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United States of America Ex Rel. v. Mwi Corporation

November 14, 2011

UNITED STATES OF AMERICA EX REL. ROBERT R. PURCELL, PLAINTIFF,
v.
MWI CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Document Nos.: 234, 236, 241, 249, 255

MEMORANDUM OPINION GRANTING THE GOVERNMENT'S MOTION TO STRIKE THE DECLARATION OF JOHN STEPHEN FANCHER;GRANTING THE GOVERNMENT'S MOTION TO STRIKE THE DISCLOSURE AND DECLARATION OF JAMES MOORHOUSE;DENYING THE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT;DENYING THE GOVERNMENT'S MOTION FOR SUMMARY JUDGMENT;DENYING THE DEFENDANT'S MOTION TO DISMISS THE RELATOR'S COMPLAINT

I. INTRODUCTION

This matter concerns allegations that Moving Water Industries, Inc. ("MWI") defrauded the federal government by fraudulently concealing bribes made to its sales agents in Nigeria. One of MWI's former employees, Robert Purcell, originally brought this action under the False Claims Act. The United States subsequently intervened to bring its own suit, alleging violations of the False Claims Act and other common law claims. This matter now comes before the court upon a bevy of motions, including: the government's motions to strike two of the defendant's witnesses, the defendant's motion to dismiss Purcell's claims for lack of jurisdiction and the parties' cross-motions for summary judgment.

Because the defendant failed to disclose two of its witnesses during discovery, the court grants the government's motions to strike those witnesses' declarations. Because the government has shown that the False Claim Act poses no jurisdictional bar to this matter, the court denies the defendant's motion to dismiss Purcell's complaint. Finally, because several genuine disputes of material fact exist with regards to the government's False Claims Act and common law claims, the court denies the parties' cross-motions for summary judgment.

II. BACKGROUND

A. Statutory Framework

The False Claims Act ("FCA") was signed into law by President Abraham Lincoln in 1863 to combat rampant fraud and war profiteering in Civil War defense contracts. Rainwater v. United States, 356 U.S. 590, 592 (1958). The FCA imposes civil penalties on any person who, among other things, knowingly submits false claims to the federal government. 31 U.S.C. § 3729. The chief purpose of the FCA is to prevent the commission of fraud against the federal government and to provide for the restitution of money that was taken from the federal government by fraudulent means. U.S. ex rel. Marcus v. Hess, 317 U.S. 537, 544-45 (1943).

A private person -- referred to as the "relator" -- may bring an FCA action in the name of the government. Id. § 3730(b). Under the FCA's qui tam provision, a relator may share in any proceeds that are ultimately recovered.*fn1 U.S. ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 647 (D.C. Cir. 1994). The FCA's qui tam provision brings legal force to the idea "that one of the least expensive and most effective means of preventing frauds upon the Treasury is to make the perpetrators of them liable to actions by private persons acting under the strong stimulus of personal ill will or the hope of gain." Hess, 317 U.S. at 541, n.5 (internal citations omitted). In addition, the FCA's qui tam provision encourages whistleblowers to expose fraudulent activities of which the government was previously unaware. Quinn, 14 F.3dat 649; U.S. ex rel. Findley v. F.P.C.-Boron Employees' Club, 105 F.3d 675, 678 (D.C. Cir. 1997).

Following the filing of a relator's FCA claim, the federal government may elect to intervene in the case. 31 U.S.C. § 3730(b). By intervening, the government bears the primary responsibility of prosecuting the action and is not bound by the actions of the relator, who may continue as a party to the original suit. Id. § 3730(c). If the government's intervening claim is successful, the relator is then entitled to collect between 15% and 25% of the proceeds. Id. § 3730(d).

B. Elements of an FCA Claim

The FCA provides for two types of liability. U.S. ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199 (D.C. Cir. 1995). First, the submitter of a "false claim" or "statement" is liable for an automatic civil penalty, regardless of whether the submission of the claim actually causes the government any damages. Id.; 31 U.S.C. § 3729(a)(1)(G).

