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United States v. Capitol Supply, Inc.

United States District Court, D. Columbia.

March 19, 2014


Page 92

For United States of America, Petitioner: Darrell C. Valdez, LEAD ATTORNEY, John H. Spittell, U.S. ATTORNEY'S OFFICE, Washington, DC, USA.

For Capitol Supply, Inc., Respondent: Michael Bhargava, Robert Fabrikant, LEAD ATTORNEYS, MANATT, PHELPS & PHILLIPS, LLP, Washington, DC, USA.

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BERYL A. HOWELL, United States District Judge.

The United States of America, on behalf of the Office of Inspector General for the General Services Administration (" OIG" ), filed the Petition for Summary Enforcement of two Inspector General (" IG" ) Subpoenas Duces Tecum (" Petition" ), which is pending before the Court. The subpoenas at issue seek to compel Capitol Supply, Inc. (" CSI" ), to produce records in connection with an OIG investigation of whether CSI violated the False Claims Act, 31 U.S.C. § § 3729 et seq. , by falsely certifying that office-grade shredders and other office supplies, which CSI sold to federal agencies via government-sponsored websites, were manufactured in compliance with the Trade Agreements Act (" TAA" ), 19 U.S.C. § § 2501 et seq. , and Buy American Act (" BAA" ), 41 U.SC. § § 8301 et seq. CSI does not dispute that the subpoenas at issue were served in accordance with an official investigation conducted by, and within the statutory authority of, OIG or that the subpoenas seek information relevant to this investigation. Nevertheless, CSI opposes this petition for judicial enforcement of the two subpoenas on the grounds that it has already " diligently complied," and that the subpoenas seek " documents that do not exist" or are " already in the Government's possession." CSI Opp'n U.S. Pet. Summ. Enf. IG Subpoena (" CSI Opp'n" ) at 1, ECF No. 8. For the reasons discussed below, the Government's Petition for Summary Enforcement of the IG Subpoenas is granted.[1]


A. CSI's Business with the Federal Government

CSI offers for sale nearly one million different products from thousands of manufacturers to federal government customers under various GSA Federal Supply Schedule (" FSS" ) contracts, including Multiple Award Schedule Contract No. GS-02F-0100N for office supplies, through the Department of Defense's " EMALL" and GSA's " GSA Advantage!" websites. Decl. of Robert Steinman Supp. Opp'n U.S. Pet. Summ. Enf. IG Supboena (" Steinman Decl." ) ¶ 2-3, ECF No. 8-1.[2] The Federal Acquisition Regulations (" FAR" ) prescribe standard federal contract clauses that are incorporated by reference into CSI's GSA contracts. Decl. of Crystal L. Johnson,

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Special Agent, OIG (" Johnson Decl." ) ¶ 8a, ECF No. 1-1. Among those contract clauses are those that implement the requirements of the BAA and TAA. Id. Taken together, these two laws permit federal agencies to purchase products from foreign countries only when those countries are designated as providing " appropriate reciprocal competitive government procurement opportunities to United States products and suppliers of such products." 19 U.S.C. § 2511(b)(1); see also id. § 2518(1). China is not included on the list of designated countries. Johnson Decl. ¶ 8a (citing 48 C.F.R. § 25.003).

As part of its FSS contracts, CSI agreed to comply with applicable laws and regulations ensuring that products offered for sale or sold under this contract to the United States Government were U.S.-made or designated country end products. Johnson Decl. ¶ 8a & b; see also 48 C.F.R. § 52.225-6(a) (" The offeror certifies that each end product, except those listed in paragraph (b) of this provision, is a U.S.-made or designated country end product, as defined in the clause of this solicitation entitled 'Trade Agreements.'" ); 48 C.F.R. § 52.225-5(b) (" The Contractor shall deliver under this contract only U.S.-made or designated country end products except to the extent that, in its offer, it specified delivery of other end products in the provision entitled 'Trade Agreements Certificate.'" ). According to the OIG, submitting claims for payment for products sold through the FSS contracts, when those products do not conform to the certification that the end product is made in the U.S. or a designated country, " may constitute criminal false statements or civil false claims, in violation of 18 U.S.C. § § 1001, 287, or 31 U.S.C. § § 3729 et seq. , respectively." Johnson Decl. ¶ 8b. To ensure compliance with these obligations, federal contractors are required to maintain sales records for three years from the date of last payment and to permit the OIG to " have access to and the right to examine any books, documents, papers, and records of the Contractor involving transactions related to this contract or compliance with any clauses thereunder." Id. at ¶ 15 (citing 48 C.F.R. 552.215-70).

B. OIG Initiation of Investigation

On June 29, 2010, relator Louis Scutellaro filed a qui tam complaint, which was placed under temporary seal, alleging that CSI was " selling products to the United States Government that did not originate in designated countries under the [TAA], and therefore . . . presenting false claims to the United States Government for payment." U.S. ex. rel. Scutellaro v. Capitol Supply, Inc., Civ. No. 10-01094 (D.D.C.), Compl. ¶ 5, ECF No. 1.[3]

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After receiving the qui tam complaint, the OIG initiated an investigation to " determine whether Capitol Supply unlawfully advertised, certified and sold office supply products, including paper shredders, to Federal agencies and offices pursuant to a GSA schedule contract." Johnson Decl. ¶ 6. In furtherance of its investigation, the OIG served two subpoenas on CSI, in 2010 and 2011, to obtain information pertinent to the sales of products by CSI through its FSS contracts with the GSA. CSI's compliance with those two subpoenas is at issue in the pending petition.

