US ex rel. O'Keefe v. McDonnell Douglas Corp.

• Decision Date: 20 March 1996
• Docket Number: No. 4:93CV02188 GFG.,4:93CV02188 GFG.
• Citation: 918 F. Supp. 1338
• Parties: UNITED STATES of America, ex rel., Daniel G. O'KEEFE, Plaintiff, v. McDONNELL DOUGLAS CORPORATION, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

918 F. Supp. 1338

UNITED STATES of America, ex rel., Daniel G. O'KEEFE, Plaintiff, v. McDONNELL DOUGLAS CORPORATION, Defendant.

No. 4:93CV02188 GFG.

United States District Court, E.D. Missouri, Eastern Division.

March 20, 1996.

COPYRIGHT MATERIAL OMITTED

Daniel J. McMichael, McMichael and Logan, Chesterfield, MO, Francis E. Pennington, III, Daniel V. Conlisk, Dankenbring and Greiman, St. Louis, MO, for Daniel G. O'Keefe.

Stephen H. Rovak, Stephen H. Rovak, Roger K. Heidenreich, Robert F. Scoular, Sonnenschein and Nath, St. Louis, MO, David J. Massa, Charles A. Weiss, Veryl L. Riddle, Bryan Cave, St. Louis, MO, Robert F. Schoular, Sonnenschein and Nath, Los Angeles, CA, for McDonnell Douglas Corp.

Claire M. Schenk, Office of U.S. Attorney, St. Louis, MO, Michael F. Hertz, Stanley E. Alderson, Anthony M. Alexis, U.S. Department of Justice, Civil Division, Washington, DC, for U.S.

ORDER

GUNN, District Judge.

This matter is before the Court on various motions.

Daniel G. O'Keefe filed this action against McDonnell Douglas Corporation ("MDC") pursuant to the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33. The FCA generally prohibits certain acts designed to defraud the federal government. 31 U.S.C. § 372(a). A private person may bring a civil action, called a qui tam action, for a violation of the Act for herself and for the United States Government. 31 U.S.C. § 3730(b). The person is called the relator, and the Act provides that her complaint not be served on the defendant and be filed and kept under seal for sixty days while the government decides whether to intervene and take over the prosecution of the action. 31 U.S.C. § 3730(b)(2). For good cause shown, the government may move to extend that sixty-day period. 31 U.S.C. § 3730(b)(3). After the government decides whether to intervene, the complaint is unsealed and served upon the defendant. Id.

In this case, the original Complaint contains allegations that MDC submitted false claims to the United States by claiming labor costs improperly charged to various Department of Defense contracts. The Complaint was filed under seal on October 12, 1993. After numerous extensions of time for good cause shown, the government filed its notice of intervention on August 21, 1995. The government filed a Third Amended Complaint on October 18, 1995. The government now moves for leave to file its Fourth Amended Complaint. The Court has reviewed the government's motion and will grant leave.

The Fourth Amended Complaint describes and alleges the facts as follows. On January 13, 1988 the United States Navy awarded MDC and General Dynamics Corporation ("GDC") Contract No. N00019-88-C-0050 (the "A-12 Contract") for the full scale engineering development, with limited production options, of the Advanced Tactical Aircraft, later designated the A-12. The A-12 Contract was a fixed-price incentive contract with a target price of $4,379,219,435. On May 31, 1990 the Navy exercised its option to purchase six Lot 1 initial production aircraft at the not-to-exceed price in the A-12 Contract. On January 7, 1991 the Navy terminated the A-12 Contract for default based on the contractors' failure to make progress toward completing the design, development, fabrication, assembly, and testing of the aircraft within the contract schedule and in accordance with the contract specifications. Subsequent to termination, MDC and GDC submitted a termination claim to the Navy that included all labor hours allegedly incurred on the A-12 Contract.

Prior to being awarded the A-12 Contract, MDC submitted pricing proposals to the Navy which included projected engineering labor costs. The government contends that MDC intentionally inflated the estimated labor costs by approximately $11 million. MDC also intentionally inflated its projected labor costs in connection with two other government contracts: the HARPOON Missile Contract, N00019-87-C-0103, and the Standoff Land Attack Missile ("SLAM") Contract, N00019-87-C-0020. By submitting the inflated estimates, MDC violated provisions of the Truth in Negotiations Act, 10 U.S.C. § 2306a, and certain federal acquisition regulations.

