United States ex rel. McNulty v. Reddy Ice Holdings, Inc.

• Decision Date: 07 December 2011
• Docket Number: Case No. 08–cv–12728.
• Citation: 835 F.Supp.2d 341
• Parties: UNITED STATES of America, ex rel. Martin G. McNULTY and Martin G. McNulty, individually, Plaintiffs, v. REDDY ICE HOLDINGS, INC., Reddy Ice Corporation; Arctic Glacier Income Fund; Arctic Glacier Inc. Arctic Glacier International, Inc.; and Home City Ice Company, Inc., Defendants. Arctic Glacier Inc. and Arctic Glacier International, Inc., Counter–Plaintiffs, v. Martin G. McNulty, Counter–Defendant.
• Court: U.S. District Court — Eastern District of Michigan

835 F.Supp.2d 341

UNITED STATES of America, ex rel. Martin G. McNULTY and Martin G. McNulty, individually, Plaintiffs,

v.REDDY ICE HOLDINGS, INC., Reddy Ice Corporation; Arctic Glacier Income Fund; Arctic Glacier Inc. Arctic Glacier International, Inc.; and Home City Ice Company, Inc., Defendants.

Arctic Glacier Inc. and Arctic Glacier International, Inc., Counter–Plaintiffs,

v.Martin G. McNulty, Counter–Defendant.

Case No. 08–cv–12728.

United States District Court,

E.D. Michigan,

Southern Division.

Dec. 7, 2011.

Julia A. Caroff, U.S. Attorney's Office, Detroit, MI, Andrew A. Paterson, Jr., Pleasant Ridge, MI, Daniel A. Kotchen, Daniel L. Low, Kotchen and Low, Washington, DC, for Plaintiffs.

Arthur Thomas O'Reilly, David A. Ettinger, Honigman, Miller, Schwartz and

Cohn LLP, Detroit, MI, David H. Bamberger, DLA Piper U.S., LLP, Washington, DC, James R. Nelson, DLA Piper U.S., LLP, Dallas, TX, Mary Elizabeth O'Neill, Ula W. Render, Jones Day, Chicago, IL, Michael A. Roberts, Graydon Head & Ritchey, LLP, Cincinnati, OH, for Defendants.

OPINION AND ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS, AND GRANTING MARTIN G. MCNULTY'S MOTION TO DISMISS COUNTERCLAIM

PAUL D. BORMAN, District Judge.

This matter is before the Court on Reddy Ice Holdings, Inc. and Reddy Ice Corporation's (“Reddy Ice”) Motion to Dismiss (Dkt. No. 27), The Home City Ice Company's (“Home City”) Motion to Dismiss (Dkt. No. 28), Arctic Glacier Income Fund, Arctic Glacier Inc. and Arctic Glacier International Inc.'s (“Arctic Glacier”) Motion to Dismiss (Dkt. No. 30) and Counter–Defendant Martin G. McNulty's Motion to Dismiss Counterclaim (Dkt. No. 41). Plaintiff/Relator Martin G. McNulty filed responses to Defendants' motions to dismiss. (Dkt. Nos. 46, 47, 48.) Defendants filed replies. (Dkt. Nos. 50, 51, 54.) Arctic Glacier filed a response to McNulty's motion to dismiss the counterclaim. (Dkt. No. 49) and McNulty filed a reply (Dkt. No. 52). The Court heard oral argument on all motions on November 16, 2011. For the reasons that follow, the Court GRANTS the motions to dismiss this qui tam action ¹ and GRANTS McNulty's motion to dismiss Arctic Glacier's counterclaim.

INTRODUCTION

Relator Martin G. McNulty brought this qui tam action under the Federal False Claims Act, 31 U.S.C. 3729(a)(1),(2) and (3) (“FCA”), asserting claims on behalf of the United States alleging that Arctic Glacier, Reddy Ice and Home City engaged in a nationwide market allocation conspiracy and submitted fraudulent overcharges to the federal government for purchases of packaged ice. The United States declined to intervene in McNulty's lawsuit. Defendant Arctic Glacier has filed a counterclaim against relator McNulty, alleging that his filing of the instant lawsuit constitutes a breach of an agreement in which he released all claims against Arctic Glacier, his former employer.

Defendants have each filed motions to dismiss the qui tam action, arguing that this Court lacks subject matter jurisdiction over the qui tam claims and that the FCA claim is not pleaded with sufficient particularity. McNulty has filed a motion to dismiss Arctic Glacier's counterclaim, arguing that he was unaware of his qui tam claim at the time he signed his release and that, in any event, enforcement of such a release would be against public policy.

I. BACKGROUNDA. The Qui Tam Complaint, The Government's Election to Not Intervene and The Unsealing and Transfer of the Matter to this Court

Relator Martin G. McNulty filed his qui tam Complaint under seal in this District on June 25, 2008; the case was assigned the Honorable Julian Abele Cook. (Dkt. No. 1.) Judge Cook granted the United States several extensions of time to conduct its investigation of the relator's allegations and to determine whether or not to intervene in the action, keeping all matters under seal pending the United States' election regarding intervention. (Dkt. Nos. 4, 6, 8, 10, 12 and 16.) On March 3, 2011, the government filed its Notice of Election to Decline Intervention. (Dkt. No. 15.) On April 20, 2011, the Court entered an Order declaring that the Complaint be unsealed and served on the Defendants and that all matters previously filed in the action, apart from the April 20, 2011 Order and the Complaint, remain under seal. (Dkt. No. 17.)

