Scutellaro v. Capitol Supply, Inc. ( 2017 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
ex. rel. Louis Scutellaro,
Plaintiff, Civil Action No. 10-1094 (BAH)
v. Chief Judge Beryl A. Howell
CAPITOL SUPPLY, INC.,
Defendant.
MEMORANDUM OPINION
The relator, Louis Scutellaro, brings this lawsuit against the defendant, Capitol Supply,
Inc., pursuant to the qui tam provision of the False Claims Act (“FCA”), 31 U.S.C. § 3730(b)(1),
alleging that the defendant falsely certified that the products it sold to federal agencies were
manufactured in compliance with the Trade Agreements Act (“TAA”), 19 U.S.C. §§ 2501 et
seq., and Buy American Act (“BAA”), 41 U.S.C. §§ 8301 et seq., which together require that
products sold to the government come only from designated countries. 1 Rel.’s First Am. Compl.
(“Rel.’s FAC”) ¶¶ 10–20, ECF No. 27. The relator contends that thousands of the products sold
by the defendant to the U.S. government came from non-designated countries. The United States
intervened with respect to Fellowes brand document shredders, pursuant to 31 U.S.C.
1
The BAA prescribes, subject to certain exceptions, that “[o]nly unmanufactured articles, materials, and
supplies that have been mined or produced in the United States, and only manufactured articles, materials, and
supplies that have been manufactured in the United States substantially all from articles, materials, or supplies
mined, produced, or manufactured in the United States, shall be acquired” by a federal agency. 41 U.S.C.
§ 8302(a)(1). The TAA provides that “the President may waive” the requirements of the BAA “with respect to
eligible products of any foreign country or instrumentality designated under subsection (b) of this section.” 19
U.S.C. § 2511(a). These “designated countries” include, inter alia, countries that are party to specified agreements
and that “provide appropriate reciprocal competitive government procurement opportunities to United States
products and suppliers of such products.” Id. § 2511(b)(1); see also 48 C.F.R. § 25.003 (listing designated
countries).
1
§ 3730(b)(4)(A). See generally U.S. First Am. Compl. in Partial Intervention (“U.S. FAC”),
ECF No. 31.
Thus far, this litigation has spanned seven years. The relator filed his initial complaint in
June 2010, see generally Rel.’s Compl., ECF No. 1, and the government subsequently served the
defendant with two subpoenas duces tecum, in 2010 and 2011, to obtain country of origin
(“COO”) information for products sold by the defendant to federal agencies. U.S. Pet. Summ.
Enf. OIG Subpoena (“U.S. Pet.”), Ex. 1, Decl. of Crystal Johnson, Special Agent, OIG (“Johnson
Decl.”) ¶¶ 10, 12, Misc. No. 13-373 (BAH), ECF No. 1-1. The defendant, however, failed to
comply fully with the subpoenas, leading this Court to grant the government’s Petition for
Summary Enforcement of the subpoenas. See generally Order Granting U.S. Pet., No. 13-mc-
373-BAH, ECF No. 17; see also generally United States v. Capitol Supply, Inc. (“Capitol
Supply”), 27 F. Supp. 3d 91 (D.D.C. 2014). When the defendant’s failure to comply with the
subpoenas persisted, the government moved for sanctions, and this Court entered a Conditional
Order of Contempt against the defendant on August 6, 2014. See generally Order Granting in
Part and Denying in Part U.S. Mot. Sanctions (“Civil Contempt Order”), No. 13-mc-373-BAH,
ECF No. 27. Ultimately, the defendant filed a certification conceding that it had retained no
COO information responsive to the subpoenas prior to July 2009 and only incomplete
information thereafter. Def.’s Supp. Cert. at 1, Feb. 27, 2015, ECF No. 72-1. Discovery was
then temporarily stayed for mediation, see Minute Order (dated Aug. 3, 2015), which proved
unsuccessful.
The stay having been lifted, see Minute Order (dated Feb. 8, 2016), the parties have now
filed a total of five motions. First, the relator and the government have each filed a motion for an
adverse inference. See generally Relator’s Mot. Adverse Inference (“Rel.’s Mot. Adv. Inf.”),
2
ECF No. 93; U.S. Mot. Adverse Inference (“U.S. Mot. Adv. Inf.”), ECF No. 95. Second, the
defendant has filed a motion for summary judgment predicated on the public disclosure bar. See
Def.’s Supp. Mot. Summ. J. (“Def.’s MSJ”), ECF No. 92. The relator and the government also
have each moved for summary judgment. U.S. Mot. Summ. J. (“U.S. MSJ”), ECF No. 94; Rel.’s
Mot. Summ. J. (“Rel.’s MSJ”), ECF No. 96. For the reasons set forth below, the motions for
adverse inference are granted, and all three motions for summary judgment are denied.
I. BACKGROUND
Given the longevity of this litigation, the procedural history is described after setting out
the facts pertinent to the pending motions, which facts have also been summarized in a prior
opinion. See Capitol Supply, 27 F. Supp. 3d 91, 93–94 (D.D.C. 2014).
A. Factual History
1. The Defendant’s Business with the Federal Government
The defendant offers for sale to the federal government nearly one million products from
thousands of manufacturers under various Federal Supply Schedule contracts with the General
Services Administration (“GSA”) through the GSA Advantage! website. Def.’s Opp’n U.S. Pet.,
Ex. 1, Decl. of Robert Steinman Supp. Opp’n U.S. Pet. (“Steinman Decl.”) ¶¶ 2–3, Misc. No. 13-
373 (BAH), ECF No. 8-1. 2 The defendant obtained its first contract with GSA in 1985 and, by
1996, the federal government was its primary source of business. Rel.’s SMF ¶¶ 8–9. As of
April 2016, the defendant held eight federal contracts, six of which are GSA contracts. See
Def.’s Omnibus Stmt. Genuine Issues of Material Fact (“Def.’s SMF”) ¶ 9, ECF No. 114.
During the pendency of this litigation, the government has renewed seven of the defendant’s
contracts, and awarded the defendant two new contracts. Id. ¶ 11.
2
Robert Steinman is the President and CEO of the defendant and its predecessor Capitol Furniture
Company. See Rel.’s Stmt. Undisputed Material Facts (“Rel.’s SMF”) ¶ 4, ECF No. 96-3.
3
The defendant entered into one of these contracts with GSA, Multiple Award Schedule
Contract No. GS-02F-0100N, U.S. MSJ, Ex.1A, MAS Contract 0100N, ECF No. 94-3, on
January 6, 2003. The contract, which permits the defendant to advertise and sell certain office
supplies to various federal agencies through the GSA Advantage! website, is governed by
specific regulations and provisions of the Federal Acquisition Regulation (“FAR”). These
regulations require, inter alia, that all vendors selling products to federal agencies retain records
regarding the COO of each of their products. MAS Contract 0100N at 64 (incorporating 48
C.F.R. § 52.225-5); Def.’s Am. Answer ¶ 10, ECF No. 54-1; Johnson Decl. ¶ 8a. Under the
FAR applicable to MAS Contract 0100N, the defendant certifies that each “end product” sold is
TAA compliant. See MAS Contract 0100N at 84–86; Def.’s SMF ¶ 6; see also 48 C.F.R. §
52.225-6(a) (“The offeror certifies that each end product, except those listed in paragraph (b) of
this provision, is a U.S.-made or designated country end product, as defined in the clause of this
solicitation entitled ‘Trade Agreements.’”); 48 C.F.R. § 52.225-5(b) (“The Contractor shall
deliver under this contract only U.S.-made or designated country end products except to the
extent that, in its offer, it specified delivery of other end products in the provision entitled ‘Trade
Agreements Certificate.’”). In its invoices, however, the defendant does not expressly certify the
COO for its products, or, for that matter, compliance with the TAA. Def.’s SMF ¶¶ 19–20.
Under MAS Contract 0100N, the defendant sold a variety of office supplies, including
document shredders manufactured by Fellowes, Inc. (“Fellowes”), to a number of federal
agencies through the GSA Advantage! website. U.S. FAC ¶¶ 8; Def.’s Am. Answer ¶ 8. The
defendant obtained the goods from several suppliers, none of which expressly certified that the
Fellowes document shredders were TAA compliant. See, e.g., U.S. MSJ, Ex. 6, United
Stationers’ Letter of Supply, ECF No. 94-9; id., Ex. 8, Tech Data Terms & Conditions of Sale,
4
ECF No. 94-11; id., Ex. 7, Ingram Micro Letter of Supply and accompanying Fellowes Letter of
Supply (“Ingram Micro Letter of Supply”), ECF No. 94-10. 3
2. The Defendant’s Tracking of COO Data
According to the defendant, its “computer system and management of COO information
has significantly evolved over time.” Def.’s SMF ¶ 21. When the defendant entered the office-
products business in 2003, its only supplier was United Stationers. Id. ¶ 23. The original price
list was compiled in a spreadsheet and a “rudimentary database in Microsoft Access was
developed.” Id. ¶ 24. United Stationers provided the defendant with COO data “approximately
four times per year,” and, accordingly, the defendant manually updated its COO information on a
quarterly basis in the Microsoft Access database. Id. ¶¶ 25, 29.
Sometime in 2005 or 2006, over the course of more than one year, the defendant
migrated its COO files from Microsoft Access to a more automated system housed on an “SQL
Server.” Id. ¶ 30. In order to track the COO of products offered for sale, suppliers transmitted
the COO “data feeds” to the SQL server directly. Rel.’s MSJ, Ex. 4, Dep. of Stuart Fox (“Fox
Dep.”) at 38–40, ECF No. 96-8. 4 The vendors had different “update schedules,” and some
information was updated “daily, some weekly, some monthly, some quarterly, and some only
when [the vendor] sent [the defendant] new pricing.” Def.’s SMF ¶ 31. According to the
defendant, if a product was TAA non-compliant, the system was designed to prevent that product
from being either advertised or sold through the GSA Advantage! website. Fox Dep. at 141:14–
3
For example, United Stationers explained that it was a “wholesale distributor” and “does not manufacture
the products it sells,” and thus, while it “asks each of its suppliers to verify the Country of Origin Information,” it
“cannot independently verify the Country of Origin information provided by its suppliers and accordingly does not
warrant its accuracy.” United Stationers’ Letter of Supply, Attachment A. Ingram Micro also made no independent
promise that its products were TAA compliant, indicating only that Fellowes products may be compliant if ordered
from the Fellowes’ GSA Product/Pricelist, which was periodically updated by Fellowes. See Ingram Micro Letter of
Supply.
4
Stuart Fox’s firm was hired by the defendant to assist with IT matters. See id. at 18:3–19:11.
5
142:5; see also Def.’s SMF ¶ 33 (“When non-compliant COO information was detected (whether
from a manufacture [sic], vendor, or the GSA itself), Capitol would seek a contract modification
to have the product removed from the schedule and the GSA website.”). The defendant later
asserts, however, that under this system, “even though a product with non-compliant COO
information may be listed for sale on the GSA website, if/when the product is ordered through
the GSA website, Capitol’s internal system will not process the sale because such products are
identified as unavailable.” Def.’s SMF ¶ 37. Given the differing descriptions of the defendant’s
handling of non-compliant products, the record is unclear whether the company’s system
actually prevents non-compliant products from being listed for sale on the GSA Advantage!
website or from being sold.
Before June or July 2009, the historical COO data for the products offered for sale by the
defendant under its GSA contracts was not retained in the system. Def.’s Supp. Cert. at 1; see
also Steinman Decl. ¶ 6. Instead, it was overwritten as new data came in from each of the
defendant’s suppliers. Def.’s Supp. Cert. at 1; see also Steinman Decl. ¶ 6; Fox Dep. at 51–55.
From July 2009 to November 2010, the defendant transitioned to a new system whereby COO
information was “tracked by vendor and a history of what a vendor indicated was the COO was
preserved on each update.” Def.’s SMF ¶ 35. Although the defendant explains that this
transition was prompted because it learned that suppliers often had “conflicting COO
information,” id. ¶ 34, the defendant’s IT contractor, Stuart Fox, testified that the defendant
began retaining COO information in response to the September 2010 subpoena “just to be safe,”
Fox Dep. at 53:13–55:20. 5 Thereafter, in December 2010, the defendant created a “country of
5
Under questioning by the relator’s counsel, Mr. Fox later testified that he was not “100 percent sure that it
was the subpoenas that triggered” the tracking of COO information because some COO information was retained
before the 2010 subpoena “[s]o, there might be some other event that happened.” Fox Dep. at 56:4–9.
6
origin history table” that preserved COO information from the “data feeds” received from its
suppliers. Id. at 69:17–72:16; see also Steinman Decl. ¶ 6. The defendant does not explain why
it waited until 2009 to retain COO data when GSA began notifying the defendant about issues
with the company listing non-compliant products on the GSA Advantage! website as early as
2005. See infra Part I.A.4.
3. GSA Contractor Assistance Visits
Pursuant to the defendant’s contracts, Industrial Operations Analysts (“IOAs”) from the
GSA conduct regularly scheduled “Contractor Assistance Visits” (“CAVs”). Def.’s SMF ¶ 42.
According to the GSA, “a CAV serves several purposes: to clarify the terms and conditions of
the subject contract; to assist with contractor questions and concerns; to identify potential
problems; to gather contractor performance data; and to verify processes including the
contractor’s sales tracking system, trade agreements, and other key contract requirements.” Id.
