United States v. Honeywell International, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_______________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 08-961 (RWR)
)
HONEYWELL INTERNATIONAL, INC., )
)
Defendant. )
_______________________________)
MEMORANDUM ORDER
The government brings claims against defendant Honeywell
International, Inc. (“Honeywell”) for alleged violations of the
False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33, as well as for
common law unjust enrichment, in connection with the sale of
Zylon body armor containing “Z Shield” ballistic material.
Honeywell’s motion to dismiss was denied and Honeywell filed an
answer to the complaint, asserting various affirmative defenses.
The government moves to strike the first affirmative defense of
waiver and estoppel on the grounds that waiver and estoppel are
legally invalid defenses where, as here, the action is by the
United States government for recovery of money paid from the
United States Treasury.
An insufficient defense may be stricken from a pleading
under Federal Rule of Civil Procedure 12(f). Fed. R. Civ. P.
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12(f). But “striking pleadings is generally disfavored as an
extreme remedy.” Intex Recreation Corp. v. Team Worldwide Corp.,
390 F. Supp. 2d 21, 24 (D.D.C. 2005). What constitutes an
insufficient defense depends upon the nature of the claim and the
defense in question. “[A] defense that might confuse the issues
in the case and would not, under the facts alleged, constitute a
valid defense to the action can and should be deleted.” 5C
Charles Alan Wright, Arthur R. Miller, Mary Kay Kane & Richard L.
Marcus, Federal Practice and Procedure § 1381 (3d ed. 2011).
The government relies principally on the Supreme Court’s
decision in Office of Personnel Mgmt. v. Richmond, 496 U.S. 414(1990), for the proposition that courts are prohibited from
applying equitable doctrines such as waiver and estoppel to
prevent the government from bringing claims to recover funds paid
improperly from the Treasury. (Pl.’s Mem. of P. & A. in Support
of Mot. to Strike Def.’s First Affirmative Defense (“Pl.’s Mem.”)
at 3-6.) Richmond addressed an action by a benefits claimant who
relied on erroneous advice from a government employee about
eligibility limits that caused the claimant to exceed the limits
and lose eligibility for certain federal disability payments.
Because the Appropriations Clause provides that “[n]o money shall
be drawn from the Treasury” except as a result of lawful
Congressional appropriations, the Court held that payments from
the federal treasury were limited to those authorized by statute
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and the government employee’s erroneous advice could not estop
the government from denying benefits not otherwise permitted by
law. Richmond, 496 U.S. at 424. The government argues that the
principles of Richmond bar application of the equitable defenses
of both estoppel and waiver to an action by the government under
the FCA. (Pl.’s Mem. at 6-8.) The Richmond Court, however,
limited its decision to the facts before it, where a plaintiff
sought to use estoppel offensively to claim payment from the
government, and expressly “le[ft] for another day whether an
estoppel claim could ever succeed against the Government[.]”
Richmond, 496 U.S. at 423.
The D.C. Circuit has held that “the fundamental principle of
equitable estoppel applies to government agencies, as well as
private parties.” ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104,
1111 (D.C. Cir. 1988) (internal quotations omitted). The Circuit
continued to recognize that position in decisions post-dating
Richmond, see Morris Commc’ns Inc. v. FCC, 566 F.3d 184, 191
(D.C. Cir. 2009); Graham v. SEC, 222 F.3d 994, 1007 (D.C. Cir.
2000), including where the government brought an action to
recover federal funds. See LaRouche v. FEC, 28 F.3d 137, 142
(D.C. Cir. 1994). The standard, however, is an exacting one.
See Int’l Union v. Clark, Civil Action No. 02-1484 (GK), 2006 WL
2598046, at *12 (D.D.C. Sep. 11, 2006) (“There is a clear
presumption in this Circuit against invoking the doctrine [of
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equitable estoppel] against government actors in any but the most
extreme circumstances.”) The government “may not be estopped on
the same terms as any other litigant [may be].” Heckler v. Cmty.
