United States v. Stewart & Stevenson

United States Court of Appeals
Fifth Circuit
F I L E D
CORRECTED
August 8, 2005
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT Charles R. Fulbruge III
Clerk
No. 04-20209
United States of America, ex rel., WERNER STEBNER,
Plaintiff-Appellant,
versus
STEWART & STEVENSON SERVICES, INC.; MCLAUGHLIN BODY CO.,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of Texas
(4:96-CV-3363)
Before KING, Chief Judge, BARKSDALE, and STEWART, Circuit Judges.
PER CURIAM:*
For this action under the qui tam provisions of the False
Claims Act, 31 U.S.C. § 3729 et seq., Relator Werner Stebner
challenges: (1) the summary judgment awarded Stewart & Stevenson
Services, Inc. (S&S), and McLaughlin Body Co. (MBC); and (2) the
costs awarded S&S. Concerning the summary judgment, Stebner
contends the defendants submitted false and fraudulent claims to
the United States during the course of a military contract. The
judgment is AFFIRMED; the appeal from the costs-award, DISMISSED.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
I.
In 1991, the Government contracted with S&S to build a Family
of Medium Tactical Vehicles (FMTV); they were a variety of models
of two-and-a-half ton to five-ton military trucks (cargo, dump,
tractor, and wrecker) with enclosed cabs. S&S contracted with MBC
to produce the cabs. From 1993 until 1998, S&S produced FMTVs
under the relevant contracts. (The Government has since awarded
S&S two more FMTV contracts.) One specification requires that
FMTVs be free of corrosion during the first ten years of use.
To monitor the FMTVs’ production, the Government established
a Defense Plant Representative Office (DPRO) adjacent to S&S’s
Sealy, Texas, manufacturing plant. Approximately 30 Government
personnel were assigned to that DPRO: contract specialists helped
administer the contract and oversaw any modifications or revisions;
property specialists maintained FMTVs delivered and stored in
Sealy; and quality assurance specialists audited and monitored
manufacturing processes and assembly of the vehicles and conducted
100% vehicle inspection and testing.
Contract payment was conducted as follows. S&S submitted
monthly progress payments for up to 85% of its costs for producing
FMTVs that month. Upon conditional acceptance of a vehicle, S&S
invoiced the Government for 90% of its total contract price, from
which the Government deducted the 85% attributable to the progress
payment. Upon final acceptance, the Government paid S&S the
2
balance. Progress-payment invoices were submitted on Government
Standard Form 1443, which contained a certification that the costs
reflected on the form were actually incurred by S&S or would be
incurred. The vehicle-acceptance documents included Government
form DD250 (“Material Inspection and Receiving Report”), the
Vehicle Inspection Record, and the Final Inspection Record. The
on-site Government officials reviewed and completed these forms and
inspected the FMTVs. Upon the Government’s being satisfied with a
vehicle, its representative signed the DD250, indicating
conditional or final acceptance. All documents were then returned
to S&S, which converted the DD250 into an invoice and submitted it
for payment. The DD250 contained no express certifications of
contractual compliance. (Only Government officials’ signatures
appeared on the DD250.)
The Government accepted the FMTVs in stages; acceptance of
produced vehicles was conditional prior to the Government’s
granting First Article Approval (FAA) for full-scale production.
Vehicles presented to the Government for conditional acceptance
were stored in a Government-controlled area at the Sealy plant
until FAA was granted. It was not granted until the vehicle design
passed a series of tests; the test results informed design
modifications. During the life of the contract, the Government and
S&S agreed to numerous amendments which specified needed vehicle
modifications suggested by the various test results.
3
Conditionally-accepted vehicles not in accordance with the final
design were retrofitted to conform, then re-submitted for approval.
After a final design was agreed upon in 1995, S&S began
retrofitting the conditionally-accepted vehicles. During the
retrofit, S&S found corrosion problems on the cabs and cargo beds
of many of the vehicles. S&S informed the Government immediately.
In response, on 19 January 1996, S&S and the Government negotiated
modifications, which, inter alia, required S&S to: produce a Cab
Corrosion Report disclosing the corrosion’s “root cause”; repair
vehicles that had certain corrosion levels; and refrain from
submitting for acceptance vehicles with severe corrosion. The
modifications allowed S&S to submit certain vehicles for acceptance
but allowed the Government to withhold up to $2,000 per
conditionally-accepted vehicle.
