United States ex rel. Spicer v. Westbrook

• Decision Date: 05 May 2014
• Docket Number: No. 12–10858.,12–10858.
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: UNITED STATES of America ex rel. John Dee SPICER, Chapter 7 Trustee, Substituted as Qui Tam Plaintiff and Relator per # 122 Order, Trustee for the Bankruptcy Estate of Westbrook Navigator, Plaintiff–Appellant–Appellee, v. Clifford WESTBROOK, Qui Tam Plaintiff and Relator, Plaintiff–Appellant, v. Navistar Defense, L.L.C., formerly known as International Military & Government, L.L.C.; Navistar, Incorporated; Defiance Metal Products Company; Jerry Bell, Individually, doing business as Bell's Conversions, Incorporated, doing business as Bell's Custom Conversions; and Bell's Conversions, Incorporated, doing business as Bell's Custom Conversions, Defendants–Appellees.

751 F.3d 354

UNITED STATES of America ex rel. John Dee SPICER, Chapter 7 Trustee, Substituted as Qui Tam Plaintiff and Relator per # 122 Order, Trustee for the Bankruptcy Estate of Westbrook Navigator, Plaintiff–Appellant–Appellee,

v.Clifford WESTBROOK, Qui Tam Plaintiff and Relator, Plaintiff–Appellant,

v.Navistar Defense, L.L.C., formerly known as International Military & Government, L.L.C.; Navistar, Incorporated; Defiance Metal Products Company; Jerry Bell, Individually, doing business as Bell's Conversions, Incorporated, doing business as Bell's Custom Conversions; and Bell's Conversions, Incorporated, doing business as Bell's Custom Conversions, Defendants–Appellees.

No. 12–10858.

United States Court of Appeals,Fifth Circuit.

May 5, 2014.

Andrew Grosso (argued), Andrew Grosso & Associates, Washington, DC, Bradley John Davis, Attorney, Davis & Kennedy P.A., Lake Mary, FL, for Plaintiff–Appellant John Dee Spicer, Chapter 7 Trustee, Substituted as Qui Tam Plaintiff and Relator per # 122 Order; Trustee for the Bankruptcy Estate of Westbrook Navigator.

Samuel L. Boyd, Esq. (argued), Boyd & Associates, Catherine Carlyle Jobe, Esq., Boyd & Associates, Dallas, TX, for Plaintiff–Appellant Clifford Westbrook.

David R. Hazelton (argued), Latham & Watkins, L.L.P., Washington, DC, Paul Edward Coggins, Jr., Locke Lord, L.L.P., Dallas, TX, for Defendant–Appellee Navistar Defense, L.L.C., formerly known as International Military & Government, L.L.C.

David R. Hazelton, Edward J. Shapiro (argued), Latham & Watkins, L.L.P., Washington, DC, Paul Edward Coggins, Jr., Locke Lord, L.L.P., Dallas, TX, for Defendant–Appellee Navistar, Incorporated.

James Randall Nelson (argued), DLA Piper, L.L.P. (US), Dallas, TX, Jonathan D. King, Michael S. Poulos, Joseph Anton Roselius, DLA Piper, L.L.P. (US), Chicago, IL, for Defendant–Appellee Defiance Metal Products Company.

Jerry W. Biesel, Attorney, Law Office of Jerry W. Biesel, Dallas, TX, for Defendants–Appellees Jerry Bell, Individually, doing business as Bell's Conversions, Incorporated, doing business as Bell's Custom Conversions and Bell's Conversions, Incorporated, doing business as Bell's Custom Conversions.

Appeals from the United States District Court for the Northern District of Texas.

Before SMITH, PRADO, and ELROD, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

These appeals require us to examine a lawsuit brought under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., against the backdrop of two bankruptcy proceedings. The district court concluded that John Dee Spicer, the bankruptcy trustee, had exclusive standing to assert the FCA claims at issue because those claims belonged to the bankruptcy estate. The district court later dismissed Spicer's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and denied Spicer's subsequent motion for reconsideration. We agree with the district court that only Spicer has standing to prosecute the FCA lawsuit. We further agree with the district court's Rule 12(b)(6) dismissal and conclude that the district court did not abuse its discretion in denying the motion for reconsideration. We therefore affirm.

I.

A.

We begin with the bankruptcies. Clifford Westbrook and his company, Westbrook Navigator, LLC (“Navigator”), filed separate Chapter 7 petitions on May 15, 2010.¹ On his personal schedule of assets, Westbrook listed “[p]otential claims against competitors improper action” (“amount unknown”) under the category labeled “[o]ther contingent and unliquidated claims of every nature.” The same category was left blank on Navigator's schedule of assets.

On June 14, 2010, separate meetings—one for Westbrook and one for Navigator—were convened pursuant to 11 U.S.C. § 341. At the Westbrook meeting, Westbrook testified in response to questions from his bankruptcy counsel regarding the “potential claims” in his schedule of assets:

Q: [O]n your schedules, you do list something called a potential claim against competitors for improper action .... [T]hat's not—really not a claim that you have. It's a claim the Federal Government has; is that correct?

A: Sure, that's right.

Q: Explain that....

