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United States ex rel Westrick v. Second Chance Body Armor

February 23, 2010

UNITED STATES, EX REL. WESTRICK, PLAINTIFFS,
v.
SECOND CHANCE BODY ARMOR, INC., ET AL., DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

The government, by relator Aaron J. Westrick, filed a complaint against defendants Second Chance Body Armor, Inc., and related entities (collectively "Second Chance"), Toyobo Co., Ltd., Toyobo America, Inc. (collectively "Toyobo"), and individual defendants Thomas Bachner, Jr., Richard Davis, Karen McCraney, and James "Larry" McCraney, alleging violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33, as well as common law claims in connection with the sale of Zylon body armor. Toyobo moved to dismiss the suit by the government for failure to state a claim and sufficiently plead fraud. Because the government has sufficiently alleged its FCA and common law violations, Toyobo's motion to dismiss will be denied.

BACKGROUND

In May 1996, corporate defendants Second Chance and Toyobo contracted for Toyobo to supply Second Chance with the synthetic fiber "Zylon" for use in the manufacture of Second Chance bulletproof vests. (Am. Compl. ¶ 32.) Zylon was believed to be highly durable, have a long life cycle, and resist heat, prompting Second Chance to promote its new Ultima/Ultimax bulletproof vests as the "world's thinnest, lightest, and strongest armor" featuring the "world's strongest fiber, PBO Zylon." (Id. ¶¶ 39-40.) Second Chance sold over 66,000 vests between 1998 and 2004 to law enforcement agencies throughout the United States, including over 40,000 to the United States government. Each vest carried a five-year warranty. (Id. ¶¶ 27, 30.)

Beginning in July 1998, Toyobo and Second Chance discovered and exchanged communications about the degradation of Zylon fibers resulting from the exposure to light, heat and humidity. However, Toyobo continued to supply Zylon to Second Chance, which, in turn, sold the vests containing Zylon without warning purchasers and users about the potential strength loss or issuing a recall of existing vests. (Id. ¶¶ 45-62.) The government alleges that the defendants knew, within the meaning of the FCA, that the body armor was defective and that Zylon provided less protection than "[d]efendants had represented [and] warranted and/or [was] required by the contract specifications." (Id. ¶ 1.) Additionally, during 2001, Toyobo informed Second Chance and released additional data showing that it had not found any serious indication of Zylon strength degradation despite conflicting evidence in its possession. (Id. ¶¶ 58-59, 63.)

Following a Toyobo report revealing a dramatic drop in Zylon strength (id. ¶ 80), Second Chance and Toyobo held a "Crisis Management Meeting" in which they agreed that all communications related to Zylon "were to be 'pre-emptive, consistent, coordinated, and confidence inspiring.'" (Id. ¶ 81.) Second Chance asked Toyobo to remedy the problems with Zylon, as it considered the concerns with the material to be a "Toyobo problem." (Id. ¶ 85.) In response, Toyobo offered Second Chance a new volume discount program which resulted in a $6 million payment to Second Chance, retracted data showing dramatic drops in material strength, and assured Second Chance representatives that this strength would eventually level out. (Id. ¶¶ 86-88.) Despite these promises, Toyobo continued providing updates to Second Chance confirming that Zylon fiber lost strength through heat and moisture exposure. (Id. ¶ 92.)

In June 2003, a California police officer was shot and killed during a traffic stop when two bullets passed through the Second Chance Zylon vest he was wearing. (Id. ¶ 101.) That same month, a Pennsylvania officer was shot in the stomach and disabled when a bullet pierced the Second Chance Zylon vest he was wearing which had been made less than one year earlier. (Id. ¶ 102.) Second Chance then discontinued selling vests made of Zylon, notified purchasers of the degradation problem, offered options including an upgrade of existing vests or discounts on new vests and issued a safety notice calling for removing its vests containing Zylon from service. (Id. ¶¶ 104-05, 112.)

