion and Order differs from the earlier memorandum opinion only in that it further clarifies its holding that materiality is an element of a civil False Claims Act action. This is an alternative basis for dismissing plaintiff's padded waste cost claims.

For the reasons stated in detail below, this court GRANTS the defendants' motions to dismiss the government's padded waste cost claims without leave to amend; DENIES the defendants' motions to dismiss the government's claims arising from the REA; DENIES the motion to dismiss the complaint of the relator as superseded; GRANTS the motion to dismiss the claims the relator has asserted against the parent company of one of the subcontractors; and GRANTS in part the defendants' motions to dismiss the relator's claims relating to the REA, with leave to amend.

I. Factual and Procedural Background

A. The Parties and the Contracts: The Facts Relating to the Padded Waste Claim

On September 16, 1991, the Army Corps of Engineers (the "Corps") awarded North American Construction Corporation ("NACC"), a Texas corporation based in San Antonio, Texas, contract Number DACA56-91-C-0110. The contract required NACC to construct a Groundwater Treatment Facility at Tinker Air Force Base in Oklahoma. The Corps contract required NACC to construct a treatment plant to remove contaminants from groundwater underneath an aircraft maintenance facility located on the base. The contract was a competitively bid fixed-price contract. Defendant CH & A Corporation, a Texas corporation and a subsidiary of GAB Business Services, Inc. ("GAB"), became a subcontractor to NACC for certain of NACC's contractual obligations to the Corps when CH & A acquired the personnel, assets, and the obligations to NACC under the contract of U.S. Testing, Testing Engineers Division. Relator Patrick Wilkins is a former Chief Operating Officer of CH & A.

The contract originally called for five vertical wells to be drilled inside the aircraft maintenance facility. On September 24, 1992, the Corps issued unilateral contract modification 9, substituting five horizontal wells for the vertical wells. The modification fell within the scope of CH & A's subcontract with NACC. CH & A sought competitive bids for contract modification 9. In a letter dated October 16, 1992, defendant EVI Cherrington Environmental ("ECE"), a Texas corporation and a wholly-owned subsidiary of defendant Weatherford International, Inc.1 during the relevant period, wrote "to confirm our price with regard to drilling five approximately 1000 feet wellbores...." In this letter, ECE proposed a fixed price of $1,295,000 for "Total Project Excluding Waste Disposal." ECE proposed a flat price of $215,000 to "store, haul and dispose of the drilling wastes" up to 40 cubic yards of solid waste and 120,000 gallons of liquid waste. In the letter, ECE stated that if the quantity of waste exceeded either of these amounts, ECE and CH & A would negotiate a unit rate for the disposal of the additional waste at the then-prevailing market rate. ECE also proposed that additional demurrage charges should be levied for wastes the Corps did not allow

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ECE to remove within thirty days after their production.

CH & A forwarded the bid proposals it received to the Corps administrative contracting officer, Dan Johnson. The Corps concluded that ECE had submitted the lowest responsive bid. On October 30, 1992, CH & A and ECE executed a Subcontract Agreement for part of the work called for in unilateral contract modification 9. The Subcontract Agreement identified the "Contract Amount" of $1,295,000 as covering the following tasks: "Drill,...

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