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United States of America v. Honeywell International Inc

July 8, 2011

UNITED STATES OF AMERICA, PLAINTIFF,
v.
HONEYWELL INTERNATIONAL INC., DEFENDANT.



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

MEMORANDUM OPINION AND ORDER

The government filed a complaint against defendant Honeywell International Inc., alleging violations of the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-33, as well as a common law unjust enrichment claim in connection with the sale of Zylon body armor shields. Honeywell has moved to dismiss the complaint for failure to state a claim and sufficiently plead fraud. Because the government has sufficiently alleged its FCA and unjust enrichment claims and pled fraud with sufficient particularity, Honeywell's motion to dismiss will be denied.

BACKGROUND

The complaint alleges the following facts. Honeywell purchased the synthetic fiber "Zylon" for use in the manufacture of Z Shields, panels of laminated fibers that are incorporated into bulletproof vests. (Compl. ¶¶ 2, 21-22.) Armor Holdings, Inc. paid more than fifteen million dollars for more than one -hundred thousand pounds of Z Shield, which it used to manufacture bulletproof vests. (Id. ¶ 23.) "Honeywell and Armor Holdings marketed Z Shield vests as 'groundbreaking' technology that offered the highest levels of ballistic protection and represented the state of the art in ballistic performance." (Id. ¶ 24.) Armor Holdings sold vests to federal agencies and to state, local, and tribal law enforcement authorities under the Bullet Proof Vest Grant Partnership Act Program, under which the federal government reimbursed these authorities for up to fifty percent of the costs of the body armor. (Id. ¶¶ 13-16.) The National Institute of Justice ("NIJ"), which tests bulletproof materials, certified that all Z Shield vests that Armor Holdings sold met NIJ's minimum ballistic standards. (Id. ¶ 30.) Armor Holdings initially offered a five-year warranty on its vests. (Id. ¶ 32.) The federal government paid Armor Holdings more than twenty million dollars for Z Shield vests. (Id. ¶ 23.)

The government alleges that "Honeywell knew that Armor Holdings relied on Honeywell's technical expertise regarding Z Shield," and Honeywell tested the tensile strength of the Z Shield, interpreting the data for Armor Holdings. (Id. ¶ 33.) Beginning in April 2000, Honeywell learned from the company that manufactured Zylon that the fiber's strength deteriorated when exposed to light. (Id. ¶ 35.) While Honeywell did not share with Armor Holdings these findings, which showed a thirty-five to -fifty percent drop in tensile strength, Honeywell did share data from a test it performed which revealed a three percent drop in strength after a shorter period of exposure to light. (Id.¶ 36.)

Honeywell became concerned with other potential sources of degradation, and it began testing Z Shield's reaction to moisture. (Id. ¶ 37.) After another producer of Zylon body armor reported that one of its shield vests had failed and expressed misgivings about using Zylon in bulletproof vests, Armor Holdings ---- without Honeywell's input ---- "issued a body armor storage advisory warning its customers to store body armor containing woven Zylon or Z Shield in a dry and cool place and not to store it at temperatures above 120 degree F and 50% humidity." (Id. ¶¶ 38-39, 41.) Honeywell received additional data from other producers of Zylon products suggesting Zylon was not suitable for use in bulletproof armor (id. ¶¶ 43-47), but it "continued to represent Z Shield as a safe and effective material suitable for body armor." (Id. ¶ 44.)

Additionally, Honeywell began performing its own environmental exposure and ballistics tests on Z Shields. This included "accelerated aging" testing, which would determine "whether Z shield would lose tensile strength over time" under non-extreme, foreseeable conditions. (Id. ¶¶ 33, 48.) Honeywell's initial testing "showed a 13.3% decline in the-ballistic integrity of Z Shield when exposed to 90 degrees C (about 234 F) for one week. The same testing showed that the non-Zylon shield products of Honeywell that were tested as controls lost little, if any, of their ballistic integrity." (Id. ¶ 49.) However, Honeywell "emphasized other, more favorable preliminary data" to Armor Holdings. (Id. ¶ 50.) Honeywell tested Z Shield's ballistic integrity in other hot and humid environmental conditions, and these tests revealed substantial declines in ballistic integrity as compared to that of control products. (Id. ¶¶ 51-52.) In a conference call, Honeywell "downplayed" the results to Armor Holdings. (Id. ¶ 53.) Honeywell conducted additional accelerated aging tests that also revealed degradation in the fiber. (Id. ¶¶ 54-55.) A Honeywell employee drafted a report accurately summarizing the negative results of its accelerating aging tests, but Honeywell never shared the report with Armor Holdings. (Id. ¶¶ 56-60.)

Representatives of Armor Holdings met with representatives of Honeywell in January 2003. At that meeting, Honeywell informed Armor Holdings that none of its data should cause Armor Holdings to reconsider marketing or selling Z Shield vests. (Id. ¶ 62.) At an internal Honeywell meeting prior to the meeting with Armor Holdings, Honeywell instructed its personnel to "provide some of the test data, but not the conclusions" to Armor Holdings. (Id. ¶ 63.) In April 2003, Honeywell published a technical paper that disclosed some favorable test data but omitted all of the negative accelerated aging data. (Id. ¶ 65.)

In 2004, Armor Holdings performed its own testing on used vests, which revealed a substantial decline in the strength of used Z Shields as compared to new Z Shields. (Id. ¶ 71.) After evaluating these data, Armor Holdings reduced the length of its warranty from five years to thirty months. However, Honeywell expressed disagreement with Armor Holdings' decision. (Id.¶ 72.) After the NIJ performed its own ballistic testing, which confirmed that Zylon quickly lost ballistics integrity, it decertified all Zylon products in August 2005. (Id. ¶¶ 78, 84-85.)

The government filed a complaint asserting claims against Honeywell for FCA violations involving presenting fraudulent claims and making false statements, and for common law unjust enrichment. (Id. ¶¶ 86-89, 90-93, 94-97.) Honeywell has filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the government failed to plead fraud with the specificity required by Rule 9(b), failed to plead factual allegations that Honeywell presented a false claim for payment or made a false statement to the United States, and failed to plead factual allegations that support its unjust enrichment claim.

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 (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 all reasonable inferences drawn from those facts. 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, accepted 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) applies to FCA actions. United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002) (noting that every circuit to consider the issue has held that Rule 9(b) applies to FCA complaints). It 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). 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 (alteration in original) (quoting Felton v. Walston & Co., Inc., 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 allegations be simple, concise, and direct, and short and plain statements of each claim. Joseph, 642 F.2d at 1386; 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 an FCA action, 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."*fn1 United States ex rel. Williams v. Martin-Baker Aircraft Co., Ltd., 389 F.3d 1251, 1256 (D.C. Cir. 2004) (quoting Kowal v. MCI Communic'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 (reasoning that a court "'should hesitate to dismiss a ...


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