At around the same time, the FMTV was being subjected to the
contractually-mandated Accelerated Corrosion Test (ACT), which
simulated the required ten-years of corrosion-free use. The tested
vehicle failed the ACT. Because the vehicles’ cabs, manufactured
by MBC, exhibited most of the corrosion, S&S and Government
inspectors began investigating MBC’s production facility and
processes. Stebner, as the S&S employee in charge of the Cab
Corrosion Report, also inspected the FMTVs and MBC’s facility. He
found internal and external cab corrosion on the vehicles; blamed
inadequacies at MBC’s production facility and its use of faulty
4
products and sealing procedures; and concluded MBC’s corrosion-
prevention coating product and processes did not conform to
contractual requirements and produced “junk”.
S&S instructed Stebner not to include the totality of his
assessment in the Cab Corrosion Report, but to say the systems were
only bad “some of the time”. Stebner refused, and was removed from
the project. In any event, the Government was aware of the
conditions at MBC’s facilities; officials from both DPRO and other
Government offices inspected the facilities and determined MBC’s
processes were inadequate. The Government also knew of other
possible sources of corrosion, such as faulty windshield seals.
The Cab Corrosion Report was presented to the Government on 2 April
1996.
Approximately six months later, after two retrofitted vehicles
failed testing for the negotiated corrosion-repair, the Government
suspended conditional acceptance of any vehicles evidencing
corrosion or which had undergone corrosion repair. After further
negotiations, the Government and S&S agreed on two contract
modifications. The Government would resume acceptance if S&S: (1)
provided a ten-year corrosion warranty, capped at $10 million, on
vehicles already manufactured or being manufactured (entered
November 1996); and (2) modified the contract to provide fully
galvanized cabs (entered March 1997). The Government agreed to
increase the price for the galvanized-cab vehicles because it
believed galvanization would extend the vehicles’ corrosion-free
5
life-span past the contracted-for ten years. The Government
considered these two modifications the “final resolution of the
corrosion problems”.
Pursuant to the False Claims Act (FCA), Stebner filed this
action under seal on 8 October 1996, after the Government suspended
all acceptance but before the corrosion settlement was reached. In
his 19 March 1997 second amended complaint, Stebner claimed S&S and
MBC made false representations and certifications to the Government
with intent to defraud and made “misleading minimization in reports
to the Government of known systemic problems in the coating and
cleaning process of the FMTV”. This action was stayed pending
appellate review of United States ex rel. Riley v. St. Luke’s
Episcopal Church, 982 F. Supp. 1261 (S.D. Tex. 1997) (individuals
lack standing to file FCA claims on behalf of the United States);
was administratively closed in November 1997; but was re-opened on
Stebner’s 1 June 2000 motion, following the Supreme Court’s
decision in Vermont Agency of Natural Res. v. United States ex rel.
Stevens, 529 U.S. 765 (2000) (individuals have standing to file FCA
claims on behalf of the United States). On 29 August 2000, the
Government elected not to intervene in this action.
In 2001, the district court granted S&S’s motion to dismiss
for failure to state a claim, following our precedent in Riley, 196
F.3d 514 (5th Cir. 1999) (qui tam provisions of FCA
unconstitutional). United States ex rel. Stebner v. Stewart &
6
Stevenson, No. H-96-3363 (S.D. Tex. 13 March 2001)(unpublished).
After a different result was reached for Riley in en banc
proceedings, see Riley, 252 F.3d 749 (5th Cir. 2001)(en banc), our
court summarily vacated the district court decision in this action
and remanded. See United States ex rel. Stebner v. Stewart &
Stevenson, No. 01-20272 (5th Cir. 2 July 2001)(unpublished).
On remand, the parties filed cross-motions for summary
judgment. S&S contended: (1) it submitted no false claims within
the meaning of the FCA; (2) the Government’s knowledge of the
manufacturing processes and corrosion issues precludes any claim of
falsity; and (3) Stebner’s claims are barred by the contractual
resolution of the corrosion problem. S&S and MBC jointly contended
the certifications provided by MBC applied only to its contract
with S&S, not to compliance with S&S’s contract with the
Government.
In moving for summary judgment, Stebner contended: S&S filed
DD250 and progress payment claims for vehicles it knew did not meet
the contract’s corrosion standards; MBC violated the FCA by falsely
certifying to S&S that the cabs and production processes complied
with the contract; and S&S violated the FCA by accepting MBC’s
false claims.
The district court awarded summary judgment to S&S and MBC,
concluding: S&S did not submit false claims, either express or
implied, to the Government; and there were no false claims because
7
there was no material misrepresentation to the Government and it
received the benefit of the bargain. United States ex rel. Stebner
v. Stewart & Stevenson, 305 F. Supp. 2d 694 (S.D. Tex. 2004).
II.
Stebner challenges the summary judgment and the costs awarded
S&S. We address the summary judgment first.
A.
