United States ex rel. Marsteller v. Tilton

Decision Date23 August 2021
Docket NumberCivil Action No. 5:13-cv-00830-AKK
Parties UNITED STATES of America EX REL. Philip MARSTELLER and Robert Swisher, Plaintiffs/Relators, v. Lynn TILTON and MD Helicopters, Inc., Defendants.
CourtU.S. District Court — Northern District of Alabama

Andrew Wirmani, Pro Hac Vice, Joshua M. Russ, Adam C. Sanderson, Allison Cook, Pro Hac Vice, Brett S. Rosenthal, Pro Hac Vice, Joel W. Reese, Pete Marketos, Pro Hac Vice, Reese Marketos LLP, Dallas, TX, Dennis A. Mastando, Mastando & Artrip LLC, Huntsville, AL, Gerald Charles Robinson, Halunen Law, Minneapolis, MN, Mary Lester Marshall, United States Attorneys Office, Birmingham, AL, Phillip E. Benson, Warren-Benson Law Group, Newport Beach, CA, for Plaintiffs/Relators Philip Marsteller, Robert Swisher.

John S. Williams, Juli Ann Lund, Pro Hac Vice, Thomas W. Ryan, Pro Hac Vice, Christopher N. Manning, Pro Hac Vice, Edward C. Reddington, Pro Hac Vice, John Turquet Bravard, Pro Hac Vice, John Williams, Pro Hac Vice, Kristin A. Shapiro, Pro Hac Vice, Williams & Connolly LLP, Washington, DC, Anthony A. Joseph, Ralph Harrison Smith, III, Maynard Cooper & Gale PC, James Bradley Robertson, Bradley Arant Boult Cummings LLP, Birmingham, AL, Ayla Syed, Williams & Connolly LLP, for Defendant Lynn Tilton.

James Bradley Robertson, Bradley Arant Boult Cummings LLP, Anthony A. Joseph, Ralph Harrison Smith, III, Maynard Cooper & Gale PC, Birmingham, AL, Juli Ann Lund, Pro Hac Vice, Thomas W. Ryan, Pro Hac Vice, Christopher N. Manning, Pro Hac Vice, Edward C. Reddington, Pro Hac Vice, Williams & Connolly LLP, Washington, DC, Charles A. Stewart, III, Jonathan C. Hill, Bradley Arant Boult Cummings LLP, Montgomery, AL, Kimberly Bessiere Martin, Bradley Arant Boult Cummings LLP, Huntsville, AL, Kristina Allen Reliford, Pro Hac Vice, Bradley Arant Boult Cummings LLP, 1600 Division, Nashville, TN, for Defendant MD Helicopters Inc.

MEMORANDUM OPINION AND ORDER

ABDUL K. KALLON, UNITED STATES DISTRICT JUDGE

This case concerns an alleged attempt to defraud the Government in violation of the False Claims Act, 31 U.S.C. § 3729 et seq. , which "imposes significant penalties" on would-be fraudsters. Universal Health Servs., Inc. v. U.S. ex rel. Escobar , 579 U.S. 176, 136 S. Ct. 1989, 1995, 195 L.Ed.2d 348 (2016). Relators Phillip Marsteller and Robert Swisher filed this qui tam action against their former employer, MD Helicopters, Inc. and its CEO, Lynn Tilton.1 Doc. 57. Allegedly, the defendants (1) fraudulently induced the Government into contracting by falsely representing that they intended to comply with applicable federal regulations; (2) fraudulently induced the Government into paying inflated prices by submitting incomplete pricing information; and (3) conspired to violate the False Claims Act. Id. The defendants move for summary judgment on all claims.2 Doc. 171. For the reasons explained below, except as to the FAR-based theory of fraudulent inducement related to the El Salvador (Count III), Saudi Arabia (Count IV), and Costa Rica (Count V) contracts, the motion is due to be granted in all other respects.

I.
A.

MD Helicopters manufactures "superbly built helicopters that excel in warfighting conditions." Doc. 172-1 at ¶ 51. Thousands of its aircraft are in service with military forces and police departments around the world. Id. at ¶ 50. Between 2011 and 2020, MD Helicopters’ CEO was Lynn Tilton. Doc. 191-3 at 27. She also indirectly owned MD Helicopters. Doc. 125 at 3. As CEO, Tilton had final say over decisions committing MD Helicopters to long-term contracts, leases, and financing arrangements. Doc. 191-3 at 42. While she led MD Helicopters, Tilton also owned and served as CEO of Patriarch Partners, LLC ("Patriarch Partners") and Patriarch Partners Management Group ("PPMG"). Id. at 15–16. These closely affiliated companies provide management services to the several dozen portfolio companies that Tilton owns, id. at 15, 28, including MD Helicopters, doc. 191-5 at 39.

