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United States v. Science Applications International Corp.

May 15, 2008

UNITED STATES OF AMERICA, PLAINTIFF,
v.
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Richard W. Roberts United States District Judge

MEMORANDUM OPINION AND ORDER

The United States brought this action against Science Applications International Corporation ("SAIC") under the False Claims Act ("FCA"), 31 U.S.C. § 3729, and District of Columbia common law, alleging SAIC's failure to disclose organizational conflicts of interest ("OCIs") as was required under two contracts that SAIC entered into with the Nuclear Regulatory Commission ("NRC"). SAIC has moved under Federal Rules of Civil Procedure 9(b) and 12(b)(6) to dismiss the government's FCA claims in Counts I and II of the amended complaint to the extent those counts are based on allegations contained in paragraph 89 of the amended complaint. In addition, SAIC has moved for summary judgment on the government's FCA claims and request for damages, as well as the government's breach of contract and quasi-contractual claims. SAIC has also moved to strike the government's Responsive Statement of Genuine Issues and Material Facts.

Because paragraph 89 of the amended complaint meets the heightened pleading requirement of Rule 9(b) when supplemented by the government's answers to interrogatories and its opposition to SAIC's motion to dismiss and motion for summary judgment, SAIC's motion to dismiss the government's FCA claims as they relate to paragraph 89 will be granted only to the extent that paragraph 89 does not specifically identify the potential OCIs at issue. Because the government has presented genuine issues of material fact as to the existence of OCIs and whether SAIC knowingly submitted false claims, SAIC's motion for summary judgment on the FCA and breach of contract claims will be denied. As the government has also presented genuine issues of material fact with regard to its claim for actual damages and statutory civil penalties under the FCA, SAIC's motion for summary judgment as to those damages will be denied. However, because the government has failed to substantiate its claims for the costs of hiring third parties to peer review and complete SAIC's work and to examine NRC rulemaking options, SAIC will be granted summary judgment as to the government's claim for damages flowing from those costs. Because quasi-contractual claims are precluded here since express contracts existed between the parties, SAIC's motion for summary judgment on the government's quasi-contractual claims will be granted.*fn1 Finally, because SAIC failed to comply with Local Civil Rule 7(m) before filing its motion to strike and the motion is unpersuasive, the motion will be denied.

BACKGROUND

The NRC is an independent federal agency established to regulate the civil use of nuclear materials. The NRC creates scientific standards for allowing radioactive materials with low levels of contamination to be released to the private sector for recycling and reuse. In 1992 and 1999, the NRC contracted with SAIC to provide technical assistance related to this effort. Under the 1992 contract, SAIC was to provide the NRC with technical assistance related to the recycling and reuse of radioactive material and was to present an options paper outlining the possible approaches to rulemaking for the release of these materials.*fn2 The goal of the 1999 contract was to assess regulatory alternatives regarding the release of reusable materials. SAIC's neutrality was critical under both contracts. The contracts explained that SAIC's independence and neutrality would be compromised by any OCI that raised an appearance of bias in its rulemaking recommendations.

SAIC promised in both contracts to forego entering into any consulting or other contractual arrangements with any organization that could create a conflict of interest. The purpose of this clause was to avoid OCIs that were, among others, financial, organizational, or contractual. SAIC warranted upon entering both contracts that it had no OCIs as that term is defined in 41 C.F.R. § 20-1.5402(a). The regulation defined an OCI as "a relationship . . . whereby a contractor or prospective contractor has present or planned interests related to the work to be performed under an NRC contract which: (1) May diminish its capacity to give impartial, technically sound, objective assistance and advice or may otherwise result in a biased work product, or (2) may result in its being given an unfair competitive advantage." 41 C.F.R. § 20-1.5402(a) (1979).*fn3 SAIC further promised in both contracts to disclose any OCIs it discovered after entering the contract. (See Am. Compl. ¶¶ 35, 36.) It repeatedly certified throughout the terms of the contracts that it had no OCIs and would notify the NRC of any changes resulting in an OCI. (See id. ¶¶ 41, 42.)