Health Svces., Inc., 467 U.S. 51, 60 (1984). The party asserting
equitable estoppel “must show that (1) ‘there was a “definite”
representation to the party claiming estoppel,’ (2) the party
‘relied on its adversary’s conduct in such a manner as to change
his position for the worse,’ (3) the party’s ‘reliance was
reasonable’ and (4) the government ‘engaged in affirmative
misconduct.’” Morris, 566 F.3d at 191 (quoting Graham, 222 F.3d
at 1007).1
The government conduct giving rise to the defense of waiver
must constitute an “intentional relinquishment or abandonment of
a known right.” United States v. Weathers, 186 F.3d 948, 955
1
The government notes that district courts in other circuits
have readily stricken estoppel and waiver defenses asserted
against the government in FCA cases. These trial courts followed
decisions by courts of appeals that Richmond’s logic “applies
equally in situations . . . where [the government] seeks to
recover funds spent contrary to the will of Congress.” United
States ex rel. Dye v. ATK Launch Sys., Inc., No. 1:06-CV-39 TS,
2008 WL 4642164, at *2 (D. Utah Oct. 16, 2008) (citing United
States v. Southland Mgmt. Corp., 288 F.3d 665, 683 (5th Cir.
2002)); see also United States v. Manhattan-Westchester Medical
Svces., P.C., No. 06 Civ. 7905 (WHP), 2008 WL 241079, at *3
(S.D.N.Y. Jan. 28, 2008) (citing United States v. RePass, 688
F.2d 154 (2d Cir. 1982) and Southland Mgmt. Corp., 288 F.3d at
683); United States v. Cushman & Wakefield, Inc., 275 F. Supp. 2d
763, 768-771 (N.D. Tex. 2002) (citing Rosas v. U.S. Small
Business Admin., 964 F.2d 351, 360 (5th Cir. 1992)). The D.C.
Circuit has not endorsed this expansive interpretation of
Richmond.
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(D.C. Cir. 1999) (quoting United States v. Olano, 507 U.S. 725,
733 (1993)). The waiver must be made by one having the authority
to do so. See Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384
(1947) (“Whatever the form in which the Government functions,
anyone entering into an arrangement with the Government takes the
risk of having accurately ascertained that he who purports to act
for the Government stays within the bounds of his authority.”)
The authority to bring FCA cases is vested in the Attorney
General. 31 U.S.C. § 3730(a).
Honeywell argues that, though it anticipates additional
discovery, it has already compiled a record supporting the
defenses of waiver and estoppel. Specifically, it alleges that
the United States knew at an early stage that the Z Shield
contained in Zylon vests could degrade in certain conditions,
that the government initiated a testing program to confirm this,
that Honeywell informed the government of its own testing on this
issue and offered to share data, but that the government failed
to respond to Honeywell’s offers. (Def.’s Mem. of P. & A. in
Support of Opp’n to Pl.’s Mot. to Strike (“Def.’s Opp’n”) at 11-
14.) The government contests the veracity of these assertions
and contends that even assuming equitable estoppel and waiver are
legally available defenses, they should be stricken here because
the factual allegations proffered by Honeywell do not meet the
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high standards for maintaining such defenses. (Pl.’s Reply in
Support of Mot. to Strike at 5-10.)
The government’s argument has merit. Even if Honeywell’s
factual assertions are accepted as true, and deemed incorporated
into the answer, Honeywell has not set forth the elements of
either estoppel or waiver that are necessary in order to maintain
these defenses against the government. With respect to estoppel,
Honeywell has not pointed to any definite representation by the
government, only a failure of the government to accept
Honeywell’s offer of test results. See, e.g., Morris, 566 F.3d
at 191-92 (holding that FCC’s failure to respond to plaintiff’s
licensing waiver request for three years was not a “definite”
representation of approval). Nor has Honeywell shown any
reasonable reliance on government representations in such a
manner as to change its position for the worse. Honeywell merely
describes continuing a course of action –– the sale of Z
Shield –– that it had embarked on earlier. Lastly, the
government’s alleged failure to accept Honeywell’s offers of
research assistance, even if that failure could be characterized
as misconduct, is not of an affirmative nature sufficient to
assert a defense of estoppel against the government. See id. at
192 (concluding that FCC’s three-year silence in response to
licensing waiver request, while “egregious,” does not amount to
“affirmative misconduct”).
