United States ex rel. Watkins v. KBR, Inc.

• Decision Date: 22 May 2015
• Docket Number: Case No. 4:10–cv–4010
• Citation: 106 F.Supp.3d 946
• Parties: United States, ex rel. Thomas Watkins, Plaintiff/Relator, v. KBR, Inc., and Kellogg Brown & Root Services, Inc., Defendants.
• Court: U.S. District Court — Central District of Illinois

106 F.Supp.3d 946

United States, ex rel. Thomas Watkins, Plaintiff/Relator,

v.KBR, Inc., and Kellogg Brown & Root Services, Inc., Defendants.

Case No. 4:10–cv–4010

United States District Court, C.D. Illinois, Rock Island Division .

Signed May 22, 2015

Amanda G. Penabad, Matthew K. Organ, David J. Chizewer, Frederick H. Cohen, Goldberg Kohn Ltd., Chicago, IL, Eric R. Havian, Stephen S. Hasegawa, Phillips & Cohen LLP, San Francisco, CA, Eric I. Long, John E. Childress, U.S. Atty., Springfield, IL, for Plaintiff/Relator.

Craig D. Margolis, Christine N. Roushdy, Tirzah S. Lollar, Vinson & Elkins LLP, Washington, DC, for Defendants.

ORDER & OPINION

JOE BILLY McDADE, United States Senior District Judge

This matter is before the Court on Defendants' Motion to Dismiss Complaint (Doc. 37). The Complaint (Doc. 1) consists of a single count alleging violations of the False Claims Act, 31 U.S.C. § 3729 et. seq. (the "FCA"). Defendants assert that the Complaint should be dismissed under Federal Rule of Civil Procedure 12(b)(6) because the Relator has failed to plead viable theories of actionable fraud under the FCA. Defendants also assert that the Complaint's allegations have not been pled with sufficient particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure. For the reasons stated below, Defendants' motion (Doc. 37) is GRANTED.

LEGAL STANDARDS

Under Federal Rule of Civil Procedure 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." The complaint must "give the defendant fair notice of what the claim is and the grounds upon which it rests."

Bell Atl. v. Twom bly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir.2009). "In evaluating the sufficiency of the complaint, [courts] view it in the light most favorable to the plaintiff, taking as true all well-pleaded factual allegations and making all possible inferences from the allegations in the plaintiff's favor." AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir.2011). "To survive a motion to dismiss, the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 934–35 (7th Cir.2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ) (internal quotation marks omitted). "The complaint must actually suggest that the plaintiff has a right to relief, by providing allegations that raise a right to relief above the speculative level." Id. at 935 (citing Windy City Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., 536 F.3d 663, 668 (7th Cir.2008) ) (internal quotation marks omitted). "[A] plaintiff's claim need not be probable, only plausible." Id. "To meet this plausibility standard, the complaint must supply enough fact[s] to raise a reasonable expectation that discovery will reveal evidence supporting the plaintiff's allegations." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ) (internal quotation marks omitted)).

Rule 9(b) imposes a higher pleading standard than that required under Rule 8. See Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Walgreen Co., 631 F.3d 436, 446 (7th Cir.2011). "The [False Claims Act] is an anti-fraud statute and claims under it are subject to the heightened pleading requirements of Rule 9(b)." United States ex rel. Gross v. AIDS Research Alliance–Chicago, 415 F.3d 601, 604 (7th Cir.2005). Rule 9(b) requires a pleading to state with particularity the circumstances constituting the alleged fraud. See Fed.R.Civ.P. 9(b) ; Pirelli , 631 F.3d at 441–42. This "ordinarily requires describing the ‘who, what, when, where, and how’ of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case." Hofer , 649 F.3d at 615 (citation omitted).

FACTUAL BACKGROUND ¹

Relator, Thomas Watkins, joined defendant Kellogg Brown and Root Services Inc. ("KBRSI") in September 2004. In May 2005, he was assigned to the company's Baghdad, Iraq facilities as a Senior Manager, Accounting & Finance, Middle East/Central Asia, and became responsible for accounting functions under the LOGCAP III contract. Relator developed most of the procedures for accounting operations under the LOGCAP III contract. Relator resigned in March 2008. Prior to joining KBRSI, Relator had extensive accounting, finance, business, and management experience.

