United States ex rel. Folliard v. Comstor Corp.

• Decision Date: 31 March 2018
• Docket Number: Civil Action No. 11–731 (BAH)
• Citation: 308 F.Supp.3d 56
• Parties: The UNITED STATES of America, ex rel. Brady Folliard, Plaintiff, v. COMSTOR CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of Columbia

308 F.Supp.3d 56

The UNITED STATES of America, ex rel. Brady Folliard, Plaintiff,

v.COMSTOR CORPORATION, et al., Defendants.

Civil Action No. 11–731 (BAH)

United States District Court, District of Columbia.

Signed March 31, 2018

H. Vincent McKnight, Jr., Sanford Heisler Sharp, LLP, Peter Wilson Chatfield, Phillips & Cohen LLP, Washington, DC, for Plaintiff.

Andrew C. Bernasconi, Elizabeth G. Leavy, Lawrence S. Sher, Reed Smith LLP, Washington, DC, Holly Anne Roth, Reed Smith, LLP, McLean, VA, for Defendants.

MEMORANDUM OPINION

BERYL A. HOWELL, Chief Judge

The relator, Brady Folliard, initiated this lawsuit, pursuant to the qui tam provision of the False Claims Act ("FCA"), 31 U.S.C. § 3730(b)(1), seven years ago, against two defendants, Westcon Group, Inc. ("Westcon") and one of its wholly-owned subsidiaries, Comstor Corporation ("Comstor"), alleging that the defendants, along with another wholly-owned subsidiary of Westcon, Westcon North America Inc. ("Westcon NA"), sold to the U.S. government "thousands of" mostly unspecified products made by Cisco Systems, Inc. ("Cisco") that originated in non-designated countries in violation of the Trade Agreement Act ("TAA"), 19 U.S.C. §§ 2501 et seq. Rel.'s Third Am. Compl. ("TAC") ¶¶ 1–2, 143, ECF No. 65. These allegations were initially predicated on the relator's "direct and independent knowledge" gained from his position as a Strategic Account Executive for Insight Public Sector Inc. ("Insight"), a company that partnered with the defendants "on multiple sales." Compl. ¶ 10, ECF No. 1; TAC ¶ 5. After almost five years of investigation and the defendants' production of data documenting over $123 million in sales, as well as 49 charts, each of which "encompasses hundreds of pages" of Cisco's product information, see TAC ¶¶ 137–38; see also id. , Ex. 17–17F, Defs.' Produced Sales Data, ECF Nos. 65–19–24; id. , Ex. 18, Cisco Production Cover Letter (dated Apr. 19, 2013) ("Cisco Production Letter"), ECF No. 65–25, the United States declined to intervene, see U.S.'s Not. Election Decline Intervention ("U.S.'s Not.") at 1, ECF No. 43. The operative Third Amended Complaint seeks treble damages and civil penalties of "not less than $5,500 and not more than $11,000 for each violation of" the FCA by the defendants "from 2005 and continuing to the present." TAC ¶¶ 1, 182–99; id. 47–48. The defendants have moved to dismiss the Relator's Third Amended Complaint, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), on grounds that: (1) the "claims are based on, and substantially similar to, prior public disclosures," for which the relator is not an "original source," and therefore are barred, under 31 U.S.C. § 3730(e)(4), Defs.' Mot. Dismiss Rel.'s TAC ("Defs.' Mot.") at 1–2, ECF No. 67; and (2) the Third Amended Complaint fails to state a plausible claim for relief under the FCA or satisfy the particularity requirements of Federal Rule of Civil Procedure 9(b), id. at 2–3. For the reasons set forth below, the defendants' motion is granted, and this case is dismissed.¹

I. BACKGROUND

The relator alleges that the defendants submitted false claims and false statements to the U.S. government under two Federal Supply Schedule ("FSS") contracts awarded to the defendants by the General Service Administration ("GSA") authorizing the defendants' sale to the federal government of information technology ("IT") products. TAC ¶¶ 3, 7, 10, 37. Summarized below is the relevant factual history, as alleged in the Third Amended Complaint and its twenty attachments, followed by the procedural history of this litigation.

A. Factual History

1. The Defendants' Business with the Federal Government

For over two decades, the defendants have used two FSS contracts to offer for sale to the federal government "thousands of" Cisco products. Id. ¶¶ 7–11, 143. These products are largely unidentified in the Third Amended Complaint, except for nineteen "representative" examples of purchase orders, reflecting 46 transactions for items delivered to the federal government between September 29, 2008, and December 12, 2013. Id. ¶¶ 116–35 (discussing two purchase orders), 145–81 (discussing seventeen additional purchase orders).² The first FSS contract at issue, designated as GS–35F–4389G, was entered in 1996, by defendant Comstor, which is "one of the primary distributors of Cisco products." Id. ¶ 6, 41; id. , Ex. 1, Comstor Contract GS–35F–4389G ("Comstor Contract"), ECF No. 65–2. Indeed, "almost all of Comstor's sales through" this contract "involve[d] Cisco products." Id. ¶¶ 7–8. Prior to March 17, 2010, Comstor "was the sole authorized FSS contract holder for Cisco products," and, thus, "any GSA sales of Cisco products had to come from Comstor directly" or from a smaller vendor with which Comstor had partnered, or else "an unauthorized source." Id. ¶¶ 45, 55. In 2010, Comstor "ceased to exist and simply became Westcon." Id. ¶ 45 n.6.

