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United States ex rel Folliard v. CDW Technology Services

April 19, 2010

UNITED STATES OF AMERICA EX REL. BRADY FOLLIARD, PLAINTIFF-RELATOR,
v.
CDW TECHNOLOGY SERVICES, INC., AND CDW GOVERNMENT, INC., DEFENDANTS.



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MEMORANDUM OPINION

Plaintiff-relator Brady Folliard ("relator") brings this qui tam suit under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729 et seq., on behalf of the United States against defendants CDW Technology Services, Inc. ("CDWTS") and CDW Government, Inc. ("CDWG") (collectively "CDW"). Before the Court is defendants' motion to dismiss the complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). For the reasons discussed herein, defendant's motion is granted in part and denied in part.

BACKGROUND

As alleged in the amended complaint, relator has worked since January 2004 as a "strategic account executive" for Insight Public Sector ("IPS"), a Maryland-based company, selling "information technology products, services, and systems to federal agencies" in the District of Columbia, Maryland, and Virginia. (Am. Compl. ¶¶ 6, 8.) IPS is a value-added reseller ("VAR"), selling other companies' computer products in specially designed configurations tailored to its own customers' needs. (Id. ¶¶ 9-10.) In essence, IPS and other VARs are "middle-men in the supply chain between the technology manufacturers and their ultimate customers." (Id. ¶ 11.) IPS sells products and services to the federal government pursuant to a "Solutions for Enterprise-Wide Procurement" ("SEWP") contract maintained by the National Aeronautics and Space Administration ("NASA") and a "GSA Advantage" contract with the General Services Administration ("GSA"). (See id. ¶¶ 14-15.) Vendors with SEWP or GSA Advantage contracts can offer and sell their products through a government website associated with each contract. (See id. ¶¶ 17-18.) IPS is an "authorized selling agent" of Hewlett-Packard ("HP") computer products under the SEWP contract, and relator "also sells products through the GSA Advantage [w]ebsite." (Id. ¶¶ 15, 18.)

Defendant CDWTS is an Illinois-based corporation that provides information technology products and services to government and non-government customers. (Am. Compl. ¶ 7.) Defendant CDWG is a wholly-owned subsidiary of CDWTS that sells to government customers on CDTWS's behalf. (Id.) For all times relevant to the complaint, CDWG has sold products and services to government customers pursuant to its own SEWP contract (number NNG07DA35B) and GSA Advantage contract (number GS-35F-0195J). (Id. ¶¶ 7, 14.) CDWG is permitted to sell and does sell HP products under both the SEWP and GSA Advantage contracts. (Id. ¶ 15.)

Federal agency acquisitions are subject to the requirements of the Trade Agreements Act ("TAA"), 19 U.S.C. § 2501 et seq., and its related regulations, which limit the countries of origin from which federal agencies may purchase supplies. (See also Am. Compl. ¶ 7.) Federal Acquisition Regulation ("FAR") 52.225-5 specifies the "designated countr[ies]" whose "end products" may be purchased for public use under acquisition contracts. See FAR 52.225-5 ("Trade Agreements" clause). (See also Am. Compl. ¶ 7.) GSA does not permit products from non-designated countries to be offered for sale on the GSA Advantage Website, and GSA procurement policies require vendors "to specifically list all products for sale and their countries of origin before the products can be approved for sale on the website." (Id. ¶ 22.) NASA, by contrast, permits products from non-designated countries to be listed on the SEWP website as long as vendors correctly indicate whether the product originated in a designated country, so that NASA contracting officers can determine the applicability of FAR 52.225-5, which is incorporated into the SEWP contract, on a case-by-case basis. (Id. ¶ 23.) By the express terms of its GSA contract and FAR 52.225-6, CDWG "certified that it would only sell end products under these contracts to the United States Government that originate in designated countries," and that it would not sell end products that originate in non-designated countries such as China, India, and Malaysia. (Id. ¶ 17.) See also FAR 52.225-6(a) (Trade Agreement Certificate requiring offeror to certify that each end product is made in U.S. or designated country). Similarly, by the express terms of its SEWP contract, CDWG "agreed to fully and truthfully identify whether each product offered for sale on the NASA SEWP website originates in a designated country as defined by the [TAA]." (Am. Compl. ¶ 17.)

