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United States v. DynCorp International, LLC

United States District Court, District of Columbia

May 19, 2017



          ELLEN SEGAL HUVELLE United States District Judge

         The United States has sued DynCorp International, a government contractor, to recover alleged overcharges and to seek penalties related to DynCorp's billing for services in Iraq. DynCorp had a contract with the United States Department of State (“DOS”) to assist in training a new Iraqi civilian police force. The government claims that DynCorp charged it unreasonable rates for lodging and labor provided under the contract. In addition, the government alleges that DynCorp made false statements and omitted material information about the rates that it charged. The complaint asserts violations of the False Claims Act, as well as common law causes of action for unjust enrichment, payment by mistake, and breach of contract. DynCorp has moved to dismiss all claims. For the reasons explained herein, the Court will grant the motion in part and deny it in part. Specifically, the government's unjust enrichment and payment-by-mistake claims are dismissed insofar as they are based on payment of cost-reimbursable charges.


         After a competitive bid process, the DOS awarded DynCorp the CIVPOL Iraq contract in 2004. (Compl. at ¶¶ 32-37, ECF No. 1.) Under the contract, DynCorp was to provide lodging, security, transportation, and other services to support the Iraqi civilian police force. (Id.) DynCorp subcontracted the provision of lodging and labor to Corporate Bank Financial Services, Inc. (Id. at ¶ 2.) According to the government, however, “DynCorp knew that the rates provided by Corporate Bank . . . for hotel facilities and local national security guards, drivers, interpreters, and managers were unreasonable.” (Id. at ¶ 4.) The government asserts that DynCorp nonetheless accepted the unreasonable rates because it viewed Corporate Bank as a “strategic partner.” (Id. at ¶ 49.)

         Under the terms of the CIVPOL contract, the process for determining DynCorp's charges to the DOS depended upon the type of service. DynCorp billed for hotel accommodations and for labor after July 2007 under cost-reimbursable line items, which permit a contractor to be reimbursed for its actual costs, provided those costs are reasonable. (Id. at ¶¶ 40, 43.) From the beginning of the contract through July 2007, DynCorp billed labor under an undefinitized firm-fixed-price line item, which meant that the price was agreed upon but not until after performance began. (Id. at ¶¶ 41-42.) DynCorp submitted price proposals for twelve different periods of performance, as the DOS repeatedly requested extensions of performance. (Id. at ¶ 44.)

         The complaint alleges that “[t]hroughout its CIVPOL performance, DynCorp acknowledged internally that Corporate Bank's hotels were overpriced and not competitive with market rates in Baghdad.” (Id. at ¶ 57.) On February 1, 2005, Senior Vice President Spence Wickham wrote in an internal email that the CEO needed “to be brought to the reality of the markup on our current hotels” and that “DynCorp would not be able to ‘win the CIVPOL Iraq business back if we allow these outrageous rates to continue.'” (Id.) DynCorp's CIVPOL contract manager noted in October 2005 that Corporate Bank's hotel rates were unacceptable, and the Iraq Support Manager stated in March 2006 that hotels just down the street were significantly cheaper. (Id. at ¶ 58.) A DynCorp administrator observed that Corporate Bank's rates were double the price of standard hotel rooms in Baghdad. (Id.) Furthermore, Vice President for CIVPOL Operations Richard Cashon reported to DynCorp's Board of Directors that Corporate Bank regularly refused to provide documentation supporting its rates. (Id. at ¶ 61.) Nevertheless, DynCorp charged the DOS the rates that Corporate Bank claimed for the hotels, without disclosing that they were uncompetitive. (Id. at ¶¶ 52, 55, 59.) “Instead, in a letter dated February 24, 2005, Tim Crawley, DynCorp's Vice President for Contract Administration, told the DOS that DynCorp was unable ‘to negotiate rates below the current level, ' because the ‘market is dictating the rate.'” (Id. at ¶ 59.)

         Similarly, the government alleges that “DynCorp knowingly made material false statements and key omissions about [the] unreasonable labor rates that distorted its negotiations with the State Department.” (Id. at ¶ 64.) In the price proposal dated June 3, 2004, which covered the period from April 17, 2004, to July 16, 2004, DynCorp stated that Corporate Bank's labor rates were “based on ‘historical data.'” (Id. at ¶ 66.) However, according to the government, “DynCorp's proposal quoted markedly higher labor rates than those that Corporate Bank had agreed to bill DynCorp on April 1, 2004.” (Id.) The quoted rates were also significantly higher than those that DynCorp had negotiated with Corporate Bank over the course of its previous contract in support of the DOS in Iraq. (Id. at ¶ 67.)

         On April 28, 2005, DynCorp “accepted a substantial increase in Corporate Bank's labor rates, ” which meant that “the monthly rate for security guards and drivers more than tripled, while the monthly rate for interpreters nearly doubled.” (Id. at ¶ 70). Yet, DynCorp informed the government that its costs “for this extension period are consistent with previous periods.” (Id. at ¶ 71.) “Interestingly, the amount listed under the ‘Corporate Bank Subcontract' section . . . remained fairly constant - but that was only because DynCorp had stopped counting the hotels in this section, and used a three-month period of time for its numbers instead of a four-month period.” (Id.)

