United States Ex Rel. Shemesh v. CA, Inc. , 89 F. Supp. 3d 67 ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA EX REL.
DANI SHEMESH,
Plaintiff,
Civil Action No. 09-1600 (ESH)
v.
CA, INC.,
Defendant.
MEMORANDUM OPINION AND ORDER
The government, by relator Dani Shemesh, filed a complaint in intervention against
defendant CA, Inc., alleging violations of the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et
seq., as well as common law claims in connection with the sale of computer software licensed
products and corresponding maintenance. Defendant now moves to dismiss the government’s
amended complaint pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(6), and 12(b)(1).
(See Def.’s Mem. in Supp. of Mot. to Dismiss, Jul. 3, 2014 [ECF No. 59] (“Def.’s Mem.”).)
This is the second motion to dismiss brought by CA, the first of which was to dismiss the
relator’s complaint and has been addressed in a separate Memorandum Opinion also issued this
date. (See Mem. Op., Mar. 31, 2015 [ECF No. 64] (“Relator’s Mem. Op.”).) The Court will
now address CA’s motion to dismiss the government’s complaint in intervention. Given the
overlapping issues of law and similar factual background, the Court need not repeat what has
already been said, but will focus on the allegations in the government’s complaint that raise
different factual or legal issues.
BACKGROUND
I. GOVERNMENT’S ALLEGATIONS
Relator’s false claims and false statements allegations date back to the negotiation of the
initial MAS contract between CA and the GSA in 2001. By contrast, the government’s claims
focus on events connected to the 2007 and 2009 contract renewal processes and thereafter.
Specifically, the government alleges that “[t]he information that CA provided to GSA in
connection with the negotiation of the 2007 Contract extension and 2009 Contract extension
pertaining to its commercial sales practices and its discounts was knowingly inaccurate and
incomplete.” (Gov. Am. Compl. ¶ 67.) As a result of several false statements made during and
subsequent to the contract renewal negotiations in 2007 and 2009, the government claims that it
was fraudulently induced to enter into the two contract extensions, which in turn resulted in CA
submitting false claims for payment throughout the contract extension periods. (See id. ¶ 69.) In
addition to its FCA claims, the government also brings claims for breach of contract, payment by
mistake, and unjust enrichment.
a. False statements during 2007 contract renewal
The initial MAS contract between CA and the government was set to expire in 2007, but
the parties agreed to negotiate an extension. (Gov. Am. Compl. ¶ 50.) Concurrently, at the
GSA’s request, CA submitted a “Corrective Action Plan.” (See id. ¶ 48.) Because the
Corrective Action Plan changes had not yet been finalized by the time the parties were
negotiating a renewal, the parties agreed that any renewal of the MAS contract would be for one
year rather than an additional five-year term. (See id. ¶ 50.) CA submitted a new CSP for SINs
132-32 (term software licenses) and 132-33 (perpetual software licenses). (See id.) The
government alleges that “[b]ecause of CA’s admitted failure to comply with the Price Reduction
2
Clause, CA offered GSA an additional discount of 15% for SINs 132-32 and 132-33 ‘during the
requested twelve month extension; or until such time as CA has completed all our Action Plan
items.’ That brought the total government discount for SIN 132-32 and 132-33 to 50%.” (Id.)
According to the September 10, 2007 CSP, “Commercial end user [“CEU”] customers receive an
average discount of 50%. Absent the exclusions, Commercial End User customers represented
more than 70% of sales in dollars.” (Id. ¶ 53 (quoting Sept. 10, 2007 CSP).) CA also agreed that
it would comply with the Price Reduction Monitoring Clause to maintain the static price
relationship between the government and the basis of award customer. (See id. ¶ 52.)
The government alleges that many of these statements were knowingly false. The
government has conducted a preliminary review of CA’s sales database and discovered that CA
offered CEUs a 72% average standard discount for SIN 132-32 and a 55% average standard
discount for SIN 132-33. (See id. ¶ 73.) “As a result of CA’s false statements, agencies of the
United States paid more for CA licenses than they would have if CA had disclosed its true
discounting practices and policies.” (Id. ¶ 74; see also ¶ 75.)
b. False statements during 2009 contract renewal
In 2009, the parties agreed to renew the contract for three more years. 1 (Id. ¶ 55.) In
connection with the renewal negotiations, CA submitted separate CSPs on September 15, 2009,
for SINs 132-32, 132-33, and 132-34 (maintenance). (See Gov. Am. Compl. ¶ 55.) This was the
first time CA had submitted a separate CSP for the term (SIN 132-32) and perpetual (SIN 132-
33) licensed products. (See id.) “In its 2009 CSP for SIN 132-32, under the section for standard
discounts and pricing policies to commercial end users, CA represented that ‘Commercial end
1
The parties renewed the contract for an additional one-year term in 2008. (See Gov. Am.
