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USCA1 Opinion
December 31, 1992 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 92-1496
UNITED STATES OF AMERICA,
Plaintiff, Appellant,
v.
DATA TRANSLATION, INC.,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge]
___________________
____________________
Before
Breyer, Chief Judge,
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Torruella and Selya, Circuit Judges.
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____________________
Jonathan R. Siegel, Attorney, Department of Justice, with whom
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Stuart M. Gerson, Assistant Attorney General, A. John Pappalardo,
_________________ ___________________
United States Attorney, and Douglas N. Letter, Attorney, Department of
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Justice, were on brief for appellant.
Laurie R. Wallach with whom Steven A. Kaufman and Ropes & Gray
_________________ __________________ _____________
were on brief for appellee.
____________________
____________________
BREYER, Chief Judge. In 1983 Data Translation,
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Inc. ("DTI") agreed to sell its computer boards to the
federal government at a price negotiated by the federal
government's central civilian purchasing agency, the General
Services Administration ("GSA"). The Government
subsequently brought suit, claiming that, when GSA and DTI
negotiated the contract, DTI failed properly to disclose the
prices at which it sold its boards to other, non-
governmental customers. That failure, the Government says,
violated the terms of the subsequent contract and the
federal False Claims Act, 31 U.S.C. 3729 et seq.
_______
In the district court, both judge and jury
disagreed with the Government. The judge found that the
Government had not presented enough evidence to warrant
submitting its "breach of contract" claim to the jury. The
jury found that DTI did not violate the False Claims Act.
The Government, in this appeal, argues 1) that, given the
evidence, the court should not have directed a verdict on
the "breach of contract" claim, and 2) that the court did
not properly instruct the jury about the meaning of the
False Claims Act.
After reviewing the record, we conclude that both
lower court determinations were legally correct. And, we
affirm the judgments.
I
The "Breach of Contract" Claim
______________________________
The Government's breach of contract issue -- that
the evidence was strong enough to warrant submitting the
case to the jury -- presents the more difficult question on
appeal. We note that, had the district court reserved
judgment on the defendant's motion for directed verdict,
while submitting the contract claim along with the False
Claims Act claim to the jury, the jury might well have found
in the defendant's favor. (After all, the jury found in the
defendant's favor on factually similar False Claims Act
matters). In that event, the district court would not have
had to decide the directed verdict question then and there,
and this court (if the jury had found in the defendant's
favor) would have faced the easier task of deciding whether
the evidence was sufficient to support a negative jury
verdict; and, only if the jury had found in the plaintiff's
favor would we have had to decide the more difficult
question (here presented) of whether the evidence was, as
the district court held, insufficient to support a
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potentially positive verdict. Regardless, we have answered
this latter question. We have read the record, asking
ourselves whether any reasonable juror could have found in
the Government's favor. We conclude that the answer to the
question is "no." Because of the record's complexity, the
explanation of how we have reached this conclusion will be
lengthy.
A
Background
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1. The Company. DTI makes an electronic board
____________
which, when inserted in a computer, allows the user to
measure flows and pressure changes in gasses and liquids.
This computer capability is useful in medicine (e.g.,
____
monitoring the condition of artificial hearts), in science
(e.g., detecting abnormal genes), and in industry (e.g.,
____ ____
detecting flaws in large quantities of rapidly moving
paper). Before 1983, DTI sold its boards to its federal
government customers (e.g., the Center for Disease Control
____
in Atlanta) primarily through a government procurement
process called "sole source" procurement, a process that
required each individual agency to fill out fairly elaborate
forms each time it wanted to buy even one or two boards from
DTI. See 41 U.S.C. 254, 254(d)(1)(a) (summarizing
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disclosure requirements); see also Pub. L. No. 98-269, 98
___ ____
Stat. 1184 (1984) ("Competition in Contracting Act")
(extending disclosure requirements to civilian, as well as
military, procurement).
In 1983, at the urging of some of its federal
government customers, DTI decided to negotiate, through GSA,
a single contract, called an "MAS contract," with price
terms applicable to orders placed by any federal government
agency -- a contract that DTI hoped would simplify the
selling process.
2. The "Multiple Award Schedule" ("MAS")
___________________________________________
Contract. The GSA will normally negotiate MAS contracts for
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products sold by firms in competitively structured
_____________
industries. At the beginning of the negotiation GSA will
obtain detailed information about, e.g., product quality and
____
prices at which the firm sells the product to other, private
customers. It will then negotiate a price for the
government. If the negotiation succeeds, GSA will list the
firm's product, along with similar products sold by
competing firms (with MAS contracts), in a catalogue.