         DynCorp submitted price proposals for labor that justified the rates “on the basis of a ‘vendor quote'” on the following occasions: June 13, 2005, August 1, 2005, February 6, 2006, March 10, 2006, May 15, 2006, August 4, 2006, August 7, 2006, September 22, 2006, September 25, 2007, and November 29, 2007. (Id. at ¶ 83.) Yet, according to the government, DynCorp knew that the competition was paying significantly lower rates, that Corporate Bank's rates were inflated because of self-dealing with a jointly owned subcontractor, and that Corporate Bank was not actually paying its employees the salaries that DynCorp incorporated into the rates it proposed to the government. (Id. at ¶¶ 76, 78-80.) In June 2007, the charges for Corporate Bank labor were transferred from the fixed-price line item to a cost-reimbursable line item. (Id. at ¶ 82.)[1] The government alleges that “DynCorp knew that Corporate Bank's labor rates were still not reasonable, yet charged them to the government nonetheless.” (Id.)

         “Dyncorp's proposals and charges to the government for Corporate Bank's hotels and labor services included additional amounts for Corporate Bank's G&A cost rate. G&A costs are costs a business incurs that are not directly attributable to a single specific contract, task order, or other cost objective . . . .” (Id. at ¶ 85.) DynCorp estimated in 2003 that Corporate Bank would have a G&A rate of 5 percent, but it accepted an 11 percent G&A rate in 2004 for the CIVPOL contract. (Id. at ¶¶ 87, 89.) On November 1, 2004, a senior manager at DynCorp told Corporate Bank that “it could not possibly have suffered financially in 2004, given that its revenues had tripled but DynCorp still continued ‘to use your 11% G&A rate which was calculated on a revenue basis that was one third of what you have recognized in the operating year.'” (Id. at ¶ 89.) DynCorp allowed Corporate Bank to raise its G&A rate to 13 percent after August 12, 2006, despite the fact that it did not provide documentation of its total G&A costs or “any sort of analysis that DynCorp could review.” (Id. at ¶ 93.)

         The government alleges that “[b]y misrepresenting and omitting information reflecting the true nature and bases of Corporate Bank's rates, DynCorp skewed price negotiations with the State Department and caused the State Department to agree to higher contract prices than it otherwise would have.” (Id. at ¶ 6.) According to the government, “DynCorp knowingly passed on millions of dollars of unjustified and inflated charges under the CIVPOL contract.” (Id. at ¶ 95.) An exhibit to the complaint lists the invoices that the government alleges are false. (See Compl. Ex. B.) On the basis of these activities, the government asserts five causes of action: violation of the False Claims Act, 31 U.S.C. § 3729(a)(1) (2006), by presenting false claims (Count I); violation of the False Claims Act, 31 U.S.C. § 3729(a)(1)(b), by making or using false records or statements material to a false claim (Count II); unjust enrichment (Count III); payment by mistake (Count IV); and breach of contract (Count V).

         DynCorp has moved to dismiss each of the government's claims. (Def.'s Mot. Dismiss, ECF No. 10; Def.'s Mem., ECF No. 10-1.) First, DynCorp argues that the government has not adequately pled the falsity, materiality, and scienter elements of the False Claims Act counts. (Def.'s Mem. at 15-36.) Second, DynCorp contends that those counts must be dismissed for failure to allege fraud with particularity. (Id. at 37.) Third, DynCorp asserts that for some allegedly false claims, the False Claims Act counts are barred by the statute of limitations. (Id. at 38-45.) Fourth, DynCorp asks the Court to dismiss the unjust enrichment and payment-by-mistake claims on the ground that an express contract existed between the parties. (Id. at 45-46.) Finally, DynCorp argues that this Court lacks subject matter jurisdiction over the claim for breach of contract. (Id. at 46-48).


         The Court will address the False Claims Act counts and then each of the common law causes of action. Beginning with the FCA presentment claim (Count I), the Court finds that the government has adequately alleged falsity, materiality, and scienter under an implied certification theory for the cost-reimbursable charges and a fraudulent inducement theory for the fixed-price charges. The Court next concludes that the complaint also satisfies any additional intent requirement for the FCA false statement claim (Count II). The government's False Claims Act allegations satisfy Rule 9's particularity requirements and are not, based on the face of the complaint, conclusively time-barred. Thus, these counts will not be dismissed. Next, the Court addresses the claims for unjust enrichment and payment by mistake (Counts III and IV), and it concludes that those claims must be dismissed to the extent they are based on the cost-reimbursable charges. Finally, the Court finds that it has jurisdiction over the breach of contract claim (Count V).