Compl. ¶ 41.) The government has not alleged any fraudulent conduct relating to the negotiation
of the 2008 contract extension.
3
user customers receive an average discount of 78%. Commercial End User customers represent
more than 70% of sales in dollars.’” (Id. ¶ 56 (quoting Sept. 15, 2009 SIN 132-32 CSP).) In this
same CSP, CA represented that it “offers the government CA’s Mainframe product standard
license types at a discount of 45%, effective October 1, 2009.” (Id.) CA also disclosed that it
would continue to conduct quarterly reviews of the average discounts of CEUs and reduce the
GSA price as required by the Price Reduction Monitoring Clause. (See id. ¶ 57.) CA made
similar representations with respect to the SIN 132-33 CSP that was submitted on the same date.
Specifically, CA stated that “[c]ommercial end users receive an average discount of 44%.
Commercial End User customers represent more than 70% of sales in dollars.” (Id. ¶ 58 (quoting
Sept. 15, 2009 SIN 132-33 CSP).) Further, CA represented that it “offers the government CA’s
Distributed product standard license types at a discount of 45%, effective October 1, 2009.” (Id.
¶ 59 (quoting Sept. 15, 2009 SIN 132-33 CSP).) Again, CA agreed to maintain the price
relationship between the government and the average discount given to CEUs and to comply
with its obligations under the Price Reduction Monitoring Clause. (See id.)
The 2009 CSP that CA submitted for SIN 132-34 included a maintenance calculation
policy that was different from that disclosed in the 2001 CSP. CA stated that “[e]ffective April
1, 2009, CA changed the [maintenance fee] calculation from List Price to ‘net’ fee, multiplied by
the then prevailing maintenance rate for the Product.” 2 (Gov. Am. Compl. ¶ 60 (quoting Sept.
15, 2009 SIN 132-34 CSP).) In this CSP, CA also stated that “[d]iscounts provided to
Commercial End Users are between 0-28% based on the pre April 1, 2009 policy of maintenance
calculation on list price. Commercial End User customers represent more than 70% of sales in
2
Notably, this is the calculation process for maintenance that relator alleges was in effect during
the entire contract period, unbeknownst to the government. (See Relator’s Mem. Op. at 2.)
4
dollars.” (Id. ¶ 61.) None of the 2009 CSPs referred to pay options. (See id. ¶ 64.) CA stated in
its September 15, 2009 Final Proposal Revision letter “that all data submitted is accurate,
current, and complete representations as of September 15, 2009.” (Gov. Am. Compl. ¶ 63
(quoting Sept. 15, 2009 Fin. Proposal Letter).)
The government alleges that the 2009 CSPs were “inaccurate, incomplete, and misled
GSA.” (Id. ¶ 76.) Again, based on analysis of CA’s sales database, the government found that
during the year preceding the submission of the SIN 132-34 CSP for maintenance, CA offered
greater standard discounts to CEU customers than it had disclosed to the government, and on
occasion, CEUs even received free maintenance. (See id. ¶ 79.) Consequently, the claims
submitted to the government included inflated prices for maintenance. (See id. ¶ 80.)
c. False statements during contract performance
The government also alleges that CA made false statements during the performance of
the MAS contract. CA requested modifications to the contract multiple times during the contract
period. After 2006, “CA expressly represented to the Government that its commercial
discounting and pricing policies were the same as had been described in CA’s original
disclosures, except to the extent that CA had identified changes in its practices in subsequent
CSPs.” (Gov. Am Compl. ¶ 82.) In effect, these statements confirmed that the discount and
pricing policies were the same as provided during the negotiation and renegotiation of the
contract. (See, e.g., id. ¶¶ 83-106.) The government alleges that these statements were
knowingly inaccurate and incomplete. (See id. ¶ 107.) For example, one such statement was
submitted on September 25, 2008, when the 2007 CSP controlled. In this CSP, CA stated that
CEUs receive an average discount of 50%, but the government’s review of CA’s sales data
pertaining to the time CA certified that “there have been no changes to the commercial/discount
5
pricing policies and practices,” showed that CA was giving CEU customers approximately an
average standard discount of 64%. (Id. ¶ 108.)
