United States ex rel. Shemesh v. Ca, Inc.

• Decision Date: 31 March 2015
• Docket Number: Civil Action No. 09-1600 (ESH)
• Parties: UNITED STATES OF AMERICA EX REL. DANI SHEMESH, Plaintiff, v. CA, INC., Defendant.
• Court: U.S. District Court — District of Columbia

UNITED STATES OF AMERICA EX REL. DANI SHEMESH, Plaintiff, v. CA, INC., Defendant.

Civil Action No. 09-1600 (ESH)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

March 31, 2015

MEMORANDUM OPINION AND ORDER

The government, by relator Dani Shemesh, filed a complaint in intervention against defendant CA, Inc., alleging violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq., as well as common law claims in connection with the sale of computer software licensed products and corresponding maintenance. Defendant now moves to dismiss the government's amended complaint pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(6), and 12(b)(1). (See Def.'s Mem. in Supp. of Mot. to Dismiss, Jul. 3, 2014 [ECF No. 59] ("Def.'s Mem.").) This is the second motion to dismiss brought by CA, the first of which was to dismiss the relator's complaint and has been addressed in a separate Memorandum Opinion also issued this date. (See Mem. Op., Mar. 31, 2015 [ECF No. 64] ("Relator's Mem. Op.").) The Court will now address CA's motion to dismiss the government's complaint in intervention. Given the overlapping issues of law and similar factual background, the Court need not repeat what has already been said, but will focus on the allegations in the government's complaint that raise different factual or legal issues.

BACKGROUND

I. GOVERNMENT'S ALLEGATIONS

Relator's false claims and false statements allegations date back to the negotiation of the initial MAS contract between CA and the GSA in 2001. By contrast, the government's claims focus on events connected to the 2007 and 2009 contract renewal processes and thereafter. Specifically, the government alleges that "[t]he information that CA provided to GSA in connection with the negotiation of the 2007 Contract extension and 2009 Contract extension pertaining to its commercial sales practices and its discounts was knowingly inaccurate and incomplete." (Gov. Am. Compl. ¶ 67.) As a result of several false statements made during and subsequent to the contract renewal negotiations in 2007 and 2009, the government claims that it was fraudulently induced to enter into the two contract extensions, which in turn resulted in CA submitting false claims for payment throughout the contract extension periods. (See id. ¶ 69.) In addition to its FCA claims, the government also brings claims for breach of contract, payment by mistake, and unjust enrichment.

a. False statements during 2007 contract renewal

The initial MAS contract between CA and the government was set to expire in 2007, but the parties agreed to negotiate an extension. (Gov. Am. Compl. ¶ 50.) Concurrently, at the GSA's request, CA submitted a "Corrective Action Plan." (See id. ¶ 48.) Because the Corrective Action Plan changes had not yet been finalized by the time the parties were negotiating a renewal, the parties agreed that any renewal of the MAS contract would be for one year rather than an additional five-year term. (See id. ¶ 50.) CA submitted a new CSP for SINs 132-32 (term software licenses) and 132-33 (perpetual software licenses). (See id.) The government alleges that "[b]ecause of CA's admitted failure to comply with the Price ReductionClause, CA offered GSA an additional discount of 15% for SINs 132-32 and 132-33 'during the requested twelve month extension; or until such time as CA has completed all our Action Plan items.' That brought the total government discount for SIN 132-32 and 132-33 to 50%." (Id.) According to the September 10, 2007 CSP, "Commercial end user ["CEU"] customers receive an average discount of 50%. Absent the exclusions, Commercial End User customers represented more than 70% of sales in dollars." (Id. ¶ 53 (quoting Sept. 10, 2007 CSP).) CA also agreed that it would comply with the Price Reduction Monitoring Clause to maintain the static price relationship between the government and the basis of award customer. (See id. ¶ 52.)

The government alleges that many of these statements were knowingly false. The government has conducted a preliminary review of CA's sales database and discovered that CA offered CEUs a 72% average standard discount for SIN 132-32 and a 55% average standard discount for SIN 132-33. (See id. ¶ 73.) "As a result of CA's false statements, agencies of the United States paid more for CA licenses than they would have if CA had disclosed its true discounting practices and policies." (Id. ¶ 74; see also ¶ 75.)