A summary judgment is reviewed de novo. E.g., GDF Realty
Investments, Ltd. v. Norton, 326 F.3d 622, 627 (5th Cir. 2003),
cert. denied, 125 S. Ct. 2898 (2005). Such judgment is proper when
“there is no genuine issue as to any material fact and ... the
[movant] is entitled to a judgment as a matter of law”. FED. R.
CIV. P. 56(c); e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). All inferences must be drawn in favor of the nonmovant,
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 587-88 (1986); but, “there is no issue for trial unless there
is sufficient evidence favoring the nonmoving party for a jury to
return a verdict for that party. If the evidence is merely
colorable, or is not significantly probative, summary judgment may
be granted”. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50
(1986) (internal citations omitted).
Stebner asserts violations under the following FCA provisions:
(a) Liability for certain acts. – Any person
who –
8
(1) knowingly presents, or causes to be
presented, to an officer or employee of the
United States Government or a member of the
Armed Forces of the United States a false or
fraudulent claim for payment or approval; [or]
(2) knowingly makes, uses, or causes to be
made or used, a false record or statement to
get a false or fraudulent claim paid or
approved by the Government;
... is liable to the United States Government
for a civil penalty....
31 U.S.C. § 3729(a)(1), (a)(2). The FCA defines “claim” as “any
request or demand, whether under a contract or otherwise, for money
or property”. 31 U.S.C. § 3729(c). “It is only those claims for
money or property to which a defendant is not entitled that are
‘false’ for purposes of the False Claims Act.” United States v.
Southland Mgmt. Corp., 326 F.3d 669, 674-75 (5th Cir. 2003) (en
banc) (citation omitted).
Stebner asserts: the district court interpreted too narrowly
the meaning of “claim”; an FCA violation has occurred when, as
here, goods do not conform to contractual specifications but
invoices are submitted to the Government. Stebner contends the
district court failed to analyze sufficiently the summary judgment
evidence as to MBC and erred when it concluded: there was no
implied certification in the DD250 or progress reports; MBC’s
certifications to S&S were not false claims under the FCA; and
there can be no false claim where the Government has received the
benefit of its bargain.
9
S&S and MBC respond: Stebner fails to identify any false
claims; the Government’s contractual resolution with S&S negates
any alleged false claims; there was no knowing submission of false
claims because the Government was informed of all corrosion
problems; and Stebner cannot establish that the claims, if false,
were material to the Government’s decision to pay.
Based upon our review of the record and the parties’ briefs
and oral arguments, summary judgment in favor of S&S and MBC was
appropriate. The claims S&S submitted to the Government were the
progress payment requests and the Government-signed DD250. Neither
expressly certified compliance with every provision of the overall
contract. Our court has not adopted an implied theory of
certification. See U.S. ex rel. Willard v. Humana Health Plan of
Texas Inc., 336 F.3d 375, 381-82 (5th Cir. 2003). Even if we were
to do so, FCA liability would not attach in this action. The
Government was involved in the design, production, testing, and
modification of the FMTVs; and S&S and the Government negotiated
contract modifications in response to the well-documented corrosion
problem. The Government retained, and exercised, its discretion to
conditionally accept or refuse to accept FMTVs that did not meet
contractual standards; and the DD250 was not signed by the
Government until it was ready to accept a vehicle. See Southland,
326 F.3d at 675. As a result, S&S’s subcontractor, MBC, did not
10
“cause[] a prime contractor to submit a false claim to the
Government”. United States v. Bornstein, 423 U.S. 303, 309 (1976).
B.
Concerning his challenge to the approximately $ 42,000 in
costs awarded S&S, Stebner filed a notice of appeal from the 2
February 2004 judgment on 1 March 2004, after S&S had filed its
bill of costs on 17 February and Stebner had filed a motion on 27
February for review of costs. On 7 April, the district court
granted S&S’s original bill of costs.
That 7 April decision was an independently appealable order.
See Pope v. MCI Telecomm. Corp., 937 F.2d 258, 266-67 (5th Cir.
1991). “Where the appellant notices the appeal of a specified
judgment only ... this court has no jurisdiction to review other
judgments or issues which are not expressly referred to and which
are not impliedly intended for appeal.” Id. at 266 (internal
quotation and citations omitted); FED. R. APP. P. 3(c)(1)(B) (notice
of appeal must “designate the judgment, order, or part thereof
being appealed”). Stebner’s 1 March notice of appeal specifies
appeal only from the 2 February judgment. Because he failed to
file a supplemental notice of appeal, specifying the 7 April costs-
award, we lack jurisdiction to review this issue. See Pope, 937
F.2d at 266-67.
11
III.
For the foregoing reasons, the judgment is AFFIRMED; the
appeal from the costs-award, DISMISSED.
AFFIRMED IN PART; DISMISSED IN PART
12