The second FSS contract at issue, designated as GS–35F–0563U, has been held by Westcon NA since 2008, and is the vehicle through which the defendants presently sell IT products, including Cisco products, either directly or through partners. Id. ¶¶ 10–11, 45; see also id. , Ex. 2, Westcon Contract GS–35F–0563U ("Westcon Contract"), ECF No. 65–3. Based on data from 2006 through 2012 for both contracts, nearly $500 million of the defendants' $600 million dollars in GSA sales during the time period were attributable to Cisco products. Id. ¶ 12. As noted, those products are not identified in the Third Amended Complaint, but the "representative" examples include computer related materials and supplies, such as flash drives, routers, and switch ports. See id. , Ex. 19, Source Documents ("Rel.'s Sales Source Docs."), ECF No. 65–26; id., Ex. 20, Source Country–of–Origin Documents ("Rel.'s COO Source Docs."), ECF No. 65–27.

The defendants' contracts are governed by the TAA, 19 U.S.C. §§ 2501 et seq. , which "implements numerous multilateral and bilateral international trade agreements and other trade initiatives." TAC ¶ 58; see also Westcon Contract at 9 (requiring compliance with TAA); Comstor Contract at 6 (same). Under the TAA and its implementing regulations, the Federal Acquisition Regulations ("FAR"), items sold through GSA FSS contracts must be "U.S.–made or designated country end products." TAC ¶ 58. The FAR defines "end product" as "those articles, materials, and supplies to be acquired under the contract for public use." Id. ¶ 59 (quoting FAR 52.225–5(a) ). The FAR also provides a list of designated countries, including signatories to the World Trade Organization ("WTO") Government Procurement Agreement ("GPA") and to bilateral trade agreements with the U.S. See id. ¶¶ 75–76 (citing FAR 52.225–5(a) ). Countries such as China and Malaysia, which are not on the FAR list, are identified by exclusion as non-designated countries. Id. ¶¶ 75–76. For the purposes of the TAA, an end product is "U.S.–made" or from a "designated country" when the item was completely manufactured, grown, or produced, or else "substantially transformed" in the U.S. or a designated country. Id. ¶ 77 (citing 19 U.S.C. § 2518(4)(B) ; 19 C.F.R. § 177.22(a) ).

The FAR imposes on vendors, such as the defendants, a general obligation to sell under the FSS contract "only U.S.–made or designated country end products," id. ¶ 72 (citing FAR 52.225–5(b) ), and a continuing obligation to certify that each end product sold through a FSS contract is TAA compliant, id. ¶ 67 (citing FAR 52.225–6(a) ("The offeror certifies that each end product, except those listed in paragraph (b) of this provision, is a U.S.–made or designated country end product, as defined in the clause of this solicitation entitled ‘Trade Agreements.’ ") ). Should the defendants seek to sell an end product that is not from a designated country, the defendants must identify the item to the GSA before offering the item for sale. Id. ¶ 69 (citing FAR 52.225–6(b) ("The offeror shall list as other end products those supplies that are not U.S.–made or designated country end products.") ).

The defendants may also sell to the U.S. Government, without violating the TAA, "open market" items that are not included on the pricelists accompanying the FSS contracts, even when those items originate in non-designated countries. Id. ¶¶ 87–88 & n.10; see also Westcon Contract at 12 (allowing for sale of open market items, "also known as incidental items, noncontract items, non-Schedule items, and items not on [an FSS] contract"); Comstor Contract at 8–9 (same). The FAR permits vendors to procure these non-contract, "open-market" items in the interest of "administrative convenience," as long as specified requirements under FAR 8.402(f) are met, including requirements for publicizing proposed contract actions and engaging in competitive procedures. TAC ¶ 89–94.

2. The Relator's Business with the Defendants

At all times relevant to the instant litigation, the relator worked as a Strategic Account Executive at Insight, a "Value Added Reseller" ("VAR") that has partnered with the defendants to sell IT products to federal agencies. Id. ¶ 5, 101–02. As a VAR, Insight "combine[s], configure[s], and sell[s] computer products manufactured by other companies in specifically-designed configurations to meet the needs of their customers." Id. ¶ 103. In essence, VARs are "middle-men in the supply chain between the technology manufacturers and their ultimate customers." Id. ¶ 104. The defendants partner with VARs and other smaller vendors to facilitate sales either through prime contractor/subcontractor agreements, in which the sub-contractor or "authorized dealer" is not required to maintain its own GSA schedule contract, or through Contractor Team Arrangements ("CTA"), in which both parties maintain GSA schedule contracts, although not necessarily for the same products. Id. ¶ 46–54. Here, the relator, "on numerous occasions," sold Cisco products through the defendants' FSS contracts, "both...