The relators, Swisher and Marsteller, are United States Army veterans who worked for MD Helicopters until 2013. Docs. 177-1 at 72–73; 191-10 at 35. MD Helicopters hired Swisher in 2006, and he eventually became its Director of Military Programs. Doc. 177-1 at 72–73, 76–77. Marsteller joined MD Helicopters in 2012 as its Director of Sales and Marketing, and he worked there for about nineteen months. Doc. 191-10 at 35–36, 50–51. Around September 2012, Marsteller began expressing concerns to the Government about allegedly illegal conduct he observed at MD Helicopters. Doc. 177-36 at 254. In early 2013, after speaking with Government investigators, Marsteller and Swisher started discussing a potential lawsuit against MD Helicopters. Doc. 177-1 at 355–356. They retained counsel a few months later. Id. at 356–357.

The relators believed that the defendants’ behavior regarding five of its contracts with the Army and their relationship with an Army officer, Colonel Norbert Vergez, was potentially unlawful. See docs. 177-1 at 32–33; 177-36 at 254–255. At the time, Col. Vergez was the Program Manager for the Army's Program Management Office for Non-Standard Rotary Wing Aircraft ("NSRWA"). Doc. 177-11 at 231. NSRWA supports the development and procurement of non-standard rotorcraft for U.S. allies, including by providing aircraft and support services to foreign governments through the Foreign Military Sales ("FMS") program. Doc. 172-14 at ¶¶ 2, 8. Under the FMS program, allied countries, using the Government as an intermediary, purchase defense articles produced by U.S. contractors, sometimes directing the purchase of specific items or services from specific contractors. Id. at ¶ 3. As NSRWA's Program Manager, Col. Vergez was responsible for building and maintaining working relationships with contractors. Id. at ¶¶ 5–6, 9. Because MD Helicopters’ aircraft are not standard in the U.S. military's inventory, the company fell under NSRWA's, and therefore Col. Vergez's, jurisdiction. See doc. 177-3 at 25.

Contractors who participate in the FMS program must comply with certain rules and regulations. See doc. 177-9 at 185–186. Among these are the Federal Acquisition Regulations ("FAR"), which establish the rules for Government procurement and are codified at Title 48 of the Code of Federal Regulations. 48 C.F.R. § 1. FAR § 52.203-13, also known as the "Contractor Code of Business Ethics and Conduct," requires a contractor to, among other things, "[e]xercise due diligence to prevent and detect criminal conduct." 48 C.F.R. § 52.203-13(b)(2). A contractor must also timely disclose to the Government "whenever, in connection with the award, performance, or closeout of [the relevant] contract," the contractor has "credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed ... [a] violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code." Id. § 52.203-13(b)(3)(i). FAR § 52.203-13 is referentially incorporated into all Government contracts exceeding a certain monetary threshold and featuring a performance period of 120 days or more. See 48 C.F.R. §§ 3.1004, 570.701(i).

B.

This action concerns five FMS contracts and contract modifications that the Army awarded to MD Helicopters between 2011 and 2012. Doc. 57. Under these agreements, MD Helicopters provided (1) six primary trainer helicopters to the Afghanistan Air Force, (2) logistical support to the Afghanistan Air Force, (3) three helicopters to the El Salvador Air Force, (4) two helicopters to the Government of Costa Rica, and (5) twelve helicopters to the Saudi Arabia National Guard. Id. It is undisputed that each of these contracts incorporated FAR § 52.203-13.

1.

In November 2010, the Army issued a request for proposals to obtain, among other things, six new primary trainer helicopters for the Afghanistan Air Force. Doc. 172-1 at ¶ 3. MD Helicopters competed with three other companies for the contract, with MD Helicopters submitting the lowest bid. Doc. 177-9 at 81–89. While the Army was finalizing its selection for this contract, Col. Vergez met Tilton for the first time at an industry conference in early March 2011. Doc. 177-2 at 73. Col. Vergez, who was then Program Manager at NSRWA, informed Tilton in a private meeting that MD Helicopters would receive the Afghanistan contract. Id. at 77. On March 10, 2011, the Army officially awarded the contract to MD Helicopters. Doc. 172-1 at ¶ 4. Under the agreement, MD Helicopters provided the Afghanistan Air Force with six MD 530F helicopters with an option to purchase up to an additional forty-eight helicopters. Id. The price for each of the original six helicopters was $2,738,448. Doc. 172-1 at ¶ 5. The optional aircraft were priced higher. Id. On September 1, 2011, the Army modified the contract to include contractor logistical support ("CLS") for the Afghanistan Air Force's fleet of MD 530F helicopters. Doc. 172-1 at ¶ 7.

Col. Vergez, as NSRWA's Program Manager, continued developing a relationship with MD Helicopters’ leadership following the award of the Afghanistan primary trainer contract and CLS modification. Building relationships with industry through regular interactions with contractors is "[o]ne of the primary responsibilities of a program manager." Doc. 172-14 at ¶ 6. To build a relationship with MD Helicopters, Col. Vergez met Tilton and other company affiliates at various industry and social events, including a private dinner at Col. Vergez's home and over drinks. See, e.g. , docs. 177-2 at 99–104, 123; 191-36 at 2.

2.

In March 2010, the El Salvador Air Force, using the FMS program, sought to purchase three MD 500E helicopters from MD Helicopters to supplement its existing fleet of MD aircraft. Docs. 177-3 at 190; 177-1 at 316. And in September 2011, the Army solicited from MD Helicopters a proposal for two standard MD 500E helicopters, one command MD 500E helicopter,...

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