¶ 44 (citing id., Ex.3, GSA’s New Contractor Orientation PowerPoint dated August 2012 (“GSA
PowerPoint”) at 11, ECF No. 114-3). Following a CAV, a “Report Card” is issued to the
contractor based on observations made during the visit. See GSA PowerPoint at 13. The GSA
explains that a Report Card is a “‘snap-shot’ in time of [the contractor’s] Multiple Award
Schedule contract after a [CAV]” and “deals directly with performance against some of the main
MAS Terms and Conditions.” Id. at 14.
Tom Brady, the GSA Director of the Supply Management Division, testified that “[i]n
part, the CAV visit evaluates record retention practices.” Dep. of Tom Brady (“Brady Dep.”) at
72:12–14, ECF No. 102. Mr. Brady stated that “maintenance of COO information [is] a key
contract requirement.” Id. at 73:20–22. IOAs who conducted CAVs of the defendant were
advised that the defendant did not retain historical COO information for every product, at least
7
until approximately 2009 or 2010. Def.’s SMF ¶ 57. For every Report Card in the record,
ranging in date from 2007 through 2014, one IOA, Wendy Springer, who worked in the Atlanta
Regional Office, was the “assigned IOA.” See generally Def.’s Opp’n U.S. & Rel.’s MSJs,
Composite Ex. 2, GSA Report Cards, ECF No. 113-2; see also Dep. of Wendy Springer, Vol. I
(“Springer Dep. I”) at 6:12, ECF No. 103. 6 Ms. Springer, who never gave the defendant a
critical mark for its COO tracking, testified that she “didn’t see anything wrong with their
process or their understanding of the Trade Agreements Act.” Springer Dep. I at 67:2–6. Ms.
Springer also testified that she could not recall having informed the defendant “that it would be
violating any law by failing to retain contemporaneous COO records.” Id. at 106:1–12. Further,
in one of her CAV reports, dated September 26, 2007, Ms. Springer stated that the defendant
“demonstrate[d] compliance with the Trade Agreements Act” and “maintains a database of all
products with a listing of country of origin to ensure all products offered are TAA compliant.”
Def.’s SMF, Ex. 4, CAV Report dated Sept. 26, 2007 at 1–2, ECF No. 114-4. The IOAs’ review
of documentation and processes was, however, limited. Ms. Springer explained that the
defendant controlled the scope of the CAVs by selecting three small samples of data, such as “a
letter of supply or just any document that shows that they have some sort of documents that are
source documents,” that Ms. Springer would review. Springer Dep. I at 58:8–60:2.
4. GSA Notices of TAA Violations
While the IOAs in the Regional Office were issuing the defendant favorable reviews,
back at the GSA’s New York City offices, Michelle Williams, the GSA Trade Agreements Act
and GSA Advantage! Coordinator, was regularly notifying the defendant via email that certain
TAA non-compliant products were being offered for sale by the defendant on the GSA
6
For report cards in the record prior to January 2010, the visit was conducted by Christopher George, though
Ms. Springer was still the assigned IOA for those report cards. See id. at 1–30.
8
Advantage! website. See, e.g., U.S. MSJ, Ex. 4A at 1, ECF No. 94-7. On September 21, 2005,
for example, Ms. Williams informed the defendant that over 400 Chinese-made goods were
being offered for sale by the defendant on the website, in breach of the TAA and MAS Contract
0100N. Id., Ex. 4A at 1–10. China is not included on the list of designated countries under the
TAA. See 48 C.F.R. § 25.003 (listing designated countries). Among the 400 products were 45
office products manufactured by Fellowes, including document shredders. See U.S. MSJ, Ex.
4A at 1–10. Mr. Steinman acknowledged the email and pledged to remove the defendant’s TAA
non-compliant products from the GSA Advantage! website within two weeks. See generally
Rel.’s MSJ, Ex. 16, ECF No. 96-20.
Later the same month, however, on September 29, 2005, Ms. Williams again notified the
defendant that the U.S. Army had complained that hundreds of Chinese-made products were
offered for sale by the defendant on the GSA Advantage! website, as well as a Department of
Defense website. See U.S. MSJ, Ex. 4B, ECF No. 94-7. Among these products were twenty-one
office products made by Fellowes, including document shredders. See id. at 1–6. Ms. Williams
sent at least fifteen additional notices of possible TAA violations between 2006 and 2012 on the
following dates: April 21, 2006; August 22, 2006; November 5, 2007; March 16, 2009; April 13,
2009; July 2, 2009; August 24, 2009; October 15, 2009; August 3, 2010; November 15, 2010;
April 11, 2011; April 19, 2011; January 9, 2012; June 8, 2012; and February 13, 2012. Id., Exs.
4C–4Q, ECF No. 94-7.
In an April 2006 notice, Ms. Williams informed the defendant that it needed to “conduct
a self-assessment of the current processes, procedures and/or systems . . . in place to monitor the
country of origin for all products offered under [its] Schedule contract.” Id., Ex. 4C; see also id.,
Ex. 4D–4Q. Further, Ms. Williams stressed that “compliance with the Trade Agreements Act is
9
a serious issue” and warned the defendant that the Department of Justice “has been proactive in
conducting investigations, and a number of settlements have already been reached under the qui
tam provision of the False Claims Act.” Id., Ex. 4C at 1–2.
Despite over a dozen notices during a six year period, the defendant continued to offer
TAA non-compliant products for sale on the GSA Advantage! website. Consequently, on
September 14, 2011, the defendant received a “Cure Notification Letter” from Edward Lew, a
Senior Contracting Officer with GSA Federal Acquisition Services, due to the defendant’s
“continued contract violations,” citing in particular “non-TAA items listed on [the defendant’s]
schedule.” Id., Ex. 5, Cure Notification Letter ¶ 4, ECF No. 94-8. The letter informed the
defendant that until the violations were rectified, it would not be permitted to offer any products
for sale on the GSA Advantage! website. On September 22, 2011, however, Mr. Lew informed
the defendant that the GSA had determined that the defendant’s cure plan “met the necessary
requirements set forth in the cure letter.” Id., Ex. 10 at 2, ECF No. 94-13. The record is unclear
what the defendant included in the “cure plan” to show that “necessary requirements” were met.
Mr. Lew expected that the GSA Advantage! website and the DOD website would “be fully
operational” for the defendant “some time [the next day].” Id. The defendant, however, was
apparently dissatisfied with this result, as it responded to Mr. Lew’s notification by declaring that
“GSA should make best efforts to restore [the defendant] to all purchasing channels” that same
day “to mitigate the harm the GSA ha[d] arbitrarily, capriciously and needlessly imposed on
Capitol Supply.” Id. at 1. Moreover, one of the defendant’s attorneys notified Mr. Lew that she
was sharing Mr. Lew’s notification with the defendant’s lobbying firm, which would “in turn,
share [Mr. Lew’s] response with Members of Congress including those who have appropriations
authority over” the GSA. Id. Later that day, the defendant’s lobbyist wrote to Mr. Lew that
10
“Congressional oversight [was] now reviewing [GSA’s] progress and contracting methodology.”
Id., Ex. 11 at 1, ECF No. 94-14.
5. The Relator’s and the Government’s Damages Analyses
The damages calculations performed by the relator’s and the government’s experts are
not the most accessible, in part because the plaintiffs had to cull sales and COO data from
disparate sources given the defendant’s deficient recordkeeping procedures for many years. The
relator retained Dr. Dwight Steward, an economist and statistician, to calculate damages based
on sales and COO data. See Rel.’s SMF ¶ 114. In performing his calculations, Dr. Steward
relied upon sales and COO data supplied by the GSA, the defendant, and the defendant’s
suppliers. 7 Id. ¶¶ 117, 130, 139, 150.
Dr. Steward’s damages calculation proceeded in four stages. See Decl. of Dr. Steward,
PhD (“Steward Decl.”) ¶ 3, ECF No. 96-52 (“I was asked to break down the analysis into four
stages based on the information used in each stage.”). In the first stage, Dr. Steward relied on
sales and COO data provided by suppliers as well as sales data provided by the defendant. Id.
¶ 4. In stages two and three, Dr. Steward relied upon GSA sales data and COO data provided by
the defendant. Id. ¶¶ 13, 20. Stage four utilized GSA sales data supplied by the defendant and
COO data provided by the defendant’s vendors. Id. ¶ 29. Dr. Steward performed an “overlap
analysis” to ensure that “sales of products were not double-counted by being included in multiple
stages of the calculations.” Id. ¶ 38. “The total number and value of the TAA non-compliant
7
In 2014 and 2015, both the relator and the government issued subpoenas to the defendant’s suppliers to
gather information, including COO data. The relator sent nine subpoenas to the defendant’s suppliers: Cisco, D&H
Distributing, Hewlett Packard, Ingram Micro, SP Richards, Tech Data, Trimega Purchasing Association, Synnex,
and United Stationers. Def.’s MSJ, Ex. 6, Rel.’s Supp. Resps. Def.’s First Interrogatories, at 8, ECF No. 92-6.
11
sales for all four stages were calculated by adding the totals for all four stages and subtracting the
overlaps.” Id. ¶ 40.
Dr. Steward’s report contains “four possible single damages amounts” depending on how
the calculations were performed, id. ¶ 41:
1. 21,860 TAA non-compliant sales worth $4,223,734.00
2. 24,245 TAA non-compliant sales worth $4,788,156.06
3. 22,471 TAA non-compliant sales worth $4,271,335.00
4. 24,808 TAA non-compliant sales worth $4,834,716.06
Dr. Steward suggests that his stage one damages calculation is probably “most accurate” because
the underlying data was obtained via subpoenas to the defendant’s suppliers, and the subpoenas
“limit themselves to GSA sales,” and because the defendant’s own sales files “regularly did not
include original manufacturer identification numbers needed to match [the defendant’s] sales
files to vendor supplied COO files.” Id. ¶ 5.
For its part, the government retained Richard P. Kozlow, an accountant, auditor, risk
management professional, and consultant on financial and operational control. U.S. MSJ, Ex.
12, Richard P. Kozlow Expert Report (“Kozlow Rep.”) ¶ 1, ECF No. 94-15. Mr. Kozlow relied
on sales data provided by the defendant and COO information provided by the defendant,
Fellowes, and the defendant’s suppliers (United Stationers and Ingram Micro). Id. ¶ 4. In
performing his calculations, Mr. Kozlow “followed the relevant elements of” the International
Standards for the Professional Practice of Internal Auditing and Generally Accepted Audit
Standards. Id. Mr. Kozlow opines that, from December 24, 2003, through December 5, 2011,
the defendant sold to the government 827 Fellowes shredders worth $579,919.65. Id. ¶ 7. Of
these sales, Mr. Kozlow concluded that 588 (or 71.1%) of those shredders, worth $183,709.92
12
(or 31.7%) were manufactured in China. Id. Mr. Kozlow reported that he was unable to
determine the COO of 65 Fellowes shredder sales, totaling $62,824.51, because “Capitol Supply
failed to include accurate information on model numbers that could be related back to Fellowes,
Inc. product listings.” Id. ¶ 9.
Mr. Kozlow revised his initial report because he had originally duplicated 81 items. Dep.
of Richard P. Kozlow at 52:4–16, ECF No. 110. Further, Mr. Kozlow explained that his analysis
for identifying COO information “was not an exact science” because “[t]he vendor line items file
had a variety of different descriptions for the same product. . . . It was also not consistent in
listing model numbers. Sometimes model numbers were included in the description line;
sometimes they were not. Sometimes model numbers showed in the model number column;
very often they did not.” Id. at 66:8–67:1.
Since the government seeks treble damages, the government concludes that the gross
total for damages under the FCA, for just the Fellowes document shredders, is $551,129.76.
U.S. MSJ at 14. The government assumes “that the value of the Chinese-made shredders was the
price paid by the United States in each transaction” and, thus, $183,709.92 may be subtracted
from the trebled damages, resulting in a total damages award of $367,419.84. Id. The
government also asks for an award of “civil penalties in the amount of $10,000 for each false
claim or certification, totaling $5.88 million.” Id.
The defendant takes issue with Dr. Steward’s and Mr. Kozlow’s damages analyses. See
Def.’s SMF ¶¶ 110, 113–57; Def.’s Opp’n U.S. & Rel.’s MSJs at 13–24.
13
B. Procedural History
1. Relator’s Complaint
The relator’s original complaint, filed on behalf of the United States against the
defendant, pursuant to the qui tam provisions of the FCA, 31 U.S.C. § 3730(b), alleges that the
defendant was “selling products to the United States Government that did not originate in
designated countries under the Trade Agreements Act, and therefore . . . present[ed] false claims
to the United States Government for payment,” Rel.’s Compl. ¶ 5, ECF No. 1. Specifically, the
complaint alleges that the defendant “falsely claimed that Fellowes Manufacturing Company’s
paper shredders,” which were offered for sale through Capitol’s Federal Supply Schedule
contracts, “were made in the United States, whereas, in truth and in fact, they were manufactured
in China.” Id. ¶ 16. The complaint also alleges that the defendant “falsely market[s] numerous
other products . . . as being manufactured in the United States when they are not, including, but
not limited to: light bulbs (incandescent, fluorescent, halogen, sodium, etc.), light fixtures
(indoor and outdoor), thermostats, televisions, computer monitors, computer back up power
supplies, electric heaters, exhaust fans, batteries, ballasts for fluorescent fixtures, vacuum
cleaners, clocks and timers. Most, if not all, of the products are made in China or Mexico.” Id.
¶ 20.
2. The Government’s Investigation and Intervention
After receiving the relator’s qui tam complaint, the GSA’s Office of Inspector General
(“OIG”) initiated an investigation into the alleged FCA violations. See Johnson Decl. ¶ 9. On
November 4, 2010, OIG “served the first of two subpoenas duces tecum upon Capitol Supply
requesting all product, sales and country of origin information for Fellowes brand shredders sold
pursuant to all GSA schedule contracts from January 2004 through the date of the subpoena.”
