United States v. Honeywell International, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
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UNITED STATES OF AMERICA, )
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Plaintiff, )
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v. ) Civil Action No. 08-0961 (PLF)
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HONEYWELL INTERNATIONAL, INC., )
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Defendant. )
___________________________________ )
MEMORANDUM OPINION AND ORDER
This matter is before the Court on the United States’ Motion for Leave to File an
Amended Complaint [Dkt. 136].1 Upon consideration of the parties’ written submissions, the
relevant case law, and the oral arguments presented by counsel on July 14, 2016, the Court will
grant the motion.
I. FACTUAL AND PROCEDURAL BACKGROUND
Judge Richard W. Roberts of this Court previously recounted the factual and
procedural history of this case in several written opinions. See United States v. Honeywell Int'l
Inc., 798 F. Supp. 2d 12 (D.D.C. 2011) (“Honeywell I”); United States v. Honeywell Int'l, Inc.,
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The papers considered in connection with the issues pending include the
Complaint [Dkt. 1]; Joint Rule 16.3 Report [Dkt. 22]; United States’ Memorandum of Points and
Authorities in Support of its Motion for Leave to File an Amended Complaint (“Mot.”) [Dkt.
136-1]; Transcript of Proceedings Before Judge Robinson on March 13, 2015 [Dkt. 136-5];
Honeywell International Inc.’s Opposition to the United States of America’s Motion for Leave to
File an Amended Complaint (“Opp.”) [Dkt. 146]; United States’ Reply to Honeywell’s
Opposition to the United States’ Motion for Leave to File an Amended Complaint (“Reply”)
[Dkt. 147]; Agreed Upon Motion of the United States of America and Honeywell International
Inc. to Extend the Case Deadlines [Dkt. 157]; and Joint Motion of the Parties Requesting
Additional Time to Complete Expert Discovery [Dkt. 160].
841 F. Supp. 2d 112 (D.D.C. 2012) (“Honeywell II”); United States v. Honeywell Int'l Inc., 281
F.R.D. 27 (D.D.C. 2012) (“Honeywell III”); United States v. Honeywell Int'l, Inc., 20 F. Supp.
3d 129 (D.D.C. 2013) (“Honeywell IV”). As relevant here, the United States filed its initial
complaint on June 5, 2008, and alleged common law unjust enrichment and two theories of
liability under the False Claims Act, 31 U.S.C. § 3729(a)(1), (2) (2000). 2 Complaint ¶¶ 86-97
[Dkt. 1]. At base, the United States alleges that “Honeywell knew, within the meaning of the
[False Claims Act], that the Z Shield it sold to Armor Holdings for use in bullet proof vests was
defective and degraded more quickly than represented.” Id. ¶ 3. The complaint characterizes Z
Shield as a product comprised of panels of unwoven Zylon fiber “impregnated in a resin matric”
and “sandwiched in a thermoplastic film.” Id. ¶ 2.
The parties began discovery in 2008, see Joint Rule 16.3 Report at 2, ¶ D(1)
(September 25, 2008) [Dkt. 22], almost three years before Judge Roberts denied Honeywell’s
motion to dismiss in 2011 because the United States had pled plausible False Claims Act and
unjust enrichment claims. Honeywell I, 798 F. Supp. 2d at 20-25. Fact discovery continued
until September 1, 2015, see Joint Motion to Extend Discovery at 1 (Mar. 2, 2016) [Dkt. 157],
and expert discovery is currently set to close on January 27, 2017. See Joint Motion to Extend
Discovery at 2 (July 19, 2016) [Dkt. 160]. At a hearing before Magistrate Judge Deborah A.
Robinson on March 13, 2015, Judge Robinson denied the United States’ motion to compel a
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Those theories are: (1) that Honeywell “knowingly . . . cause[d] to be presented,
a false or fraudulent claim for payment or approval” under 31 U.S.C. § 3729(a)(1) (2000); and
(2) that that Honeywell “knowingly . . . cause[d] to be made or used, a false record or statement
material to a false or fraudulent claim” under 31 U.S.C. § 3729(a)(2) (2000). Complaint ¶¶ 86-
93. Judge Roberts previously opined that the United States’ first theory is an “implied
certification claim.” Honeywell I, 798 F. Supp. 2d 12, 20 (D.D.C. 2011). The Supreme Court
recently clarified what is required to prove an implied certification claim under the False Claims
Act, see Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989 (2016), but that decision
is not relevant to the instant motion for leave to amend.