Individual government agencies may place orders for any item
listed in the catalogue (at the price there listed) without
the elaborate paperwork that other government procurement
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programs require. See 41 U.S.C. 254(d)(5)(A)(ii)
___
(disclosure requirements need not be applied where agency
finds contract price is based on "established catalog or
market prices of commercial items sold in substantial
quantities to the general public."); 47 Fed. Reg. 50,252
(November 5, 1982) (GSA policy statement on pricing of items
sold under MAS contracts). The GSA's MAS contract does not
________
commit the government to buying the product. Rather, it
______________________
provides an option for federal government agencies to buy at
______
a particular price, an option that individual agencies may,
or may not, exercise.
3. The Negotiations. In April 1983 a GSA
_________________
employee, Dewey Carr, and a DTI employee, Elizabeth Bruce,
negotiated the terms of an MAS contract. The GSA asked DTI
to fill out a detailed, complex seventy-eight page
questionnaire, entitled "Solicitation, Offer and Award."
With Mr. Carr's assistance, Ms. Bruce (who, at the time, was
nineteen years old) prepared the answers to the seventy-
eight page questionnaire. These answers, along with the
statements in the document, constituted the "Offer." The GSA
accepted the "Offer." The resulting MAS contract permitted
DTI to sell its boards (and certain other items) to
government agencies at DTI's ordinary list prices less a ten
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percent discount, provided that the ordering agency placed
orders for no more than ten items at any one time. (This
proviso reflected Mr. Carr's recommendation that any agency
placing a larger single order should negotiate with DTI for
a larger discount.)
4. The Claimed Contract Violation. Omitting
_________________________________
unnecessary factual complexities and qualifications, we can
characterize the Government's "breach of contract" claim as
resting essentially on the proposition that DTI, when it
submitted its "Offer," did not disclose all the computer
board price discounts it gave to its non-governmental
customers. To understand how this alleged nondisclosure
could constitute a contract violation, one must examine
several contract provisions, which cross-reference each
other.
a. The "Defective Pricing Clause". The contract
_______________________________
clause that the Government claims DTI directly violated is
called the "Defective Pricing Clause." It says:
If, subsequent to the award of any
__
contract resulting from this
solicitation, it is found that any price
_________
negotiated . . . was increased by any
________________________________________
significant amount because the prices,
________________________________________
data, and facts were not as stated in
________________________________________
the offeror's "Certificate of
________________________________________
Established Catalog or Market Price,"
________________________________________
then the contract price(s) shall be
________________________________________
reduced by such amount and the contract
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shall be modified in writing to reflect
such adjustment.
(Emphasis added.)
b. The "Certificate of Established Catalog or
___________________________________________
Market Price." The "Defective Pricing Clause" refers to
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"prices, data, and facts" that DTI set forth in its
"Certificate of Established Catalog or Market Price." This
Certificate, contained in the seventy-eight page
questionnaire/"Offer," says that DTI certifies that all
"data submitted" are "accurate, complete and current."
c. The Relevant "Data Submitted." DTI included,
______________________________
as part of its questionnaire/"Offer," a three-page summary
of discounts from its list prices that it made available to
nongovernmental customers. This three-page summary
purported to respond to the questionnaire's direction to
provide price discount information. In addition, Ms. Bruce,
the DTI employee, orally described DTI pricing practices to
the GSA negotiator Dewey Carr, and she provided Carr with
relevant DTI documents which she had received from other
employees at DTI. In the Government's view, this "data
submitted" was not "complete," for it did not fully describe
two further sets of discounts that DTI offered certain
customers, namely 1) discounts to "Special Price Customers,"
and 2) "Volume Purchase Agreement" discounts. The former
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(as the name suggests) consists of large discounts to
certain individual customers; the latter consists of large
discounts based on total quantity ordered during a given
time period (say, a year).
d. The Upshot. The cross-referenced provisions
__________
amount to a contractual promise by DTI that its
questionnaire price discount responses are not significantly
_____________
inaccurate or incomplete. The Government says that it broke
________________________
this promise. The Government's case rests upon its claim
that neither the three-page summary of DTI discounts, nor
any other information DTI provided, listed or fully
described the "Special Price Customer" and "VPA" discounts
that DTI offered other, private customers.
As we have said, the district court, after hearing
the evidence, granted a directed verdict for DTI. And, the
Government appeals.