14
See U.S. Pet. ¶ 5(a), Misc. No. 13-373 (BAH), ECF No. 1. 8 A second subpoena was issued in
June 2011 “requesting all information on Multiple Award Schedule Contract No. GS-02F-
0100N, including all sales and country of origin information for all products sold during the
period of January 1, 2004 through the date of the subpoena.” Id. ¶ 5(b). The government
intervened only with respect to Fellowes document shredders, allegedly made in China. U.S.
FAC ¶¶ 11–12.
Meanwhile, unsatisfied with the defendant’s document production in response to the two
subpoenas, the government filed a Petition for Summary Enforcement of Inspector General
Subpoena on April 16, 2013, which was granted and the defendant directed to comply with the
subpoenas. See generally Order Granting U.S. Pet., Misc. No. 13-373 (BAH), ECF No. 17; see
also generally Capitol Supply, 27 F. Supp. 3d 91 (rejecting the defendant’s argument that further
compliance with the subpoenas would be unreasonable because (1) the defendant had already
produced voluminous documents and further production would be an undue burden; (2) the
defendant had produced documents in the format in which the documents are received and had
no obligation to convert records into any other format requested by the OIG; and (3) the
defendant had no obligation to produce records already in the government’s possession).
Notwithstanding the Court’s pellucid instruction, the defendant continued to drag its feet in
producing the information sought in the subpoenas, prompting the government to move for
sanctions in July 2014. See generally Pet.’s Mot. Sanctions, Misc. No. 13-373 (BAH), ECF No.
20. After another hearing, the Court entered a Conditional Order of Contempt against the
defendant on August 6, 2014, giving the defendant until September 2, 2014, to comply with the
Court’s previous Order. See Civil Contempt Order.
8
The GSA OIG is empowered to issue subpoenas in connection with investigations of fraud and abuse in
GSA programs pursuant to the Inspector General Act of 1978, 5 U.S.C. § 6(a)(4).
15
The defendant filed a Notice of Compliance with Court Orders on September 2, 2014,
certifying that it had “produced to the Plaintiffs via e-mail credentials to a FTP site containing
the documents being produced.” Def.’s Notice of Compliance with Court Order at 1, Misc. No.
13-373 (BAH), ECF No. 28. Six months later, the defendant filed a Supplemental Certification
in the instant case, which finally disclosed that “Capitol does not have any information on the
Country of Origin for any sale prior to June 2009. From July 2009 through November 2010,
Capitol’s information in its computer database on the Country of Origin for sales are incomplete.
From December 2010 through the present day, Capitol’s computer database has the majority of
information it received from manufacturer or vendor Country of Origin data feeds.” Def.’s
Supp. Cert. at 1. Furthermore, the Supplemental Certification indicated that “Capitol does not
have any e-mail correspondence prior to the approximate date of July, 2011.” Id.
3. The Defendant’s Motion to Dismiss
Following the government’s intervention, the defendant filed motions to dismiss the
relator’s First Amended Complaint and the government’s Complaint in Partial Intervention. See
Def.’s Mot. Dismiss Rel.’s FAC, ECF No. 35; Def.’s Mot. Dismiss U.S. FAC, ECF No. 36. On
March 18, 2014, this Court held a motions hearing and granted the defendant’s motion “with
respect to [the relator’s] claims that are identical to those raised in the” government’s First
Amended Complaint, but denied the motion in all other respects. Minute Entry (dated March 18,
2014). Further, the Court dismissed the common law claims raised in the government’s First
Amended Complaint under Counts III and IV, leaving only the FCA claims under Counts I and
II. Id.; see also U.S. FAC ¶¶ 15–26.
16
4. The Parties’ Ensuing Discovery
Thereafter, the parties engaged in additional discovery, calling upon the Court to rule on
various discovery-related issues, see, e.g., Minute Order (dated May 28, 2015) (denying as moot
the defendant’s Motion to Compel Responsive Documents, and granting the relator leave to take
an additional Rule 30(b)(6) deposition); Minute Order (dated July 22, 2015) (scheduling a
telephonic hearing to address a discovery dispute), and to allow an extension of time for
completing discovery, see Minute Order (dated June 1, 2015). On August 3, 2015, the Court
granted the parties’ Joint Motion to Stay Discovery and Refer the Matter for Mediation and
stayed this action pending mediation. See Minute Order (dated Aug. 3, 2015). When mediation
proved unsuccessful, the Court lifted the stay and the parties were granted yet another extension
of time for completing discovery. See Minute Order (dated Feb. 8, 2016).
The parties’ respective motions for summary judgment are now ripe for review. Also
pending before the Court are two motions for adverse inference, one by the relator and one by
the government.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 56 provides that summary judgment shall be granted “if
the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). The moving party bears the
burden of demonstrating the “absence of a genuine issue of material fact” in dispute, Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986), while the nonmoving party must present specific
facts supported by materials in the record that would be admissible at trial and that could enable
a reasonable jury to find in its favor, see Anderson v. Liberty Lobby, Inc. (“Liberty Lobby”), 477
U.S. 242, 256 (1986); Allen v. Johnson, 795 F.3d 34, 38 (D.C. Cir. 2015) (noting that, on
17
summary judgment, the appropriate inquiry is “whether, on the evidence so viewed, a reasonable
jury could return a verdict for the nonmoving party” (internal quotation marks omitted)); see
also FED. R. CIV. P. 56(c), (e)(2)–(3). When parties file cross-motions for summary judgment,
each motion is viewed separately, in the light most favorable to the non-moving party, with the
court determining, for each side, whether the Rule 56 standard has been met. See McKenzie v.
Sawyer, 684 F.2d 62, 68 n.3 (D.C. Cir. 1982) (“The rule governing cross-motions for summary
judgment . . . is that neither party waives the right to a full trial on the merits by filing its own
motion; each side concedes that no material facts are at issue only for the purposes of its own
motion.”) (citing 10A CHARLES ALAN WRIGHT ET AL., FEDERAL P RACTICE AND P ROCEDURE
§ 2720 (1973)); see also Fox v. Transam Leasing, Inc., 839 F.3d 1209, 1213 (10th Cir. 2016)
(“Where, as here, we are presented with cross-motions for summary judgment, we must view
each motion separately, in the light most favorable to the non-moving party, and draw all
reasonable inferences in that party’s favor.” (internal quotation marks omitted)); Pac. Indem. Co.
v. Deming, 828 F.3d 19, 23 (1st Cir. 2016) (same).
“Evaluating whether evidence offered at summary judgment is sufficient to send a case
to the jury is as much art as science.” Estate of Parsons v. Palestinian Auth., 651 F.3d 118, 123
(D.C. Cir. 2011). This evaluation is guided by the related principles that “courts may not resolve
genuine disputes of fact in favor of the party seeking summary judgment,” Tolan v. Cotton, 134
S. Ct. 1861, 1866 (2014) (per curiam), and “[t]he evidence of the nonmovant is to be believed,
and all justifiable inferences are to be drawn in his favor,” id. at 1863 (quoting Liberty Lobby,
477 U.S. at 255 (alteration in original)). Courts must avoid making “credibility determinations
or weigh[ing] the evidence,” since “[c]redibility determinations, the weighing of the evidence,
and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.”
18
Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150 (2000) (quoting Liberty Lobby,
477 U.S. at 255); see also Burley v. Nat’l Passenger Rail Corp., 801 F.3d 290, 295–96 (D.C. Cir.
2015). In addition, for a factual dispute to be “genuine,” the nonmoving party must establish
more than “[t]he mere existence of a scintilla of evidence in support of [its] position,” Liberty
Lobby, 477 U.S. at 252, and cannot rely on “mere allegations” or conclusory statements, Equal
Rights Ctr. v. Post Props, Inc., 633 F.3d 1136, 1141 n.3 (D.C. Cir. 2011); Veitch v. England, 471
F.3d 124, 134 (D.C. Cir. 2006); Greene v. Dalton, 164 F.3d 671, 675 (D.C. Cir. 1999); Harding
v. Gray, 9 F.3d 150, 154 (D.C. Cir. 1993); accord FED. R. CIV. P. 56(e). If “opposing parties tell
two different stories, one of which is blatantly contradicted by the record, so that no reasonable
jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a
motion for summary judgment.” Lash v. Lemke, 786 F.3d 1, 6 (D.C. Cir. 2015) (quoting Scott v.
Harris, 550 U.S. 372, 380 (2007)). The Court is required to consider only the materials
explicitly cited by the parties, but may on its own accord consider “other materials in the record.”
FED. R. CIV. P. 56(c)(3).
III. DISCUSSION
Two of the five pending motions ask this Court to draw an adverse inference from the
defendant’s failure to keep historical COO information from 2003 through 2010, and the
remaining three motions are cross-motions for summary judgment. The two motions for adverse
inference are addressed first, before turning to the cross-motions for summary judgment.
A. Motions for Adverse Inference
The relator and the government contend that this Court should draw an adverse inference
because the defendant failed to preserve case-dispositive COO evidence for the products it sold
on the GSA Advantage! website, in contravention of applicable regulations, see 48 C.F.R.
19
§§ 552.215-70, 71,9 and the defendant’s contract with the GSA. See Rel.’s Mem. Supp. Mot.
Adv. Inf. at 2–3, ECF No. 93-1 (“Put simply, the Regulations required Capitol to retain its
country of origin records. . . . Capitol was [also] required to retain all contract documents
pursuant to the examination of records clause. Capitol flouted its clear obligation to preserve the
COO data [by, inter alia,] actively overwr[iting] the information after only a fleeting
preservation period.”); U.S. Mem. Supp. Mot. Adv. Inf, at 6, ECF No. 95 (same); see also
Capitol Supply, 27 F. Supp. 3d at 103 (“By choosing to be part of the federal contracting
program, [the defendant] assumed the burden of maintaining country of origin status
documentation for all of their products.”). The relator and the government urge the Court to
exercise its inherent power to draw the adverse inference that, for all products for which COO is
unknown because the defendant failed to retain that information, the COO is non-designated. To
be precise, the relator seeks an adverse inference with respect to “250,197 transactions
represent[ing] $223,378,917.40 in sales to the Federal government, or 75.4% of Capitol’s sales
under its GSA contracts.” Rel.’s Mem. Supp. Mot. Adv. Inf. at 5. The government requests an
adverse inference as to “$62,824.51 worth of Fellowes document shredders sold by Capitol
Supply to Federal agencies.” U.S. Mem. Supp. Mot. Adv. Inf. at 12.
The defendant does not dispute that all of its COO data for products sold prior to July
2009, and some of this data for products sold thereafter, has been overwritten or is otherwise not
available from the defendant. Instead, the defendant argues that this Court’s power to impose
9
In particular, applicable regulations require that any “Contractor agrees that the Administrator of General
Services or any duly authorized representatives shall, until the expiration of 3 years after final payment under [a]
contract, or of the time periods for the particular records specified in Subpart 4.7 of the Federal Acquisition
Regulation (48 CFR 4.7), whichever expires earlier, have access to . . . records of the Contractor involving
transactions related to this contract or compliance with any clauses thereunder.” 48 C.F.R. § 552.215-70 (emphasis
added). As this Court has already held, “[the defendant’s] admitted over-writing of information required to be
retained under its contractual obligations with the government is not so easily excused. Rather, [the defendant] will
have to bear the consequences of failing to fulfill these obligations.” Capitol Supply, 27 F. Supp. 3d at 103.
20
sanctions predicated on spoliation of electronically stored information derives solely from
Federal Rule of Civil Procedure 37(e)—i.e., the Court has no authority to act pursuant to its
inherent powers—and the relator and the government have not met the rigors of the newly
amended Rule 37(e). See Def.’s Opp’n U.S. & Rel.’s Mots. Adv. Inf. at 2, ECF No. 112 (“Rule
37(e) is applicable to and governs this case, and before an adverse inference instruction is given,
Plaintiffs must satisfy the heightened burden associated with obtaining an adverse inference
ruling under Rule 37(e).”); see also id. at 15–30. Thus, the threshold question is whether Rule
37(e) “is applicable to and governs this case,” as the defendant contends. 10
Rule 37(e) applies when “electronically stored information [] should have been preserved
in the anticipation or conduct of litigation.” The commentary to the amended Rule emphasizes
this point, explaining that “[t]he new rule applies only if the lost information should have been
preserved in the anticipation or conduct of litigation and the party failed to take reasonable steps
to preserve it.” FED. R. CIV. P. 37(e) 2015 advisory committee’s note. The commentary further
notes that “Rule 37(e) is based on th[e] common-law duty” to “preserve relevant information
when litigation is reasonably foreseeable.” Id. Especially relevant is the commentary’s explicit
statement that courts should be cognizant of any “independent requirement that the lost
information be preserved,” which requirement may “arise from many sources,” including, inter
10
Rule 37(e), as amended, provides:
(e) Failure to Preserve Electronically Stored Information. If electronically stored
information that should have been preserved in the anticipation or conduct of litigation is
lost because a party failed to take reasonable steps to preserve it, and it cannot be restored
or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order
measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of
the information’s use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was
unfavorable to the party; or
(C) dismiss the action or enter a default judgment.
21
alia, “administrative regulations.” Id. Here, the plaintiffs do not claim that the missing COO
information was spoliated “in the anticipation or conduct of litigation,” but rather that the
spoliation was in violation of the defendant’s regulatory and contractual obligations. 11 See, e.g.,
Rel.’s Reply Supp. Mot. Adv. Inf. at 3, ECF No. 125. Accordingly, by its express terms, Rule
37(e) does not govern the instant spoliation motions, and the Court must decide whether an
adverse inference is proper pursuant to its inherent authority. See, e.g., DVComm, LLC v.