KBRSI is a wholly owned subsidiary of defendant KBR Inc. ("KBR"). KBR is a Delaware corporation with its principal place of business in Houston, Texas. KBR holds the LOGCAP III contract and has assigned responsibilities for that contract to KBRSI. KBRSI is also a Delaware corporation with its principal place of business in Houston, Texas.

The Logistics Civil Augmentation Program ("LOGCAP") was established in 1985 to facilitate civilian contractor logistical support for United States military forces deployed overseas, principally in countries with which the United States does not have treaties or agreements that would enable the host country to provide such support. Under the LOGCAP, a single company was awarded a contract to provide a wide range of logistical services. Each LOGCAP prime contract contains a Statement of Work describing generally the types of services to be provided by the LOGCAP contractor. The services provided under the LOGCAP include supply operations (such as the delivery of food, water, fuel, spare parts, and other items), field operations, such as dining and laundry facilities, housing, sanitation, waste management, postal services, and morale, welfare and recreation facilities, engineering and construction services, support to communication networks, transportation and cargo services, and facilities maintenance and repair.

LOGCAP contracts are awarded periodically. After a no-bid process, the United States awarded the third such contract, LOGCAP III, to Brown and Root Services, a division of KBR, in December 2001. Thereafter, KBR transferred the responsibilities for the LOGCAP III contract to KBRSI.

The LOGCAP III contract was awarded by the United States Army Field Support Command ("AFSC"), headquartered at Rock Island, Illinois. AFSC administered the LOGCAP III contract until September 2006, when United States Army Sustainment Command ("ASC") was created to succeed AFSC as the logistics integrator for contingency contracting. ASC, also headquartered in Rock Island, Illinois, succeeded ASFC as the administrator of the LOGCAP III contract.

The LOGCAP III contract had a one-year base period and nine one year renewal options. The United States recently awarded the LOGCAP IV contract to three contractors and has begun transitioning LOGCAP operations to LOGCAP IV. LOGCAP operations in Iraq, however, continue (as of the date of the filing of the Complaint) to be performed pursuant to the LOGCAP III contract.

The Government and the contractor execute task orders detailing particular operations or services that the contractor must furnish under each LOGCAP contract. Task Orders 59, 89, and 139 are the largest task orders under LOGCAP III. They require the contractor to satisfy a wide variety of the military's logistical needs in Iraq, including camp maintenance, construction, meals, and other services for as many as 130,000 troops at dozens of camps. Army officials in Rock Island, Illinois issued Task Order 59 to KBR in August 2003, issued Task Order 89 to KBR in May 2005, and issued Task Order 139 to KBR in August 2006.

Defendants staffed Task Orders 59 and 89, and staff Task Order 139, principally with United States citizen workers, but KBR also employed and continues to employ a sizable number of European citizens to perform work under Task Orders 59, 89, and 139. KBR transports those workers to Baghdad, Iraq, and houses them there.

Pursuant to the terms of its agreement with the Government, KBR pays to return its employees and subcontractors' employees to their point of origin—usually their home or point of hire—for periodic vacations or at the termination of their employment. If employees wish to go somewhere other than their point of origin, KBR will pay up to the cost of transporting them to their point of origin, and the employees are responsible for paying any excess travel cost.

LOGCAP III is a cost reimbursement, award-fee contract. Pursuant to the contract, the Government pays KBR the cost of performing the contract. KBR's recoverable cost includes both the cost of performance and an additional percentage of those costs to cover expenses. The Government also pays a fixed "award fee" of one percent of the cost of performance, and up to an additional two percent of the cost as a performance incentive. Thus, in cost-reimbursement contracts such as LOGCAP III, contractors' fees rise with contract costs such that increased costs translate into increased fees to the contractor. The LOGCAP III contract and the task orders executed under it are governed by the Federal Acquisition Regulation ("FAR"), codified in Chapter 48 of the Code of Federal Regulations.

Task Orders 59, 89 and 139 provide that one allowable cost of the contract is the cost of rotating contractor employees into and out of the theater for periodic vacations and at the termination of employment. KBR refers to this as "repatriation and rotational leave." KBR has employed tens of thousands of people at a time in the theater of operations pursuant to Task Orders 59, 89, and 139. KBR is responsible for transporting those people to and from Iraq, both at the beginning and end of their employment and for periodic vacations during their employment. KBR transports hundreds of people into and out of Baghdad each day for...