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United States v. Science Applications International Corp.

September 14, 2009

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 the law of the District of Columbia, alleging that SAIC failed to make required disclosures of organizational conflicts of interest ("OCIs") as was required under two contracts that SAIC entered into with the Nuclear Regulatory Commission ("NRC") in 1992 and 1999. After a jury found SAIC liable on FCA and breach of contract claims, SAIC moved for judgment as a matter of law under Federal Rule of Civil Procedure 50(b) or, in the alternative, for a new trial under Rule 59. Because the evidence presented at trial was sufficient for a reasonable jury to find SAIC liable, and because SAIC has not established an error was committed at trial such that justice requires a new trial, SAIC's motion for judgment as a matter of law or for a new trial 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. 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.

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).*fn1 SAIC further promised in both contracts to disclose any OCIs it discovered after entering the contract. SAIC repeatedly certified throughout the periods its contracts were in force that it had no OCIs and would notify the NRC of any changes resulting in an OCI.

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

A jury trial was held on Counts I, II and V of the United States' amended complaint.*fn2 Count I alleged that SAIC violated the FCA under 31 U.S.C. § 3729(a)(1) by presenting payment vouchers to the NRC while knowingly withholding from the NRC information about SAIC's OCIs. Count II alleged that SAIC violated the FCA under 31 U.S.C. 3729(a)(2)*fn3 by knowingly making false statements, including false certifications that SAIC had no OCIs, for the purpose of getting the NRC to pay SAIC's false and fraudulent vouchers. Count V alleged that SAIC breached its 1992 contract by failing to disclose OCIs that SAIC was required to disclose under the terms of the contract.

The jury found SAIC liable under § 3729(a)(1) and (a)(2) and liable for breach of its 1992 contract with the NRC. Specifically, the jury found that SAIC knowingly presented or caused to be presented sixty false or fraudulent claims for payment or approval by the government, causing the government to pay to SAIC $1,973,839.61 over and above what the government would have paid had SAIC presented truthful claims. The jury also found that SAIC knowingly made, used, or caused to be made or used seventeen false records or statements to get a false or fraudulent claim paid or approved by the United States government, causing the government to pay to SAIC $1,973,839.61 on the false or fraudulent claims over and above what the government would have paid had SAIC made truthful statements. In addition, the jury found that there was a contract between the United States and SAIC and that SAIC breached the contract by failing to fully perform a duty under the contract without legal excuse and awarded the United States monetary damages of $78 for the breach. Judgment was entered in favor of the United States against SAIC in the amount of $5,921,518.83 in damages for the FCA claims, $577,500 in civil penalties for the FCA claims, and $78 in damages for the contract claim, for a total of $6,499,096.83.*fn4

SAIC has moved for judgment as a matter of law under Federal Rule of Civil Procedure 50(b),*fn5 and, in the alternative, has moved for a new trial under Rule 59(a), asserting that the United States failed to carry its burden of proof in several respects and that numerous legal errors were committed.*fn6

DISCUSSION

"'Under Rule 50, a court should render judgment as a matter of law when a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue.'" Alkire v. Marriott Int'l, Inc., Civil Action No. 03-1087 (CKK), 2007 WL 1041660, at *1 (D.D.C. Apr. 5, 2007) (quoting Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 149 (2000)). The court assesses not "the weight of the evidence [but] only its sufficiency. The jury's verdict will stand unless 'the evidence and all reasonable inferences that can be drawn therefrom are so one-sided that reasonable men and women could not disagree on the verdict.'" Smith v. Washington Sheraton Corp., 135 F.3d 779, 782 (D.C. Cir. 1998) (quoting Scott v. District of Columbia, 101 F.3d 748, 753 (D.C. Cir. 1996)). "Evidence supporting the verdict, however, must be 'more than merely colorable; it must be significantly probative.'" Duncan v. Wash. Metro. Area Transit Auth., 240 F.3d 1110, 1114 (D.C. Cir. 2001) (quoting Smith, 135 F.3d at 782). "In ruling on [a] renewed motion, the court may: (1) allow judgment on the verdict, if the jury returned a verdict; (2) order a new trial; or (3) direct the entry of judgment as a matter of law." Fed. R. Civ. P. 50(b).