On July 5, 2011, the Defendants filed an unopposed motion to have the case reassigned to the undersigned, based upon a collection of related cases over which this Court presently presides. (Dkt. No. 26.) The related matters include a multidistrict antitrust action, In re: Packaged Ice Antit. Litig., 560 F.Supp.2d 1359 (Jud.Pan.Mult.Lit.2008), a securities fraud action, Chamberlain v. Reddy Ice, et al., No. 08–13451, 2008 WL 4661374 (E.D.Mich. Aug. 08, 2008), and a whistleblower action filed by the relator in this qui tam action, Martin McNulty, McNulty v. Reddy Ice, et al., No. 08–13178, 2008 WL 3414844 (E.D.Mich. July 23, 2008). All of these cases involve similar, and in some cases identical, allegations relating to the alleged underlying market allocation agreement among Arctic Glacier, Reddy Ice and Home City, which relator McNulty alleges resulted in the overcharges to the government that form the basis for the instant qui tam action. On July 25, 2011, Judge Cook signed an Order transferring the action to this Court. (Dkt. No. 38.)

B. The Allegations of the Qui Tam Complaint

Relator McNulty alleges that as early as 1997, Defendants increased both the purchase price and distribution price of packaged ice above competitive levels by secretly agreeing to: (a) sell and distribute packaged ice at artificially inflated prices, (b) rig bids for ice purchase and distribution contracts, and (c) allocate customers and markets by refusing to sell or distribute packaged ice to each others' customers or in each others' territories. The Complaint alleges that this conspiracy increased the purchase and delivery price of packaged ice to all purchasers, including the federal government. (Compl. ¶ 2.)

The Complaint alleges that McNulty was terminated by his employer, Arctic Glacier after he learned of and refused to participate in the alleged conspiracy. Shortly after his termination, on May 26, 2005, McNulty informed the federal government of the existence of the alleged unlawful conspiracy and began working directly with the Federal Bureau of Investigation (FBI) and the Department of Justice (DOJ) to provide information concerning the existence, scope and effect of the conspiracy. (Compl. ¶ 3.)

McNulty asserts that as a result of the information provided by him to the government, the DOJ, on June 17, 2008, announced that Home City had pleaded guilty to conspiring with its competitors and the government's investigation of the other Defendants was ongoing. (Compl. ¶ 4.) McNulty asserts that he is the “original source with direct and independent knowledge of the substantive or core allegations” in his qui tam Complaint. (Compl. ¶ 5.)

McNulty alleges that Reddy Ice is the largest manufacturer and distributor of packaged ice in the United States, that Arctic Glacier is the second largest manufacturerand distributor of packaged ice in the United States and that Home City is the third largest. (Compl. ¶¶ 9, 14, 15.) McNulty alleges that “during the relevant time period,” the United States entered into hundreds of contracts, and paid in excess of $150 million, for the purchase and distribution of ice. (Compl. ¶ 6.) McNulty makes several allegations regarding the characteristics of the packaged ice industry that he asserts make that industry vulnerable to anticompetitive conduct. (Compl. ¶¶ 18–21.)

McNulty alleges that he first became aware of the allegedly collusive agreement among the Defendants not to compete in November, 2004, just a month before his employer, Party Time Ice, was acquired by Defendant Arctic Glacier. (Compl. ¶¶ 22–24.) McNulty alleges that in January, 2005, after the acquisition of Party Time by Arctic Glacier, Mr. Keith Corbin of Arctic Glacier, McNulty's supervisor, told him about the details of the agreements among the Defendants to “geographically divide the market for the sale and delivery of packaged ice.” According to McNulty, Mr. Corbin explained to him that the conspiracy extended “throughout the United States.” (Compl. ¶¶ 25–26.) McNulty alleges that when he informed Mr. Corbin of his belief that such an agreement to allocate territories was unlawful and that he could not participate in any such agreement, Arctic Glacier terminated him on January 27, 2005. (Compl. ¶ 27.) Following his termination, McNulty worked closely with the DOJ and the FBI, at times wearing a wire and tape recording conversations with alleged players in the conspiracy, assisting the government in collecting evidence to prove “both the existence and scope” of the alleged illegal conspiracy. (Compl. ¶¶ 28–32.)

McNulty alleges in his Complaint that the federal government is “a substantial purchaser of packaged ice, having paid in excess of $150 million for the procurement of ice from the Defendants during the course of the Defendants' conspiracy.” (Compl. ¶ 34.) McNulty attached to his Complaint a list of contracts between the Defendants and various agencies of the federal government, principally the Department of Defense and the Department of the Interior, purportedly including purchases of ice in the years 2001–2007. (Compl. ¶ 35, Ex. 2.) McNulty alleges that in the course of assisting the DOJ and the FBI in their investigation into the packaged ice industry, on September 7, 2005, he learned from an employee of Arctic Glacier, and communicated to the federal government, that Arctic Glacier allegedly was “price gouging” the Federal Emergency Relief Agency (FEMA) on sales of ice for the Hurricane Katrina relief effort. (Compl. ¶ 36, Ex. 3.) In his Complaint, McNulty seeks to recover for alleged overcharges to the federal government for the sale and distribution of packaged ice from 1997 through the present....