Hotwire Commc’ns, LLC, No. CV 14-5543, 2016 WL 6246824, at *7 (E.D. Pa. Feb. 3, 2016)
(“Without limitation, litigation misconduct may also be otherwise sanctioned by the inherent
power of the court. This court is vested with broad discretion to fashion an appropriate sanction
pursuant to its inherent powers to sanction and redress litigation abuse. . . . As we find
substantial evidence DVComm destroyed ESI under Rule 37(e)(2), we do not examine our
ability to impose additional non-monetary sanctions under our inherent power.”); CAT3, LLC v.
Black Lineage, Inc., 164 F. Supp. 3d 488, 497 (S.D.N.Y. 2016) (“If . . . Rule 37(e) were
construed not to apply to the facts here, I could nevertheless exercise inherent authority to
remedy spoliation under the circumstances presented.”). As the Supreme Court recently made
clear, “[f]ederal courts possess certain ‘inherent powers,’ not conferred by rule or statute, to
manage their own affairs so as to achieve the orderly and expeditious disposition of cases,”
which “authority includes the ability to fashion an appropriate sanction for conduct which abuses
the judicial process.” Goodyear Tire & Rubber Co. v. Haeger, ___ S. Ct. ___, 2017 WL
1377379, *5 (Apr. 18, 2017) (internal quotation marks and citations omitted).
11
At some point between the contract’s inception and 2010, the defendant was likely on notice that litigation
was possible, given repeated communications from GSA indicating that some of the products the defendant had
listed on the GSA Advantage! website failed to comply with the TAA and the BAA and that False Claims Act
settlements had been reached with other similar offenders. The main thrust of the plaintiffs’ adverse inference
motions, however, is not that records were destroyed in anticipation of litigation but rather in violation of regulatory
and contractual obligations.
22
The D.C. Circuit’s opinion in Talavera v. Shah, 638 F.3d 303 (D.C. Cir. 2011), is
instructive. In that case, the plaintiff brought various Title VII claims, alleging gender
discrimination and retaliation, against her former employer, the United States Agency for
International Development (“USAID”). See id. at 306. The agency defended against the
plaintiff’s non-promotion claim by arguing that the male selectee performed better during his
interview than the plaintiff. See id. at 308–09. Although the interviews occurred in June 2004
and Office of Personnel Management (“OPM”) regulations required preservation of promotion
materials to be preserved for two years, and Equal Employment Opportunity Commission
(“EEOC”) regulations required retention for one year, the interviewer destroyed his interview
notes in August or September 2004, approximately two months after the interviews had
occurred. Id. at 307. The district court concluded that, “in the absence of evidence of bad faith,
[the plaintiff] was entitled to only a ‘weak adverse inference’ relating to the destruction of the
notes because the destruction was ‘at worst negligent’ and not intentional.” Id. at 311. The D.C.
Circuit rejected this reasoning and held that based on all the evidence, including the
interviewer’s failure to preserve his interview notes, in violation of applicable regulations, a jury
could have concluded that USAID’s rationale for the plaintiff’s non-promotion was pretextual.
Id. at 313; accord Lattimore v. Citibank Fed. Savs. Bank, 151 F.3d 712, 716 (7th Cir. 1998)
(“The violation of a record[-]retention regulation creates a presumption that the missing record
contained evidence adverse to the violator.” (citing Hicks v. Gates Rubber Co., 833 F.2d 1406,
1418–19 (10th Cir. 1987); Favors v. Fisher, 13 F.3d 1235, 1239 (8th Cir. 1994))); Lab. Corp. of
Am. v. United States, 108 Fed. Cl. 549, 557–60 (Fed. Cl. 2012) (imposing sanctions pursuant to
the Court’s inherent authority in part because applicable regulations required the GSA to retain
certain procurement documentation that the GSA had failed to preserve). In so holding, the
23
Court noted three key factors: (1) the interviewer had admitted that his destruction of his notes
“was not accidental,” (2) the plaintiff “is a member of the classes sought to be protected” by the
relevant OPM and EEOC regulations, and (3) “[t]he destroyed records were relevant to [the
plaintiff’s] challenge” and, indeed, “represented [the plaintiff’s] best chance to present direct
evidence that [the interviewer’s] proffered reason for the selection was pretextual.” Id. at 312.
Likewise here, the defendant does not argue that COO information was overwritten
unknowingly or accidentally. 12 This was simply the defendant’s practice for many years,
notwithstanding its clear regulatory and contractual obligations to retain such information for
specified periods. Also as in Talavera, the plaintiffs here—the U.S. government, and the relator,
standing in the shoes of the government—are plainly within the “classes sought to be protected”
by the regulations, which are intended to allow the government to track COO information to
ensure compliance with applicable laws. Finally, there is no question that the spoliated COO
information would constitute direct proof or disproof of the falsity of claims made to the
government. Accordingly, as in Talavera, the relator and the government here are entitled to an
adverse inference that the unavailable COO information would show that the relevant products
came from non-designated countries, and their motions are granted. The particular form that the
adverse inference will take at trial must be addressed in forthcoming pre-trial motions in limine.
See Def.’s Opp’n Mots. Adv. Inf. at 30–32 & n.8 (quoting a jury instruction in another case and
12
The defendant appears to argue that the Court should reverse its earlier holding that the defendant had
flouted its recordkeeping obligation to retain COO information because “it did not have the benefit of certain
evidence[,] namely the testimony of GSA employees[,] the New Contractor Orientation PowerPoint drafted and
distributed by GSA[,] . . . [and] the CAV Reports or resulting Report Cards, where Ms. Springer and other IOAs
from the GSA expressly reviewed and approved of Capitol’s COO database and records retention.” See Def.’s
Opp’n Mots. Adv. Inf. at 20. While GSA appears to have given mixed signals to the defendant about its record
management practices, none of that cited evidence is sufficient to overcome the plain language in the defendant’s
contract with the government, on which the Court’s earlier ruling was predicated. Moreover, as the relator explains,
“IOA visits and CAV report cards were very limited in nature, and by no means a full audit or endorsement of
Capitol’s systems.” Rel.’s Reply Supp. Mot. Adv. Inf. at 11; see also id. at 11–12 (citing deposition testimony that
IOA visits are only day-long reviews and entail a “small data sampling”).
24
arguing that any adverse inference in this case “is not irrebutable [sic], and does not have to be
adopted”).
B. The Defendant’s Motion for Summary Judgment
Also pending before the Court are the parties’ cross-motions for summary judgment. The
defendant’s motion for summary judgment, which contends that the relator’s claims must be
dismissed pursuant to the FCA’s public disclosure bar, is addressed before turning to the
relator’s and the government’s motions. 13
“The FCA encourages insiders to expose fraudulent conduct, but does not reward
relators who seek to profit by bringing suits to complain of fraud that has already been publicly
disclosed.” U.S. ex rel. Oliver v. Philip Morris USA Inc. (“Oliver I”), 763 F.3d 36, 39 (D.C. Cir.
2014); see also United States ex rel. Springfield Terminal Ry. Co. v. Quinn (“Springfield
Terminal”), 14 F.3d 645, 651 (D.C. Cir. 1994) (“The history of the FCA qui tam provisions
demonstrates repeated congressional efforts to walk a fine line between encouraging whistle-
blowing and discouraging opportunistic behavior.”). To that end, the FCA contains a public
disclosure bar, codified at 31 U.S.C. § 3730(e)(4)(A), that “limits the ability of a private party to
13
The government objects to the defendant’s Statement of Genuine Issues of Material Facts because, in part,
the defendant “failed to admit or dispute the facts alleged by the United States in its Statement of Material Facts not
in Genuine Dispute.” U.S. Resp. Def.’s SMF at 2, ECF No. 120. Both Federal Rule of Civil Procedure 56(e)(2) and
Local Civil Rule 7(h) permit a district court to assume as undisputed any facts, which are identified by the moving
party in its statement of material facts but are not properly addressed or controverted by the opposing party. See
FED. R. CIV. P. 56(e)(2) (providing that “[i]f a party . . . fails to properly address another party’s assertion of fact . . .
the court may . . . consider the fact undisputed for purposes of the motion [for summary judgment]”); LCvR 7(h)(1)
(“In determining a motion for summary judgment, the Court may assume that facts identified by the moving party in
its statement of material facts are admitted, unless such a fact is controverted in the statement of genuine issues filed
in opposition to the motion.”); see also Grimes v. District of Columbia, 794 F.3d 83, 96 (D.C. Cir. 2015) (noting that
the 2010 amendment to Rule 56 “reflects the ‘deemed admitted’ provisions in many local rules” (quoting FED. R.
CIV. P. 56 advisory committee’s note (2010)). The D.C. Circuit “has long upheld strict compliance with the district
court’s local rules on summary judgment when invoked by the district court,” Burke v. Gould, 286 F.3d 513, 517
(D.C. Cir. 2002), recognizing that such compliance “is justified both by the nature of summary judgment and by the
rule’s purposes,” which include “isolat[ing] the facts that the parties assert are material, distinguish[ing] disputed
from undisputed facts, and identif[ying] the pertinent parts of the record,” Gardels v. CIA, 637 F.2d 770, 773–74
(D.C. Cir. 1980). In adherence to this Rule, the Court deems as admitted any fact not plainly controverted by the
defendant.
25
bring a qui tam suit where the fraud is already publicly known,” Oliver I, 763 F.3d at 39, unless
the claims are brought by the Attorney General or an “original source” of the information
underlying the claims. Thus, “[t]he FCA sets up a two-part test for determining jurisdiction.”
United States ex rel. Findley v. FPC-Boron Emps.’ Club, 105 F.3d 675, 681 (D.C. Cir. 1997),
abrogated on other grounds by Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). First,
the court must determine whether the information underlying the allegations and transactions has
been publicly disclosed. Springfield Terminal, 14 F.3d at 651. “If—and only if—the answer to
the first question is affirmative, will the court then proceed to the original source inquiry.” Id.
(internal quotation marks and citation omitted).
Section 3730(e)(4)(A) was amended, effective March 23, 2010, as part of the Patient
Protection and Affordable Care Act, see Patient Protection and Affordable Care Act, Pub. L. No.
111–148, § 10104(j)(2), 124 Stat. 119, 901–02 (2010). Accordingly, the threshold issue is
whether the current or previous version of § 3730(e)(4)(A) applies. The pre-amendment version
of § 3730(e)(4)(A), enacted in 1986, provided:
No court shall have jurisdiction over an action under this section based
upon the public disclosure of allegations or transactions in a criminal,
civil, or administrative hearing, in a congressional, administrative, or
Government Accounting Office report, hearing, audit, or investigation, or
from the news media, unless the action is brought by the Attorney General
or the person bringing the action is an original source of the information.
(emphasis added)
31 U.S.C. § 3730(e)(4)(A) (1986). Section 3730(e)(4)(A), as amended, currently provides:
The court shall dismiss an action or claim under this section, unless
opposed by the Government, if substantially the same allegations or
transactions as alleged in the action or claim were publicly disclosed—
(i) in a Federal criminal, civil, or administrative hearing in which
the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other
Federal report, hearing, audit, or investigation; or
26
(iii) from the news media,
unless the action is brought by the Attorney General or the person bringing
the action is an original source of the information. (emphasis added)
31 U.S.C. § 3730(e)(4)(A) (2010).
As a textual comparison reveals, the 2010 amendment worked two interrelated changes to
the public disclosure bar. First, while the pre-2010 public disclosure bar was jurisdictional by its
express terms, the 2010 amendment omits the jurisdictional language and states only that a court
must “dismiss” a case falling under the public disclosure bar. “Thus, when the amended version
of § 3730(e)(4)(A) applies, public disclosure does not deprive the Court of subject matter
jurisdiction, but merely deprives the plaintiff of his claim.” United States ex rel. Shea v. Verizon
Commc’ns, Inc. (“Shea”), 160 F. Supp. 3d 16, 24 (D.D.C. 2015). Second, the amendments
afforded the government veto power over dismissal of an FCA suit on public disclosure bar
grounds. See United States v. Select Med. Corp., No. 312CV00051RLYDML, 2017 WL
468276, *4 (S.D. Ind. Feb. 3, 2017) (collecting cases in support of the proposition that, pursuant
to the 2010 amendment to § 3730(e)(4)(A), “the government has the right to block a defendant’s
attempt to have a meritorious case dismissed on public disclosure grounds” (emphasis in
original)).
The determination of which version of § 3730(e)(4)(A) applies in this case is crucial
given that the government has filed a notice “exercising its right to object to the dismissal of
Relator Louis Scutellaro’s First Amended Complaint on the basis of the Public Disclosure Bar.”
Notice of U.S. Opp’n to Dismissal on the Basis of the Public Disclosure Bar (“U.S. Opp’n Def.’s
MSJ”) at 1, ECF No. 106. The government maintains that the current version of § 3730(e)(4)(A)
27
controls because this action was filed after the 2010 amendment took effect. See id. at 2. 14 The
relator argues that the version of § 3730(e)(4)(A) that was in effect at the time of a given
underlying sale should apply. See Rel.’ Opp’n Def.’s MSJ at 5 n.1, ECF No. 111. Although the
defendant initially asserted in its motion for summary judgment that the pre-amendment version
of the public disclosure bar should control, see Def.’s Mem. Supp. MSJ at 1 n.1, ECF No. 92, the
defendant appears to have adopted the relator’s position in its reply, see Def.’s Reply Supp. MSJ
at 1, ECF No. 121 (“The pre-amendment version of the Public Disclosure Bar applies to the
alleged sales at issue in this case which pre-date the 2010 amendment; and the post-amendment
version applies to alleged sales which occur after the amendment.”).
