United States v. Dyncorp Int'l, LLC

• Citation: 253 F.Supp.3d 89
• Decision Date: 19 May 2017
• Docket Number: Civil Action No. 16-1473 (ESH).
• Parties: UNITED STATES of America, Plaintiff, v. DYNCORP INTERNATIONAL, LLC, Defendant.
• Court: U.S. District Court — District of Columbia

253 F.Supp.3d 89

UNITED STATES of America, Plaintiff,

v.DYNCORP INTERNATIONAL, LLC, Defendant.

Civil Action No. 16-1473 (ESH).

United States District Court, District of Columbia.

Signed May 19, 2017

Jennifer A. Short, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Plaintiff.

David M. Nadler, Steven John Roman, Blank Rome LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, United States District Judge

The United States has sued DynCorp International, a government contractor, to recover alleged overcharges and to seek penalties related to DynCorp's billing for services in Iraq. DynCorp had a contract with the United States Department of State ("DOS") to assist in training a new Iraqi civilian police force. The government claims that DynCorp charged it unreasonable rates for lodging and labor provided under the contract. In addition, the government alleges that DynCorp made false statements and omitted material information about the rates that it charged. The complaint asserts violations of the False Claims Act, as well as common law causes of action for unjust enrichment, payment by mistake, and breach of contract. DynCorp has moved to dismiss all claims. For the reasons explained herein, the Court will grant the motion in part and deny it in part. Specifically, the government's unjust enrichment and payment-by-mistake claims are dismissed insofar as they are based on payment of cost-reimbursable charges.

BACKGROUND

After a competitive bid process, the DOS awarded DynCorp the CIVPOL Iraq contract in 2004. (Compl. at ¶¶ 32–37, ECF No. 1.) Under the contract, DynCorp was to provide lodging, security, transportation, and other services to support the Iraqi civilian police force. (Id. ) DynCorp subcontracted the provision of lodging and labor to Corporate Bank Financial Services, Inc. (Id. at ¶ 2.) According to the government, however, "DynCorp knew that the rates provided by Corporate Bank ... for hotel facilities and local national security guards, drivers, interpreters, and managers were unreasonable." (Id. at ¶ 4.) The government asserts that DynCorp nonetheless accepted the unreasonable rates because it viewed Corporate Bank as a "strategic partner." (Id. at ¶ 49.)

Under the terms of the CIVPOL contract, the process for determining DynCorp's charges to the DOS depended upon the type of service. DynCorp billed for hotel accommodations and for labor after July 2007 under cost-reimbursable line items, which permit a contractor to be reimbursed for its actual costs, provided those costs are reasonable. (Id. at ¶¶ 40, 43.) From the beginning of the contract through July 2007, DynCorp billed labor under an undefinitized firm-fixed-price line item, which meant that the price was agreed upon but not until after performance began. (Id. at ¶¶ 41–42.) DynCorp submitted price proposals for twelve different periods of performance, as the DOS repeatedly requested extensions of performance. (Id. at ¶ 44.)

The complaint alleges that "[t]hroughout its CIVPOL performance, DynCorp acknowledged internally that Corporate Bank's hotels were overpriced and not competitive with market rates in Baghdad." (Id. at ¶ 57.) On February 1, 2005, Senior Vice President Spence Wickham wrote in an internal email that the CEO needed "to be brought to the reality of the markup on our current hotels" and that "DynCorp would not be able to ‘win the CIVPOL Iraq business back if we allow these outrageous rates to continue.’ " (Id. ) DynCorp's CIVPOL contract manager noted in October 2005 that Corporate Bank's hotel rates were unacceptable, and the Iraq Support Manager stated in March 2006 that hotels just down the street were significantly cheaper. (Id. at ¶ 58.) A DynCorp administrator observed that Corporate Bank's rates were double the price of standard hotel rooms in Baghdad. (Id. ) Furthermore, Vice President for CIVPOL Operations Richard Cashon reported to DynCorp's Board of Directors that Corporate Bank regularly refused to provide documentation supporting its rates. (Id. at ¶ 61.) Nevertheless, DynCorp charged the DOS the rates that Corporate Bank claimed for the hotels, without disclosing that they were uncompetitive. (Id. at ¶¶ 52, 55, 59.) "Instead, in a letter dated February 24, 2005, Tim Crawley, DynCorp's Vice President for Contract Administration, told the DOS that DynCorp was unable ‘to negotiate rates below the current level,’ because the ‘market is dictating the rate.’ " (Id. at ¶ 59.)