To assist with TAA compliance, HP prepares and provides to its vendors, including relator and CDWG, "a product list... that indicates the country of origin of the HP products for sale on the GSA Advantage Website and on the SEWP contract." (Am. Compl. ¶ 18.) Relator "regularly receives and reviews" this HP product list. (Id.) "In the course of managing his accounts, [relator] became familiar with [the SEWP and GSA] contracts and the HP products being offered by sale by [CDWG] on the SEWP contract and on the GSA schedule, including the fact that [CDWG] sells HP products through both of these government procurement portals." (Id. ¶ 15.)

After reviewing the HP vendor product list in early 2007, relator determined that CDWG was offering for sale on the GSA and SEWP websites a number of HP products "that originated in China and other non-designated countries." (Am. Compl. ¶¶ 19-20.) On the SEWP website, CDWG was offering 348 end products from China. (See id. ¶¶ 19-21 & Ex. 1A.*fn1 ) Of these, 140 products were falsely listed on the website as TAA-compliant, because a "Y" had been placed in "the box for TAA compliance" found on each product's information page. (See id. ¶¶ 21, 25 & Ex. 1B.) Contracting officers "presumably did not analyze the purchase of these products" to determine if they complied with TAA and FAR 52.225-5, because they were "relying upon the misrepresentation that the 140 products... were from designated countries...." (Id. ¶ 24.) Relator also concluded that on the GSA Advantage website, CDWG was falsely listing 11 HP products as originating in the United States, when in fact they were not TAA-compliant.*fn2 (See id. ¶¶ 25-69 & Exs. 2A-12B.)

Relator originally filed this action under seal on November 6, 2007. On June 10, 2009, the United States filed a notice that it was not yet intervening, and on June 16, this Court unsealed the case. On October 13, relator amended his complaint. In Count One, citing 31 U.S.C. § 3729(a)(1) (2008), relator alleges that defendants "knowingly submitted, caused to be submitted[,] and continue to submit and to cause to be submitted false or fraudulent claims" for government payment and reimbursement "by knowingly or recklessly making false statements" about the countries of origin of those products offered for sale which "did not originate in the United States or a designated country as defined by the [TAA]" ("the presentment claim"). (Am. Compl. ¶ 73.) Count One also cites 31 U.S.C. § 3729(a)(2) (2008) and alleges that defendants "knowingly made, used or caused to be made or used, and continue to make or use or cause to be made or used[] false statements" to obtain government payment "for false or fraudulent claims" by (1) "falsely certif[ying]" that the products they sold originated in the United States or a designated country or (2) "knowingly provid[ing] false and misleading information" about those products' countries of origin despite "certifying that they truthfully and honestly provided accurate information" to the government about those countries of origin ("the false statement claim"). (Id. ¶ 74.) "These were material misstatements that violated the [TAA] and/or frustrated the efforts of [the government] to achieve its goals and policies under the [TAA]" (id.), and defendants' actions damaged the government. (Id. ¶ 75.) Count Two cites 31 U.S.C. § 3729(a)(3) (2008) and alleges that defendants made "false and misleading statements" and "intentionally or with gross disregard for the truth sold products to the Government that did not originate in the United States or a designated country." (Id. ¶¶ 78-79.) Because the government relied upon these false statements, it paid out false claims and was thereby defrauded by defendants. (See id. ¶¶ 79-81.)