Second, the defendant may be held liable for damages that were actually sustained because of the submission of the false claim. Id. The elements of a FCA action are that (1) the defendant presented a claim to the government, (2) the claim was false and (3) the defendant knew the claim was false. U.S. ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F. Supp. 2d 129, 134 (D.D.C. 2010). FCA claims are also subject to a judicially imposed materiality requirement. United States v. Science Applications, 626 F.3d 1257, 1266 (D.C. Cir. 2010); see also U.S. ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1169 (10th Cir. 2010); U.S. ex rel. Cantekin v. Univ. of Pittsburgh, 192 F.3d 402, 415 (3d Cir. 1999).

Finally, a plaintiff who successfully proves these four elements may recover damages only if it shows that the defendant caused the government to pay claims "because of" the alleged false statements. 31 U.S.C. § 3729(a). These damages are measured as the difference between what the government actually paid and what the government would have paid had it known of the falsity of the defendant's claim. See U.S. ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 200 (D.C. Cir. 1995).

B. Factual and Procedural History

In the early 1990s, MWI, a Florida corporation, arranged to sell irrigation pumps and other equipment to seven Nigerian states. Govt.'s Statement of Undisputed Material Facts ("Govt.'s Stmt.") ¶¶ 1, 3. To finance these sales, MWI and Nigeria sought and received eight loans from the Export-Import Bank of the United States ("Ex-Im Bank"), an agency of the United States that is tasked with financing and facilitating the sales of U.S. exports to international buyers. See 12 U.S.C. § 635(a). These loans totaled $74.3 million. Govt.'s Stmt. ¶ 4.

Before the Ex-Im Bank would approve the loans, it required MWI to submit a "supplier's certificate" to the Ex-Im Bank attesting that it had not paid any "irregular commissions" or other payments in connection with the pump sales. Id. ¶¶ 15-16. Among other things, the supplier's certificates allow the Ex-Im Bank to finance U.S. exports while ensuring that sales are not tainted by the stigma of bribery or other illegal activity. Govt.'s Mot. for Summ. J., Ex. 10 at 7. After the Ex-Im approved the loan, MWI was required to submit another supplier's certificate to the Ex-Im Bank before any payment would be disbursed. Govt.'s Stmt. ¶ 17. Accordingly, MWI first submitted supplier's certificates to obtain the Ex-Im Bank's approval of the bank reimbursements, and then submitted additional supplier's certificates prior to receiving each payment from the bank. Id. ¶¶ 16, 18. On each of the supplier's certificates, MWI certified that it had not paid any "irregular commissions" or made other payments in connection with the pump sales. Id. ¶¶ 19, 21.

The government alleges that these certifications were false. Id. ¶¶ 24, 35. Specifically, the government claims that MWI had paid $28 million in "excessive, highly irregular" commissions-namely, a series of bribes-to their Nigerian sales representative, Alhaji Mohammed Indimi ("Indimi"). Id. ¶¶ 22-27. The government contends these commissions represented 34 percent of the sales price of the pumps.*fn2 Govt.'s Mot. for Partial Summ. J. at 1.

At the time of this project, the government contends that MWI had a policy of paying its sales agents a commission of approximately 10 percent of the standard discounted sale price, plus half of any amount received over that price. Govt.'s Mot. for Partial Summ. J. at 7, Ex. 10 at 11-12. With the exception of Indimi's commission, MWI's commission payments between January 1, 1990 and December 31, 1994-a period encompassing the Indimi sales and 70 other MWI transactions-averaged $13,956 or 9 percent of the sale price. Govt.'s Mot. for Partial Summ. J. at 8.