C. 2010 Subpoena and Response

On November 5, 2010, the OIG issued its first Subpoena, No. 1732 (" 2010 Subpoena" ), to CSI seeking production of all documents in CSI's possession from January 1, 2004 until November 4, 2010 " relating in any way to any sale of Fellowes brand shredders under any schedule contract" with the GSA. Pet. Ex. 1 (" 2010 Subpoena" ) at 6, ECF No. 1-2. The 2010 Subpoena requested production of seven categories of documents related to the subject matter of the subpoena, including sales data of Fellowes shredders sold pursuant to any GSA schedule contract (No. l), correspondence and communications from suppliers regarding country of origin of those shredders sold (Nos. 2 and 6), information as to the country of origin of the shredders sold (Nos. 3 and 4), and the identities of employees who sold the shredders on behalf of CSI (No. 7). Id. at 6; see also Johnson Decl. ¶ 10.[4]

Shortly before the production deadline, CSI's counsel tried unsuccessfully to negotiate with the OIG to reduce the scope of the documents requested. See Decl. of Holly A. Roth Supp. Opp'n Pet. (" Roth Decl." ) ¶ 3, ECF No. 8-2 (OIG Special Agent Johnson " did not substantively respond to my request to narrow the scope of the document production required by the 1732 Subpoena" ). The parties were able, however, to reach an agreement permitting CSI to produce the requested documents in a " rolling fashion." Johnson Decl. ¶ 11 (" We agreed that [CSI] would produce responsive documents in a 'rolling fashion'" ).

CSI subsequently made two productions of material in response to the 2010 Subpoena. The first production, on three compact discs (" CDs" ), consisted of 4,224 pages and several spreadsheets (Bates-number CS004220-21). CSI Opp'n Ex. D (letter, dated Dec. 23, 2010, from CSI counsel to OIG) at 2-3, ECF No. 8-4; CSI Opp'n at 3. As the cover letter from CSI counsel makes plain, two of the CDs contained " promotional" material sent to CSI by a vendor. Id. at 3. According to CSI,

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the spreadsheet " show[ed] all sales of Fellowes shredders from 2004 to 2010 under any contract." CSI Opp'n at 3; CSI Opp'n Ex. D at 2. The second production, on one CD, consisted of 113 Bates-stamped native documents. CSI Opp'n Ex. E (letter, dated April 26, 2011, from CSI counsel to OIG) at 1, ECF No. 8-5; CSI Opp'n at 3-4. Together, both productions " consisted of approximately 500,000 pages of documents, many of which were produced as native documents." Roth Decl. ¶ 4.

The OIG concluded that, although CSI's response to the 2010 Subpoena contained " sales information for Fellowes shredders for the time period 2004 to mid-December 2010," Johnson Decl. ¶ 11, the response was insufficient in two respects. First, the documents produced only " pertained to [GSA Schedule Contract] GS-02F-0100N, though the subpoena called for material relating to Fellowes shredders sold through all of [CSI's] contracts." Id. Second, " [t]his spreadsheet include[d] only 11 items sold through schedules other than GS-02F-0100N," and " did not provide country of origin information for the vast majority of the models." Supp. Decl. Crystal L. Johnson, Special Agent, OIG (" Johnson Supp. Decl." ) ¶ 3, ECF No. 11-1; Johnson Decl. ¶ 11 (" for 36 of the 46 Fellowes shredder models offered through Capitol's FSS contracts, Capitol did not provide documentation regarding country of origin" ). Another problem with the spreadsheet was that, without " complete sales data," the OIG could not " confirm whether these represent all Fellowes sales under Capitol's schedule contracts." Johnson Supp. Decl. ¶ 3.

Notably, in a letter accompanying the first production responsive to the 2010 Subpoena, CSI's counsel informed the OIG that CSI simply may not have responsive documents, explaining that CSI's " historical documentation of country of origin is limited because [CSI] updates such information on the products it offers based on the most recent electronic download from its distributers." CSI Opp'n Ex. D at 2. CSI's counsel's letter transmitting the second production reiterated this limitation in CSI's country of origin data, stating that CSI " and its suppliers engage in an electronic interchange of data whereby the supplier automatically updates information on products it sells through [CSI]--including country of origin (" COO" )" and " new supplier data for a given product -such as a Fellowes shredder--would replace, or overwrite, previous data in [CSI]'s system on that product." CSI Opp'n Ex. E at 1; see also Decl. of Robert Steinman, Chief Executive Officer, CSI (" Steinman Decl." ) ¶ 6, ECF No. 8-1 (" the information in the databases was constantly being overwritten to reflect that latest information" ); Johnson Decl. Ex. 2 (letter, dated April 10, 2012, from CSI counsel Holly A. Roth to Special Agent Crystal Johnson) at 2, ECF No. 1-3 (CSI's counsel explaining that CSI's " electronic system does not maintain all of the information you have requested for the fields you have requested for the time periods you have requested" because CSI's " dynamic system . . . is designed to verify a compliant country of origin from vendor provided information, e.g., the vendor feeds, in real time when [CSI] accepts and fulfills an order," but as " vendors frequently update information on the products [CSI] offers under the Contract, it is the most current information on the Country of Origin that is available on [CSI]'s system at any given time" ).

In short, the system employed by CSI to maintain country of origin information is constantly being overwritten with each new upload of updated information by vendors and this information is apparently not otherwise preserved by CSI. According to the OIG, this ...

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