d. Failure to comply with the Price Reduction Monitoring Clause
The Price Reduction Monitoring Clause was designed to prevent overpayments from
false disclosures, but the government alleges that “CA knowingly did not monitor its compliance
with the Price Reductions Clause, as required by the Contract.” (Gov. Am. Compl. ¶ 112.) The
Price Reduction Monitoring Clause was part of the initial MAS contract, and CA confirmed it
would abide by this provision during subsequent contract renewals. (See id. ¶¶ 52, 57.) In 2006,
CA hired Pricewaterhouse Coopers (“PwC”) to review CA’s compliance with the Price
Reduction Monitoring Clause. (See id. ¶ 115.) PwC reported to CA “that quarterly Price
Reductions Clause reports were not being done and that certain quarterly reports from past years
were missing entirely.” (Id.) The government alleges that “[b]ased on the PwC review, CA
eventually paid money to GSA, but failed to remit the proper amount,” and even following the
review, “CA failed to consistently conduct price reduction Monitoring and failed to maintain and
retrieve accurate information from its sales database.” (Id. ¶ 117.) In addition, CA inexplicably
excluded CEUs with Enterprise License Agreements (“ELA”) “when calculating discounts made
to its Basis of Award customer for 2002 to 2012 to the present.” (Id. ¶ 118.) According to the
government, ELAs are a means to sell products and services rather than a category of customer,
so some CEUs could have structured their agreements with CA as ELAs. (See id. ¶ 120.) This
seems to have occurred at least a few times during the contract period. For instance, in CA’s
2009 CSPs for SINs 132-32, 132-33, and 132-34, CA defined CEU customers to include “[s]ome
Enterprise License Agreements.” (Id. (quoting Sept. 15, 2009 CSP).) But by excluding ELAs
6
with CEUs from the average discount calculation, CA knowingly withheld price reductions owed
to the United States. (Id. ¶ 121.)
The government filed an amended complaint in intervention on June 13, 2014. In Count
I, citing 31 U.S.C. § 3729(a)(1) (2006), or alternatively, 31 U.S.C. 3729(a)(1)(A), the United
States alleges that defendant “knowingly presented, or caused to be presented, for payment or
approval, false and/or fraudulent claims.” (Id. ¶ 127.) Count II cites 31 U.S.C. § 3729(a)(1)(B)
and alleges that defendant “knowingly made, used, or caused to be made or used, false records or
statements material to a false or fraudulent claim.” (Id. ¶ 132.) In Count III, citing 31 U.S.C. §
3729(a)(7) (2006), or alternatively, 31 U.S.C. § 3729(a)(1)(G), the government alleges that
defendant “knowingly made, used, or caused to be made or used, a false record or statement
material to an obligation to pay or transmit money or property to the Government, or knowingly
concealed or knowingly and improperly avoided or decreased an obligation to pay or transmit
money or property to the Government.” (Id. ¶ 137.) Counts IV-VI allege common law claims
for breach of contract, payment by mistake, and unjust enrichment, respectively. (Id. ¶¶ 140-47.)
II. MOTION TO DISMISS
Defendant has filed a motion to dismiss the government’s amended complaint, 3 arguing
that the government’s FCA allegations fail to state a claim under Rule 12(b)(6) and are not
3
Along with its motion to dismiss, CA has provided contract documents that were incorporated
by reference into the government’s complaint in intervention. These documents include the first
two pages of the September 20, 2002 contract (See Def.’s Mem. Ex. A), letters incorporated into
the contract dated June 27, 2002, and September 20, 2002 (see id. at Ex. B, C), CA’s November
30, 2001, September 10, 2007, and September 30, 2009 CSPs (see id. at Ex. D, E, G), and the
cover page of the 2009 contract modification document, MOD PS074 (see id. at Ex. F). These
documents are properly considered by the Court because the government frequently referenced
them in setting forth its allegations. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
308, 322 (2007) (The court “must consider the complaint in its entirety . . . in particular,
documents incorporated into the complaint by reference, and matters of which a court may take
judicial notice.”).
7
sufficiently particular under Rule 9(b). According to CA, the government cannot plead a theory
of fraud unless the representations are inconsistent with the contract documents, and the
government must allege with specificity that those representations, as defined by the relevant
contract documents, are in fact untrue. This argument presupposes that the issues before the
Court are purely legal and can be resolved at this stage solely based on the limited record of
exhibits incorporated by reference.