B
The Evidentiary Issue
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The district court, when granting its directed
verdict, commented cryptically,
I don't believe that there was a meeting
of the minds, and, therefore, there was
no contract.
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The Government correctly points out that this remark, read
literally, cannot provide a ground for directing a verdict
in DTI's favor. The parties agreed there was a contract;
they disagreed only about whether or not DTI's "price
discount" questionnaire responses amounted to a violation.
Nonetheless, the district court had a point. When
a single portion of a lengthy contract is unintelligible,
but yet severable from the remainder, a court may strike
that portion itself without affecting the enforceability of
the remainder. See, e.g., Eckles v. Sharman, 548 F.2d 905
___ ____ ______ _______
(10th Cir. 1977) (vague contract provision unenforceable and
severable if not essential to contract); McArthur v.
________
Rosenbaum Co., 180 F.2d 617, 619-20 (3d Cir. 1950)
______________
(radically ambiguous option contract unenforceable,
especially since option contract construed in favor of party
granting option). Thus, we still must ask whether a
reasonable juror could find the price-discount disclosure
provisions sufficiently comprehensible to enforce. Compare
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C.H.I., Inc. v. Marcus Bros. Textile Inc., 930 F.2d 762, 764
____________ _________________________
(9th Cir. 1991) (question of whether clause is fatally
ambiguous and therefore unenforceable is matter of law for
judge to decide) and Fashion House, Inc. v. K Mart Corp.,
___ ____________________ ____________
892 F.2d 1076, 1083 (1st Cir. 1989) (same) with Gel Systems,
____ ____________
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Inc. v. Hyundai Engineering and Construction Co., Inc., 902
____ _______________________________________________
F.2d 1024, 1027 (1st Cir. 1990) (construction of clause for
finder). If not, the judge should direct a verdict against
which two permissible meanings exist is question for fact-
the party demanding enforcement of the clause. (This is
11
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And, in deciding the question of
the perspective of a reasonable person in DTI's position.
_________________
not necessarily as the GSA intended them, but rather from
See Restatement (Second) of Contracts 200, 203 (1981).
___ ___________________________________
comprehensibility, one must examine the relevant provisions,
provisions virtually unintelligible if read literally.
____________________
From this perspective, we find the language of the discount
what we believe the district court intended.)
Unlike the district court, however, we also believe one may
them intelligible. Nonetheless, that fact does not help the
The "Literal" Language
______________________
C
complied with its obligations.
Government, for, on this practical interpretation, DTI
The Government has asked the district court and
this court to read the contract's "discount disclosure"
language literally, as requiring DTI to reveal every price
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give the language a practical interpretation which makes
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discount it provided any of its customers ever -- a
________ ___ ____
revelation that DTI must concede it did not make. The
Government points to language that does seem to call for
such complete disclosure. The seventy-eight page form, at
the top of the first"price discount" information page, says:
List below the best discount and/or
concessions resulting in the lowest net
price (regardless of quantity and terms
and conditions) to other than authorized
GSA contract users from pricelist for
the same or similar products or services
offered to the Government under this
solicitation.
(Emphasis omitted.) The page lists a host of possible kinds
of discount, including:
regular discounts . . . quantity
discounts . . . aggregate
discounts . . . commissions . . .
prompt payment . . . FOB point . . .
[and] other . . . .
It then asks:
Do you have in effect, for any customer
of any class within the MOL [the
"Maximum Order Limitation," which in
DTI's case was the ten item maximum
that, under the MAS contract, an agency
could order at any one time] or outside
of the MOL, other discounts and/or
concessions including but not limited to
the following, regardless of pricelist,
which result in lower net prices than
those offered the Government
in this offer?
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And, it lists further possible kinds of discounts,
including:
rebates of any kind . . . multiple
quantity unit pricing plan . . .
cumulative discounts . . . products that
may be combined . . . [and] others.
Leaving no stone unturned, the form defines "discounts" as:
reductions to catalog or market prices
(published or unpublished) applicable to
any customer, including OEM's, dealers,
distributors, national accounts, states,
etc.; and any other form of price
reductions such as concessions, rebates,
quantity discounts, allowances,
services, warranties, installation, free
parts, etc., which are granted to any
customer.
At trial, the Government called as a witness,
Edward McAndrews, the GSA expert who developed the GSA
procurement policy that this language summarizes. He said
that the language means what it says: namely, that a company
wishing to sell, say, pencils, typewriters, or computer
parts, to the government, must list any lower price, or any
variation from its "standard terms and conditions" that the
company had granted to anyone, ever. That expert
______ ____
testified:
Q: [Y]ou're supposed to put in the top matrix
here how you do business in a standard way?