The D.C. Circuit has not yet addressed whether the 2010 amendment to § 3730(e)(4)(A)
applies retroactively to conduct that occurred prior to the amendment’s effective date of March
23, 2010, but the great weight of authority indicates that the 2010 amendment is not retroactive
and, therefore, conduct that occurred prior to March 23, 2010, would be subject to the earlier
version of the public disclosure bar and later conduct would be subject to the current version.
See United States ex rel. Antoon v. Cleveland Clinic Found., 788 F.3d 605, 615 (6th Cir. 2015);
United States ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 232 n.3 (3d Cir.
2013); United States ex rel. May v. Purdue Pharma L.P. (“May”), 737 F.3d 908, 918 (4th Cir.
2013); United States ex rel. Goldberg v. Rush Univ. Med. Ctr., 680 F.3d 933, 934 (7th Cir.
2012); United States ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 326 n.6 (5th Cir.
2011); United States ex rel. Poteet v. Bahler Med., Inc., 619 F.3d 104, 107 n.2 (1st Cir.
2010); United States ex rel. Hixson v. Health Mgmt. Sys., Inc., 613 F.3d 1186, 1188 n.3 (8th Cir.
14
The government states in its notice opposing dismissal on the basis of the public disclosure bar that the
government would have intervened as to all claims asserted by the relator—thereby rendering the public disclosure
bar irrelevant—but was not able to do so due to the defendant’s “uncooperative conduct,” which “severely interfered
with and substantially delayed the United States’ investigation.” U.S. Opp’n Def.’s MSJ at 2.
28
2010); Shea, 160 F. Supp. 3d at 24 (“[T]he pre-amendment version of § 3730(e)(4)’s public
disclosure bar applies to claims arising from Defendants’ conduct before March 23, 2010, and
the amended version of the public disclosure bar applies to conduct based on post-March 23,
2010 conduct.”). This Court agrees with the sound analysis set forth in the foregoing decisions,
which are grounded in decisions by the Supreme Court. 15 See Schindler Elevator Corp. v.
United States ex rel. Kirk, 563 U.S. 401, 404 n.1 (2011) (suggesting that the 2010 FCA
amendments do not apply to cases arising before the effective date of the statute); Graham Cnty.
Soil & Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 283 n.1 (2010)
(“The legislation makes no mention of retroactivity, which would be necessary for its application
to pending cases given that it eliminates petitioners’ claimed defense to a qui tam suit.”).
Accordingly, the pre-amendment version of § 3730(e)(4)(A) applies to sales occurring before
March 23, 2010, and the post-amendment version of § 3730(e)(4)(A) applies to transactions that
post-date the amendment. 16
15
The sole authority cited by the government in support of its position that the current version of
§ 3730(e)(4)(A) applies to all sales at issue in this case is an unpublished 2012 opinion from another district court.
See United States ex rel. Sanchez v. Abuabara (“Sanchez”), No. 10-61673-CIV, 2012 WL 1999527, at *2 & n.1
(S.D. Fla. June 4, 2012) (“Since the suit in this case was filed many months after the Act was signed into law, this
Court will apply the amended language.”). This case predated many of the Court of Appeals decisions that reached
an opposite result, and in any event its reasoning is unpersuasive in this case. The court cited two reasons for
applying the amended § 3730(e)(4)(A). First, the court noted that in Schindler, the Supreme Court “indicated that
the amendments to the Patient Protection and Affordable Care Act are not applicable to pending cases” and therefore
“applied the language of the statute as it existed when the suit was filed.” Id. As another Judge on this Court has
cogently pointed out, however, “closer inspection of the Supreme Court’s precedent on retroactivity reveals that the
[Court] use[s] the pendency of a case as shorthand for a more nuanced proposition: Statutes that are not retroactive
do not apply to conduct occurring before their enactment.” Shea, 160 F. Supp. 3d at 23. Second, in Sanchez, the
court indicated that “[t]he parties agree[d] that the amended version of the Public Disclosure Bar is applicable.”
Sanchez, 2012 WL 1999527, at *2 n.1. Although retroactivity questions are typically not left to the parties,
especially when there are jurisdictional implications, see Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de
Guinee, 456 U.S. 694, 702 (1982) (explaining that “consent of the parties is irrelevant” in determining jurisdiction),
unlike in Sanchez, the parties here do not agree as to which version of the public disclosure bar applies.
16
The relator’s First Amended Complaint alleges: “From 2004 through 2010, Capitol Supply, Inc.,
maintained numerous GSA Contracts selling goods and services to the United States Government under Schedules
23V; 51V; 56; 70; 71 I; 71 II; 71 II H; 71 II K; 72 II; 73; 75; and, 78. Under these contracts, Capitol Supply, Inc.,
earned $28,013,169.00 in Fiscal Year 2004; $23,710,802.00 in Fiscal Year 2005; $23,769,619.00 in Fiscal Year
2006; $26,042,464.00 in Fiscal Year 2007; $15,949,093.00 in Fiscal Year 2008; $25,417,389.00 in Fiscal Year
29
1. Pre-Amendment Sales
The defendant argues that the relator’s claims based on pre-amendment sales must be
dismissed pursuant to the FCA’s public disclosure bar. See generally Def.’s Mem. Supp. MSJ.
The pre-amendment version of § 3730(e)(4)(A) stripped courts of jurisdiction over any FCA
action “based upon the public disclosure of allegations or transactions in a criminal, civil, or
administrative hearing, in a congressional, administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the news media, unless . . . the person bringing
the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A) (1986). Thus,
even if the information underlying the allegations in an FCA complaint has been publicly
disclosed, a relator’s claims may proceed if the relator was an original source. Since the
applicable version of § 3730(e)(4)(A) is jurisdictional, the relator bears the burden of
establishing that the public disclosure bar does not foreclose his claims. See May, 811 F.3d at
640; Cause of Action v. Chicago Transit Auth., 815 F.3d 267, 283 (7th Cir.), cert. denied sub
nom. United States ex rel. Cause of Action v. Chicago Transit Auth., 137 S. Ct. 205 (2016);
United States ex rel. Purcell v. MWI Corp., 824 F. Supp. 2d 12, 21 (D.D.C. 2011) (“The plaintiff
bears the burden of establishing jurisdiction under the FCA.”), rev’d and remanded on other
grounds, 807 F.3d 281 (D.C. Cir. 2015).
The public disclosure bar is triggered if either “the allegation of fraud itself” or “the
transactions that give rise to an inference of fraud” have been publicly disclosed. United States
ex rel. Oliver v. Philip Morris USA Inc. (“Oliver II”), 826 F.3d 466, 471 (D.C. Cir. 2016)
(emphases added); see also 31 U.S.C. § 3730(e)(4)(A) (“No court shall have jurisdiction over an
action under this section based upon the public disclosure of allegations or transactions . . . .”
2009; and, $12,198,195.00 from October 2009 through March 2010.” Rel.’s FAC ¶ 7. Thus, the vast majority of
sales at issue occurred before the amendment’s effective date.
30
(emphasis added)). “‘Transaction’ in this sense ‘refers to two or more elements that, when
considered together, give rise to an inference that fraud has taken place.’” Oliver II, 826 F.3d at
471 (quoting Oliver I, 763 F.3d at 40)). The D.C. Circuit has set out a now familiar formula to
assess whether a transaction was publicly disclosed: “[I]f X + Y = Z, Z represents the allegation
of fraud and X and Y represent its essential elements. In order to disclose the transaction
publicly, the combination of X and Y must be revealed, from which readers or listeners may
infer Z, i.e., the conclusion that fraud has been committed.” Springfield Terminal, 14 F.3d at 654
(emphases in original). Applied to the facts of this case, the transaction would be the fact that
the defendant was selling TAA non-compliant products to the government (X), plus the fact that
the defendant falsely certified that it was complying with the TAA (Y), which permits the
inference that the defendant committed fraud (Z). Oliver II, 826 F.3d at 471; see also Springfield
Terminal, 14 F.3d at 655 (“Fraud requires recognition of two elements: a misrepresented state of
facts and a true state of facts.” (emphasis in original)). If either X and Y, or Z, was in the public
domain before the relator brought this action, then the plaintiff’s pre–March 23, 2010 claims
cannot proceed. See Oliver II, 826 F.3d at 471.
The defendant contends that the X, Y, and Z elements in this case are each based on
publicly disclosed information. As for X—the TAA non-compliant sales—the defendant notes
that accurate COO information for the products sold was derived from (1) an online database,
ManifestJournals.com, and (2) material collected by the relator’s counsel in previous cases, some
of which is filed on the public docket. See Def.’s Mem. Supp. MSJ at 19, 23. With regard to
Y—the false certifications—the defendant points out that the relator relies upon information on
the GSA Advantage! website and information obtained by the relator’s counsel by way of a
Freedom of Information Act (“FOIA”) request to the GSA. See id. at 21–23. Finally, the
31
defendant argues that Z—the allegation of fraud itself—was also publicly disclosed in United
States ex rel. Crennen v. Dell Mktg., L.P., 711 F. Supp. 2d 157 (D. Mass. 2010), a case in which
a relator sued the defendant alleging violations of the FCA predicated on the defendant’s false
TAA certifications.
As a general matter, the relator argues that the defendant “cannot prevent [the relator’s]
action simply because some run-of-the-mill information exists in the public domain.” Rel.’s
Opp’n Def.’s MSJ at 23 (contending that the defendant is seeking to foreclose FCA claims “by
scraping together bits and pieces of relevant-but-innocuous information found in the public
sphere”); see also id. at 24 (“Reams of innocuous information, in a variety of different forums, in
the context of a broad transactional field, which would require the Government to painstakingly
compile and compare data before discovering fraud” would not “put the Government on notice
of fraud.”). More specifically, the relator disputes that the information cited by the defendant
was publicly available because (1) ManifestJournals.com is not a public channel within the
meaning of the FCA because it is a “costly, ‘members only’ private database,” id. at 16, (2) the
GSA’s responses to the relator’s counsel’s FOIA requests contain only sales information, but no
COO information, id. at 18, and (3) the defendant cannot rely on discovery from previous cases
that was never filed in court to invoke the public disclosure bar, id. at 19 (“Whatever (if
anything) was disclosed in Liotine or Folliard, it did not include numerous non-Cisco and non-
HP products involved in this action.”).
Turning first to the X element of the Springfield Terminal equation, the question is
whether the fact that the defendant was selling TAA non-compliant products to the government
was publicly disclosed. As noted, the defendant argues that both the ManifestJournals.com data,
as well as the data that the relator’s counsel had collected in previous cases, including data filed
32
on the public docket, publicly disclosed the accurate COO information for the products
defendant sold to the government. See Def.’s Mem. Supp. MSJ at 27. The first step is to
determine whether either of these sources publicly disclosed the defendant’s sale of TAA non-
compliant products to the government. If they did, then the question is whether “the public
disclosure occur[red] through certain channels specified in the statute.” Oliver II, 826 F.3d at
474. Ultimately, the Court will not reach the second step of the analysis because, as the relator
points out, the defendant has identified nothing in the public domain that disclosed that the
defendant was selling Chinese-made products under the GSA contracts to the government.
ManifestJournals.com “is a media company that purchases daily manifest records directly
from U.S. Customs under 19 CFR 103.31.” Def.’s SMF ¶ 16. The website, which requires a
subscription fee, contains a feature called “Super Search Report” that “allow[s] individuals such
as [the relator] to search public manifest reports for certain text or phrases, such as ‘Fellowes.’”
Id. ¶ 18. The 554-page Super Search Report obtained by the relator, and attached to his First
Amended Complaint, see Rel.’s FAC, Ex. 3, Super Search Report, ECF No. 27-3, is a
spreadsheet containing seven columns: (1) Bill of Lading Number, (2) Actual Arrival Date,
(3) Consignee Name, (4) Shipper Name, (5) Content Description, (6) Marks and Numbers, and
(7) Weight. 17 The spreadsheet nowhere mentions the defendant.
17
The defendant contends that the spreadsheet generated by ManifestJournals.com is either “news media” or
an “administrative . . . report,” relying on United States ex rel. Doe v. Staples, Inc., 932 F. Supp. 2d 34, 40 (D.D.C.
2013), aff’d, 773 F.3d 83 (D.C. Cir. 2014), in which another Judge on this Court held that a similar “site qualifies as
‘news media.’” See Def.’s Mem. Supp. MSJ at 19. The relator, for his part, argues that the website is not a public
channel because it is a “costly, ‘members only’ private database.” Rel.’s Opp’n Def.’s MSJ at 16. The Court need
not resolve this dispute whether a subscription service may be a public channel for purposes of the FCA because, as
explained below, the chart procured from ManifestJournals.com does not permit a reader to connect the defendant’s
products to TAA non-compliant countries or otherwise reveal that the defendant was selling TAA non-compliant
products. In comparison, in Staples, which involved claims that the defendant had misrepresented the origin of
imported pencils to the U.S. Customs and Border Protection, the data obtained from a competitor of
ManifestJournals.com expressly identified the defendant in that case as the “consignee,” see Rel.’s First Am. Compl.
¶ 24, Civ. No. 08-846 (RJL), ECF No. 22, and thereby “provide[d] a means to track each shipment to the [Customs
entry form] containing the false statement of country of origin,” Staples, 932 F. Supp. 2d at 40 (internal quotation
marks omitted).
33
Similarly, regarding data used in prior cases, the defendant contends that “the . . .
materials used in this litigation were disclosed in numerous cases to [the relator’s counsel], and
those materials have traveled with him and been used from case-to-case for over ten years.”
