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United States ex rel. Shamesh v. CA, Inc.

United States District Court, D. Columbia

January 6, 2016

UNITED STATES OF AMERICA ex rel. Dani Shamesh, Plaintiff,
v.
CA, INC., Defendant

          For DANI SHEMESH, ex rel., UNITED STATES OF AMERICA, Plaintiff: Robert L. Vogel, LEAD ATTORNEY, Janet Lyn Goldstein, VOGEL, SLADE & GOLDSTEIN, LLP, Washington, DC.

         For CA, INC., Defendant: Dean W. Baxtresser, LEAD ATTORNEY, Anne Wylde Robinson, David Rex Hazelton, LATHAM & WATKINS LLP, Washington, DC; Kyle Robert Jefcoat, Roger Steven Goldman, LATHAM & WATKINS, Washington, DC.

         For UNITED STATES OF AMERICA, Interested Party: Beverly Maria Russell, LEAD ATTORNEY, U.S. ATTORNEY'S OFFICE, Civil Division, Washington, DC; Patrick Klein, U.S. DEPARTMENT OF JUSTICE, Washington, DC.

         MEMORANDUM OPINION

         ALAN KAY, UNITED STATES MAGISTRATE JUDGE.

         United States District Judge Ellen S. Huvelle referred this case to the undersigned for a determination of Defendant CA's Motion to Compel (" Motion" ) [81]. ( See Judge Huvelle's Oct. 8, 2015 Order). Defendant CA moves this Court to compel the Plaintiff United States of America to produce documents relating to 1) the claims for which the United States intends to seek damages under the False Claims Act (Requests for Production 15, 26, and 27), and 2) the General Services Administration's (" GSA" ) proposed rule to eliminate a government contract clause known

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as the " Price Reduction Clause" (Requests for Production 16, and 18-22). ( See Def.'s Mot. at 1.) Plaintiff United States filed an Opposition [82] and Defendant CA filed a Reply [88]. On December 9, 2015, the undersigned held a Hearing on Defendant's Motion. (Dec. 9, 2015 Min. Entry). Upon consideration of the motions and supporting documents, the testimony at the hearing, and for the reasons set forth below, Defendant's Motion is granted in part and denied in part.

         BACKGROUND:

         A. Plaintiffs' Underlying False Claims Act Complaints

         The underlying case stems from complaints filed by Plaintiffs alleging that Defendant CA defrauded GSA and other federal agencies by failing to disclose to GSA discounts on their products that they gave to other consumers. (Sec. Am. Compl. (" SAC" ) [44]; Intervenor's Am. Compl. (" IAC" ) [55].) CA is one of the leading manufactures of software for computers, primarily selling software licenses and maintenance packages. (SAC ¶ 17.) Because the Government is such a large and powerful purchaser of goods and services, GSA takes advantage of the bargaining position and contracts on behalf of the entire Government through a contracting mechanism known as a " Multiple Award Schedule" (" MAS" )

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contract. ( Id. ¶ 11.) This way, each individual Government office does not have to enter into separate price negotiations and has much more leverage than if it were acting alone. ( Id. ) Accordingly, when a Government agency wishes to purchase an item that was part of a MAS contract, the agency can purchase the item from the vendor at the price that was previously negotiated between the vendor and GSA (or, depending on the size of the contract, the agency may negotiate for even deeper discounts than provided by the MAS contract). ( Id. )

         To negotiate a MAS contract, vendors are required to provide GSA with a catalog (called a " Consumer Sales Practices" form) that lists the lowest prices they have sold their items to other consumers. See 48 C.F.R. § 515.408; (IAC ¶ 26.) GSA and the vendor then negotiate and typically agree to the best price that has been offered to the vendor's other customers. See General Services Acquisition Manual (" GSAM" ) § 538.70(c); (IAC ¶ 29). If the vendor does not offer its best price, then it is supposed to provide an explanation so that GSA can determine if the offered price is " fair and reasonable, even though comparable discounts were not negotiated," and if the contract is still in the

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" best interest of the Government." GSAM § 538.270(d); ( see also I.A.C. ¶ 29).