The government alleges that SAIC breached its OCI obligations under the contracts by engaging in relationships with organizations that created an appearance of bias in the technical assistance and support it provided the NRC. (See id. ¶¶ 49-51.) In its amended complaint, the government alleges that SAIC's no-OCI certifications and subsequent requests for payment on the 1992 and 1999 contracts violated the FCA, and brings additional claims under quasi-contract and breach of contract theories.

SAIC has moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the government's FCA claims to the extent they rely upon paragraph 89 of the amended complaint,*fn4 arguing that the allegations in that paragraph fail to meet the standard for pleading fraud with particularity as is required in Federal Rule of Civil Procedure 9(b). SAIC has also moved for summary judgment, arguing that the government cannot show that SAIC knowingly submitted false claims for payment to the government as required for liability to attach under the FCA, that there was no breach of contract because no undisclosed OCIs existed, that the quasi-contract claims cannot be sustained because express contracts existed between the parties, and that the government cannot prove FCA damages. In addition, SAIC has moved for an order striking the government's Responsive Statement of Genuine Issues and Material Facts, insisting that the government's statement violates Local Civil Rule 7(h) because it is not concise and contains improper argument and immaterial facts.

DISCUSSION

A party may move under Federal Rule of Civil Procedure 12(b)(6) to dismiss a complaint for failure to state a claim upon which relief can be granted, but such a motion "must be made before pleading." Fed. R. Civ. P. 12(b). Although SAIC moved to to dismiss after it filed its amended answer, thereby violating NMI/CMI, Alaron, Inc., M4, BNFL, Babcock & Wilcox, and Parsons Corporation; and the restriction in Rule 12(b), SAIC's motion will be treated initially as a motion for judgment on the pleadings under Rule 12(c). See Summers v. Howard Univ., 127 F. Supp. 2d 27, 29 (D.D.C. 2000). "If, on a motion under Rule . . . 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Fed. R. Civ. P. 12(d). Matters beyond the pleadings have been presented and considered here. This motion, then, will be treated in turn as one for summary judgment. See Mulhall v. Dist. of Columbia, 747 F. Supp. 15, 19 (D.D.C. 1990).

Summary judgment may be granted only where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Burke v. Gould, 286 F.3d 513, 517 (D.C. Cir. 2002). The relevant inquiry "is the threshold inquiry of determining whether there is a need for a trial -- whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A material fact is one that is capable of affecting the outcome of the litigation. Id. at 248. A genuine issue is one where the "evidence is such that a reasonable jury could return a verdict for the nonmoving party," id., as opposed to evidence that "is so one-sided that one party must prevail as a matter of law." Id. at 251-52. The burden falls on the moving party to provide a sufficient factual record that demonstrates the absence of a genuine issue of material fact. See Beard v. Banks, 126 S.Ct. 2572, 2578 (2006). "Once the moving party has carried its burden . . . [t]he nonmoving party must come forward with specific facts showing that there is a genuine issue for trial." Taylor v. Blakey, 490 F.3d 965, 972 (D.C. Cir. 2007) (internal quotations and citation omitted) (emphasis in original). In considering a motion for summary judgment, all "justifiable inferences" from the evidence are to be drawn in favor of the non-movant. Anderson, 477 U.S. at 255.

"The decision to grant or deny a motion to strike is vested in the trial judge's sound discretion." Nwachukwu v. Rooney, 362 F. Supp. 2d 183, 189 (D.D.C. 2005) (citation omitted). "[T]he moving party bears a heavy burden as courts generally disfavor motions to strike." Canady v. Erbe Elektromedizin GmbH, 384 F. Supp. 2d 176, 180 (D.D.C. 2005) (citing Stabilisierungsfonds Fur Wein v. Kaiser Stuhl Wine Distribs. Pty. Ltd., 647 F.2d 200, 201 (D.C. Cir. 1981)).