Under Rule 59(a), a court has discretion to grant a new trial "after a jury trial, for any reason for which a new trial has... been granted in an action at law in federal court[.]" Fed. R. Civ. P. 59(a). Reasons for granting a new trial include errors in admitting or excluding evidence, or in giving or refusing to give instructions. Miller v. Holzmann, 563 F. Supp. 2d 54, 75 (D.D.C. 2008). "The standard for a new trial is less onerous than the one applicable to a Rule 50 motion[,]...

[b]ut just as with a motion for judgment as a matter of law, the [c]court should not disturb a jury verdict unless the evidence and all reasonable inferences that can be drawn therefrom are so one-sided that reasonable men and women could not disagree on the verdict." Id. (internal quotation marks and citation omitted). "A new trial 'should be granted only where the court is convinced the jury verdict was a seriously erroneous result' and where denial of the motion will result in a clear miscarriage of justice." Nyman v. FDIC, 967 F. Supp. 1562, 1569 (D.D.C. 1997) (quoting Sedgwick v. Giant Food, Inc., 110 F.R.D. 175, 176 (D.D.C. 1986)).

I. "KNOWLEDGE" UNDER THE FCA

SAIC alleges that it is entitled to judgment as a matter of law because (1) its reasonable interpretation of its OCI obligations precludes a jury finding that it knowingly submitted false claims; (2) the government improperly relied on a collective knowledge theory to prove SAIC's scienter; and (3) the government failed to prove that SAIC acted recklessly or with deliberate ignorance. In the alternative, SAIC contends that it is entitled to a new trial because the jury was not instructed that a defendant does not act knowingly if its actions were the result of "mere 'differences in interpretation' of a contract or regulation" and was improperly instructed on a collective knowledge theory.

A. SAIC's Interpretation of its OCI Disclosure Obligations

SAIC argues that it is entitled to judgment as a matter of law because its "reasonable, good faith understanding of the NRC's OCI regulations preclude[s] any finding of 'knowledge'" under the FCA. (Def.'s Mem. in Support of Its Mot. for Judgment as a Matter of Law or for a New Trial ("Def.'s Mem") at 6.) Relying on the court of appeals' decision in United States ex rel. K&R Limited Partnership v. Massachusetts Housing Finance Agency, 530 F.3d 980 (D.C. Cir. 2008), SAIC contends that "as a matter of law, a contractor's plausible interpretation of its contractual or regulatory obligations does not evidence the kind of 'reckless disregard' necessary to prove a violation of the [FCA]." (Id. at 2.) In K&R, the relator brought a qui tam action against the Massachusetts Housing Finance Agency ("MHFA") alleging that the MHFA knowingly submitted false claims for payment to Department of Housing and Urban Development ("HUD"). 530 F.3d at 981. For each alleged false claim, MHFA's representative had "'certifie[d] to the best of his knowledge and belief' that 'each interest reduction payment [submitted to HUD]... ha[d] been calculated in accordance with' the applicable agreement." Id. The court of appeals upheld the district court's granting summary judgment in favor of MHFA because K&R had failed to show that MHFA "at least recklessly disregarded the falsity of its claims." Id. at 983. The court found that K&R failed to carry its burden because the MHFA's interpretation of its calculation obligations was "plausible" and "K&R point[ed] to nothing else 'that might have warned [MHFA] away from the view it took[.]'" Id. (quoting Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 70 (2007)).