CA argues that the government fails to allege any falsity because there is no claim that it
violated specific contract provisions. (See Def.’s Mem. at 5.) In particular, the government has
failed to state a claim because it does not contend that CEU customers with commitments of
$500,000 or less, outside of the enumerated exclusions, 4 received a higher discount for each of
CA’s commercial pay options within a specific period of time. With respect to inaccurate
discount disclosures, CA claims that the government’s allegations do not amount to falsity
because the difference in the standard discounts identified by the government is due to a
misunderstanding of the contract language: namely, the government fails to take into account
that the average standard discount is 1) an average; 2) omits certain sales due to enumerated
exclusions; and 3) should not include ELAs. (See id. at 7.) CA also argues that its many
modification request statements that the government alleges were false did not certify that the
disclosed prices had not changed, but rather, only that the disclosed pricing policies had not
changed. (See id. at 18.) Alternatively, CA argues that even if the government has stated a claim
4
“CA may deviate from its normal product license pricing practices” for the following four
exceptions: 1) Client Relations; 2) Competitive Replacements and Bids; 3) Contractual Rates;
and 4) Business Metric Deals. (Def.’s Mem. Ex. B at 1-2.)
8
under Rule 12(b)(6), it has failed to provide sufficient particularity of the fraudulent
circumstances to satisfy Rule 9(b). (See Def.’s Mem. at 37.)
According to CA, the government’s common law claims should also be dismissed. CA
argues that the Court does not have jurisdiction over the government’s breach of contract claim
because claims arising from government contracts that do not involve fraud must be filed with
the Civilian Board of Contract Appeals or the Court of Federal Claims pursuant to the Contract
Disputes Act. (See id. at 41-42.) Moreover, the payment by mistake and unjust enrichment
claims are improper because these quasi-contract issues are only available in the absence of an
express contract. (See id. at 42-43.)
ANALYSIS
For the reasons stated below, the Court will deny defendant’s motion to dismiss. The
government’s complaint satisfies the pleading requirements of Rules 12(b)(6) and 9(b), and
based on the limited record before the Court, it does not agree that the many issues of contract
interpretation present only legal issues (as opposed to factual issues) that can be resolved at this
stage by the Court. Because fraud is still an issue in this case, the breach of contract claim also
survives. In addition, the Court agrees with the government that its quasi-contract claims may go
forward because the government has challenged the validity of the contract by pleading that it
was fraudulently induced by CA’s false statements.
I. FALSE CLAIMS ACT ALLEGATIONS
The False Claims Act provides liability for any person who “(A) knowingly presents, or
causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly
makes or uses . . . a false record or statement material to a false or fraudulent claim; . . . or (G)
knowingly makes . . . a false record or statement material to an obligation to pay or transmit
9
money . . . to the Government, or knowingly conceals . . . an obligation to pay.” See 31 U.S.C.
3729(a)(1). In addition to satisfying the requirements of Rule 12(b)(6), plaintiff is required to
plead the circumstances constituting fraud with sufficient particularity under Rule 9(b). 5 The
parties do not dispute that CA submitted claims to the United States for payment, but they
disagree on the sufficiency of the government’s allegations as to the remaining elements of an
FCA claim.
a. Falsity
CA primarily bases its challenge to the government’s complaint on the grounds that the
allegations regarding CA’s statements, claims, or omissions are not false because they ignore the
relevant contract terms. (See Def.’s Mem. at 5 (“The Government’s allegations fail to show any
improper pricing or pricing disclosures by CA.”); see also Def.’s Reply in Supp. of Mot. to
Dismiss, Aug. 8, 2014 [ECF No. 63] (“Reply”) at 5 (“The Government’s Opposition fails to
explain how its allegations of falsity are supported by – or even can be reconciled with – the
actual terms of the Contract and CSPs.”).) CA relies on contract documents to highlight
provisions that it claims the government ignored in crafting its theories of liability. (See Def.’s
Mem. at 5.) In this way, CA seeks to relegate the government’s allegations to a matter of
contract interpretation that can be decided at the motion to dismiss stage, since the Court will not
need to resolve factual disputes, but only exercise “the purely legal function of contract
interpretation.” (Reply at 2.) The Court, however, disagrees with the premise of CA’s argument.
For instance, CA argues that the government’s defective pricing theory regarding the
2009 CSP for maintenance does not allege any pricing inaccuracies of the “average” standard
5
See Relator’s Mem. Op. at 9-10 for a more expansive discussion of the legal standards under
Rules 12(b)(6) and 9(b).
