United States v. Bollinger Shipyards, Inc.

• Decision Date: 23 December 2014
• Docket Number: No. 13–31301.,13–31301.
• Parties: UNITED STATES of America, Plaintiff–Appellant, v. BOLLINGER SHIPYARDS, INCORPORATED; Bollinger Shipyards Lockport, L.L.C.; Halter Bollinger Joint Venture, L.L.C., Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

775 F.3d 255

UNITED STATES of America, Plaintiff–Appellant

v.BOLLINGER SHIPYARDS, INCORPORATED; Bollinger Shipyards Lockport, L.L.C.; Halter Bollinger Joint Venture, L.L.C., Defendants–Appellees.

No. 13–31301.

United States Court of Appeals, Fifth Circuit.

Dec. 23, 2014.

Abby Christine Wright, U.S. Department of Justice, Civil Division, Appellate Staff, Arnold M. Auerhan, U.S. Department of Justice, Washington, DC, Sharon Denise Smith, Esq., Assistant U.S. Attorney, U.S. Attorney's Office, New Orleans, LA, for Plaintiff–Appellant.

Scott Michael McCaleb, Wiley Rein, L.L.P., Washington, DC, C. Berwick Duval, II, Stanwood Robert Duval, Duval, Funderburk, Sundbery, Lovell & Watkins, Houma, LA, Andrew Gerald McBride, Esq., Senior Litigation Attorney, Wiley Rein, L.L.P., Marcus Bedford Slater, Jr., Slater & Zeien, L.L.P., Mark Bradley Sweet, Wiley Rein, L.L.P., Roderick L. Thomas, Wiley Rein, L.L.P., Jennifer Jean Zeien Slater & Zeien, L.L.P. Washington, DC, for Defendant–Appellant.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before DAVIS, DeMOSS, and ELROD, Circuit Judges.

Opinion

W. EUGENE DAVIS, Circuit Judge:

The United States of America appeals from the district court's final judgment in which the court granted the defendants-appellees' motion to dismiss its False Claims Act case under Fed.R.Civ.P. 12(b)(6). We conclude that the United States alleged sufficient facts in its complaint to allow a factfinder to infer that the defendants-appellees either knew that their statements were false or had a reckless disregard of their truth or falsity. We therefore REVERSE and REMAND for further proceedings consistent with this opinion.¹

I. FACTS

The United States filed this action under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., alleging that Bollinger Shipyards, Inc., Bollinger Shipyards Lockport, L.L.C., and Halter Bollinger Joint Venture, L.L.C. (collectively, “Bollinger”) knowingly submitted false statements and false claims for payment to the government in relation to a government contract under which Bollinger was to modify eight vessels owned by the United States Coast Guard (“Coast Guard”). After allowing the United States to replead once, the district court granted Bollinger's second Rule 12(b)(6) motion to dismiss, holding that the United States failed to satisfy the plausibility and particularity requirements of the Federal Rules of Civil Procedure concerning Bollinger's knowledge under the FCA. The United States appeals this dismissal.

Because this case comes up on the grant of a motion to dismiss under Rule 12(b)(6), we review the district court's ruling de novo.² Generally, we “must assess whether the complaint contains sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face under Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).”³

The facts as stated in the United States' First Amended Complaint are as follows: In 1999, the Coast Guard began a program called Deepwater to upgrade or replace its aging fleet of vessels, aircraft, and electronics systems. One of the contractors competing for the project was Integrated Coast Guard Ship Systems (“ICGS”). ICGS's proposal included converting existing 110–foot Coast Guard patrol boats into 123–foot patrol boats to extend the service life of the boats by adding a 13–foot extension to the hulls, among other changes. Under this proposal, the conversion of the 110–foot boats would be subcontracted to Bollinger, which had originally built the boats.

In September 2000, the Coast Guard expressed concerns to Bollinger about the feasibility of converting the vessels and questioned whether the hulls of the converted vessels would have adequate structural integrity. In response, Bollinger prepared a longitudinal strength analysis describing the modified boats' projected “section modulus,” a measure of longitudinal strength. Bollinger performed its calculation of the section modulus using the Midship Section Calculator (“MSC”) program, which uses as inputs a number of components, including the structural geometry of the ship's hull, the physical and engineering properties of the hull, and shell plate material and thickness. Bollinger advised the Coast Guard that the minimum section modulus required by the American Bureau of Shipping (“ABS”), an independent organization that develops standards for shipbuilding, was 3,113 cubic inches, and the calculated section modulus for the proposed modified boats would be 7,152. As was later discovered, Bollinger reached this calculated section modulus by inputting a thicker hull plating than existed in the 110–foot boats. Bollinger did not advise the Coast Guard that it used a thicker hull plating in its calculations, and its proposal did not include a provision for replacing or thickening the hull in the boats. In August of 2001, Bollinger was notified that the Coast Guard would require Bollinger to certify compliance with ABS structural standards.