Similarly, the government alleges that "DynCorp knowingly made material false statements and key omissions about [the] unreasonable labor rates that distorted its negotiations with the State Department." (Id. at ¶ 64.) In the price proposal dated June 3, 2004, which covered the period from April 17, 2004, to July 16, 2004, DynCorp stated that Corporate Bank's labor rates were "based on ‘historical data.’ " (Id. at ¶ 66.) However, according to the government, "DynCorp's proposal quoted markedly higher labor rates than those that Corporate Bank had agreed to bill DynCorp on April 1, 2004." (Id. ) The quoted rates were also significantly higher than those that DynCorp had negotiated with Corporate Bank over the course of its previous contract in support of the DOS in Iraq. (Id. at ¶ 67.)

On April 28, 2005, DynCorp "accepted a substantial increase in Corporate Bank's labor rates," which meant that "the monthly rate for security guards and drivers more than tripled, while the monthly rate for interpreters nearly doubled." (Id. at ¶ 70). Yet, DynCorp informed the government that its costs "for this extension period are consistent with previous periods." (Id. at ¶ 71.) "Interestingly, the amount listed under the ‘Corporate Bank Subcontract’ section ... remained fairly constant—but that was only because DynCorp had stopped counting the hotels in this section, and used a three-month period of time for its numbers instead of a four-month period." (Id. )

DynCorp submitted price proposals for labor that justified the rates "on the basis of a ‘vendor quote’ " on the following occasions: June 13, 2005, August 1, 2005, February 6, 2006, March 10, 2006, May 15, 2006, August 4, 2006, August 7, 2006, September 22, 2006, September 25, 2007, and November 29, 2007. (Id. at ¶ 83.) Yet, according to the government, DynCorp knew that the competition was paying significantly lower rates, that Corporate Bank's rates were inflated because of self-dealing with a jointly owned subcontractor, and that Corporate Bank was not actually paying its employees the salaries that DynCorp incorporated into the rates it proposed to the government. (Id. at ¶¶ 76, 78–80.) In June 2007, the charges for Corporate Bank labor were transferred from the fixed-price line item to a cost-reimbursable line item. (Id. at ¶ 82.)¹ The government alleges that "DynCorp knew that Corporate Bank's labor rates were still not reasonable, yet charged them to the government nonetheless." (Id. )

"Dyncorp's proposals and charges to the government for Corporate Bank's hotels and labor services included additional amounts for Corporate Bank's G & A cost rate. G & A costs are costs a business incurs that are not directly attributable to a single specific contract, task order, or other cost objective ...." (Id. at ¶ 85.) DynCorp estimated in 2003 that Corporate Bank would have a G & A rate of 5 percent, but it accepted an 11 percent G & A rate in 2004 for the CIVPOL contract. (Id. at ¶¶ 87, 89.) On November 1, 2004, a senior manager at DynCorp told Corporate Bank that "it could not possibly have suffered financially in 2004, given that its revenues had tripled but DynCorp still continued ‘to use your 11% G & A rate which was calculated on a revenue basis that was one third of what you have recognized in the operating year.’ " (Id. at ¶ 89.) DynCorp allowed Corporate Bank to raise its G & A rate to 13 percent after August 12, 2006, despite the fact that it did not provide documentation of its total G & A costs or "any sort of analysis that DynCorp could review." (Id. at ¶ 93.)

The government alleges that "[b]y misrepresenting and omitting information reflecting the true nature and bases of Corporate Bank's rates, DynCorp skewed price negotiations with the State Department and caused the State Department to agree to higher contract prices than it otherwise would have." (Id. at ¶ 6.) According to the government, "DynCorp knowingly passed on millions of dollars of unjustified and inflated charges under the CIVPOL contract." (Id. at ¶ 95.) An exhibit to the complaint lists the invoices that the government alleges are false. (See Compl. Ex. B.) On the basis of these activities, the government asserts five causes of action: violation of the False Claims Act, 31 U.S.C. § 3729(a)(1) (2006), by presenting false claims (Count I); violation of the False Claims Act, 31 U.S.C. § 3729(a)(1)(b), by making or using false records or statements material to a false claim (Count II); unjust enrichment (Count III); payment by mistake (Count IV); and breach of contract (Count V).

DynCorp has moved to dismiss each of the government's claims. (Def.'s Mot. Dismiss, ECF No. 10; Def.'s Mem., ECF No. 10–1.) First, DynCorp argues that the government has not adequately pled the falsity, materiality, and scienter elements of the False Claims Act counts. (Def.'s Mem. at 15–36.) Second, DynCorp contends that those counts must be dismissed for failure to allege fraud with particularity. (Id. at 37.) Third, DynCorp asserts that for some allegedly false claims, the False Claims Act counts are barred by the statute of limitations. (Id. at 38–45.) Fourth, DynCorp asks the Court to dismiss the unjust enrichment and payment-by-mistake claims on the ground that an express contract existed between the parties. (Id. at 45–46.) Finally, DynCorp argues that this Court lacks subject matter jurisdiction over the claim for breach of contract. (Id. at 46–48).

ANALYSIS

The Court will address the False Claims Act counts and then each...