Here, SAIC contends that it "reasonably understood that work it performed in support of the Department of Energy ("DOE") could not present a conflict with the work it was doing under its [c]ontracts with the NRC" because the DOE and its contractors are excluded from NRC regulation. (Def.'s Mem. at 3-4.) As is explained in Part II(A) below, although under 42 U.S.C. § 2140(a)(1) certain work performed for the DOE is not subject to NRC regulation, it does not follow that an entity which performs work outside the scope of the DOE exclusion can avoid NRC regulation for all purposes. Unlike in K&R, the government presented evidence here that SAIC knew that it had relationships with entities that were in fact regulated by the NRC, even if those entities performed other work for the DOE that was excluded from NRC regulation. That evidence could tend to discredit SAIC's argument that its alleged false statements were the result of its belief that the entities with which it had relationships were entities wholly excluded from NRC regulation because of those entities' work for the DOE. Thomas Rodehau, a former SAIC employee involved with NRC and DOE contracts, testified that the term "regulated by the NRC" found in the NRC's OCI regulations meant "subject to the regulations of" or "subject to the regulatory authority of" the NRC. (Rodehau Test., 7/3 p.m. Tr. 50:2-16.) Several other SAIC employees testified that they were aware that SAIC's recycle project for British Nuclear Fuels, Ltd. ("BNFL") on which they were working contemplated the application of NRC's waste disposal regulations to BNFL's proposed activities. (See Chris Caldwell Test., 7/9 p.m. Tr. 80:17-83:1; Jeff Slack Test., 7/9 a.m. Tr. 95:22-104:3; Jerry Truitt Test., 7/10 p.m. Tr. 7:25-9:23; 21:10-22:1.) In addition, SAIC employee Richard Profant testified that Manufacturing Science Corporation ("MSC"), a wholly owned subsidy of BNFL and an entity for whom SAIC provided services during the time period of the NRC contracts at issue, had an NRC license. (Profant Test., 7/22 p.m. Tr. 18:2-19:8 (admitting that he received an e-mail in 1999 indicating that MSC had an NRC license through the state of Tennessee).) This testimony permitted reasonable jury inferences that SAIC knew that it had relationships with entities, including BNFL and MSC, that were subject to the regulations of the NRC, regardless of whether these entities were doing other work for the DOE excluded from the NRC's regulatory authority, that should have been disclosed under the NRC's OCI regulations.*fn7 A defendant's reasonable interpretation of an ambiguous regulation may well be a successful defense to an alleged FCA violation in appropriate cases. In this case, though, the government presented sufficient evidence at trial upon which the jury could conclude that SAIC's representations to the NRC regarding its OCIs were not the result of SAIC's adoption of a reasonable interpretation of ambiguous regulations.

Moreover, SAIC has not shown error in the jury instructions given regarding SAIC's knowledge. A trial judge has "the inescapable duty... to instruct the jurors, fully and correctly, on the law applicable to the case." 9C C. Wright, A. Miller, E. Cooper & R. Freer, Federal Practice and Procedure § 2556 (3d ed. 2008). "The district judge need not use any particular form of words or sequence of ideas so long as the charge as a whole conveys to the jury a clear and correct understanding of the applicable substantive law without confusing or misleading them." Id. In this case, the jury was instructed that "[f]or the United States to recover from SAIC for a violation of" either § 3729(a)(1) or § 3729(a)(2), the United States had to prove by a preponderance of the evidence, among other essential elements, "that SAIC acted knowingly." (7/28 a.m. Tr. 14:7-13; 14:25-15:6.) The jury was further instructed that the term "knowingly" means that a defendant, with respect to information, one, had actual knowledge of the true information, or, two, acted in deliberate ignorance of the truth or falsity of the information, or, three, acted in reckless disregard of the truth or falsity of the information. It is not necessary for the United States to prove that SAIC acted with an intent to defraud the government. Although the specific intent to defraud is not required, more than an honest mistake or mere negligence must be found. "Actual knowledge" means that the defendant affirmatively knew the truth or falsity of the information in a claim or statement. The United States can prove deliberate ignorance through proof that SAIC deliberately closed its eyes to what would otherwise have been obvious to it. A finding that SAIC purposely avoided learning all the facts or suspected a fact but refused to confirm it also constitutes deliberate ignorance. Stated another way, SAIC's knowledge of a fact may be inferred from willful blindness to the existence of the fact. It is entirely up to you as to whether you find any deliberate closing of the eyes and the inference to be drawn from any such evidence. I also instructed you that the term "knowingly" includes acting in "reckless disregard" of an act's truth or falsity. For purposes of the False Claims Act, reckless disregard can be equated with "an extreme version of ordinary negligence" or "gross negligence plus." (7/28 a.m. Tr. 15:25-16:25.) With these instructions, the jury was informed of the law they were to apply with regard to knowledge under the FCA and instructed that they had to find SAIC acted based on more than "an honest mistake or mere negligence," but instead with actual knowledge, or at least reckless disregard or deliberate ignorance of the truth or falsity of its claims. See 31 U.S.C. § 3729(b) (FCA definition of "knowing" or "knowingly"). SAIC was free to and did argue that its reasonable efforts to fulfill its disclosure obligations, including its interpretation of the relevant contractual provisions and NRC regulations, negated the government's allegation that SAIC acted with actual knowledge, reckless disregard, or deliberate ignorance. However, there was no error in instructing on the government's required quantum of proof while declining to instruct on SAIC's proposed argument about the proof, namely, informing the jury that it "could consider whether SAIC's efforts to detect and disclose OCIs reasonably demonstrated that it did not act recklessly or with deliberate disregard." (Def.'s Mem. at 39 (citing SAIC's Proposed Jury Instruction No. D-20).)

