United States v. Tilton, Civil Action Number 5:13-cv-830-AKK

• Decision Date: 31 March 2016
• Docket Number: Civil Action Number 5:13-cv-830-AKK
• Parties: UNITED STATES OF AMERICA, ex. rel. PHILIP MARSTELLER and ROBERT SWISHER, Plaintiffs/Relators, v. LYNN TILTON, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

UNITED STATES OF AMERICA,ex. rel. PHILIP MARSTELLER and ROBERT SWISHER, Plaintiffs/Relators, v. LYNN TILTON, et al., Defendants.

Civil Action Number 5:13-cv-830-AKK

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA NORTHEASTERN DIVISION

March 31, 2016

MEMORANDUM OPINION

Relators Phillip Marsteller and Robert Swisher pursue this action pursuant to the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., alleging that their former employer, MD Helicopters, Inc., and its Chief Executive Officer, Lynn Tilton, submitted false claims and made materially false statements in the process of obtaining government contracts for the manufacture of helicopters for the United States Army's Non-Standard Rotary Aircraft Project Office ("NSWRA"). In a nutshell, Relators allege that Tilton offered gratuities and employment to Norbert Vergez—the project manager in charge of NSWRA—in violation of federal laws incorporated in the contracts. Vergez purportedly accepted these offers, including an offer of employment at MD and Patriarch Partners, LLC ("Patriarch"), a debt and equity investment and management company that Tilton founded and manages. According to Relators, in exchange for the gratuities and offer of employment, Vergez facilitated MD Helicopters Inc.'s ("MD") submission of inflated pricing information in its bids with NSWRA, and later, MD purportedly withheld information about its relationship with Vergez when it submitted claims for payment. These actions purportedly constitute violations of 31 U.S.C. § 3729(a)(1)(A) and (B) on the part of MD, Tilton, and Patriarch (collectively "Defendants") (Counts I-V). Doc. 57. Finally, Relators assert that MD, Tilton, Vergez, and Patriarch conspired to defraud the government in violation of 31 U.S.C. § 3729(a)(1)(C) (Count VI). Id. In the present motion, Defendants move to dismiss the action on the grounds that Relators' claims do not meet the pleading requirements of Federal Rule of Civil Procedure 12(b)(6).¹ Doc. 65 (*SEALED*). For the reasons below, the motion is due to be granted.

I. STANDARD OF REVIEW

Federal Rule of Civil Procedure 8(a) requires that a pleading stating a claim for relief provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Where a complaint fails to make such a statement, Federal Rule of Civil Procedure 12(b)(6) permits dismissal. To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, acceptedas true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (citations and internal quotation marks omitted). A complaint states a facially plausible claim for relief "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citation omitted). The complaint must establish "more than a sheer possibility that a defendant has acted unlawfully." Id.; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) ("Factual allegations must be enough to raise a right to relief above the speculative level . . . ." (citation omitted)). The Eleventh Circuit instructs that Rule 12(b)(6) "'does not impose a probability requirement at the pleading stage,' but instead 'simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of' the necessary element[s]." Watts v. Fla. Int'l Univ., 495 F.3d 1289, 1295-96 (11th Cir. 2007) (quoting Twombly, 550 U.S. at 555). Ultimately, this inquiry is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 678. While the court accepts all factual allegations in the complaint as true, legal conclusions unsupported by factual allegations are not entitled to that assumption of truth. Id.

Further, because it is "'well settled' and 'self-evident' that the FCA is 'a fraud statute,'" a claim under the FCA must meet the heightened pleading standard of Federal Rule 9(b). U.S. ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301,1309 (11th Cir. 2002). Rule 9(b) provides that a claimant must plead fraud with "particularity":

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.

Fed. R. Civ. P. 9(b). Requiring particularity under Rule 9(b) "serves an important purpose in fraud actions by alerting defendants to the precise misconduct with which they are charged and protecting defendants against spurious charges of immoral and fraudulent behavior." Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (quoting Durham v. Bus. Management Assocs., 847 F.2d 1505, 1511 (11th Cir.1988)) (citation and internal quotation marks omitted). Significantly, a FCA complaint satisfies Rule 9(b) if it sets forth "facts as to time, place, and substance of the defendant's alleged fraud, specifically the details of the defendants' allegedly fraudulent acts, when they occurred, and who engaged in them." Hopper v. Solvay Pharm., Inc., 588 F.3d 1318, 1324 (11th Cir. 2009) (citations and internal quotation marks omitted).