The government further alleges that since 1987 or before, MDC has mischarged labor hours in connection with government contracts for the A-12, the Air Force's C-17 Military Cargo Jet, the Air Force's F-15 Fighter, the Navy's F-18 Fighter, the Marine Corps' AV-8B Harrier Aircraft, and the Navy's T-45 Goshawk Trainer Aircraft. Each MDC employee working in production areas must wear a badge. On each badge is displayed that employee's identification number. The badge numbers are encoded in computer bar codes that can be scanned with a device for input into MDC's cost-accounting computer system.

According to the government, employees working in MDC's manufacturing facilities have been instructed by supervisors to charge their labor hours for work performed on certain contracts to other unrelated contracts, including the A-12 and C-17 Contracts and other government contracts. An MDC employee would perform work on Contract One pursuant to a given work order. When she completed her work and was ready to clock out, her supervisor would provide her with a different work order connected with Contract Two to use in clocking out with her badge. The cost-accounting computer system would attribute her hours spent on Contract One to hours spent on Contract Two. Then the employee was instructed to wait for six minutes and to use the original work order for Contract One to clock out again. The second clocking out would result in only six minutes being charged to Contract One to give the appearance of legitimacy with all the rest of the time being charged to Contract Two. As a result of the mischarging, many of MDC's reports regarding incurred costs for labor hours to the government were false. The foregoing are allegations.

The Fourth Amended Complaint contains seven counts. Counts I and II are for violations of the FCA. The government has not adopted Counts VII, VIII, and IX of the relator's Second Amended Complaint, but the government views those claims, which are for other violations of the FCA, as still standing against MDC in this case. Count III is for breach of contract. Count IV is for payment under mistake of fact. Count V is for unjust enrichment. Court VI is for common law fraud. Count VII is brought pursuant to the Contract Disputes Act ("CDA"), 41 U.S.C. §§ 601-613. Counts I-VI relate to the government contracts cited above while Count VII appears to be limited to the A-12 Contract.

I. Defendant's Motion to Dismiss

MDC has filed a motion to dismiss or in the alternative, to strike the Third Amended Complaint. The government opposes that motion. Because the Court has granted the government leave, the Court will view MDC's Motion to Dismiss as attacking the Fourth Amended Complaint.

A. The Standard of Review

When ruling on a motion to dismiss, this Court must take the allegations of the complaint as true, construing the complaint and all reasonable inferences therefrom in a light most favorable to the plaintiff. Morton v. Becker, 793 F.2d 185, 187 (8th Cir.1986). Therefore, "a motion to dismiss a complaint should not be granted unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief." Id.

In its Motion to Dismiss, defendant MDC argues that: (1) all allegations related to the A-12 Contract should be dismissed on grounds of federal comity and judicial estoppel; (2) Counts III-V should be dismissed for lack of subject matter jurisdiction; (3) Counts III-V should be dismissed for failure to state a claim; (4) the Fourth Amended Complaint should be dismissed because the government's allegations lack sufficient particularity; and (5) any allegation of fraud in the award of the A-12 Contract in Count VI should be dismissed as barred by the state of limitations.

B. Judicial Estoppel and Federal Comity

In order to address MDC's first argument, further background is necessary. In June of 1991 MDC and GDC filed suit against the government in the Court of Federal Claims pursuant to § 609(a) of the CDA.¹ The contractors challenged the government's default termination of the A-12 Contract.

After years of tumultuous discovery, the Court of Federal Claims held a trial in September of 1993 on the contractors' allegations that the government had improperly terminated the A-12 Contract for default. (Def.Supp.Exhs. E, A at 69-70.) In an order issued on December 9, 1994, the court found that based on the evidence presented at trial, the A-12 contract was not terminated because of contractor default. (Def.Supp.Exh. E at 1.) The Court found that "the contract was terminated because the Office of the Secretary of Defense withdrew support and funding from the A-12." Id. The court vacated the government's decision terminating the A-12 Contract. Id.

Under Schlesinger v. United States, 390 F.2d 702, 709-710, 182 Ct.Cl. 571 (1968), the court was then to treat the government's termination for default as one for convenience and find that the contractors were entitled to have their accounts settled. However, in May of 1995, the court agreed to recognize an exception to Schlesinger. (Def. Supp.Exh. F at 2.) The Court held that a default for convenience would not be entered if the government could prove that MDC and GDC "were so egregiously in default that to impose a termination for convenience would create an unconscionable windfall for plaintiffs such that a court of law could not be a party to the result." Id.

In November of 1995 a trial on the egregious default issue was held. (Defs. Second Supp.Exh. A.) The court found that the government had not met its burden and converted the government's termination for default to one for convenience. Id. at 2. The issue of damages due MDC and GDC remains pending before that court. Id.

MDC now argues that all allegations in the Fourth Amended Complaint...