10
discount disclosure. (See Def.’s Mem. at 8.) The government alleges that CA disclosed that its
standard discounts for maintenance fees range between 0 and 28 percent, but it offered its CEU
customers far greater discounts, including, at times, free maintenance. (See Gov. Am. Compl. ¶¶
78-79.) CA cites a September 20, 2002 letter that was incorporated into the contract in which
CA describes that the pricing arrangement initiated by the parties at the commencement of the
contract was based on the “average discount of each Pay Option as specified in Computer
Associates’ average discount report.” (Id.) This contract language, however, is irrelevant to the
government’s claim regarding the 2009 CSP. The initial pricing arrangement for maintenance
was not in fact based on an average standard CEU discount, but rather was calculated based on a
percentage of the software license list price. (See, e.g., Relator’s Mem. Op. at 4.) Thus, the
contract language CA cites does not support its argument that the government should have
known that maintenance was calculated as an average.
In 2009, however, CA disclosed to the government that, effective April 1, 2009, it had
changed its maintenance calculation policy “from List Price to ‘net’ fee, multiplied by the then
prevailing maintenance rate for the Product.” (Gov. Am. Compl. ¶ 60 (quoting Sept. 15, 2009
SIN 132-34 CSP).) CA argues that it disclosed to the government on the 2009 CSP that
maintenance would be calculated as an average going forward, so it could not be liable for
offering a maintenance discount to a CEU customer that was higher than the disclosed average.
(See Def.’s Mem. at 9.) Although CA identifies language in the contract materials that specifies
that this disclosure was an average rather than a range (see id.), the government is similarly able
to identify language incorporated into the contract that states otherwise. (See Gov. Am. Compl.
¶ 61 (“In the 2009 CSP for SIN 132-34 . . . CA represented that ‘Discounts provided to
Commercial End Users are between 0-28% based on the pre April 1, 2009 policy of maintenance
11
calculation on list price.’”).) At this stage, when the parties offer conflicting interpretations and
neither is more persuasive than the other based on the record, the Court must draw all fair
inferences in favor of the non-moving party. 6 United States v. Kellogg Brown & Root Servs.,
Inc., 800 F.Supp.2d 143, 160-61 (D.D.C. 2011).
CA also argues that the government’s FCA claims should be dismissed because they do
not specify which pay options were involved in the defective pricing or which period of time the
allegedly deeper discounts were available to CEU customers. (See Def.’s Mem. at 11-14.)
However, the government is not required to plead falsity with the level of specificity that CA
demands. To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). So long as
the plaintiff pleads facts that allow “the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged,” the motion to dismiss must be denied. Id. at 663 (citing
Twombly, 550 U.S. at 555). Details regarding the specific pay options involved in the sales at
issue, the specific period of time during which CA was required to calculate the difference
between the government’s discounts and those offered to the basis of award customer, and the
appropriateness of the exclusions 7 cannot be determined based on the record. At this point, it is
enough that the government’s allegations are plausible.
6
To be clear, the Court is not concluding that the contract is ambiguous, but only that the parties
disagree over its interpretation. “A contract is not rendered ambiguous merely because the
parties disagree over its proper interpretation.” Parker v. United States Trust Co., 30 A.3d 147,
150 (D.C. 2011) (quoting Gryce v. Lavine, 675 A.2d 67, 69 (D.C. 1996)).
7
Although the government may not have attempted to calculate how the various exclusions
affected CA’s sales data, the Court is able to infer that the defendant is liable based on the
government’s allegations. In addition, there may be a question of fact as to whether CA properly
invoked various exclusions. For example, in relator’s second amended complaint, he mentioned
12
CA also posits that the government’s allegations regarding the contract modification
request statements fail to state a claim. According to CA, these statements that verified that
“[t]here have been no changes in commercial discount/pricing and practices” (see, e.g., Gov.
Am. Compl. ¶ 84) merely applied to the policies, not to the actual discounts, and “[n]owhere in
the Amended Complaint does [plaintiff] identify any changes in CA’s commercial
discount/pricing ‘policies and practices.’” (Def.’s Mem. at 18.)