Purcell is a Florida resident who was at all relevant times employed as MWI's Vice President of National Sales and Director of Asian Operations. Relator's Compl. ¶ 7. Purcell filed this action against MWI in August 1998, alleging that MWI violated the FCA. See generally id. Specifically, the relator's complaint alleges that MWI's receipt of $74.3 million in Ex-Im Bank loan guarantees was induced by MWI's fraudulent concealment of the fact that bribes were paid to Nigerian officials. Id. ¶¶ 11-13, 15-16, 23-31, 47-49. The relator's complaint charges MWI with violating the FCA by: (1) knowingly causing the submission of false or fraudulent claims for payment or approval; (2) knowingly making false records or statements to obtain government payment of false or fraudulent claims; and (3) conspiring to defraud the government. Id. ¶¶ 50-55. The relator seeks treble damages and civil penalties under the FCA. Id. ¶¶ 24-25.

The government intervened in April 2002 by filing suit against MWI and its former president and majority shareholder, J. David Eller. Govt.'s Compl. ¶¶ 11-45. The government's complaint contains not one but four counts. Id. ¶¶ 46-56. Of the four counts, the first two allege the same FCA violations as the relator's complaint, namely that MWI and Eller: (1) knowingly caused the presentation of false or fraudulent claims for payment or approval and (2) knowingly made false records and statements to obtain government payment of false or fraudulent claims. Id. ¶¶ 46-51. The third and fourth counts ("the common law claims") allege claims under the common law theories of (3) unjust enrichment and (4) payment by mistake. Id. ¶¶ 52-56.

Following the close of discovery, the parties filed cross-motions for summary judgment which were addressed by the court. See generally Mem. Op. (Nov. 6, 2007). Specifically, the court granted defendant Eller's motion for summary judgment on all claims, concluding that the government's FCA claims against Eller were time-barred and that the government had failed to show that Eller derived any benefit from the government's actions. Id. at 12-21. In addition, the court granted in part the government's motion for partial summary judgment, concluding that the government had successfully presented two elements of its FCA claim.

Upon the court's order for supplemental briefing, the government and the defendant again filed cross-motions for summary judgment on the elements of (1) materiality, (2) falsity and (3) damages. See generally Govt.'s Mot. for Partial Summ. J.; Def.'s Mot. for Summ. J. Additionally, the defendant moves to dismiss the relator's claim for lack of jurisdiction, arguing that the "public disclosure" provision of the FCA deprives this court of jurisdiction. See generally Def.'s Mot. to Dismiss Against Purcell ("Def.'s Mot. to Dismiss"). Finally, the government filed two motions to strike under Rule 37(c)(1) various declarations submitted by the defendant. See generally Govt.'s Mot. to Strike the Declaration of John Stephen Fancher;

Govt.'s Mot. to Strike the Disclose and Declaration of James A. Moorhouse; FED. R. CIV. P. 37(c). With this welter of motions now ripe for review, the court now turns to the parties' arguments and the relevant legal standards.

III. ANALYSIS

A.The Court Strikes Both the Declaration of John Stephen Fancher and the Disclosure and Declaration of James Moorhouse

In support of its motion for summary judgment, MWI submits the declarations of two witnesses: Stephen Fancher and James Moorhouse. See Def.'s Mot. for Summ. J., Ex. 6 ("Fancher Decl."); Def.'s Reply to Govt.'s Opp'n to Def.'s Mot for Summ. J., Ex. 3 ("Moorhouse Decl."). These submissions putatively shed light on the range of commissions that were common in the water pump industry. See generally Def.'s Opp'n to Govt.'s Mot. to Strike Fancher Decl.; Def.'s Opp'n to Govt.'s Mot. to Strike Moorhouse Disclosure Decl.

The government argues that the declarations of Mr. Fancher and Mr. Moorehouse should be stricken from the record because the defendant failed to properly disclose both witnesses during discovery. See generally Govt.'s Mot. to Strike Fancher Decl.; Govt.'s Mot. to Strike Moorhouse Disclosure & Decl. The defendant counters that the declarations are admissible on account of legal arguments that were newly developed since the initial round of summary judgment briefing. See generally Def.'s Opp'n to Govt.'s Mot. to Strike Fancher Declaration. In addition, the defendants argue that these declarations inflict ...


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