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physical inspection of a Honeywell research facility where Honeywell designed manufacturing
processes for Z Shield because, inter alia, “there is no allegation at all in the Complaint[]
concerning the [Z Shield] manufacturing process.” See Tr. 3/13/15 at 44 [Dkt. 136-5].
Less than a month after this adverse ruling and prior to the completion of fact
discovery, the United States on April 8, 2015 moved to amend its complaint to add three
additional “factual allegations” that Honeywell “knew within the meaning of the [False Claims
Act], that: (1) the water-based coating process used to apply the resin during Z Shield
manufacturing exacerbated Z Shield’s degradation problems in heat and humidity; (2) the shield
in Z Shield, that purportedly protected the Zylon fibers from outside sources of heat and
humidity, was too fragile and provided insufficient protection against these elements; and (3) the
Z Shield data in Honeywell’s publicly disclosed warehouse testing had been manipulated to
make Z Shield’s retention of its ballistic performance over time appear much better than in
actuality.” Mot. at 1.
Honeywell opposes the motion for leave to amend because, in its view, the initial
complaint alleged only that “the Zylon fiber used in Z Shield” and no other aspect of the Z
Shield “was inherently susceptible to degradation under conditions of high heat and humidity.”
Opp. at 13. Honeywell argues that the United States’ addition of these three new allegations
prejudice it because there already have been approximately 50 depositions in the case and the
additions would effectively deny Honeywell the opportunity to present facts and evidence, or
cause it incredible expense to depose overseas witnesses about the new allegations. Id. at 20-21.
Finally, Honeywell contends that the United States acted with a dilatory motive because the
United States knew about problems with the “water-based coating process” in 2010 and
mentioned the “warehouse testing” in the initial complaint. Id. at 29.
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II. DISCUSSION
Under Rule 15(a)(2) of the Federal Rules of Civil Procedure, when unable to do
so as of right, “a party may amend its pleading only with the opposing party's written consent or
the court's leave. The court should freely give leave when justice so requires.” FED. R. CIV. P.
15(a)(2). “[I]t is common ground that Rule 15 embodies a generally favorable policy toward
amendments.” Hill v. U.S. Dep't of Def., 70 F. Supp. 3d 17, 19 (D.D.C. 2014) (quoting Davis v.
Liberty Mut. Ins. Co., 871 F.2d 1134, 1136-37 (D.C. Cir. 1989)); see also Harris v. Sec’y, U.S.
Dep’t of Veterans Affairs, 126 F.3d 339, 344 (D.C. Cir. 1997) (describing Rule 15(a)(2) as
adopting a “generous standard”). In considering whether to grant leave to amend a pleading, a
district court should consider factors “such as undue delay, bad faith or dilatory motive on the
part of the movant, repeated failure to cure deficiencies by amendments previously allowed,
undue prejudice to the opposing party by virtue of allowance of the amendment, futility of
amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962).
“Undue prejudice is not mere harm to the non-movant but a denial of the
opportunity to present facts or evidence which would have been offered had the amendment been
timely.” Does I through III v. District of Columbia, 815 F. Supp. 2d 208, 215 (D.D.C. 2011)
(internal quotation marks omitted); see also Barkley v. U.S. Marshals Serv. ex rel. Hylton, 766
F.3d 25, 39 (D.C. Cir. 2014) (“[T]he grant of leave to amend a complaint might often occasion
some degree of delay and additional expense, but leave still should be ‘freely given’ unless
prejudice or delay is ‘undue[.]’” (quoting Foman v. Davis, 371 U.S. at 182)). “[A]n amendment
is not automatically deemed prejudicial if it causes the non-movant to expend additional
resources. Any amendment will require some expenditure of resources on the part of the non-
moving party. ‘Inconvenience or additional cost to a defendant is not necessarily undue
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prejudice.’” United States ex rel. Westrick v. Second Chance Body Armor, Inc., 301 F.R.D. 5, 9
(D.D.C. 2013) (quoting City of Moundridge v. Exxon Mobil Corp., 250 F.R.D. 1, 6-7 (D.D.C.