Accordingly, SAIC has not shown it is entitled to judgment as a matter of law because of its purported interpretation of its OCI obligations, or shown that the jury instructions regarding knowledge under the FCA were erroneous, warranting a new trial.

B. SAIC's Collective Knowledge

SAIC argues that it is entitled to judgment as a matter of law because the government improperly relied on a "collective knowledge" theory to establish SAIC's scienter. In the alternative, SAIC seeks a new trial on the basis that the jury should not have been instructed on the government's collective knowledge theory. SAIC contends that knowledge under the FCA "is not merely the knowledge of the facts, but the knowledge (or reckless disregard or deliberate ignorance) of an objective falsehood," and "[g]eneral, factual information that is known within a company does not establish that the company 'knew' of a falsehood" under the FCA. (Def.'s Mot. at 6-7.) In addition, SAIC challenges the jury instruction describing a corporation's liability for the collective knowledge of its employees.*fn8

SAIC's argument rests largely on a footnote in Saba v. Compagnie Nationale Air France, 78 F.3d 664 (D.C. Cir. 1996), in which the court observed that in United States v. Bank of New England, 821 F.2d 844 (1st Cir. 1987), cert. denied, 484 U.S. 943 (1987), "corporate knowledge of certain facts was accumulated from the knowledge of various individuals, but the proscribed intent (willfulness) depended on the wrongful intent of specific employees." Saba, 78 F.3d at 670 n.6 (citing Bank of New England, 821 F.2d at 855-56)). As was explained in the opinion resolving SAIC's pre-trial dispositive motions, SAIC "'read[s] into this brief footnote... more than is warranted.'" United States v. Science Applications Int'l Corp., 555 F. Supp. 2d 40, 55 (D.D.C. 2008) (quoting United States v. Phillip Morris USA, Inc., 449 F. Supp. 2d 1, 896 n.34 (D.D.C. 2006)). "[I]t is both appropriate and equitable to conclude that a company's fraudulent intent may be inferred from all of the circumstantial evidence including the company's collective knowledge." Id. The government's use of a collective knowledge theory to prove SAIC's fraudulent intent was permissible, and its use does not entitle SAIC to judgment as a matter of law. In addition, because the jury could have properly inferred SAIC's fraudulent intent from its collective knowledge, the jury was properly instructed that it could infer from the "collective pool of information" known by SAIC's employees and agents that "SAIC itself possessed a reasonably complete picture of the false or fraudulent claims or false statements and acted knowingly." (Tr. 7/28, 17:1-14.) Accordingly, SAIC has not established that the jury instruction given regarding SAIC's collective knowledge was an error requiring a new trial.

C. Reckless Disregard or Deliberate Ignorance

SAIC contends that "[t]he evidence at trial was legally insufficient to support a jury finding of knowledge under [a] reckless disregard or deliberate ignorance" theory because the evidence shows that SAIC "made diligent inquiry to ensure compliance with its OCI obligations." (Def.'s Mem. at 9-10.) SAIC points to trial testimony explaining that "for the purposes of complying with its OCI obligations in all of its government contracts, SAIC designed and implemented a comprehensive OCI compliance system." (Id. at 10.) While SAIC maintains that its OCI compliance system was both reasonable and effective, and that it made a diligent inquiry to ensure compliance, there was also testimony provided by at least two witnesses, Sandra Carder and Betty Bidwell, who testified that SAIC's OCI compliance system was inadequate in certain important respects, including by failing to incorporate some of SAIC's business relationships, by containing incomplete descriptions of SAIC's work, and by failing to associate relevant key words with certain descriptions. (Carder Test., 7/22 a.m. Tr. 66:18-69:11, 78:13-21; Bidwell Test., 7/16 a.m. Tr. 76:14-77:9.) Similarly, witness John Pierce Martin testified that he made representations to ...


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