b. False statements during 2009 contract renewal

In 2009, the parties agreed to renew the contract for three more years.¹ (Id. ¶ 55.) In connection with the renewal negotiations, CA submitted separate CSPs on September 15, 2009, for SINs 132-32, 132-33, and 132-34 (maintenance). (See Gov. Am. Compl. ¶ 55.) This was the first time CA had submitted a separate CSP for the term (SIN 132-32) and perpetual (SIN 132-33) licensed products. (See id.) "In its 2009 CSP for SIN 132-32, under the section for standard discounts and pricing policies to commercial end users, CA represented that 'Commercial enduser customers receive an average discount of 78%. Commercial End User customers represent more than 70% of sales in dollars.'" (Id. ¶ 56 (quoting Sept. 15, 2009 SIN 132-32 CSP).) In this same CSP, CA represented that it "offers the government CA's Mainframe product standard license types at a discount of 45%, effective October 1, 2009." (Id.) CA also disclosed that it would continue to conduct quarterly reviews of the average discounts of CEUs and reduce the GSA price as required by the Price Reduction Monitoring Clause. (See id. ¶ 57.) CA made similar representations with respect to the SIN 132-33 CSP that was submitted on the same date. Specifically, CA stated that "[c]ommercial end users receive an average discount of 44%. Commercial End User customers represent more than 70% of sales in dollars." (Id. ¶ 58 (quoting Sept. 15, 2009 SIN 132-33 CSP).) Further, CA represented that it "offers the government CA's Distributed product standard license types at a discount of 45%, effective October 1, 2009." (Id. ¶ 59 (quoting Sept. 15, 2009 SIN 132-33 CSP).) Again, CA agreed to maintain the price relationship between the government and the average discount given to CEUs and to comply with its obligations under the Price Reduction Monitoring Clause. (See id.)

The 2009 CSP that CA submitted for SIN 132-34 included a maintenance calculation policy that was different from that disclosed in the 2001 CSP. CA stated that "[e]ffective April 1, 2009, CA changed the [maintenance fee] calculation from List Price to 'net' fee, multiplied by the then prevailing maintenance rate for the Product."² (Gov. Am. Compl. ¶ 60 (quoting Sept. 15, 2009 SIN 132-34 CSP).) In this CSP, CA also stated that "[d]iscounts provided to Commercial End Users are between 0-28% based on the pre April 1, 2009 policy of maintenance calculation on list price. Commercial End User customers represent more than 70% of sales indollars." (Id. ¶ 61.) None of the 2009 CSPs referred to pay options. (See id. ¶ 64.) CA stated in its September 15, 2009 Final Proposal Revision letter "that all data submitted is accurate, current, and complete representations as of September 15, 2009." (Gov. Am. Compl. ¶ 63 (quoting Sept. 15, 2009 Fin. Proposal Letter).)

The government alleges that the 2009 CSPs were "inaccurate, incomplete, and misled GSA." (Id. ¶ 76.) Again, based on analysis of CA's sales database, the government found that during the year preceding the submission of the SIN 132-34 CSP for maintenance, CA offered greater standard discounts to CEU customers than it had disclosed to the government, and on occasion, CEUs even received free maintenance. (See id. ¶ 79.) Consequently, the claims submitted to the government included inflated prices for maintenance. (See id. ¶ 80.)

c. False statements during contract performance

The government also alleges that CA made false statements during the performance of the MAS contract. CA requested modifications to the contract multiple times during the contract period. After 2006, "CA expressly represented to the Government that its commercial discounting and pricing policies were the same as had been described in CA's original disclosures, except to the extent that CA had identified changes in its practices in subsequent CSPs." (Gov. Am Compl. ¶ 82.) In effect, these statements confirmed that the discount and pricing policies were the same as provided during the negotiation and renegotiation of the contract. (See, e.g., id. ¶¶ 83-106.) The government alleges that these statements were knowingly inaccurate and incomplete. (See id. ¶ 107.) For example, one such statement was submitted on September 25, 2008, when the 2007 CSP controlled. In this CSP, CA stated that CEUs receive an average discount of 50%, but the government's review of CA's sales data pertaining to the time CA certified that "there have been no changes to the commercial/discountpricing policies and practices," showed that CA was giving CEU customers approximately an average standard discount of 64%. (Id. ¶ 108.)

d. Failure to comply with the Price Reduction Monitoring Clause

The Price Reduction Monitoring Clause was designed to prevent overpayments from false disclosures, but the government alleges that "CA knowingly did not monitor its compliance with the Price Reductions Clause, as required by the Contract." (Gov. Am. Compl. ¶ 112.) The Price Reduction Monitoring Clause was part of the initial MAS contract, and CA confirmed it would abide by this provision during subsequent contract renewals. (See id. ¶¶ 52, 57.) In 2006, CA hired Pricewaterhouse Coopers ("PwC") to review CA's compliance with the Price Reduction Monitoring Clause. (See id. ¶ 115.) PwC reported to CA "that quarterly Price Reductions Clause reports were not being done and that certain quarterly reports from past years were missing entirely." (Id.) The government alleges that "[b]ased on the PwC review, CA eventually paid money to GSA, but failed to remit...