II. FACTUAL BACKGROUND

NSWRA is headquartered at the Redstone Arsenal in Huntsville, Alabama as part of the U.S. Army Aviation and Missile Command ("AMCOM"). Doc. 57 at 13. As a major defense acquisition program, NSWRA's mission is to "consolidate under a single service-level Project Management Office the procurement,sustainment, and technical support of non-standard rotorcraft for the Department of Defense, allied countries under foreign military sales (FMS) contracts[,] or as directed by the Office of the Secretary of Defense." Id. Relators' allegations are related to five FMS contracts for the manufacture of helicopters for allied countries: the Afghani Air Force in March and September 2011 (Counts I and II), the El Salvadorian Air Force in December 2011 (Count III), the Saudi Arabian National Guard in June 2012 (Count IV), and the Costa Rican government in December 2012 (Count V). Id. When MD submitted proposals to NSWRA for these contracts, Vergez served as NSWRA's Project Manager. Id. at 13-14. In that capacity, Vergez purportedly was "personally and substantially involved in managing the process of issuing, selecting, negotiating, pricing, and awarding all of the FMS contracts obtained by MD that are at issue in this [action]." Id. at 14. Allegedly, Tilton, MD's CEO, offered employment and transportation on Tilton's private jet "to influence Vergez to act in MD's favor as NSWRA's program manager." Id.

From April 2011 onward, "it was commonly known among several MD employees that Tilton intended to hire Vergez upon his Army retirement." Id. Consistent with Tilton's plan, between April 2011 and the spring of 2012, Tilton and Vergez at various times "discussed the subject of Vergez'[s] employment to begin . . . following Vergez's anticipated retirement." Doc. 57 at 16. By spring2012, Vergez and Tilton purportedly "reached an . . . understanding . . . that Vergez would be hired by either MD or Patriarch to work for . . . MD's facility in Mesa, Arizona" at "a beginning salary that was more than twice what Vergez was receiving as his active duty base pay." Id. By that summer, Vergez had purportedly signed an employment agreement with Patriarch to direct MD's Civil and Military Programs. Id. at 27. In December 2012, Tilton purportedly announced to MD's employees at a plant-wide meeting at MD's Mesa, Arizona facilities that "a very special person who had been very influential in MD's receipt of Army contracts would be joining the MD team." Id. at 29. Shortly thereafter, "MD issued a revised Organizational Chart showing Vergez as the head of all MD Programs." Id. However, "to obscure Vergez'[s] employment arrangement at MD, Tilton created the illusion on paper that Vergez was a Patriarch employee, with a Patriarch title, based out of Patriarch's offices in New York." Id. at 30.

In addition to the job offer, Tilton purportedly "provided free private transportation to Vergez aboard her jet" while negotiations for the El Salvador contract were ongoing. Id. at 19. Relators allege that Tilton's behavior constituted bribery and that MD had an obligation to disclose these unethical acts, and that such disclosures were a "material condition" of each of the contracts. See docs. 31, 34, 37, 40, 43. By failing to make these disclosures, Defendants allegedly submitted false claims to the government (Counts I-V). See id. Also, in conjunctionwith the El Salvador, Saudi, and Costa Rican contracts, MD allegedly failed to provide accurate pricing information in compliance with the Truth in Negotiations Act (Counts III-V). Id. at 37, 40, 43. Finally, Defendants allegedly conspired to defraud the Government (Count VI). Id. at 44.

III. ANALYSIS

Defendants contend that dismissal is warranted on all claims. The court addresses each claim in turn.

A. False claims under Section 3729(a)(1)(A) and (B)— (Counts I-V)

Sections 3729(a)(1)(A) and (B) create a cause of action against "any person who . . . (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." Relevant here, Relators contend that their complaint properly alleges that Defendants submitted false claims to the government under an "implied certification" theory.² Doc. 71 at 20. 1. Implied certification

Under this theory, "the FCA is violated where compliance with a law, rule, or regulation is a prerequisite to payment but a claim is made when a participant has engaged in a knowing violation." U.S. ex rel. Keeler v. Eisai, Inc., 568 F. App'x 783, 799 (11th Cir. 2014); see also McNutt v. Haleyville Medical Supplies, Inc....