I. MOTION TO STRIKE

SAIC argues that the government's Responsive Statement of Genuine Issues and Material Facts must be stricken because "rather than submitting a 'concise statement of genuine issues' as [Local Civil Rule] 7(h) requires, the government ignored the rules and filed an 85-page statement of 'facts,' including 190 numbered paragraphs that are erroneously presented as 'Additional Material Facts Not In Dispute.'" (Def.'s Mot. to Strike Pl.'s Responsive Stmt. of Genuine Issues and Material Facts ("Def.'s Mot. to Strike") at 1.) SAIC insists that the government's statement contains improper argument, immaterial facts, and is "an attempt to circumvent the page limitation on its brief in opposition." (Id.)

"In resolving motions to strike, . . . the court [should] use[] a scalpel, not a butcher knife." Canady, 384 F. Supp. 2d at 180 (internal quotations and citation omitted). To use such an exacting method would be difficult here, particularly in light of the fact that SAIC urges "[t]he Court [to] disregard the Government's Statement in its entirety[.]" (Def.'s Mot. to Strike at 6.) In support of its motion, SAIC expresses concern that "the Government's Statement . . . stands as an impediment to the efficient and just resolution of this case." (Def.'s Reply in Support of Mot. to Strike at 9.) However, by not consulting with the government prior to filing its motion to strike (see Pl.'s Opp'n to Def.'s Mot. to Strike at 1-2), SAIC failed to comply with Local Civil Rule 7(m), the very purpose of which is "to promote the resolution of as many litigation disputes as possible without court intervention, or at least to force the parties to narrow the issues that must be brought to the court." Ellipso, Inc. v. Mann, 460 F. Supp. 2d 99, 102 (D.D.C. 2006) (emphasis added). The fact that SAIC believed "that the government would not be willing to resolve the problems . . . short of this Court's intervention" (Def.'s Reply in Support of Mot. to Strike at 9) does not change the fact that it was under an obligation to make a "good faith effort . . . to narrow the areas of disagreement." LCvR 7(m); accord Alexander v. FBI, 186 F.R.D. 185, 186-87 (D.D.C. 1999) (noting that although circumstances suggested "that the motion would be opposed, the greater problem involves whether there was a 'good faith effort . . . to narrow the areas of disagreement'"). Furthermore, despite SAIC's insistence to the contrary, it "has not demonstrated that it was prejudiced [by the government's statement] . . . as reflected by its reply submitted in support of its motion for summary judgment . . . prior to filing its motion to strike." Smith Prop. Holdings v. United States, 311 F. Supp. 2d 69, 78 (D.D.C. 2004). (See, e.g., Def.'s Reply in Support of Mot. to Strike at 5, n.4 ("[A]s SAIC points out in its Reply Brief, the government has blatantly mischaracterized the . . . evidence[.]") (emphasis added).) Accordingly, because SAIC failed to comply with Rule 7(m) and meet its heavy burden in filing its motion to strike, the motion will be denied.

II. RULE 9(b) CHALLENGE TO PARAGRAPH 89

SAIC insists that paragraph 89 of the amended complaint fails to comport with Federal Rule of Civil Procedure 9(b) and should be dismissed. "Th[e] [D.C.] Circuit has held that complaints brought under the False Claims Act are subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b)." Allen v. Beta Constr., 309 F. Supp. 2d 42, 45 (D.D.C. 2004) (citing United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002)). Rule 9(b) requires that "[i]n alleging fraud . . ., a party must state with particularity the circumstances constituting fraud[.]" Fed. R. Civ. P. 9(b). "Conclusory allegations that a defendant's actions were fraudulent or deceptive do not satisfy Rule 9(b)." Elemary v. Holzmann, 533 F. Supp. 2d 116, 137 (D.D.C. 2008) (citation omitted). "A plaintiff must specifically allege the time, place, and contents of any affirmative misrepresentation." Id. (citing Totten, 286 F.3d at 552). "By extension, a plaintiff claiming fraud through 'suppression of facts' must identify the facts concealed and/or acts of concealment with particularity." Elemary, 533 F. Supp. 2d at 137. "In other words, Rule 9(b) requires that the pleader provide the 'who, what, when, where, and how' with respect to the circumstances of the fraud." Id. (citation omitted).