         After the MAS contract is awarded, the vendor is required to maintain the negotiated price and discount relationship. GSAM § 538.272(a); ( see also I.A.C. ¶ 31). The MAS contract typically includes a " Price Reduction Clause" (" PRC" ) which requires vendors to consistently monitor their pricing over the lifespan of the contract and provide the Government with the same price reductions that they give to other comparably situated consumers (sometimes referred to as the PRC's " tracking customer requirement" ). GSAM § 538.272(a); ( see also I.A.C. ¶ 31).

         On September 26, 2002, CA entered into a MAS contract with GSA, Contract Number GS-35F-08232M. (IAC ¶ 37.) As required, CA submitted a Consumer Sales Practices (" CSP" ) form listing its lowest prices, and the contract included a PRC which guaranteed that the Government would receive the " best price" to purchase CA's products. (IAC ¶ 47.) The contract originally spanned from 2002 to 2007. (IAC ¶ 41.) The contract was extended from 2007 to 2008. ( Id. ) The contract was extended for another one-year term, from 2008-2009. ( Id. ) The contract was extended for an additional three-year term, from 2009-2012. Finally, the contract was extended again from 2012

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to March 2014 (the date the United States filed its Complaint in Intervention). ( Id. ) Under the contract and its extensions, various agencies, offices, and entities have purchased hundreds of millions of dollars of items through blanket purchase agreements (" BPA" ), which allow them to adopt the terms and prices from the GSA MAS contract. (SAC ¶ 27.)

         On August 24, 2009, an employee of CA, Dani Shemesh (" Relator" ), filed a complaint against CA alleging that it had violated the False Claims Act in its dealings with the Government. (Compl. [1]; see also SAC ¶ ¶ 61-66.)[1] In particular, Relator alleges that in the process of negotiating the GSA MAS contract, CA lied to the Government about giving it its best price, because CA had actually given other consumers much lower prices and never disclosed this information to the Government. ( See SAC ¶ 51.) As a result, the claims submitted by CA pursuant to the MAS contract, or pursuant to the BPAs formed on the basis of the MAS contract, were false. ( See id. ) Further, Relator alleges that CA's failure to disclose this information pursuant to the PRC resulted in additional false statements made throughout the contract. ( See id. )

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         On August 19, 2010, GSA's Office of Inspector General (" OIG" ) issued a subpoena to CA. (GSA OIG Subpoena [81-5] at 2.) The subpoena sought information to help the United States determine whether any transactions were fraudulent and whether it would intervene in Relator's case. (Pl.'s Opp. at 3.) CA responded to the subpoena by producing its sales database. (Def.'s Reply at 4.) During its investigation from 2010 to 2014, GSA OIG identified eleven of CA's transactions as being of " significant concern." (Dec. 9, 2015 Mot. Hr'g.)

         On March 24, 2014, the United States filed a Complaint in Intervention. (Intervenor's Compl. [42]; see also Intervenor's Am. Compl. (" IAC" )) [55].)[2] In the Complaint, the United States provides a series of 18 examples of allegedly fraudulent transactions whereby CA purported to give the Government the best price and failed to disclose that it actually had given other consumers more favorable discounts; however, the United States did not include the eleven transactions that it identified as being of " significant

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concern" in its Complaint. (IAC ¶ ¶ 75, 80, 111.) The United States alleges in part that Defendant violated three provisions of the False Claims Act: In Count I, the United States alleges " Defendant knowingly presented, or caused to be presented, for payment or approval, false and/or fraudulent claims . . . to the United States, which the United States paid" in violation of 31 U.S.C. § 3729(a)(1) (2006) and 31 U.S.C. § 3729(a)(1)(A) (West 2010). (IAC ¶ 127.) In Count II, the United States alleges " Defendant knowingly made, used, or caused to be made or used, false records or statements material to a false or fraudulent claim . . . to get the United States to pay or approve false or fraudulent claims" in violation of 31 U.S.C. § 3729(a)(1)(B) (2009). (IAC ¶ 131.) In Count III, the United States alleges " Defendant knowingly made, used, or caused to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly concealed or knowingly and improperly avoided or decreased an obligation to pay or transmit money or property to the Government" in violation of 31 U.S.C. § 3729(a)(7) (2006) and 31 U.S.C. § 3729(a)(1)(G) (West 2010). (IAC ¶ 136.) Plaintiffs contend that all these fraudulent transactions taken together have resulted

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in the Government overpaying at least $100 million. ( See SAC ¶ ¶ 63, 66.)