In June 2002, the Coast Guard then selected ICGS as the contractor for the Deepwater program and entered into a contract with ICGS. The contract required ICGS and its subcontractors, including Bollinger, to provide the Coast Guard with a “CDRL S012–11,” a Hull and Load Strength Analysis, to verify that the 123–foot boat design met the program and contract requirements. The contract also required Bollinger to obtain ABS certification of compliance with ABS structural standards.

In August 2002, the Coast Guard issued the first of four delivery task orders under the contract for the design and modification of the 123–foot patrol boats. On August 26, 2002, Bollinger's chief executive officer, Boysie Bollinger, sent an email to other Bollinger officials stating that an ABS official had offered to provide a confidential assessment of the structural analysis of the converted vessels. Boysie Bollinger sought advice on whether to accept the offer. T.R. Hamblin, Bollinger's vice president, recommended declining the offer, reflecting concern that the review would find that the design required additional structural support. Boysie Bollinger replied:

I'm concerned that [ABS] sells CG on the fact that they need this review.... [ABS] would love the additional responsibility from the CG and as we both know, adverse results could cause the entire 123 to be an un-economical solution if we had to totally rebuild the hull.... MY CONCERN—we don't do anything—ABS gets CG to require it without our input, and the result is we BLOW the program.

The same day this email exchange occurred, Bollinger found that the actual section modulus, without an increase in hull plating thickness, was less than the 7,152 cubic inches it reported to the Coast Guard. Bollinger ran the MSC application at least three times that day, changing the input data each time, and obtaining results of 2,836, 3,037, and 5,232 cubic inches. Each calculation used some incorrect inputs, with the 5,232 calculation having one input that was 16,000 times greater than the correct input value. A few days later, for internal purposes, Bollinger used the 3,037 value in its draft version of the CDRL S012–11. However, in an initial CDRL S012–11 sent to the Coast Guard on September 4, 2002, Bollinger submitted a section modulus of 5,232 cubic inches and certified that the section modulus met ABS requirements.

On October 9, 2002, Bollinger met with Coast Guard officials during a Preliminary Design Review meeting. To address the Coast Guard's concerns regarding the validity of the 5,232 cubic inch section modulus calculation in light of Bollinger's original calculation of 7,152, Bollinger told the Coast Guard that it would have ABS review the calculation and the vessels' longitudinal strength. Nonetheless, Bollinger never requested ABS review of the midship section modulus calculation and longitudinal strength, and ABS never performed this review. Bollinger submitted its final version of the CDRL S012–11 to the Coast Guard on December 16, 2002, reporting that the section modulus was 5,232 cubic inches and again certifying that the section modulus met ABS requirements. On December 18, 2002, during a Critical Design Review meeting with the Coast Guard, Bollinger represented that it had engaged ABS to review compliance with ABS standards; however, the ABS never reviewed the section modulus calculation.

In March 2004, the first 123–foot boat, the Matagorda, was delivered to and accepted by the Coast Guard. In September 2004, it was discovered that the Matagorda had suffered a structural casualty, including buckling of the hull. An investigation by the Coast Guard and a recalculation of the section modulus by Bollinger revealed that the true section modulus of the completed ship was 2,615 cubic inches, well below the ABS minimum of 3,113 cubic inches required by the contract and also below any figure Bollinger reported to the Coast Guard prior to delivery.

Before the Coast Guard realized that the section modulus number was incorrect, it had accepted delivery of four modified patrol boats. For vessels five through eight, the Coast Guard and ICGS pursued structural modifications to increase the section modulus, and made two structural modifications to the vessels. In reliance on the feasibility of the modifications, the Coast Guard accepted delivery of vessels five through eight. Ultimately, the structural modifications were inadequate, and the Coast Guard removed all eight boats from service. On May 17, 2007, the Coast Guard revoked its acceptance of the boats.

II. PROCEDURAL HISTORY

The United States brought suit against Bollinger under the FCA, alleging that Bollinger knowingly presented or caused to be presented false or fraudulent claims for payment to the United States and knowingly made statements material to false or fraudulent claims for payment or approval by...