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With regard to the defense of waiver, Honeywell fails to
identify any clear and intentional relinquishment or abandonment
by the Attorney General of the right to sue under the FCA. Nor
has Honeywell presented any support for the proposition that
Department of Justice employees acted with the Attorney General’s
authority to waive the right to bring an FCA case during those
employees’ interactions with Honeywell. In sum, the government’s
continued purchase of vests containing Z Shield, over a period
during which Honeywell allegedly made repeated offers of research
assistance and test data, does not warrant a finding that the
government has waived or should be estopped from bringing this
action.
To be sure, a motion to strike is not the appropriate place
to resolve significant factual disputes between the parties.
Accordingly, courts in this circuit typically have resolved the
availability of equitable defenses against the government on a
motion for summary judgment. See, e.g., Swedish Am. Hosp. v.
Sebelius, 773 F. Supp. 2d 1, 7-9 (D.D.C. 2011); United States v.
Phillip Morris Inc., 300 F. Supp. 2d 61, 70-72 (D.D.C. 2004).
However, whether or not the government disputes Honeywell’s
factual allegations, those allegations fall short of
demonstrating definite representations and affirmative misconduct
by the government, detrimental reliance by the defendant, and a
clear and intentional waiver by authorized government officials
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of a right to sue. Moreover, the legal theory and factual
allegations that Honeywell proffers provide no basis for
inferring that the facts that would be necessary to maintain a
defense of equitable estoppel or waiver to this action could or
would come to light with the benefit of completed discovery. For
these reasons, resolving the availability of the first
affirmative defense need not wait for a later stage of the
litigation. See, e.g., Hernandez, Kroone and Associates, Inc. v.
United States, 95 Fed. Cl. 395, 398 (Fed. Cl. 2010) (internal
quotations omitted) (noting that “[a]lthough the court should
restrain from evaluating the merits of a defense where . . . the
factual background for a case is largely undeveloped,” striking
an affirmative defense is permissible where “there has been ample
discovery and no suggestion of facts such as would allow th[e]
defense”) (internal quotations omitted); Instituto Nacional De
Comercializacion Agricola (Indeca) v. Continental Illinois Nat.
Bank and Trust Co., 576 F. Supp. 985, 989 (N.D. Ill. 1983)
(striking at the pleadings stage affirmative defense of estoppel
where facts alleged showed an absence of detrimental reliance on
the part of the defendant).
Honeywell asserts that “the same facts supporting
Honeywell’s affirmative defenses also support Honeywell’s non-
affirmative defense that the United States cannot meet its burden
of proof on the elements of a False Claims Act violation.”
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(Def.’s Opp’n at 14.) Honeywell represents that it expects to
argue, on the same facts described above, that it was forthcoming
with relevant information and therefore did not knowingly cause
the presentation of false claims. The government agrees that
this contention could support Honeywell’s non-affirmative defense
to the action. (See Pl.’s Reply at 11 (recognizing that
“evidence of government knowledge of the defendant’s conduct”
could be “part of a defendant’s argument that it did not
knowingly submit false claims”)). As is explained above, though,
Honeywell’s theory of estoppel and waiver -- that the
government’s inaction in response to Honeywell’s overtures can be
characterized here as a direct representation, affirmative
misconduct, or abandonment of a right to sue -- is clearly
insufficient. Removing the insufficient defense will “avoid
wasting unnecessary time and money litigating the invalid
defense” and will clarify the issues. SEC v. Gulf & Western
Indus., Inc., 502 F. Supp. 343, 345 (D.D.C. 1980). In striking
the defense, there is no prejudice to Honeywell’s ability to
marshal the factual allegations that underlay the stricken
defense in support of its argument that it did not knowingly
cause the submission of false claims. Because waiver and
estoppel are insufficient defenses to this action, the first
affirmative defense will be stricken. Accordingly, it is hereby
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ORDERED that the plaintiff’s motion [49] to strike be, and
hereby is, GRANTED.
SIGNED this 25th day of January, 2012.
/s/
RICHARD W. ROBERTS
United States District Judge