Def.’s Mem Supp. MSJ at 24. Yet, the defendant does not dispute the relator’s contention that
“the bulk of this information . . . was never filed in court,” Rel.’s Opp’n Def.’s MSJ at 3—a
prerequisite for public disclosure of discovery materials pursuant to § 3730(e)(4)(A), see
Springfield Terminal, 14 F.3d at 652 (“[D]iscovery material, when filed with the court (and not
subject to protective order), is ‘public[ly] disclos [ed]’ in a ‘civil hearing’ for purposes
of § 3730(e)(4)(A)’s jurisdictional bar.”). Furthermore, what limited data was filed on the public
docket—namely, an expert report discussing some COO information in United States ex rel.
Folliard v. Govplace (“Folliard”), 930 F. Supp. 2d 123, 125 (D.D.C. 2013), aff’d sub nom.
United States ex rel. Folliard v. Gov’t Acquisitions, Inc., 764 F.3d 19 (D.C. Cir. 2014)—does not
refer to the defendant in this case, which makes sense given that the defendant here was not a
party in Folliard. 18 Thus, there existed in the public domain correct COO information for TAA
non-compliant products, but that is not enough to establish X because there is nothing that
connects the defendant to those products. 19
A recent D.C. Circuit opinion underscores the deficiencies in the defendant’s reliance on
the COO data from ManifestJournals.com and previous cases, including Folliard. See Oliver II,
826 F.3d at 472–73. In Oliver II, the relator sued Philip Morris under a false certification
18
In Folliard, which also involved the TAA, the expert’s report sets out COO information for 473 products,
see Def.’s MSJ, Ex. 10, Albright Report, at 7–24, ECF No. 92-10, some of which are at issue in the instant action,
see generally Def.’s MSJ, Ex. 17, Table of Overlapping COO Data, ECF No. 92-17.
19
The relator used sales information his counsel obtained via several FOIA requests to link the defendant to
the sales. See Def.’s Mem. Supp. MSJ at 21–23. Although an agency response to a FOIA request is itself public,
see Schindler Elevator Corp., 563 U.S. at 404, the FOIA request did not contain COO information. The GSA
Advantage! website shows only what the defendant listed for sale—not what sales were actually made—and it does
not contain accurate COO information in any event.
34
theory, arguing that the defendant had failed to comply with the Most Favored Customer
(“MFC”) provision in its contracts with government exchanges that sell goods to customers in
the military community. Id. at 469. The MFC provision required the defendant to sell its
cigarettes at prices equal to or more favorable than other purchasers. Id. The defendant moved
to dismiss the action on public disclosure bar grounds. Id. at 470. The D.C. Circuit defined the
X element of the Springfield Terminal equation as “the fact that Philip Morris was not providing
the Exchanges with the best price for cigarettes.” Id. at 471 (quoting Oliver I, 763 F.3d at 41).
To show public disclosure of X, the defendant pointed to a “1999 inter-office memorandum
discussing concerns about cigarette pricing at a United States naval station in Iceland.” Id. at
470. The memorandum at issue “was generated as a result of a letter written by the Director,
Morale, Welfare & Recreation (MWR) Department of the U.S. Naval station in Keflavik, Iceland
to a duty-free wholesaler in Norfolk, Virginia because the MWR facility . . . tried,
unsuccessfully, to have a duty-free wholesaler . . . supply them with Philip Morris products.” Id.
at 472–73 (internal quotation marks omitted). The same memorandum had been produced in
earlier litigation and was “publicly accessible via the internet,” “pursuant to a settlement
agreement that required Philip Morris to [publish in an online database] documents that were
produced in litigation.” Id. at 475. As the D.C. Circuit put it, the memorandum undisputedly
“reflect[ed] a differential between the prices charged to the military and to private parties,” id. at
472 (internal quotation marks omitted), and thus, the memorandum established that X had been
publicly disclosed, id. at 473. Unlike the memorandum, which established in a single document
that the defendant seller had been violating its contract, here, no single public disclosure
35
evidences that the defendant was selling Chinese-made products to the government. 20 The
defendant has cited no caselaw to suggest that it would be proper for the Court to piece together
a public disclosure of X from multiple disparate sources.
Given that X has not been publicly disclosed, consideration of whether Y has been
publicly disclosed is unnecessary, since both parts of the equation must be disclosed to trigger
the public disclosure bar. As noted above, however, the public disclosure bar may also kick in
where Z has been publicly disclosed.
Turning to the Z element of the Springfield Terminal formula, the defendant argues that a
previous case, United States ex rel. Crennen v. Dell Marketing, L.P. (“Crennen”), 711 F. Supp.
2d 157 (D. Mass. 2010), publicly disclosed the allegations of the defendant’s fraud. See Def.’s
Mem. Supp. MSJ at 27. In particular, the defendant maintains that “Crennen . . . satisfies the ‘Z’
element (the allegation of fraud) because the same allegations—that Capitol allegedly
fraudulently misrepresented the COO of products—regarding the same GSA contract and brands
of products in Crennen now appear in this case.” Def.’s Reply Supp. MSJ at 13 (emphases in
original). The relator notes none of the products at issue in Crennen is at issue in this case,
Rel.’s Opp’n Def.’s MSJ at 22, and contends that “the passage of time has rendered the
information in Crennen stale,” id. at 27 (citing United States ex rel. Kester v. Novartis Pharm.
Corp., 43 F. Supp. 3d 332, 353 (S.D.N.Y. 2014) (“[T]he fact of the state court lawsuits had
become sufficiently stale so that Caremark secured a ‘clean slate,’ as it were, for purposes of the
20
The notices sent to the defendant from the New York GSA office are distinguishable from the inter-office
memorandum at issue in Oliver II. First, the defendant has not argued that the notices were published pursuant to a
statutorily delineated public channel. Unlike the memorandum in Oliver II, which was published pursuant to a
settlement agreement and therefore “publicly disclosed in a civil hearing,” Oliver II, 826 F.3d at 475, the notices
here were merely sent to the defendant. Second, whereas the memorandum plainly discussed a price differential,
i.e., information that directly established the X element, the notices here refer merely to the defendant’s listing of
TAA non-compliant products—not sales of those products. See United States ex rel. Folliard v. Govplace, 930 F.
Supp.2d 123, 127 (D.D.C. 2013) (noting that relators “may only pursue claims connected to sales, not simply
listings of items for sale”).
36
public disclosure bar; the old accusations against Caremark could no longer be deemed
‘substantially similar’ to any allegations of current misconduct, even if the allegations were
similar in every other way.”)).
Although a close question given that Crennen involved FCA claims against the same
defendant as in the instant case predicated on sales of TAA non-compliant products to the
government, the Court cannot conclude that the instant action is “based upon” the allegations in
Crennen. In conducting this analysis, the driving question is “whether the publicly disclosed
information could have formed the basis for a governmental decision on prosecution, or could at
least have alerted law-enforcement authorities to the likelihood of wrongdoing.” United States
ex rel. Settlemire v. District of Columbia (“Settlemire”), 198 F.3d 913, 918 (D.C. Cir. 1999)
(internal quotation marks omitted). Crennen would not have led law enforcement authorities to
investigate the alleged fraud at issue in this case because the allegations in Crennen, leveled at
10 different defendants, were exceedingly vague. Indeed, the complaint was dismissed under
Federal Rule of Civil Procedure 9(b) because, inter alia, “after three years and a government
investigation, [the relator] still [could not] allege that any specific claim was planned or
submitted for a product listed on the GSA Advantage! website with a false country of origin.”
Crennen, 711 F. Supp. 2d at 164. In essence, the relator in Crennen alleged merely that he had
visited government buildings and observed products that originated in non-designated countries,
and that the same products were posted on the GSA Advantage! website. Id. at 159–60. The
court dismissed the complaint as patently insufficient because the relator had failed to allege that
“any of the defendants sold to the Government any technology that came from a non-designated
country; nor [was] there any allegation that the federal agencies acquired those specific products
though the GSA Advantage! website.” Id. at 162. Put differently, the complaint in Crennen did
37
not allege a fraud. That being the case, a hypothetical government investigator could not have
been meaningfully alerted to alleged fraud by the defendant in this case. 21 See Settlemire, 198
F.3d at 918; see also Dingle v. Bioport Corp., 388 F.3d 209, 215 (6th Cir. 2004) (explaining that
“general and unsupported allegations of fraud will often not be enough to bar a qui tam action”
but ultimately concluding that, “[i]n this case, . . . the allegations and transactions discussed in
the public disclosures are sufficiently definite to give the government enough information about
possible fraud as they specifically mention the manufacturing process as well as the filters
themselves”). The defendant’s argument that Crennen triggers the public disclosure bar in this
case is untenable. The defendant is not entitled to immunity from liability under the FCA in
perpetuity any time a relator alleges any form of fraud, no matter how deficient the allegations
are.
2. Post-Amendment Sales
The pre-amendment analysis of the public disclosure bar applies equally to post-
amendment sales. Nonetheless, as noted above, the 2010 amendment to the FCA affords the
government the ability to block dismissal on public disclosure bar grounds. Accordingly, the
government’s objection to application of the public disclosure bar, see generally U.S. Opp’n
Def.’s MSJ, forecloses dismissal of the relator’s claims predicated on those sales that occurred
on or after March 23, 2010. See United States ex rel. Szymoniak v. Am. Home Mortg. Servicing,
Inc., No. 0:10-CV-01465-JFA, 2014 WL 1910845, at *1 (D.S.C. May 12, 2014) (“The relevant
amendment took effect on March 23, 2010, and under the amended statute, the United States
21
Moreover, the relator in Crennen attached to his complaint a list of products that had allegedly been listed
as made in TAA-designated countries on the GSA Advantage! website but that were in fact marked on the product
or package as being made in a non-designated country. Def.’s MSJ, Ex. 20, Crennen Amended Complaint ¶ 36,
ECF No. 92-20; id., Ex. A. The attachment referenced only six products allegedly listed by the defendant in the
instant case: a monitor, a mouse, and four printers. Id., Ex. A at 1. This list of six products simply does not capture
the breadth of products and manufacturers at issue in the instant case.
38
may oppose the dismissal of a complaint pursuant to the public disclosure bar.”), aff’d sub nom.
United States ex rel. Szymoniak v. Am. Home Mortg. Servicing, Inc., No. 15-1720, 2017 WL
634705 (4th Cir. Feb. 16, 2017); Select Med. Corp., 2017 WL 468276, at *4; United States v.
Prime Healthcare Servs., Inc., No. 11-CV-8214 PJW, 2014 WL 12480026, at *2–3 (C.D. Cal.
Nov. 20, 2014). Accordingly, the defendant’s motion for summary judgment is denied with
respect to the relator’s claims involving sales that occurred on or after March 23, 2010. 22
C. The Relator’s and Government’s Motions for Summary Judgment
Having concluded that the public disclosure bar does not foreclose the relator’s claims,
the Court turns next to the relator’s and government’s motions for summary judgment.
1. Liability
The FCA provides for civil liability for anyone who “knowingly presents, or causes to be
presented . . . a false or fraudulent claim for payment or approval” or who “knowingly makes,
uses, or causes to be made or used, a false record or statement material to a false or fraudulent
claim.” 31 U.S.C. § 3729(a)(1)–(2). An FCA claim contains three elements: (1) the “defendant
submitted a claim to the government,” (2) “the claim was false,” and (3) “the defendant knew the
claim was false.” United States v. Dynamic Visions, Inc., Civil No. 11-695 (CKK), 2016 WL
6208349, at *8 (D.D.C. Oct. 24, 2016) (quoting United States v. Toyobo Co., 811 F. Supp. 2d 37,
45 (D.D.C. 2011) (quoting United States ex rel. Harris v. Bernad, 275 F. Supp. 2d 1, 6 (D.D.C.
2003))). Since the defendant does not dispute that there are no genuine issues of material fact as
to whether the defendant submitted claims for payment to the government, see generally Def.’s
22
The relator argues, in the alternative, that he was an “original source” of the information underlying his
allegations. See Rel.’s Opp’n Def.’s MSJ at 27–29. The defendant contends that the relator does not qualify as an
original source. See Def.’s Reply Supp. MSJ at 18–23. Given that the relator’s allegations are not based on publicly
disclosed information, as explained above, the Court will not “proceed to the ‘original source’ inquiry.” Springfield
Terminal, 14 F.3d at 651.
39
Opp’n U.S. & Rel.’s MSJs, the parties’ arguments as to the latter two elements are addressed
seriatim.
a. Falsity and Materiality
“In the paradigmatic case, a claim is false because it ‘involves an incorrect description of
goods or services provided or a request for reimbursement for goods or services never
provided.’” United States v. Sci. Applications Intern. Corp. (“SAIC”), 626 F.3d 1257, 1266
(D.C. Cir. 2010) (quoting Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001)). Alternatively,
however, “a plaintiff may proceed under the so-called ‘certification’ theory of liability,” under
which “the falsity of a claim for payment rests on a false representation of compliance with an
applicable federal statute, federal regulation, or contractual term.” United States ex rel. McBride
v. Halliburton Co. (“McBride”), 848 F.3d 1027, 1031 (D.C. Cir. 2017) (internal quotation marks
and citations omitted). “False certifications can be either express or implied.” SAIC, 626 F.3d at
1266. “An expressly false claim is, as the term suggests, a claim that falsely certifies compliance
with a particular statute, regulation or contractual term, where compliance is a prerequisite to
payment.” Mikes, 274 F.3d at 698; see also United States v. Speqtrum, Inc. (“Speqtrum I”), 47
F. Supp. 3d 81, 91 (D.D.C. 2014) (explaining that a false certification is “express” when “the
bills or invoices submitted . . . contain[] explicit statements that [the defendant] was in
compliance with all the relevant regulations”). An “implied false certification,” relied upon by
plaintiffs in this case, occurs “[w]hen . . . a defendant makes representations in submitting a
claim but omits its violations of statutory, regulatory, or contractual requirements.” Universal
Health Servs., Inc. v. United States (“Escobar”), 136 S. Ct. 1989, 1999 (2016); see also United
States v. Kellogg Brown & Root Servs., Inc., 800 F. Supp. 2d 143, 154 (D.D.C. 2011) (explaining
that an implied false certification “occurs when the claimant makes no affirmative representation
40
but fails to comply with a contractual or regulatory provision where certification was a
prerequisite to the government action sought” (internal quotation marks omitted)).