A: That's correct.
Q: Based on a price list you're using as an
offer to GSA?
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A: Absolutely.
Q: Below it says, 'If you've got other price
lists and other discounts, tell us what
they are,' right?
A: Or any other concession.
Q: Concession. What's a concession if it's not
a discount?
A: It could be terms and conditions.
Q: Terms and conditions?
A: That's correct.
Q: So if there is ever a situation in which you
vary from your standard terms and conditions,
ever, ever, you're supposed to report that
____ ____
down there?
A: Yes.
Q: Ah. And you're supposed to report every
_____
instance of it?
________
A: Yes, so we can evaluate that.
Q: Every time, huh?
A: Yes.
Q: So if a company has a thousand customers and
it has a standard way of doing business which
it describes in the matrix, but for some 15,
20, 30 customers who are bigger than the
seller. . . .
A: Mm-hmm.
Q: . . . the company agrees to the buyer's
standard T's and C's [Terms and Conditions],
which are going to differ buyer from buyer,
right?
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A: Sure.
Q: Every time it does that, it's got to record
that down there?
A: It's what it's supposed to do.
(Emphasis added.)
We concede the circumstance to which the
Government points with pride, namely, the exhaustiveness of
the disclosure that the language literally demands. But, it
is that very circumstance that creates a problem.
Exaggerating to explain our point, we find the Government's
interpretation a little like that of, say, a park keeper who
tells people that the sign "No Animals in the Park" applies
literally and comprehensively, not only to pets, but also to
toy animals, insects, and even chicken sandwiches. If one
met such a park keeper, one would find his interpretation so
surprisingly broad that one simply would not know what he
really meant or what to do. We do not mean to say this
farfetched example directly applies here. But, the example,
considered in light of our explanation below, may help the
reader understand why we think a literal reading of the
disclosure form creates ambiguity and incomprehensibility,
and why we conclude that no reasonable person, negotiating
with GSA negotiator Carr, could have believed that the
Government really wanted the complete and total disclosure
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for which the language seems to ask. We rest this
conclusion upon the combined force of three sets of
considerations, which we shall now discuss in turn:
1. Business Context. An ordinary business person
________________
would not seem likely to interpret the form literally, for,
read literally, the form asks a business to shoulder a
compliance burden which will often seem inordinately
difficult or impossible to carry out. Consider, for
example, an office supply firm, or a furniture company, or a
computer parts manufacturer, operating in a competitive
industry. Such a firm, selling its products to tens of
thousands of different customers, through a host of
different sales personnel, might vary prices considerably,
in response to shifting competitive pressures, from market
to market, from time to time, or from one customer to
another, either through direct price cuts or through the
creation of small "terms of trade" advantages. To require a
paper report of every such variation is to require a
paperwork blizzard, even assuming that the company keeps
track, on paper, of every variation, not only in the price,
but also in the price-related terms and conditions of sale.
The record supports this surmise, for it makes
clear that government suppliers have not read the language
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literally. GSA expert McAndrews conceded that, despite
potential double damage penalties for failing to comply with
the form's instructions, see 31 U.S.C. 3729 (1982), he has
___
never seen any firm ever comply with the form's request,
taken literally. When asked whether he had ever seen a
comprehensive listing of "price reductions" in the form of
"concessions" through variations in "terms and conditions"
of sale, he said that he had not. And, he went on to
testify as follows:
Q: Have you ever seen [a comprehensive listing
of variations from standard terms
and conditions] done?
A: I have not personally seen one done.
Q: Have you looked at these things --
response[s]
[by companies to the Government's
questionnaire]?
A: Yes.
Q: And have you ever seen anybody ever do that?
A: Not frequently.
Q: Have you ever seen anybody do it?
A: I've seen people submit data on, in terms of
the conditions.
Q: Have you ever seen anyone describe in
[Section]
3-B [of the discount disclosure
questionnaire] every time they vary from their
standard terms and conditions?
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A: No, I have not.
. . . .
Q: So nobody ever answers these questions
truthfully?
A: That's probably true.