Aaron Westrick, a former employee of Second Chance, filed a qui tam complaint against Second Chance and Toyobo under the FCA, 31 U.S.C. §§ 3729-33. (Id. ¶ 5.) The government intervened under 31 U.S.C. § 3730(a)(2), and filed an amended complaint, adding four Second Chance executives as individual defendants ---Thomas Bachner, Jr., Richard C. Davis, Larry McCraney, and Karen McCraney. (Id. ¶¶ 5, 16-19.) The amended complaint asserted claims against all defendants for (1) violations of the FCA through presenting fraudulent claims, making false statements and conspiring to defraud, (2) common law fraud, and (3) unjust enrichment. (Id. ¶¶ 113-15, 116-18, 119-21, 122-30, 136-39.) Claims for payment by mistake and breach of contract were asserted against only Second Chance. (Id. ¶¶ 131-35, 140-43.) Toyobo filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) claiming that the government failed to plead fraud with the specificity required by Federal Rule of Civil Procedure 9(b), failed to plead factual allegations that Toyobo presented a false claim for payment or a false record or statement to the United States, failed to plead the existence of a conspiracy, and failed to plead factual allegations that supported any of its common law claims.*fn1 (Defs.' Mem. in Supp. of Mot. to Dismiss ("Defs.' Mem.") at 1-2.)

DISCUSSION

In evaluating a Rule 12(b)(6) motion, a court "may consider only the facts alleged in the complaint, any documents either attached to or incorporated in the complaint and matters of which [a court] may take judicial notice." Trudeau v. FTC, 456 F.3d 178, 183 (D.C. Cir. 2006) (quoting EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 (D.C. Cir. 1997)). A court considering a Rule 12(b)(6) challenge must accept as true any facts alleged by the plaintiff and grant him all reasonable inferences drawn from those facts, but need not accept either inferences unsupported by the facts or legal conclusions cast in the form of factual allegations. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, acceptable as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plaintiff must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

Rule 9(b), which applies to FCA actions,*fn2 requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be averred generally." Fed. R. Civ. P. 9(b). Motions to dismiss for failure to plead fraud with sufficient particularity are evaluated in light of the overall purposes of Rule 9(b) to "ensure that defendants have adequate notice of the charges against them to prepare a defense," United States ex rel. McCready v. Columbia/HCA Healthcare Corp., 251 F. Supp. 2d 114, 116 (D.D.C. 2003), discourage "suits brought solely for their nuisance value" or as "frivolous accusations of moral turpitude[,]" United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981), and "protect reputations of . . . professionals from scurrilous and baseless allegations of fraud[.]" Id. at 1385 n.103 (quoting Felton v. Walston & Co., 508 F.2d 577, 581 (2d Cir. 1974)).

Rule 9(b) "does not abrogate Rule 8," and must be read in light of Rule 8's requirement that averments be "simple[,] concise and direct" and "short and plain statement[s]" of each claim. Joseph, 642 F.2d at 1386 (quoting Fed. R. Civ. P. 8); see also United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 238 F. Supp. 2d 258, 269 (D.D.C. 2002) ("While . . . Rule 9(b) requires more particularity than Rule 8, . . . Rule 9(b) does not completely vitiate the liberality of Rule 8."). In a qui tam case, Rule 9(b) requires that the pleader "'state the time, place and content of the false misrepresentations, the fact misrepresented and what was retained or given up as a consequence of the fraud[,]' . . . [and] individuals allegedly involved in the fraud." United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004) (quoting Kowal v. MCI Comm'ns Corp., 16 F.3d 1271, 1278 (D.C. Cir. 1994)). "In sum, although Rule 9(b) does not require plaintiffs to allege every fact pertaining to every instance of fraud when a scheme spans several years, defendants must be able 'to defend against the charge and not just deny that they have done anything wrong.'" Id. at 1259 (quoting United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1052 (9th Cir. 2001); accord McCready, 251 F. Supp. 2d at 116 ("A court should hesitate to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts." (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999))).

I. PRESENTMENT OF FALSE CLAIMS

The FCA allows a private individual --- a relator --- to bring a cause of action seeking penalties and treble damages against anyone who "knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval[.]" 31 U.S.C. § 3729(a)(1) (1994).*fn3 See United States ex rel. Siewick v. Jamieson Sci. & Eng'g, Inc., 214 F.3d 1372, 1374 (D.C. Cir. 2000). "[T]he elements of section 3729(a)(1) are (1) the defendant submitted a claim to the government, (2) the claim was false, and (3) the defendant knew the claim was false." United States ex rel. Harris v. Bernad, 275 F. Supp. 2d 1, 6 (D.D.C. 2003). The FCA does not require proof of a specific intent to deceive when a defendant presents false or fraudulent claims to the government. 31 U.S.C. ยง 3729(b) (1994); United States v. TDC Mgmt. Corp., Inc., 24 F.3d 292, 296 (D.C. Cir. 1994). After relator ...


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