This very argument was raised and rejected in United States ex rel. Frascella v. Oracle
Corp., 751 F.Supp.2d 842 (E.D. Va. 2010). There, the government alleged that “Oracle
affirmatively stated on multiple occasions during performance of the contract . . . that ‘[t]here
have been no changes in commercial discount/pricing policies and practices from that originally
provided in response to . . . the solicitation.’” Id. at 855. In denying the defendant’s motion to
dismiss, the court held that those statements were false and were made with the intent to induce
the GSA to enter into contract modifications. See id. The Frascella court understood the
language at issue to refer to actual discounts, and not to some amorphous pricing policy as
Oracle suggested. Id. The same conclusion applies here, since the government alleges that it
was fraudulently induced into entering into the MAS contract modifications with CA in 2007 and
2009 by relying on false statements made during the renewal process and during the performance
of the contract. (See Gov. Am. Compl. ¶ 69 (“[T]he Government relied in deciding to extend the
Contract on false statements made knowingly by CA. Because CA fraudulently induced the
that in order to receive approval for significant discounts, CA employees merely had to tell CA
officials that “the deal was ‘a strategic deal.’” (Relator’s Mem. Op. at 21.) The exclusion
categories, which were defined and regulated by CA, could well have been abused to circumvent
CA’s obligations to the government under the MAS contract. Therefore, CA’s contention that
the government did not properly take the disclosed exclusions into account does not negate the
validity of the government’s allegations.
13
United States to enter into the Contract extensions, each claim for payment made by CA under
those extensions was a false claim.”).) Accepting the government’s well-pleaded factual
allegations as true, as it must at the motion to dismiss stage, the Court is satisfied that the
government has adequately pled falsity with respect to CA’s statements made during and
subsequent to contract renewal, as well as to all claims submitted pursuant to the modified
contract.
The government also alleges that CA made false statements regarding its compliance
with the Price Reduction Monitoring Clause. In a March 18, 2004 letter that was incorporated
into the contract, CA stated that “CA has been passing the price decreases to the Government,
maintaining the cost currently approved by GSA in the case of a price increase, and reporting
and paying the IFF fees accordingly.” (Gov. Am. Compl. ¶ 114 (quoting March 18, 2004
letter).) The PwC review in 2006 concluded that, contrary to CA’s statements, CA had not been
performing its quarterly Price Reduction Monitoring Clause reports and that “certain quarterly
reports from past years were missing entirely.” (Gov. Am. Compl. ¶ 115.) The government
argues that even when CA eventually remitted money to GSA, it failed to pay the proper amount,
partly because CA incorrectly excluded some sales (i.e., ELAs with CEUs) from the average
standard discount calculation. (See Gov. Am. Compl. ¶¶116, 118.) CA responds that the
government is incorrect that ELA sales should be treated as CEU sales because ELAs are a
separate category of customer. (See Def.’s Mem. at 14.) However, the contract materials
indicate that at least after the 2009 contract extension, some ELAs should have been included in
the average standard discount calculation. (See Def.’s Mem. at Ex. G (defining Commercial End
User customers to include “Some Enterprise License Agreements.”).) The government makes a
plausible claim that it entered into the contract extensions because of this and similar
14
representations that defined the scope of CA’s discounts relative to the discounts offered to the
government.
According to the complaint, CA represented either explicitly or implicitly that the offered
discounts would not be entirely whittled away by exclusions, exemptions, and non-standard
categories, and they would be equivalent to those offered to CEU customers. (See, e.g., Def.’s
Mem. Ex. G (“Commercial End User customers represent more than 70% of sales in dollars.”).)
And, that CA’s false statements fraudulently induced the GSA to enter into contract extensions,
and as a result, all subsequent claims for payment were false. See United States ex rel. Bettis v.
Odebrecht Contractors of Cal., Inc., 393 F.3d 1321, 1326 (D.C. Cir. 2005) (“When Congress
amended the FCA in 1986,” . . . “Congress noted that, under FCA case law, ‘each and every
claim submitted under a contract, loan guarantee, or other agreement which was originally
obtained by means of false statements . . . constitutes a false claim.’”); see also United States ex
rel. Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 787-88 (4th Cir. 1999)
(surveying case law on fraud in the inducement FCA liability).
b. Scienter
The False Claims Act defines “knowing” as actual knowledge, deliberate ignorance, or
reckless disregard of the truth or falsity of information. See 31 U.S.C. § 3729(b)(1)(A).
Although the government has not identified an individual who knew that CA was making false
statements and submitting false claims to the government, 8 it has provided sufficient information
to infer that, at the very least, CA recklessly disregarded the truth or falsity of the information it
was providing to the government during and after the contract renewals. The government has
8
See Relator’s Mem. Op. at 19-22 for further discussion of whether scienter requires plaintiff to
identify specific individuals with the requisite knowledge.
15
conducted a preliminary review of some of CA’s sales data and alleged that there is evidence to
suggest that CA failed to accurately disclose its standard average discount to the government.