This testimony, by the GSA expert (and coauthor of the
questionnaire) supports the common sense, objective
conclusion that a reasonable supplier would not read the
language, in context, as calling for complete, literal
disclosure, whatever the GSA author subjectively may have
intended. See Garbincius v. Boston Edison Co., 621 F.2d
___ __________ __________________
1171, 1177 (1st Cir. 1980) (contracts should be construed to
reach sensible result if possible); E. Allan Farnsworth,
Farnsworth on Contracts Vol. II, 7.10, at 255 (standard of
_______________________
reasonableness as fundamental principle of contract
interpretation). See also id., 7.11, at 265-66 (an
___ ____ ___
ambiguous form contract is construed against the drafter).
2. The Statutory Context. A literal reading is
______________________
also unnatural because it seems to undermine, or at least to
implement inappropriately, the purposes of the statutory
program of which the GSA form is an instrument. Congress
authorized, and the GSA designed, the MAS program as a
simplified alternative for government procurement of common
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items sold competitively in the commercial marketplace. See
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H.R. Rep. 1157, 98th Cong., 2d Sess. 18 (1984) (legislative
history of the Competition in Contracting Act of 1984, Pub.
L. No. 98-369, 98 Stat. 1175 (1984)) ("While the use of
competition may not be considered worthwhile by some
officials, it is the only way for the government to obtain
the best products for the best prices. . . . Clearly,
economy and efficiency must be the cornerstone of the
Federal procurement system and H.R. 5184 provides the means
to accomplish this goal.") Where competition helps to keep
the prices of commonly purchased items low, the program
permits a government agency, say, a local Park Service
office, to buy, say, a lamp, without asking lamp suppliers
to undergo the rigorous government "bid-procurement" process
or the highly detailed, time-consuming inspections and
audits that accompany (non-bid) "sole source" procurement.
See 47 Fed. Reg. 50,252 (description of GSA policy on
___
pricing of MAS contracts). Under the MAS program, the
existence of competition in the commercial marketplace
itself helps to provide assurance of low prices for the
government as well. The listing of several competing, say,
lamp manufacturers in the government MAS catalogue provides
added assurance of low prices. The MAS negotiating process,
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with its questionnaire answers (and later audits to ensure
compliance) offers a third way to guarantee "low prices."
To the extent, however, that the questionnaire and audits
become as burdensome as the "sole source" selection process,
the MAS program abandons its basic "simplification"
rationale. See id. at 50,243; Robert S. Brams & Daniel J.
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Kelly, Multiple Award Schedule Contracting: A Practical
____________________________________________________
Guide to Surviving Its Shortcomings, Ambiguities and
____________________________________________________________
Pitfalls, 19 Pub. Cont. L.J. 441, 453-60, 467-72 (1990).
________
Indeed, if the MAS properly selects its products from those
sold in truly competitive commercial markets, elaborate
paperwork, audits, and inspections, then, by significantly
increasing competitive firms' cost of doing federal
government business, could result in the government's being
charged higher, not lower, prices.
Of course, neither the government nor suppliers
will incur significant additional costs of literal
compliance if the government does not enforce the
questionnaire's disclosure requirements as literally read,
or if it enforces the requirements only sporadically. But,
a system that lays down a literal rule with which compliance
is inordinately difficult, turning nearly everyone into a
rule violator, and then permits the agency to pick and
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choose when and where to enforce the rule, is obviously
undesirable. It destroys in practice the very hope of
rationally cabining agency discretion that the rulemaking
process promises in principle. All this is
not to say that the GSA form is unlawful, but, rather, to
provide an additional reason why we doubt that a reasonable
potential supplier would believe that it was to be taken
literally.
3. The Negotiating Context. The GSA negotiator,
________________________
Dewey Carr, gave the DTI negotiator, Elizabeth Bruce, the
distinct impression that she did not have to comply with the
questionnaire as read literally. He reviewed various pieces
of discount information that she provided. He crossed out
some of the discount information, for example, discounts
offered for sales of more than ten items per order, telling
her these discounts were not relevant for the government's
purposes. He accepted other pages of material that she
supplied, although he knew (and he knew that Ms. Bruce knew
that he knew) that they did not contain various discounts
that DTI normally offered (but which he considered not
relevant to the negotiation). Carr told Bruce specifically
that a large discount that DTI gave a large buyer, Digital
Equipment Corporation, which purchased particularly large
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quantities of equipment, was irrelevant because the
Government could not commit itself to place an offer of
equivalent size. He also gave Ms. Bruce the impression that
the words "other discount" on the form referred to discounts
applying to the same kind of purchase the Government
________________________
intended to make. He said that the question she should
answer was (in the words of his testimony):
[F]or the same types of dollar volume
that they expect the government to buy
in, are there any other commercial
customers which have a discounting
policy, or do they receive discounts for
buying in the same volumes that the
government is going to buy in?