2008)). Indeed, “if [a] court were to employ a policy of denying plaintiffs leave to amend in
every situation where an amended complaint may result in additional discovery or expense, then
[the] court would fail to abide by the legal standard of granting leave ‘freely . . . when justice so
requires.’” Hisler v. Gallaudet Univ., 206 F.R.D. 11, 14 (D.D.C. 2002) (quoting FED. R. CIV. P.
15(a)(2)). In order for a court to determine if the threat of prejudice to the opposing party is
“undue,” courts should consider “the hardship to the moving party if leave to amend is denied,
the reasons for the moving party failing to include the material to be added in the original
pleading, and the injustice resulting to the party opposing the motion should it be granted.”
CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, 6 FED. PRAC. & PROC. CIVIL
§ 1487 (3d ed. 2012).
The Court will address each of the United States’ proposed amendments in turn.
A. Water-Based Coating Process
With respect to its first proposed amendment relating to the “water-based coating
process,” the United States conceded at oral argument that it knew about the factual basis for this
allegation as far back as 2010. Indeed, the United States’ March 1, 2010 interrogatory responses
stated that “the resin used to laminate Z Shield was made using a water-based washing process
that Honeywell knew [] accelerated the degradation process of Z Shield” and “contributed to Z
Shield performing more poorly in ballistics-performance retention tests than ordinary Zylon fiber
and fabric.” See Mot., Ex. 3 at 8 [Dkt. 136-5]. The water-based coating process was also a
common subject during depositions taken by the United States from 2009 onward. See Reply at
16 (citing deposition transcripts). The United States’ only explanation for the delay is
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administrative: it sought to avoid amending the complaint piecemeal and chose instead to seek
to amend once it mustered multiple new allegations.
The legal question therefore is whether the United States’ decision to wait six
years to amend its complaint to add allegations related to the water-based coating process
constitutes undue delay sufficient to deny leave to amend. Perhaps in colloquial terms, it did.
But the D.C. Circuit has held that “[t]he district court may not deny” a motion for leave to amend
the complaint “based solely on timeliness unless the defendants can [also] show undue
prejudice.” In re APA Assessment Fee Litig., 766 F.3d 39, 56–57 (D.C. Cir. 2014); compare
Harrison v. Rubin, 174 F.3d 249, 253 (D.C. Cir. 1999). The Court finds that allowing the United
States to amend the complaint to add a new factual allegation about the water-based coating
process will not cause Honeywell undue prejudice.
While the United States’ initial complaint does not allege manufacturing defects
in Z Shield, the new water-based coating process allegation “do[es] no more than clarify [its]
legal theor[y]” that “Z Shield . . . was defective and degraded more quickly than represented.”
Complaint ¶ 3. Honeywell does not suggest that the United States’ delay prejudiced it — let
alone unduly prejudiced it — because key witnesses are no longer available. Rather, it argues
that the water-based coating process amendment would require reopening fact discovery and
taking onerous depositions in the Netherlands and Israel. While it may be true that Honeywell
will decide that it needs such additional fact discovery or that it might like to bolster its expert
discovery, whatever burden the water-based coating process amendment occasions on
Honeywell is not undue. In addition, the United States’ interrogatory responses in 2010 certainly
put Honeywell on notice that the United States would be pursuing a water-based coating process
allegation, and the extensive discussion of the issue during depositions suggests that any
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additional discovery on the matter should not be nearly as burdensome as Honeywell suggests.
In sum, the water-based coating process amendment will not cause Honeywell undue prejudice,
only the garden-variety prejudice that attends a party sharpening the allegations of the complaint
for which it has adduced evidence in discovery.
The Court therefore will grant the United States’ motion for leave to amend its
complaint to add the water-based coating process allegation.
B. Fragile Shield
The Court finds no similar undue delay with respect to the United States’ attempt
to add an allegation that the shield in Z Shield was fragile. The initial complaint references the
“delamination” of the Z Shield, Complaint ¶ 69, which the Court infers is a reference to a
breakdown in the “thermoplastic film” aspect of the Z Shield. Id. ¶ 2. The United States probed
this topic during at least five depositions in 2009, see Reply at 18 n.20, but “it was not until
recently” that the evidence of the fragility of this “film” or “shield” “came to light from the work
of the United States’ experts,” who, with their expertise, reviewed discovery documents. Mot. at
5. Honeywell does not rebut this characterization of the relevant timeline. The Court therefore
finds no undue delay with respect to the fragile shield allegation because the United States’
experts only recently were able to reach conclusions that provided a strong basis to amend the
complaint.