With respect to implied false certification claims, the D.C. Circuit has explained that the
underlying claim for payment at issue need not include “express contractual language
specifically linking compliance to eligibility for payment.” SAIC, 626 F.3d at 1269. Instead, the
government merely needs to show “that the contractor withheld information about its
noncompliance with material contractual requirements.” 23 Id. Both the Supreme Court and the
D.C. Circuit, however, have instructed that “courts should continue to police expansive implied
certification theories ‘through strict enforcement of the Act’s materiality and scienter
requirements.’” McBride, 848 F.3d at 1031–32 (quoting Escobar, 136 S. Ct. at 2002 (quoting
SAIC, 626 F.3d at 1270)). Thus, for purposes of falsity, it is not enough that the defendant’s
products failed to comply with the TAA—as can be established, inter alia, by the adverse
inferences against the defendant. To be entitled to summary judgment, the plaintiffs must also
show that there is no genuine issue of material fact as to whether that TAA compliance was
material to the government’s decision to pay. 24
23
Escobar, decided after the conclusion of briefing in this case, both endorsed and clarified the “implied false
certification” theory of liability, and limited its holding to cases where two criteria are met: “first, the claim does not
merely request payment, but also makes specific representations about the goods or services provided; and second,
the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements
makes those representations misleading half-truths.” Escobar, 136 S. Ct. at 2001. In its decision, however, the
Supreme Court expressly left open the question whether a claim that “merely demand[s] payment,” as opposed to
one that makes specific representations about goods or services provided, is sufficient to provide a basis for an
implied false certification claim. Id. at 2000. Since the Supreme Court did not expressly overrule this theory of
liability, the standard set forth in SAIC still governs in this Circuit. See United States ex rel. Landis v. Tailwind
Sports Corp., Civil No. 10-976 (CRC), 2017 WL 573470, at *11 (D.D.C. Feb. 13, 2017) (following SAIC in light of
the Supreme Court’s silence on the issue) (citing United States v. Dynamic Visions, Inc., 2016 WL 6208349, at *9).
In February 2017, after the D.C. Circuit decided McBride, this Court ordered the parties to submit supplemental
briefing on the question of how Escobar and McBride affect the instant case. See Minute Order (dated Feb. 28,
2017). Each party submitted a brief arguing that the decisions support a finding of summary judgment in its favor.
See U.S. Supp. Br. at 2, ECF No. 134; Rel.’s Supp. Br. at 2, ECF No. 136; Def.’s Supp. Br. at 21, ECF. No. 135.
24
The government notes that the defendant admits in its Statement of Genuine Issues of Material Fact that it
“possessed information that demonstrated a compliant COO for approximately 348 of the 588 transactions
41
The FCA defines materiality as “having a natural tendency to influence, or be capable of
influencing, the payment or receipt of money or property.” Escobar, 136 S. Ct. at 2002 (quoting
31 U.S.C. § 3729(b)(4)). Since the materiality requirement of the FCA is derived from
“common-law antecedents,” id. (quoting Kungys v. United States, 485 U.S. 759, 769 (1988)), the
Supreme Court has instructed that, under both the FCA and the common law, “materiality
look[s] to the effect on the likely or actual behavior of the recipient of the alleged
misrepresentation,” id. at 2002–03 (quoting 26 R. LORD, WILLISTON ON CONTRACTS § 69:12, p.
549 (4th ed. 2003)). This “materiality standard is demanding,” as the FCA is not “‘an all-
purpose antifraud statute’ or a vehicle for punishing garden-variety breaches of contract or
regulatory violations.” Id. at 2003 (quoting Allison Engine Co., Inc. v. United States ex rel.
Sanders, 553 U.S. 662, 672 (2008)). The Supreme Court has made clear that materiality “cannot
be found where noncompliance is minor or insubstantial.” Escobar, 136 S. Ct. at 2003. “Nor is
it sufficient for a finding of materiality that the Government would have the option to decline to
pay if it knew of the defendant’s noncompliance.” Id.
In Escobar, the Supreme Court set forth a number of factors that may be taken into
account in determining materiality. First, “the Government’s decision to expressly identify a
provision as a condition of payment is relevant, but not automatically dispositive.” Id. Second,
“evidence that the defendant knows that the Government consistently refuses to pay claims in the
mine run of cases based on noncompliance with the particular statutory, regulatory, or
contractual requirement” supports a finding that the requirement is material. Id. Third, and
“[c]onversely, if the Government pays a particular claim in full despite its actual knowledge that
identified” by the government as “allegedly involving noncompliant products.” Def.’s SMF ¶ 110. Thus, the
defendant may also have effectively conceded that it sold at least 240 products it could not have certified as TAA
compliant.
42
certain requirements were violated, that is very strong evidence that those requirements are not
material.” Id. Fourth, “if the Government regularly pays a particular type of claim in full despite
actual knowledge that certain requirements were violated, and has signaled no change in
position, that is strong evidence that the requirements are not material.” Id. In sum, “Escobar
makes clear that courts are to conduct a holistic approach to determining materiality in
connection with a payment decision, with no one factor being necessarily dispositive.” United
States ex rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103, 109 (1st Cir. 2016). As the
Supreme Court explained, “materiality cannot rest ‘on a single fact or occurrence as always
determinative.’” Escobar, 136 S. Ct. at 2001 (quoting Matrixx Initiatives, Inc. v. Siracusano,
563 U.S. 27, 39 (2011)).
The government offers four arguments as to why the statutory, regulatory, and
contractual requirements regarding TAA compliance are material in this case: (1) the
requirements were conditions of payment because the TAA and its implementing regulations,
incorporated into the defendant’s contracts, prohibit the sale of and payment for any products
manufactured in non-designated countries; (2) the violations were “significant” and not “minor
or insubstantial” because the defendant had to certify in the contract that its end products were
not manufactured in a non-designated country; (3) GSA’s notices to the defendant of non-
compliance, and its warnings that DOJ had reached settlements under the “qui tam provision of
the False Claims Act” in other cases, show that the defendant had knowledge of the
government’s “treatment of past, known violations;” and (4) at one point, the GSA reacted to the
plaintiff’s non-compliance by issuing a Cure Notification Letter that imposed sanctions on the
defendant, including suspension and nonpayment. U.S. Supp. Br. at 17–18.
43
The defendant does not substantively respond to the plaintiffs’ arguments regarding the
materiality of TAA compliance. 25 Instead, the defendant’s primary argument is that when the
government purchases its products, the COO would have been “marked in a conspicuous place”
on the product or its packaging, thereby giving the government a clear indication of the products’
accurate COO information. 26 Def.’s Supp. Br. at 6 (citing 19 C.F.R. § 134.11 (requiring “that
every article of foreign origin (or its container) imported into the United States shall be marked
in a conspicuous place . . . to indicate to an ultimate purchaser . . . the country of origin”)). 27
Other than this citation to a regulation for the U.S. Customs and Border Protection, the defendant
provides no evidence that the government would have, in fact, been aware of the COO of each of
the defendant’s products. See FED. R. CIV. P. 56(c) (explaining that, for purposes of summary
judgment, a non-movant must support an assertion with evidence in a form that would be
admissible). 28
25
In its brief opposing the plaintiffs’ motions for summary judgment, the defendant disputes whether the
TAA requirements were “conditions of payment,” asserting that they are instead “conditions of participation.”
Def.’s Opp’n at 5–6. In Escobar, the Supreme Court held that FCA liability “for failing to disclose violations of
legal requirements does not turn upon whether those requirements were expressly designated as conditions of
payment.” Escobar, 136 S. Ct. at 1996. “What matters is not the label the Government attaches to a requirement,
but whether the defendant knowingly violated a requirement that the defendant knows is material to the
Government’s payment decision.” Id. In so holding, the Supreme Court affirmed the law in the D.C. Circuit, which
had already rejected the distinction between “conditions of payment” and “conditions of participation.” See SAIC,
626 F.3d at 1266–68.
26
The government argues that the defendant improperly raises arguments in its supplemental brief that were
not raised in its original summary judgment motion. See U.S. Reply Def.’s Supp. Br. at 2, ECF No. 137. Although
the government is correct about the defendant’s belated arguments raised for the first time in its supplemental brief,
the merits of those arguments are nonetheless considered. The issues raised by the defendant in its supplemental
brief present serious questions about whether the government has satisfied the materiality standard, and courts favor
resolution of issues on the merits. The plaintiffs have had an opportunity to address these arguments fully in their
reply briefs. See Cont’l Transfert Technique Ltd. v. Fed. Gov’t of Nigeria, 308 F.R.D. 27, 32 (D.D.C. 2015); see
also In re Apollo Grp., Inc. Sec. Litig., No. MISC.A. 06-558 (CKK), 2007 WL 778653, at *5 (D.D.C. Mar. 12,
2007). Moreover, courts often entertain new arguments “resulting in part from ‘an intervening change in the law.’”
Wang by & through Wong v. New Mighty U.S. Trust, 843 F.3d 487, 493 (D.C. Cir. 2016) (quoting Roosevelt v. E.I.
Du Pont de Nemours & Co., 958 F.2d 416, 419 n.5 (D.C. Cir. 1992)). Here, Escobar clarified the types of evidence
that support the materiality inquiry in the FCA context, warranting consideration of the defendant’s new arguments
raised in its supplemental brief.
27
The defendant incorrectly cites “13 C.F.R. § 134.11,” which does not exist.
28
The defendant also argues that the TAA clause at issue is not material because the “bulk of the products at
issue in this case fall below the current ‘Micro-Purchase Threshold’ of $3,500 and previous ‘Micro-Purchase
44
That said, while materiality is not always “too fact intensive” to resolve on summary
judgment, Escobar, 136 S. Ct. at 2004 n.6, the standard is both “rigorous” and “demanding,” id.
at 2002–03. As the Supreme Court made clear in Escobar, it is “very strong evidence” that
requirements are immaterial if the government “pays a particular claim in full despite its actual
knowledge that [those] requirements were violated.” Id. at 2003. Moreover, “if the Government
regularly pays a particular type of claim in full despite actual knowledge that certain
requirements were violated, and has signaled no change in position, that is strong evidence that
the requirements are not material.” Id. Here, it is possible that the government did both.
Indeed, for more than a decade, the GSA gave the defendant mixed signals. On the one
hand, the GSA’s regional office gave the defendant not just “satisfactory” or “very good,” but
“exceptional” ratings on its report cards. See GSA PowerPoint at 16; see also generally GSA
Report Cards. Ms. Springer, the assigned IOA out of the Atlanta Regional Office who conducted
the defendant’s CAVs, never once marked the defendant down for TAA non-compliance despite
the defendant’s complete lack of retention of historical COO information until at least June 2009,
testifying that she “didn’t see anything wrong with their process or their understanding of the
Trade Agreements Act.” Springer Dep. I at 67:2–6. Moreover, during the pendency of this
Threshold’ of $3,000, in FAR 2.101.” Def.’s Supp. Br. at 16. The defendant notes that the Buy American Act
(“BAA”), 41 U.S.C. § 83, “establishes a preference for goods manufactured in the United States where the purchase
order . . . for such goods exceeds the micro-purchase threshold.” Id. As the government argues, however, the
defendant fails to provide any authority demonstrating that the “micro-purchase threshold” of the BAA applies in
this case. U.S. Supp. Reply. at 3, ECF No. 137. The TAA is an exception to the BAA, and the government notes
that the contract at issue in this case specifically excludes the BAA from its coverage, id. (citing MAS Contract
0100N at 70 (noting that the BAA is not applicable), while incorporating the TAA requirement that the defendant
was required to certify that “each end product” offered for sale under the contract is TAA compliant, unless
otherwise specified by the contractor. See MAS Contract 0100 N at 84-85. Indeed, Robert Steinman, the
defendant’s CEO, was specifically asked about the micro-purchase threshold and, in his response, stated that the
defendant conducts its business as if “all items we sold had to be TAA compliant.” Steinman Dep. at 42. Finally, in
support of this argument, the defendant attached to its supplemental briefing a letter from the Federal Aviation
Administration (“FAA”). See Def.’s Supp. Br., Ex. 1, ECF No. 135-1. This letter, which was not provided in
discovery, see FED. R. CIV. P. 26(e)), addresses a separate statute, the Buy American Act for Aviation Programs, 49
U.S.C. § 50101, which is not implicated in this case. Thus, the defendant’s argument that the micro-purchase
threshold of the BAA has any relevance to the materiality inquiry is not persuasive.
45
seven-year litigation, the defendant received two additional GSA contracts and seven renewals of
prior contracts. Def.’s SMF ¶ 11.