On December 14, 2009, defendants moved to dismiss the complaint under Rules 9(b) and 12(b)(6).*fn3 Defendants contend that Count One's presentment claim does not adequately identify the false claims or the factual circumstances of the alleged fraud; that Count One's false statement claim fails to allege a false statement that was used to get a false claim paid and does not identify a false claim paid by the government; and that Count Two fails to state the facts necessary to allege a conspiracy as required by the FCA. (Def.'s Mem. in Supp. of Mot. to Dismiss ("Def.'s Mem.") at 7, 10, 14, 17, 20.) On January 15, 2010, the United States filed a statement of interest in which it requested that if any dismissal with prejudice is entered as to relator, the complaint shall be dismissed without prejudice as to the government; addressed what it perceived as misstatements by defendants about the TAA's applicability; and argued that § 3729(a)(2) has been retroactively amended by the Fraud Enforcement and Recovery Act ("FERA"), Pub. L. 111-21, 123 Stat. 1617 (May 20, 2009). (See U.S. Statement of Interest ("U.S. Stmt.") at 1.)

ANALYSIS

I. STANDARD OF REVIEW

A. Rule 12(b)(6)

"In determining whether a complaint fails to state a claim, [courts] may consider only the facts alleged in the complaint, any documents either attached to or incorporated in the complaint[,]... matters of which [courts] may take judicial notice," E.E.O.C. v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997), and documents "appended to [a motion to dismiss] and whose authenticity is not disputed" if they are "referred to in the complaint and are integral" to a relator's claim. Kaempe v. Myers, 367 F.3d 958, 965 (D.C. Cir. 2004) (considering content of documents on motion to dismiss where complaint relied on documents' terms and where documents were judicially noticeable); see, e.g., Navab-Safavi v. Broad. Bd. of Governors, 650 F. Supp. 2d 40, 56 n.5 (D.D.C. 2009) (considering exhibit to defendant's motion to dismiss "upon which the complaint necessarily relie[d]" and whose authenticity plaintiff did not dispute). When ruling on a motion to dismiss pursuant to Rule 12(b)(6), courts must first assume the veracity of all "well-pleaded factual allegations" contained in the complaint. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009); see also Atherton v. Dist. of Columbia Office of Mayor, 567 F.3d 672, 681 (D.C. Cir. 2009). Next, courts must determine whether the allegations "plausibly give rise to an entitlement to relief" by presenting "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face,'" in that "the court [can] draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949-50 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

B. Rule 9(b)

Federal Rule of Civil Procedure 9(b) provides 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 alleged generally." Fed. R. Civ. P. 9(b). To plead fraud with particularity, the party "'must state the time, place and content of the false misrepresentations, the fact misrepresented and what was [ob]tained or given up as a consequence of the fraud.'" Kowal v. MCI Commc'ns, Corp., 16 F.3d 1271, 1278 (D.C. Cir. 1994) (quoting United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981)).

The requirements of Rule 9(b) are distinct from those of Rule 12(b)(6). See, e.g., Kowal, 16 F.3d at 1276-79 (analyzing allegations separately under each rule); Anderson v. USAA Cas. Ins. Co., 221 F.R.D. 250, 252 n.3 (D.D.C. 2004) ("[A] complaint can pass muster under the Rule 12(b)(6) threshold yet fail to comply with the strictures of Rule 9(b)."); United States ex rel. Davis v. District of Columbia, 591 F. Supp. 2d 30, 37-39 (D.D.C. 2008) (finding that complaint was particular under Rule 9(b) but did not state claim under Rule 12(b)(6)). The rules also serve different purposes, as "'Rule 9(b)'s requirement of particularity,'" once it is harmonized with Rule 8's requirement of a "'short and plain statement,'" becomes "'less certain a standard for measuring the sufficiency of a complaint....'" United States ex. rel. Pogue v. Diabetes Treatment Centers of Am., Inc. ("Pogue II"), 238 F. Supp. 2d 258, 267 (D.D.C. 2002) (quoting Joseph, 642 F.2d at 1386); see also United States ex rel. McCready v. Columbia/HCA Healthcare Corp., 251 F. Supp. 2d 114, 116 (D.D.C. 2003) ("[T]he simplicity and flexibility contemplated by [Rule 8] must be taken into account when reviewing a complaint for 9(b) particularity."). "[T]he purpose[s] of 9(b) as read in conjunction with Rule 8" are to ensure that the complaint "is specific enough to allow [defendants] to prepare [their] defense," Pogue II, 238 F. Supp. 2d at 270, to prevent ...


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