Although Mr. Carr did say, at one point in his
testimony, that he asked Ms. Bruce for "a picture of
everything [DTI] did at the time," he simultaneously made
clear that Ms. Bruce did not understand his requests to mean
that he wanted comprehensive disclosure of the sort
Mr. McAndrews described in his testimony.
From these three sets of considerations -- the
business context, the statutory context, and the negotiating
context -- we draw one conclusion, namely, that, whatever
the GSA questionnaire writer's subjective intent, its words
and requests, considered objectively by a reasonable
supplier in the circumstances, did not call for literal
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compliance. And, we believe that no reasonable juror could
have reached a contrary conclusion on the basis of the
evidence presented at trial.
D
A Practical Reading
___________________
If the questionnaire's language is not meant
literally, what does it mean? The district court, in
directing a verdict, found no stopping point between a
literal reading of the questionnaire and unintelligibility.
The conflicting testimony of several of the Government's
witnesses offers support for the district court's view.
But, we need not go as far as the district court. Rather,
in reading the record favorably to the Government, we find
an alternative, intelligible reading of the questionnaire.
Such a reading would call for a "practical" effort to supply
_________
relevant price discount data. See Cofman v. Acton Corp.,
________ ___ ______ ____________
958 F.2d 494, 497 (1st Cir. 1992) (contract should be
interpreted as a business transaction by practical parties
towards a straightforward end). It would require DTI to
disclose significantly relevant price discounts that DTI
_______________________
normally provided other customers making purchases roughly
________ _______
comparable to the agency purchases the Government
__________
contemplated would occur under the MAS program. We do not
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believe that the record supports an interpretation any more
favorable to the Government than this one. And, adopting
this kind of interpretation does not help the Government.
The trial record makes clear that no jury could reasonably
have found a violation of the disclosure obligation as
practically interpreted.
1. Special Price Customers. DTI had several
_________________________
customers whom it called "Special Price Customers." DTI
told GSA that it gave a 30% discount to its largest "Special
Price Customer," Digital Equipment Corporation (which
discount, GSA told DTI, was not relevant to the MAS
negotiations). But, DTI did not tell the GSA about its
_____________
other "Special Price Customers," to whom it regularly
offered large price discounts. The Government says that DTI
should have disclosed this list.
The record makes clear, however, that DTI's sales
to these "Special Price Customers" were not comparable to
the MAS sales DTI proposed to make to government agencies.
The President of DTI, Mr. Alfred Molinari, testified that,
unlike government agency customers, each "Special Price
Customer" provided a special service for DTI in virtue of
which it "earned" the discount. Each such customer was a
"middleman." A "middleman" computer manufacturer, for
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example, would install DTI's board in its computer and then
sell that computer, thereby reselling DTI's board. A
"middleman" software developer, for example, would buy DTI's
boards, develop new uses for those boards, and then resell
them. A "middleman" engineering firm, for example, would
help DTI with quality control problems in addition to
reselling boards. Insofar as these firms were "joint
venturers" with DTI (helping to develop a better product),
they provided DTI with services that the Government would
not provide. Insofar as the firms resold DTI's boards, they
(unlike the Government) had to "live[] on the discount,"
buying at a price low enough to permit a profitable resale.
In the words of DTI Vice-President Ellen Wirka Harpin,
the special price customers, they were
offering us something that another, that
a regular everyday customer wasn't going
to offer us, like advertising, or
writing software for our products so the
customer could use it, reselling the
board . . . .
The record contains virtually nothing to contradict these
accounts.
We must say "virtually nothing" instead of
"absolutely nothing" because on redirect examination DTI's
President said that one of its special price customers,
Sandia Laboratories, in New Mexico, was partly funded by the
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Government. But, the record tells us nothing further about
this example. It tells neither the court, nor a jury,
whether Sandia Labs was a "middleman" or "joint venturer,"
or whether it earned its 12% discount in virtue of those
functions or simply because it received the single order
"quantity discount" that DTI fully disclosed. The single
reference to Sandia Labs, in our view, does not amount to
evidence that significantly contradicts the otherwise
_____________
undisputed testimony of the DTI executive. And, as we have
said, that testimony makes clear that the "special price
customer" discounts involved sales so different from MAS
sales that DTI need not have disclosed them.