(See, e.g., ¶ 73.) CA was obliged to review its sales data on a quarterly basis pursuant to the
Price Reduction Monitoring Clause of the MAS contract, so it should have been aware that it
was charging the government inflated prices throughout the contract. According to the
government, not only did CA fail to notify the government that the disclosed discounts were
inaccurate, but it also submitted false statements throughout the contract period verifying that the
pricing practices had not changed. The government is only required to plead knowledge
generally (see Fed. R. Civ. P. 9(b)), so it is enough that it is has set forth allegations that show
CA recklessly disregarded the truth or falsity of the information it disclosed to the government.
Thus, on the face of the complaint, the government has adequately pled that CA knowingly
submitted false claims and made false statements to the government.
CA counters that the government cannot meet the scienter requirement because CA
complied with an objectively reasonable reading of its CSP disclosures. (See Def.’s Mem. at 29
(citing United States ex rel. K & R Ltd. Partnership v. Mass. Hous. Fin. Agency, 530 F.3d 980,
984 (D.C. Cir. 2008) (holding that an FCA violation cannot occur when the parties “simply
disagree about how to interpret ambiguous contract language.”)).) However, the Court does not
have all of the relevant materials to assess whether CA’s position on its disclosure obligations is
objectively reasonable. Without these documents, the Court cannot determine whether the
government’s claims are purely a matter of contract interpretation. See Kellogg Brown & Root
Servs. Inc., 800 F.Supp.2d at 159 (“Given the allegations the government has put forward,
however, further factual material is required before the Court can determine whether the claims
at issue here involved only a contractual dispute.”).
16
c. Materiality
Further, CA argues that the government has failed to adequately allege materiality
because the discounts negotiated on the basis of the CSPs set a ceiling for prices, and individual
agencies were able to negotiate for better prices. (See Def.’s Mem. at 26.) The Price Reduction
Monitoring Clause would also have prevented any harm from alleged misrepresentations. The
MAS contract regulations provide that “[a]lthough GSA has already negotiated fair and
reasonable pricing, ordering activities may seek additional discounts before placing an order.”
48 C.F.R. § 8.404(d). However, the assumption built into this regulation is that the contract price
is fair and reasonable and is based on complete and accurate data. As alleged by the
government, the contract prices negotiated by the parties were inflated under fraudulent
circumstances. Thus, any negotiations for lower prices by individual agencies would have been
similarly conducted under fraudulent conditions. Moreover, the government has cited several
examples of individual agencies purchasing CA products at inflated prices. (See, e.g., Gov. Am.
Compl. ¶¶ 75, 80.)
CA’s Price Reduction Monitoring Clause argument is also unpersuasive. As discussed in
the Relator’s Mem. Op. at 23-24, the Price Reduction Monitoring Clause was alleged to be
ineffective throughout the contract. Moreover, the government claimed that even when CA
conducted quarterly reports and reduced the government’s prices accordingly, the amount
remitted was inaccurate because CA inappropriately excluded some sales from the average
standard discount calculation. (See Gov. Am. Compl. ¶ 117.) For example, accepting the
government’s allegations as true, the ELA sales should have been included in the discount
calculations because they were utilized by some CEU customers at least since 2009. (See id. ¶
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120.) Therefore, the Price Reduction Monitoring Clause did not negate the materiality of CA’s
false statements on the government’s decision to pay inflated prices.
d. Particularity
An FCA plaintiff must plead “with particularity the circumstances constituting fraud.”
Fed. R. Civ. P. 9(b). In other words, the plaintiff “must state the time, place and content of the
false misrepresentations, the facts misrepresented and what was retained or given up as a
consequence of the fraud.” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1278 (D.C. Cir.
1994). The government has satisfied this test. The government provided several examples of
allegedly false statements made during contract renewal and the contract period. (See, e.g., Gov.
Am. Compl. ¶¶ 71-73, 78-79, 83-106.) It also specified when these statements were made and in
relation to which parts of the contract. 9 (See id.) Although CA might disagree on the falsity of
these statements, it is aware from the details of the complaint which statements and claims are
alleged to be false. “While the government conceivably could have provided additional details
. . . the same could be said of virtually every complaint, particularly those based on multiple
claims and lengthy, complex government contracts. What matters here is that the complaint
fulfills Rule 9(b)’s underlying purpose of providing [the defendant] with ‘sufficient notice of the
claims against [it] to prepare a defense.’” Kellogg Brown & Root Servs. Inc., 800 F.Supp.2d at
153-54. This is especially true when CA has access to the claims it submitted to the government.