         B. Discovery

         On April 22, 2015, Judge Huvelle ordered that fact discovery be completed by February 22, 2016, and the remaining discovery (expert discovery) by April 22, 2016. (Scheduling Order [76]).

         In June and July of 2015, CA served the United States its first and second requests for production of documents, totaling 37 requests. (First Req. [81-7]; Sec. Req. [81-8].) Requests 1-14 sought documents related to the 18 examples that the Government listed as allegedly fraudulent in its Amended Complaint. (First Req. at 7-14.) Request 17 sought documents relating to the impact and effect of the PRC in MAS contracts. ( Id. at 20; Def.'s Reply at 16.)

         The Government has produced nearly 7,000 pages of documents in response to the 37 requests and claims to be continuing to produce documents. (Pl.'s Opp. at 4.) The Government, however, refuses to produce documents for Requests 15, 16, 18-22, 26, and 27. (Pl.'s Opp. at 1.) The parties conferred multiple times to attempt

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to resolve the discovery disputes but have been unsuccessful in reaching a resolution. ( See Jonathan Su Aff. [81-2] at 3-4.)

         On October 7, 2015, Defendant CA filed a motion to compel the Plaintiff United States to produce documents relating to 1) the claims for which the United States intends to seek damages under the FCA (Requests for Production 15, 26, and 27), and 2) the GSA's proposed rule to eliminate the PRC from MAS contracts (Requests for Production 16 and 18-22).

         1. Requests 15, 26, and 27

         Requests 15, 26, and 27, seek documents relating to transactions that the Government intends to claim were fraudulent and accordingly seek damages:

Request 15 seeks all documents or communications relating to the eleven transactions between the Government and CA that the Government had identified as being of " significant concern" in its prior investigation (but did not list as examples of fraudulent transactions in its Complaint).
Request 26 seeks all documents or communications relating to any transaction for which the Government alleges it was overcharged and intends to claim damages.
Request 27 seeks all documents or communications relating to any guidance, memoranda, and policies for placing

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orders under GSA contracts by ordering agencies.

(First Req. [81-7] at 17; Sec. Req. [81-8] at 7; Dec. 9, 2015 Mot. Hr'g) (Request 15 is modified by the undersigned to incorporate clarifying details that were disclosed at the Dec. 9, 2015 Motion Hearing.)

         The Government objects to producing these documents on the basis that it cannot provide this information until CA first produces an intelligible database listing its sales. (Pl.'s Opp. at 2.) The Government claims CA's sales data is a necessary predicate to identifying the relevant transactions for which the Government will seek damages because CA's sales data will show whether CA gave more favorable discounts to other consumers than the Government and whether it failed to disclose such information. ( Id. ) If CA failed to disclose such information, the Government will identify the transactions as fraudulent and likely seek damages. ( Id. ; see also Pl.'s Initial Disclosures [82-2] at 9.) While the Government does not dispute the potential relevance of these requests, it argues that it should be permitted to provide responses after CA has provided more information. (Pl.'s Opp. at 11.)

         CA claims that the Government's statements about it needing

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an intelligible sales database are a red herring because it has already provided the database to the Government. (Def.'s Mem. [81-1] at 2.) CA argues that the Government is impeding its ability to conduct proper discovery because CA does not know what transactions are at issue and does not have the documents that would allow it to depose the witnesses who identified transactions as fraudulent. (Def.'s Reply [88] at 7.) CA mentions that if the Government truly has a need for ...


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