2. The Volume Purchase Agreements. DTI gave a
_______________________________
special discount to customers who bought boards pursuant to
a "Volume Purchase Agreement" ("VPA"). A VPA, in essence,
permitted a signer who bought DTI boards to aggregate a
series of small purchases made during the course of a year,
and thereby to qualify for a volume discount based on the
total amount of boards purchased. The Government makes what
are, in essence, two separate claims related to VPA
discounts.
a. Incomplete Disclosure. DTI gave GSA a blank
_____________________
copy of a VPA. That copy makes clear 1) that the buyer
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signing the VPA must commit to buy a total number of items
during the year; 2) that the buyer must send purchase orders
for that amount to DTI "within one year;" 3) that the buyer
must "accept delivery of the products ordered within
fourteen months;" and, 4) that if the year's purchase orders
exceed, or fall short of, the amount of the initial
commitment, DTI will adjust the discount accordingly. A
government auditor testified that GSA considered this type
of VPA (with its discount "bill back" provision for purchase
shortfalls) "as being identical to MAS-type contracts." For
that reason, the Government apparently claims that DTI
should also have given it a list of its VPA customers and
copies of the actual contracts with these customers as well
as the blank form. That added information, in the
Government's view, presumably would have permitted the GSA
negotiator more easily to recognize the "aggregation"
feature of the VPA agreement, and, perhaps, to have
negotiated a similar discount for government agencies.
The record makes clear, however, that the
questionnaire (as interpreted practically) did not oblige
DTI to provide this additional information, for, as we just
said, DTI gave the GSA a blank VPA form contract and, that
being so, an additional filled out form would have added
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nothing of significance. For one thing, the VPA agreement
is not, and could not reasonably seem "identical to MAS-type
contracts." In fact, it is different enough that DTI could
reasonably have thought that Mr. Carr did not need every VPA
detail. GSA's negotiator, Mr. Carr, testified that he told
the DTI negotiator, Ms. Bruce, that the VPA discount was not
___
relevant to the MAS negotiation because the "government
cannot commit to buy any amount during any period of time."
The VPA form itself makes clear that a buyer must do the
contrary, that is, the buyer must say that it
wishes to purchase the quantities set
forth in Exhibit A hereto (the 'Quantity
Levels') of the products described in
Exhibit A (the 'Products').
This would seem to be the kind of promise (whether or not
the VPA assessed penalties for its breach) that Mr. Carr had
in mind when he testified that GSA "cannot sign up to an
agreement like this."
For another thing, DTI's President testified
(without contradiction) that VPA sales, unlike MAS sales,
involved billing and servicing a single VPA buying source.
In contrast, MAS sales, he said,
meant separate invoices for every
facility. It meant separately answering
questions from every researcher as to
how to use our product, and then
separate manuals going out with each
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product. It was indeed like selling to
hundreds of different customers. In no
way did it have any amalgamation of
saving money or making it a more
efficient sale.
This point, that MAS purchases would not involve economies
of
scale enabling DTI to charge a lower price, is particularly
significant because DTI's MAS sales would involve federal
agency purchases of no more than ten units at a time from
DTI. GSA told all agencies intending to buy larger amounts
not to buy through the MAS program, but rather to negotiate
___
directly with DTI for a better discount.
We do not see how anyone, in the circumstances,
could conclude that providing GSA with filled out forms
instead of a blank form would have added something of
significance to the disclosure.
b. Inaccurate Disclosure. The Government points
_____________________
out that Mr. Carr testified at trial that Ms. Bruce told him
that a VPA buyer qualified for a discount only if the buyer
bought all the VPA items using a single purchase order at a
___ ____
single time. Ms. Bruce strongly denied saying this;
____________
Mr. Carr's contemporaneous notes of the negotiations reflect
no such statement; Mr. Carr did not recall the statement
when he gave a deposition; and the record contains no
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corroborating evidence. Nonetheless, we concede that a
reasonable jury might believe Mr. Carr's trial testimony.
And, in that case, it could believe that Ms. Bruce told Mr.
Carr something that was not true, for the VPA contract
permitted VPA buyers to aggregate different purchases made
___________________
at different times during the year through different
________________ __________________
purchase orders.
_______________
The jury, nonetheless, could not predicate
liability on this belief, for (to return to the contract's
"Defective Pricing Clause") the jury could not reasonably
conclude that Ms. Bruce's alleged statement to Mr. Carr
could have "increased [prices] by" a "significant amount."