See id. Further, the “‘D.C. Circuit has taken a generous approach to pleadings’ in the FCA
context, finding that ‘a complaint is not deficient even if it fails to set out a prima facie case as an
initial matter.’” Id. at 154 (quoting United States ex rel. Ortega v. Columbia Healthcare, Inc.,
9
See Relator’s Mem. Op. at 24-26 for further discussion of the contours of Rule 9(b) and its
application to this case.
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240 F.Supp.2d 8, 18 (D.D.C. 2003)). Therefore, the government has satisfied its pleading
obligation under Rule 9(b).
II. COMMON LAW ALLEGATIONS
CA moves to dismiss the government’s breach of contract claim for lack of jurisdiction
under Rule 12(b)(1) because “the Court does not have jurisdiction over breach of contract claims
arising from a government contract.” (Def.’s Mem. at 41-42 (citing 41 U.S.C. §§ 7101 et seq.).)
The Contract Disputes Act (“CDA”) provides that breach of contract claims should be filed in
the Civilian Board of Contract Appeals or the Court of Federal Claims. See 41 U.S.C. §§
7104(b)(1), 7105(e)(1)(B). However, the CDA’s mandatory jurisdiction “does not apply to a
claim by the Federal Government against a contractor that is based on a claim by the contractor
involving fraud.” 41 U.S.C. § 7103(a)(4)(B). As discussed above, the government’s FCA
claims survive defendant’s motion to dismiss, and “there can be no doubt that a pending False
Claims Act claim ‘involves’ fraud.” Kellogg Brown & Root Servs., Inc., 800 F.Supp.2d at 160.
Thus, because CA’s only argument against the government’s breach of contract claim is easily
overcome, CA’s motion to dismiss the breach of contract claim is denied.
Similarly, CA’s motion to dismiss the government’s payment by mistake and unjust
enrichment claims is denied. CA relies on the well-established doctrine that “there can be no
claim for unjust enrichment when an express contract exists between the parties.” Albrecht v.
Comm. on Employee Benefits of the Fed. Reserve Employee Benefits Sys., 357 F.3d 62, 69 (D.C.
Cir. 2004) (quoting Schiff v. Am. Ass’n of Retired Persons, 697 A.2d 1193, 1194 (D.C. 1997)).
Payment by mistake, another quasi-contractual claim, is similarly inappropriate when the
existence of a contract is not at issue because “there is, of course, no need to resort to quasi-
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contract when the evidence sustains the existence of a true contract.” Bloomgarden v. Coyer,
479 F.2d 201, 210 (D.C. Cir. 1973).
However, the government has alleged that its contract with CA may be invalid because it
would not have entered into it but for CA’s fraudulent conduct. (See Gov. Am. Compl. ¶ 68
(“[T]he government would not have agreed to the discount levels in the Contract extensions and
the price it paid for CA products had CA made accurate, complete, and current disclosures.”), ¶
69 (“CA fraudulently induced the United States to enter into the Contract extensions.”).) CA
characterizes the government’s theory as novel (see Reply at 23), but this Court’s review of this
jurisdiction’s case law indicates otherwise. See, e.g., United States ex rel. Landis v. Tailwind
Sports Corp., No. 10-cv-976, 2014 WL 2772907, at *38 (D.D.C. June 19, 2014) (the court did
not dismiss the government’s unjust enrichment claim despite the existence of an express
contract that was allegedly induced by fraud); United States ex rel. Westrick v. Second Chance
Body Armor, Inc., 685 F.Supp.2d 129, 141-42 (D.D.C. 2010) (same); see also Frascella, 751
F.Supp.2d 842 at 856 (same). Further, this Court has previously noted that “at the motion-to-
dismiss stage, courts in this district and elsewhere have permitted the government to proceed
with claims alleging FCA violations as well as claims for unjust enrichment or payment by
mistake.” United States ex rel. Purcell v. MWI Corp., 254 F.Supp.2d 69, 79 (D.D.C. 2003).
However, a plaintiff may not recover damages on legally inconsistent theories. See id. Because
some of the government’s claims allege violations of MAS contract regulations rather than just
contractual violations, it would be premature at this time to decide whether the government’s
theories for recovery are mutually exclusive.
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CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that defendant’s motion to dismiss the government’s amended complaint in
intervention is DENIED.
SO ORDERED.
/s/ Ellen Segal Huvelle
ELLEN SEGAL HUVELLE
United States District Judge
Date: March 31, 2015
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