"Rule 9(b) is not . . . to be read in isolation from other procedural canons. . . . [T]he requirement of particularity does not abrograte Rule 8 and it should be harmonized with the general directive . . . of Rule 8 that the pleadings should contain a short and plain statement of the claim or defense and that each averment should be simple, concise and direct." United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385-86 (D.C. Cir. 1981) (internal quotations and citation omitted). "Thus, while the 'time, place, and contents of the false representations' must be pleaded with specificity in an FCA cause of action, Totten, 286 F.3d at 552, 'the simplicity and flexibility contemplated by the rules must be taken into account when reviewing a complaint for 9(b) particularity." Allen, 309 F. Supp. 2d at 46.

While FCA cases in this circuit reveal that "specificity regarding the identities of individual actors is required[,]" see United States ex rel. El-Amin v. George Washington Univ., Civil Action No. 95-2000 (JGP), 2005 WL 485971, at *6 (D.D.C. Feb. 25, 2005) (discussing cases), "where a complaint covers a multi-year period, Rule 9(b) may not require a detailed allegation of all facts supporting each and every instance of submission of a false claim." United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 238 F. Supp. 2d 258, 268 (D.D.C. 2002) (citations omitted); see also El-Amin, 2005 WL 485971, at *5 ("[T]he complexity and duration of the alleged fraud might relieve some of the burden required by Rule 9(b).").

Here, although the government does not provide "a detailed allegation of all facts" involved in its paragraph 89 allegations, it does provide "specificity regarding the identities" of SAIC's potential OCI relationships*fn5 and has set forth a sufficiently "detailed description of the specific falsehoods that are the basis for [its] suit." Totten, 286 F.3d at 552. Even if, however, paragraph 89 were not sufficiently specific on its face, it has been adequately supplemented by the government's interrogatory responses and the government's opposition to SAIC's motion for summary judgment. "While it is generally understood that the complaint may not be amended by legal memoranda that are submitted as oppositions to motions for dismissal or summary judgment, . . . courts have allowed, for Rule 9(b) purposes, a party to supplement its complaint through such legal memoranda . . . for the sake of judicial economy." Shekoyan v. Sibley Int'l Corp., 217 F. Supp. 2d 59, 73 (D.D.C. 2002) (citation omitted), aff'd, 409 F.3d 414 (D.C. Cir. 2005); see also El-Amin, 2005 WL 485971, at *12 ("[A] complaint alleging fraud that fails to meet the particularity requirement of Rule 9(b) can be cured, and adverse judgment avoided, if the opposition to the motion to dismiss supplies the facts necessary to meet 9(b)'s requirements.").

Although SAIC contends that allowing the government to supplement its amended complaint in the manner described in Shekoyan is improper, it does not argue that the government's interrogatory answers and subsequent opposition briefs would inadequately supplement paragraph 89. Here, it is clear that allowing the government to supplement its allegations in paragraph 89 furthers judicial economy. As is discussed below, there are numerous genuine issues of material fact such that SAIC's motion for summary judgment must be denied and this case set for trial. It makes little sense to order the government to file a second amended complaint at this stage, particularly when SAIC "cannot credibly argue that [it is] not now on notice of the charges against [it]." Allen, 309 F. Supp. 2d at 47. Accordingly, SAIC's motion to dismiss Counts I and II to the extent they are based on the allegations in paragraph 89 will be denied in part.*fn6

III. COUNTS I AND II: FALSE CLAIMS ACT

SAIC also moves for summary judgment on the government's False Claims Act counts. The False Claims Act ...


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