A: Basically, there was some bribery in a government contract, and the Department of Justice is pursuing that. And I am helping as a relater [sic] in that case, a witness. And there is a potential—there's a possibility that if they choose, they could give a certain amount to us, some small percentage, something, 15 percent or less....

Q: But that's done by the government. It's not done by you; is that correct?

A: That's right.

Q: And so you're not really a party to the lawsuit. You're only a witness to the lawsuit?

A: That's right.... I'm a relater [sic], it's called.

Westbrook further testified at the meeting in response to questioning from Spicer:

Q: Now, the potential claims against competitors improper action, amount unknown. Is that ... what you were referencing awhile ago?

A: Yes.

Q: And, so, if and when they, the government, actually receives money or property damages from pursuing these folks, you may or may not be entitled to a percentage, is that—

A: That's right....

Q: Okay.... [H]ave you had any discussions on what the likelihood of ... number one, your entitlement, number two, your collection of anything?

A: Entitlement ... I've told them that if there is a possibility, I certainly would like it.

....

But it's at the government's choice. And I think it ... depends on how much they see my testimony helped out.

Q: Right A: So they ... can pursue it on their own, and if they—with all their resources ... [f]ind out everything that I ... provided in any way. It might be a very small amount.

....

Q: Has it ... even been filed?

A: What I'd say is that I signed something with the lawyer to say, yes, I am a relater [sic]. So, but ... there's no promise....

Q: Yeah. And could you be forced to testify regardless through subpoena or whatever?

A: Yes, definitely. It's the Department of Justice.

Q: Yeah, so, okay. Interesting.

....

Okay. Why don't you get me whatever you signed. Just let me look at it. And it's ... interesting. I've never run across this, actually. Been doing this 20 years, so congratulations.

A: Qui tam, qui tam is kind of the phrase, which means, like, False Claims Act or—and so I think it's been pursued that way....

Westbrook thereafter did not provide Spicer with any documentation regarding the potential claims. At the Navigator meeting, Westbrook did not mention any potential claims that might exist for the benefit of Navigator. Westbrook testified that Navigator's asset schedule remained true and correct.

Based on Navigator's apparent lack of assets, Spicer filed a report of no distribution (“no-asset report”) in the Navigator bankruptcy proceeding on June 21, 2010. On July 22, 2010, the bankruptcy court approved the no-asset report, discharged Spicer, and closed the Navigator bankruptcy. Spicer filed a no-asset report in the Westbrook bankruptcy proceeding on April 22, 2011. On April 25, 2011, the bankruptcy court approved the no-asset report, discharged Spicer, and closed the Westbrook bankruptcy.

Spicer moved to reopen the Westbrook and Navigator bankruptcy proceedings on October 6, 2011, in order to administer the FCA lawsuit as an asset.² Spicer argued that he had become aware of the existence of the lawsuit only on September 27, 2011. The bankruptcy court granted the motion.

B.

We turn now to the facts underlying the FCA lawsuit.³ In January 2007, the United States government awarded Navistar Defense, LLC (“Navistar Defense”) a contract to manufacture Mine Resistant Ambush Protected vehicles (“MRAPs”), vehicles designed to transport warfighters in combat zones. The Defense Contract Management Agency (“DCMA”) administered the contract. The MRAP contract incorporated a set of performance standards: “All vehicles shall have a 686A tan, chemical agent resistant coating, non-reflective paint for the exterior per MIL–DTL–53072. All vehicle interiors shall be painted the same color as the exterior color. Component parts on the interior of the vehicle shall be of the same standard color.” MIL–DTL–53072 is a military specification (“mil spec”) that creates a system of applying Chemical Agent Resistant Coating (“CARC”). The CARC systemincludes four mandatory steps: (1) cleaning, (2) pretreating, (3) priming, and (4) topcoating. “Priming,” which prevents corrosion and ensures proper adhesion of the topcoat, requires the application of a specific epoxy primer.

The MRAP contract also incorporated Federal Acquisition Regulation (“FAR”) clause 52.246–2, which is codified at 48 C.F.R. § 52.246–2. FAR clause 52.246–2(b) required Navistar Defense to “provide and maintain an inspection system acceptable to the Government covering supplies under [the] contract” and “tender to the Government for acceptance only supplies that ha[d] been inspected in accordance with the inspection system and ha[d] been found by [Navistar Defense] to be in conformity with contract requirements.” FAR clause 52.246–2(b) also required Navistar Defense to “prepare records evidencing all inspections made under the system and the outcome.”

Navistar Defense proceeded to subcontract with Defiance Metal Products Company (“Defiance”) to manufacture component parts of the MRAPs. Navistar Defense and Defiance further subcontracted with Jerry Bell and Bell's Conversions, Incorporated (collectively, “Custom Conversions”) to apply the CARC to the component parts. Custom Conversions began work on the component parts in February 2007 but soon confronted difficulties in applying the required epoxy primer. Custom Conversions then decided to skip the priming step of the CARC system. Yet Custom Conversions included a statement on invoices sent to Navistar Defense and Defiance that its finished component parts conformed to the relevant mil spec.

Westbrook visited Navistar Defense's facility in August 2007. Westbrook observed that the MRAP component parts had...