Mr. Carr was fully aware that Ms. Bruce was nineteen years
old, was not an expert on company pricing policy, and did
not fully understand the complex forms or documents. At the
same time, he had before him the VPA contract itself, which
quite clearly provides for aggregation of purchase orders
over the period of a year. He had read the DTI catalogue
which distinguishes between "quantity discounts" available
"when placed in a single order," and "other" discounts
_________________________________ _____
available on a "contract basis." And, he must have known
that Ms. Bruce's (alleged) statement made little sense, for
it would have meant that VPA customers had to sign contracts
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to obtain the same discounts that any other customer could
obtain just by placing a large single order. Given these
circumstances, Mr. Carr's negligence in relying upon such a
statement, not the statement itself, would have been the
predominant cause of any resulting higher price. See Atari
___ _____
Corp. v. Ernst & Whinney, 1992 U.S. App. LEXIS 32,243 at *16
_____ _______________
(9th Cir. 1992) (where plaintiff possesses facts showing
representations to be false, reliance unreasonable and
precludes determination that misrepresentations caused
injury); cf. United States v. Lumbermen's Mutual Casualty
___ _____________ ____________________________
Co., 917 F.2d 654, 660-61 (1st Cir. 1990) (reliance on
___
statements unreasonable when party should have known they
were incorrect); Paper Express, Ltd. v. Pfankuch Maschinen,
___________________ ___________________
G.M.B.H., 972 F.2d 753, 757-58 (7th Cir. 1992) (where
________
sophisticated party could read document itself, reliance on
other party's representations concerning document's content
unreasonable). That being so, the jury could not have found
a violation of the "defective pricing" clause, for we do not
read that clause to predicate liability where GSA, rather
than the supplier, is primarily at fault.
For these reasons, we conclude that DTI was
legally entitled to a directed verdict on the Government's
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"defective pricing" clause contract claim. We add that the
district court also directed a verdict in DTI's favor on
various other contract-related claims -- for "unjust
enrichment" and "payment by mistake." We affirm the
verdicts on those counts, for our analysis of the contract
claim precludes a jury verdict for the Government on these
claims as well.
II
The False Claims Act Jury Instruction
_____________________________________
The Government also charged DTI with having
violated the False Claims Act, an act that prohibits a
person from "knowingly present[ing] . . . a false or
fraudulent claim for payment . . . . " 31 U.S.C.
3729(1)(1982), replaced by 31 U.S.C. 3729(a) (1986). In
___________
the Government's view, DTI's failure completely and
accurately to disclose price discount information made all
of its subsequent payment requests "false" and "fraudulent,"
for these requests rested upon an assertion that the
relevant underlying data were accurate and complete. The
jury found in DTI's favor. The Government appeals.
The Government argues at length that the court
improperly instructed the jury about the state of mind
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necessary to support a False Claims Act violation. In the
Government's view, the requisite state of mind includes, not
only 1) a specific intent to deceive, but also 2)
"deliberate ignorance of the truth," and 3) "reckless
disregard of the truth." The Government concedes that these
two last mentioned states of mind made their first legal
appearance when Congress amended the False Claims Act in
1986. See 31 U.S.C. 3729(b). Before that time, the law
___
was as the district court stated it. Yet, says the
Government, Congress intended its new statutory standard to
apply retroactively, to actions that, as here, took place
long before 1986.
The Sixth Circuit has considered this issue at
length. It has concluded that the new standard is not
retroactive. See United States v. Murphy, 937 F.2d 1032,
___ _____________ ______
1038 (6th Cir. 1991) (False Claims Act intent standard does
not apply retroactively since it enlarges scope of
substantive liability under the Act). We find its reasoning
convincing. And, we would follow its holding.
We need not decide the matter definitely, however,
for, given our decision thus far, it is clear that any error
was "harmless." For the reasons set out above, the record
would not support a verdict for the Government, irrespective
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of the instruction on state of mind. The GSA form cannot
reasonably be interpreted to require, in the circumstances,
disclosure of the "Special Price Customer" or "VPA"
information beyond the disclosure DTI actually made. Hence,
DTI's alleged nondisclosure could not have been material to
the price negotiated. See, e.g., United States v. Klein,
___ ____ _____________ _____
230 F. Supp. 426, 432 (W.D.Pa. 1964) (fraud implies the
misrepresentation of a material fact); Turner v. Johnson &
______ _________
Johnson, 809 F.2d 90, 95 (1st Cir. 1986) (materiality
_______
established as an element of common law fraud).
For these reasons, the judgment of the district
court is
Affirmed.
________
NOTE: See Slip Opinion for Appendix.
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Document Info
Docket Number： 92-1496
Filed Date： 12/31/1992
Precedential Status： Precedential
Modified Date： 9/21/2015