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United States of America, Ex Rel. v. Synnex Corporation

July 19, 2011

UNITED STATES OF AMERICA, EX REL.
BRADY FOLLIARD, RELATOR,
v.
SYNNEX CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Signed by Royce C. Lamberth, Chief Judge

MEMORANDUM OPINION

I. INTRODUCTION

Relator Brady Folliard brings this qui tam suit pursuant to the Federal False Claims Act, 31 U.S.C. §§ 3729--3733 ("FCA"). Folliard is an employee of Insight Public Services, where he works as a Strategic Account Executive and sells information technology products and services to federal government agencies. Corrected Second Am. Compl. ¶ 10, Oct. 13, 2010, ECF No. 37 (Compl.). In his complaint, Folliard alleges that the eight named defendants*fn1 sold products under government contracts from non-designated countries in violation of the Trade Agreements Act, 19 U.S.C. §§ 2501--2581 ("TAA"), the terms of their procurement contracts, and several other trade regulations and laws. Defendants have moved to dismiss on several grounds,*fn2 arguing (1) that relator's complaint is precluded under the FCA's first-to-file bar, 31 U.S.C. § 3730(b)(5), (2) that relator has failed to plead fraud with particularity, (3) that he fails to state a claim upon which relief can be granted, and (4) that his claim is precluded as to defendant HP by United States ex rel. Folliard v. Hewlett-Packard, 272 F.R.D. 31 (D.D.C. 2011). As explained below, the motions to dismiss will be granted as to defendants Synnex, Emtec, GovConnection, Force 3, GTSI, and HP, and denied as to defendants GovPlace and Govt. Acq..

II. BACKGROUND

Defendants are information technology companies that sell their products to U.S. agencies under General Services Administration ("GSA") Multiple Awards Schedule and Solution for Enterprise-Wide Procurement ("SEWP") contracts. All of the contracts executed by defendants under the GSA and SEWP are covered by the Trade Agreements Act, which prevents-among other things and with limited exceptions-the government from purchasing end-products that originate in non-designated countries. Compl. ¶ 40. Federal Acquisition Regulation 52.225-5(a) lists designated countries for the TAA, and those not listed-including China, Malaysia, Thailand, and the Philippines-are non-designated, meaning the government is generally prohibited from purchasing products that originate there.

At issue here are HP and Cisco products that defendants listed on their GSA Schedules. Relator alleges that these products originated in non-designated countries, and that defendants fraudulently claimed that the products were TAA compliant. Compl. ¶¶ 63, 79, 93, 102, 113, 119, 126. In his complaint, relator lists a number of orders that the government filed with defendants for products that, according to the HP website, came from non-designated countries, but were listed on the GSA Schedule as coming from designated countries. See, e.g., id. ¶ 117. As an example, the procurement orders relator lists for defendant GovPlace show ten orders worth $711,346.00 for products that were listed on the HP website as coming from non-designated countries. Compl. ¶ 118. Relator alleges that these products came from non- designated countries; that defendants were aware that the products were not compliant; that they consciously misrepresented that fact to the government on the GSA Schedules; and that they made a claim for money from the government based on that misrepresentation.

In May 2006, prior to relator bringing suit, an individual named Christopher Crennen filed a qui tam complaint under seal alleging similar violations. United States ex rel. Christopher Crennen v. Dell Marketing L.P., 711 F. Supp. 2d 157 (D. Mass. 2010). Crennen claimed "that various information technology vendors had misrepresented and certified falsely that their products complied with the . . . Trade Agreements Act." Id. at 159. Included in Crennen's complaint, which was under seal until May 2009, were current defendants HP, Force 3, GovConnection, GTSI, Synnex, and Emtec. Id. Crennen had personally examined the country-of-origin labels affixed to computers in federal buildings, and found that "[t]he great majority of these devices were made in non-designated countries, usually China." Id. After three-and-a-half years of investigation, the government declined to intervene in the case. See Notice of the United States Regarding Intervention at 1, Crennen v. Dell Marketing L.P., 711 F. Supp. 2d 157 (D. Mass. 2010) (No. 06-cv-10546), ECF. No. 22.Defendants in that case moved to dismiss on Fed R. Civ. P. Rule 9(b) grounds and the court granted their motions, holding that because Crennen pleaded "no facts to create a strong inference that a false claim was submitted," a necessary element to a state a claim under the FCA, he had failed to plead fraud with particularity. Id. at 162.

Folliard filed his complaint in this case on April 20, 2007, while Crennen's complaint was still under seal. Folliard's complaint remained under seal while the government filed repeated motions for extension of the sealed period, before finally declining to intervene on May 27, 2010. The complaint was unsealed on June 22, 2010 and served on defendants, after which defendants moved to dismiss. The Court will deal first with defendants' motions to dismiss for lack of jurisdiction pursuant to the FCA's first-to-file bar, 31 U.S.C. § 3730(b)(5), and will then reach defendants GovPlace and Gov. Acq.'s motions to dismiss for failure to plead fraud with particularity and failure to state a claim upon which relief can be granted.

III. LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). To satisfy this test, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint," Atherton v. District of Columbia, 567 F.3d 672, 681 (D.C. Cir. 2009), and grant a plaintiff "the benefit of all inferences that can be derived from the facts alleged." Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). However, a court may not "accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). In other words, "only a complaint that states a plausible claim for relief survives a motion to dismiss." Id.; see also Atherton, 567 F.3d at 681 (holding that complaint must plead "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged").

IV. DISCUSSION

Defendants Synnex, Emtec, GovConnection, GTSI, and Force 3 have moved to dismiss for lack of subject-matter jurisdiction under the FCA's first-to-file bar, for failure to plead fraud with particularity under Rule 9(b), and for failure to state a claim upon which relief can be granted. Defendant HP has moved to dismiss under the first-to-file bar and on res judicata grounds, and defendants GovPlace and Govt. Acq. have moved to dismiss under Rules 12(b)(6) and 9(b). As explained below, the Court will grant defendants' motions to dismiss under the first-to-file bar, and will deny defendants GovPlace and Govt. Acq.'s motions to dismiss for failure to state a claim with particularity and to state a claim upon which relief can be granted.

A. False Claims Act First-to-file Bar

"[T]he primary function of a qui tam complaint is to notify the investigating agency, i.e., the Department of Justice," and a qui tam complaint "serves first and foremost as notice to the Attorney General that he should investigate the allegations." United States ex rel. Folliard v. CDW, 722 F. Supp. 2d 37, 42 (D.D.C. 2010) ("CDW II") (emphasis in original); see also United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 516 (6th Cir. 2009) (noting that interpretation of the first-to-file rule should comport with the policy of "ensuring that the government has notice of the essential facts of an allegedly fraudulent scheme") (internal citations removed); Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1279 (10th Cir. 2004) ("Once the government is put on notice of its potential fraud claim, the purpose behind allowing qui tam litigation is satisfied."). In part due to that consideration, the FCA's first-to-file provision, 31 U.S.C. ยง 3730(b)(5), states that "[w]hen a person brings [a qui tam action], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." Id. Included in the 1986 amendments to the Act, the first-to-file rule is part of "congressional efforts to walk a fine line between encouraging whistle-blowing and discouraging opportunistic behavior," and cases should be "analyzed in the context of these twin ...


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