In addition, the Court finds that allowing the United States to amend the
complaint to add its fragile shield allegation also will not cause Honeywell undue prejudice.
Like the water-based coating process allegation, the Court is not persuaded that Honeywell’s
desire to reopen fact discovery and take depositions in the Netherlands and Israel constitutes
undue prejudice. Whatever burden the fragile shield amendment occasions on Honeywell is
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even less prejudicial than the water-based coating process amendment discussed above because
the United States’ initial complaint contains allegations about the fragility of the shield. See,
e.g., Complaint ¶ 69.
No reasonable reader of the United States’ initial complaint could conclude, as
Honeywell now argues, that it addresses only the Zylon component of Z Shield. Indeed, Judge
Roberts’s opinion denying Honeywell’s motion to dismiss evidences an understanding that the
United States’ theory of False Claims Act liability under 31 U.S.C. § 3729(a)(1) alleges that Z
Shield — not Zylon in particular — degraded under hot and humid conditions. See Honeywell I,
798 F. Supp. 2d at 16-17. That opinion also describes the United States’ theory of False Claims
Act liability under 31 U.S.C. § 3729(a)(2) as “alleg[ing] that Honeywell cherry-picked the data it
disclosed to Armor Holdings and to the public so that it could continue to sell Z Shields.” Id. at
24 (emphasis added). The Court shares Judge Roberts’s view and concludes that United States
initial complaint put Honeywell on notice that other aspects of Z Shield — such as the “shield”
that is the subject of the fragile shield allegation — would be at issue in this case. Again, any
such additional discovery occasioned by the fragile shield amendment is simply the garden-
variety prejudice that attends a party sharpening the allegations of the complaint for which it has
adduced evidence in discovery, not undue prejudice.
The Court therefore will grant the United States’ motion for leave to amend its
complaint to add the fragile shield allegation.
C. Warehouse Testing
Like the fragile shield allegation, the Court finds no undue delay with respect to
the United States’ attempt to add an allegation that Honeywell manipulated its warehouse data.
The initial complaint identified the warehouse data as more favorable than other Honeywell data
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about Z Shield and alleged that Honeywell cherry-picked the positive warehouse data while
shielding the less favorable data. Complaint ¶¶ 61, 63. The United States always assumed,
however, that the cherry-picked data was accurate. The United States explains that it now seeks
to change its theory from “Honeywell cherry-picked the warehouse data” to “Honeywell
manipulated the warehouse data” because “it was not until recently” that the evidence of the
manipulation “came to light from the work of the United States’ experts,” specifically their
review of discovery documents. Mot. at 5. Honeywell does not rebut this characterization of the
relevant timeline or the claim that the United States’ experts reached their conclusion about
manipulation of data only recently after reviewing discovery. The Court therefore finds no
undue delay with respect to the warehouse data manipulation allegation, because the United
States’ experts only recently reached conclusions that provided a strong basis to amend the
complaint.
In addition, the Court finds that allowing the United States to amend its complaint
now to add its warehouse data manipulation allegation will not cause Honeywell undue
prejudice. The initial complaint made the warehouse testing data a focal point of the United
States’ allegations and put Honeywell on notice that it would have to defend the veracity of the
warehouse testing data. As such, the fact that the United States’ experts have recently concluded
that Honeywell manipulated the warehouse testing data (rather than cherry-picked it) should not
require extensive additional discovery on Honeywell’s part. Again, this is not undue prejudice.
The Court therefore will grant the United States’ motion for leave to amend its
complaint to add its allegation relating to the manipulation of warehouse testing data.
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III. CONCLUSION
For the reasons stated herein, the Court will grant the United States’ motion for
leave to amend the complaint. If the amendments require changes to the discovery schedule
currently in place, the parties shall raise those issues before Magistrate Judge Robinson as is
appropriate.
It is hereby
ORDERED that the United States’ Motion for Leave to File an Amended
Complaint [Dkt. 136] is GRANTED; and it is
FURTHER ORDERED that the Clerk of the Court shall docket the United States’
First Amended Complaint [Dkt. 136-5].
SO ORDERED.
/s/_________________________
PAUL L. FRIEDMAN
DATE: July 29, 2016 United States District Judge
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