At the same time, however, GSA employees in New York were sending the defendant
regular notices for contract breaches, citing the defendant’s listing of TAA non-compliant
products for sale on agency websites. Between 2005 and 2012, while the defendant was
receiving stellar marks on its report cards from GSA’s regional office, GSA’s New York office
sent the defendant at least seventeen notices for non-compliance with the TAA. See U.S. MSJ,
Exs. 4A–4Q. These notices stressed that “compliance with the [TAA] is a serious issue” and
expressly warned the defendant that the government had brought FCA actions against other
contractors for violations of the TAA. See id. The defendant’s “continued contract violations”
ultimately led to a Cure Notification Letter declaring the defendant’s “current level of
performance [as] unacceptable,” due to, in part, violations of FAR § 52.225-5. See U.S. MSJ,
Ex. 5, GSA Cure Notification Letter, at 1, 3, ECF No. 94-8. The Cure Notification Letter
prompted GSA to pull the defendant’s pricelist catalog down from the GSA Advantage! website
and suspend all payments to the defendant for at least one week. Id. at 1.
Thus, while a regional GSA employee seemed either entirely unaware of, or nonplussed
by, the defendant’s TAA non-compliance, other GSA personnel expressed deep concern, and
GSA continued to extend contract renewals and new contracts to the defendant. Whether these
mixed signals are due to ignorance, incompetence, political pressure, or worse, on the part of
GSA employees, ineffective communications within GSA, or discounting of concerns over the
defendant’s TAA non-compliance, are determinations that will rest on credibility assessments
and are consequently appropriately left to the jury. Given GSA’s mixed signals, issues of
material fact remain as to whether the impliedly false certifications were material, i.e., whether
46
TAA compliance had the “natural tendency to influence . . . the payment or receipt of money or
property.” Escobar, 136 S. Ct. at 2002 (citation omitted). Accordingly, none of the parties is
entitled to summary judgment on the element of “falsity.”
b. Scienter
The second element of an FCA claim is scienter. The FCA’s scienter requirement
attaches liability to one who “knowingly presents . . . a false or fraudulent claim for payment or
approval” or who “knowingly makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A)–(B). To establish
the scienter element of an implied certification claim, the defendant must have known both
“(1) that it violated a contractual obligation or regulation, and (2) that its compliance with that
obligation was material to the government’s decision to pay.” SAIC, 626 F.3d at 1269. The
FCA defines “knowingly” to mean “actual knowledge,” “deliberate ignorance of the truth or
falsity of the information,” or “reckless disregard of the truth or falsity of the information.” 31
U.S.C. § 3729(b)(1)(A); see also SAIC, 626 F.3d at 1266. “Actual knowledge looks at
‘subjective knowledge,’ while deliberate ignorance ‘seeks out the kind of willful blindness from
which subjective intent can be inferred.’” United States v. Speqtrum, Inc. (“Speqtrum II”), 113
F. Supp. 3d 238, 249 (D.D.C. 2015) (quoting United States ex rel. Hockett v. Columbia/HCA
Healthcare Corp., 498 F. Supp. 2d 25, 57 (D.D.C. 2007)). Reckless disregard, in contrast, is “an
extension of gross negligence . . . an extreme version of ordinary negligence,” Krizek, 111 F.3d
at 942, “or ‘gross negligence-plus,’” id. at 943; see also United States ex rel. K & R Ltd. P’ship
v. Massachusetts Hous. Fin. Agency, 530 F.3d 980, 983 (D.C. Cir. 2008); United States ex rel.
Bettis v. Odebrecht Contractors of California, Inc., 297 F. Supp. 2d 272, 277 (D.D.C. 2004),
aff’d, 393 F.3d 1321 (D.C. Cir. 2005) (“innocent mistakes” or “negligence . . . are insufficient;”
47
“the claim must be a lie”). The reckless disregard standard “address[es] the refusal to learn of
information which an individual, in the exercise of prudent judgment, should have discovered.”
United States ex rel. Ervin & Assocs., Inc. v. Hamilton Sec. Grp., Inc., 370 F. Supp. 2d 18, 42
(D.D.C. 2005).
The relator first argues that the defendant had “actual knowledge” that it was submitting
false claims to the government because the relator’s expert found that between 6,231 and 8,335
TAA non-compliant goods were sold based solely on analysis of the defendant’s own records.
Rel.’s Mem. Supp. MSJ at 18 (citing Steward Decl. ¶¶ 20–28). 29 Thus, the relator contends that
the defendant had “received information indicating that these products originated from non-
designated countries, recorded this information in its own records, and then simply proceeded to
sell the products anyway with evidence of the products’ TAA-non-compliance plainly in its
possession.” Id. This argument faces two hurdles. First, as discussed infra, the defendant
disputes the relator’s expert’s analysis, and genuine issues of material fact remain as to just how
many TAA-non-compliant products the defendant actually sold. Second, even assuming the
relator’s expert’s analysis is correct, the mere fact that the defendant’s records show, in
hindsight, that the defendant sold TAA non-compliant products does not conclusively establish
that the defendant had actual knowledge that a given product was non-compliant when it
submitted the relevant claim for payment. Thus, while the defendant’s records of non-
compliance may serve as evidence of actual knowledge, genuine issues of material fact remain
such that plaintiffs are not entitled to summary judgment.
29
The relator also points out that the defendant must have actually known that TAA compliance was a
contractual requirement because the defendant’s primary source of business had been the federal government since
1996, and the defendant’s president had attended numerous GSA meetings concerning regulatory requirements and
indeed “admitted familiarity” with the term “designated country.” Rel.’s Mem. Supp. MSJ at 18.
48
The government also argues that one of the defendant’s suppliers, United Stationers, put
the defendant “on notice that it was selling Chinese made shredders to the government.” U.S.
Mem. at 11. Specifically, the government contends that its expert established that United
Stationers’ COO data showed that Fellowes shredders sold through the defendant’s purchasing
channels were Chinese-made. Id. The defendant responds that United Stationers did not
“transmit [COO information] on the invoice level,” and instead the defendant obtained the
information only on a quarterly basis. Def.’s Mem. at 32 (quoting Dep. of Nilesh Patel (“Patel
Dep.”) at 37:7–9; 49:7–13, ECF No. 100. Thus, genuine issues of material fact remain as to
whether the defendant was sufficiently put on notice by United Stationers that it was selling
Chinese-made shredders at the time it submitted the relevant claims for payment.
The relator relies heavily on the notices the defendant received from GSA informing the
defendant that it was listing TAA non-compliant products for sale on agency websites. See
Rel.’s Mem. Supp. MSJ at 18–19. While the notices may establish that the defendant knew it
was listing TAA non-compliant products for sale, the notices do not necessarily show that the
defendant knew it had sold any TAA non-compliant product when it submitted the relevant claim
for payment. See United States ex rel. Folliard v. Govplace, 930 F. Supp. 2d 123, 127 (D.D.C.
2013) (explaining that a relator “may only pursue claims connected to sales, not simply listings
of items for sale”). As noted supra, moreover, at the same time the government was sending the
defendant notices instructing the defendant to remove TAA non-compliant products from the
GSA Advantage! website, the defendant was also receiving high marks on its report cards
following each of its CAVs. Cf. United States ex rel. Folliard v. Gov’t Acquisitions, 764 F.3d at
30 (concluding that reliance on a suppliers’ certifications of COO data was reasonable in part
because the defendant had notified GSA of its reliance during CAVs and GSA’s report cards
49
evaluating the defendant “all concluded that [the defendant] ha[d] complied with the TAA”).
Thus, any inference of knowledge based on the GSA notices will necessarily depend on
weighing evidence and credibility determinations of witnesses, and thus cannot be the basis for
summary judgment against the defendant. See Reeves, 530 U.S. at 150; Burley, 801 F.3d at 295–
96.
The relator also argues that the defendant acted with deliberate ignorance and reckless
disregard because it “maintained no written protocol for collecting and utilizing COO data,”
Rel.’s Mem. Supp. MSJ at 22, and “reli[ance] on vendor supplied COO information was
unreasonable,” Id. at 20. 30 The relator cites United States ex rel. Folliard v. Gov’t Acquisitions,
Inc., 764 F.3d 19 (D.C. Cir. 2014), for the proposition that “[r]eliance on information from a
third-party for regulatory compliance support is only reasonable when such third party
specifically guarantees compliance.” Rel.’s Mem. Supp. MSJ at 20–21. Folliard, however,
merely held that a defendant had “reasonably relied on Ingram Micro’s COO certification” on
the specific facts of the case because Ingram Micro specifically certified its products’ COO.
Folliard, 764 F.3d at 30–31. In this case, none of the defendant’s suppliers expressly certified
that its products were TAA compliant. See, e.g., U.S. Mot., Ex. 6, United Stationers’ Letter of
Supply, ECF No. 94-9, Ex. 8, Tech Data Terms & Conditions of Sale, ECF No. 94-11, Ex. 7,
Ingram Micro Letter of Supply and accompanying Fellowes Letter of Supply (“Ingram Micro
Letter of Supply”), ECF No. 94-10. This does not, however, render any reliance on its suppliers’
representations automatically unreasonable. Especially given the heightened standard of reckless
disregard under the FCA, a jury must determine whether any reliance on supplier information
was not just unreasonable but was “gross negligence-plus.” Krizek, 111 F.3d at 943.
30
The relator suggests that the defendant had a “non-delegable duty to furnish only TAA-compliant products
to government customers,” Rel.’s Mem. Supp. MSJ at 20, but cites no authority in support of this proposition.
50
In sum, although the plaintiffs have produced evidence that might support a finding of
scienter, any such conclusion would entail weighing competing evidence and credibility
assessments of witnesses. Accordingly, no party is entitled to summary judgment on the issue of
scienter.
2. Damages
The FCA imposes two types of damages: civil penalties ranging between $5,500 and
$11,000 for each false claim submitted to the government, and, on top of that, actual damages
calculated at three times the amount of any monetary loss the government suffered because of
the false claims. 31 U.S.C. § 3729(a)(1)(G); 28 C.F.R. § 85.3(a)(9) (adjusting penalties for
inflation). “To establish damages, the government must show not only that the defendant’s false
claims caused the government to make payments that it would have otherwise withheld, but also
that the performance the government received was worth less than what it believed it had
purchased.” SAIC, 626 F.3d at 1279.
As noted above, in calculating the number and value of the defendant’s TAA non-
compliant sales to the government, the relator’s expert arrived at four alternative figures. Rel.’s
SMF ¶ 41. Based on these differing numbers, the expert determined that “damages against [the
defendant] currently amount to between $4,223,734 and $4,834,716 over 21,860 to 24,8080
invoices.” Rel.’s Mem. Supp. MSJ at 29. The relator “believes” “that the higher of each of
these” numbers “is appropriate for summary judgment.” Id. Furthermore, according to the
relator, “[g]iven the extent of unlawful behavior, and the extent of missing or destroyed
documentation, . . . treble damages are appropriate.” Id. The relator’s “belie[f]” that the
defendant submitted 24,808 invoices with TAA non-compliant products, as opposed to 21,860
invoices, is not sufficient basis to find, on summary judgment, that the higher of these two
51
numbers is appropriate. The very fact that the relator’s own expert could not come to a precise
conclusion only illustrates that there is a genuine dispute as to how many non-compliant products
were actually sold by the defendant. 31
Further, the defendant calls into question the abilities and methodologies of plaintiffs’
experts, criticizing the government’s expert report as being “riddled with errors” and “based in
part on speculation and conjecture,” and for “exclud[ing] exculpatory information . . . [to] fit
Plaintiffs [sic] theory of the case.” Def.’s Opp’n U.S. & Rel.’s MSJs at 13–15. The defendant
also notes that the government’s expert, Mr. Kozlow, was not able to match the vendor for all of
the sales identified in his report and yet, “[e]ven if [Kozlow] could not confirm the vendor for a
particular sale, he still included such sales in his totals for items allegedly coming from non-
designated countries.” Id. at 13. Furthermore, the defendant asserts that Mr. Kozlow did not
review or “chose to disregard” two files and an email from a vendor, including a file that
“contains a historical catalog of all COO information for every product sold by Capitol since
approximately 2010.” Id. at 15. According to the defendant, it matched COO information
against the list of “allegedly non-complaint shredders attached to the United States’ Complaint”
and by “utilizing the files” the defendant alleges Mr. Kozlow did not use, “Capitol has
demonstrated that it possessed compliant COO information for approximately 348 of the 588
transactions . . . identified in Mr. Kozlow’s Report as allegedly involving non-compliant
products.” Id. at 16.
The defendant argues that the relator’s expert’s report “suffers from similar fatal flaws.”
Id. at 16 (questioning the relator’s expert’s experience and qualifications). In particular, the
31
While the Court will permit the jury to draw an adverse inference given the incomplete data available in
this case, the scope of that inference in terms of the number of non-compliant products sold will be determined by
the jury’s evaluation of the evidence.
52
defendant contends that the relator’s expert, Dr. Steward, overstated the certainty of whether data
he gathered and analyzed in fact pointed to the level of TAA non-compliance the plaintiffs’ used
to calculated the amount of their claim. See id. at 18–19. The abilities and methodologies of
plaintiffs’ experts will surely be material to a damages determination if liability is found,
providing yet another basis for denying summary judgment.
IV. CONCLUSION
For the foregoing reasons, the relator’s and the government’s motions for adverse
inference are granted. The form that the adverse inference will take at trial must be addressed in
forthcoming pre-trial motions in limine. The defendant’s motion for summary judgment is
denied because the public disclosure bar is inapplicable in this case. The plaintiffs’ motions for
summary judgment are denied because genuine issues of material fact remain as to falsity,
scienter, and damages.
An Order reflecting the holdings of this Memorandum Opinion was entered on March 31,
2017. See ECF No. 140.
Date: April 19, 2017
__________________________
BERYL A. HOWELL
Chief Judge
53