         In deciding a motion to dismiss, the Court “must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party.” Ord v. Dist. of Columbia, 587 F.3d 1136, 1140 (D.C. Cir. 2009) (quoting Warth v. Seldin, 422 U.S. 490, 501 (1975)). “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, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The Court must be able “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. In fraud cases, Rule 9(b) imposes the additional requirement that the plaintiff “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).


         In Counts I and II, the government asserts claims under two different sections of the False Claims Act: the presentment provision and the false statement provision. (See Compl. at ¶¶ 96-101 (citing 31 U.S.C. § 3729(a)(1) (2006); 31 U.S.C. § 3729(a)(1)(B) (2012)).) These two sections are similar in many ways, and DynCorp has not distinguished them for purposes of most of its arguments. For the sake of clarity, the Court addresses each provision separately and concludes that neither Count I nor Count II should be dismissed.

         A. Presentment of False Claims (Count I)

         At the time of the activities alleged in this case, section 3729(a)(1) imposed liability on anyone who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1) (2006). “The elements of a presentment claim are that ‘(1) the defendant submitted a claim to the government, (2) the claim was false, and (3) the defendant knew the claim was false.'” United States ex rel. Folliard v. CDW Tech. Servs., 722 F.Supp.2d 20, 26 (D.D.C. 2010) (quoting United States ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F.Supp.2d 129, 134 (D.D.C. 2010)). Although the statute does not state that the falsity must have been material, many courts have read into the statute a materiality requirement, which is often treated as part of the falsity element. I John T. Boese, Civil False Claims & Qui Tam Actions § 2.04 (4th ed. updated 2017); see, e.g., United States v. Science Applications Int'l Corp., 626 F.3d 1257, 1269, 1271 (D.C. Cir. 2010) (“SAIC”); United States ex rel. Shemesh v. CA, Inc., 89 F.Supp.3d 36, 45 (D.D.C. 2015) (“Shemesh I”). DynCorp does not dispute that the government has adequately alleged the submission of claims to the government, but it does challenge the sufficiency of the government's allegations as to falsity (including materiality) and scienter. (See Def.'s Mem.)

         The government's complaint asserts the presentment provision for dozens of allegedly false claims, which include several different types of charges. (See Compl. Ex. B.) In the complaint, the government categorizes the charges as hotel, labor, or G&A (which was added to either hotel or labor charges). (Id. at ¶¶ 52-95.) The complaint further distinguishes charges as billed under either cost-reimbursable or fixed-price line items. (Id. at ¶¶ 39-43.) DynCorp billed for hotel accommodations and for labor after July 2007 under cost-reimbursable line items. (Id. at ¶¶ 40, 43.) From the beginning of the contract through July 2007, DynCorp billed labor under a firm-fixed-price line item. (Id. at ¶ 42.) DynCorp's motion to dismiss distinguishes cost-reimbursable charges from fixed-price ones on the basis of their different regulatory treatment, and as a result, it makes different legal arguments for the two categories of charges. To address DynCorp's arguments, the Court will also divide its analysis between cost-reimbursable and fixed-price charges.

         i. Cost-Reimbursable Charges (Hotels, Labor after July 2007, and G&A)

         DynCorp argues that the government's claims as to the cost-reimbursable charges do not satisfy the falsity, materiality, or scienter requirements for section 3729(a)(1). In particular, DynCorp contends that the government has not adequately alleged that the charges were unreasonable, an unreasonable charge is not false, reasonableness is not material to payment, and DynCorp could not have known that its charges would be found to be unreasonable. (See Def.'s Mem. at 15-36.) As explained below, the Court rejects these arguments and finds that the government has adequately alleged the elements of its claim under an implied certification theory.

         a. Falsity

         Rather than identifying any express false statements in DynCorp's claims for payment, the government argues that it can demonstrate the falsity of the claims using either an implied certification theory or a fraudulent inducement theory. (Gov.'s Opp. at 18-23, ECF No. 12.) The Supreme Court recently considered whether a defendant could be liable under the False Claims Act without ever making an express false statement. See Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989 (2016). In Escobar the Court held that “the implied certification theory can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant's failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” Id. at 2001.

         Although DynCorp claims that specific representations are necessary to proceed on a theory of implied certification (see Def.'s Mem. at 23), this is not the law of the D.C. Circuit. Prior to Escobar, the D.C. Circuit held that “to establish the existence of a ‘false or fraudulent' claim on the basis of implied certification of a contractual condition, the FCA plaintiff . . . must show that the contractor withheld information about its noncompliance with material contractual requirements.” SAIC, 626 F.3d at 1269. Because the Supreme Court in Escobar held that the implied certification theory was satisfied “at least” under the conditions it described and did “not resolve whether all claims for payment implicitly represent that the billing party is legally entitled to payment, ” Escobar, 136 S.Ct. at 2000-01, the D.C. Circuit's broader statement of the implied certification theory remains good law after Escobar. Thus, the government can show falsity by demonstrating that (1) a contractor withheld information about its noncompliance with contractual or regulatory requirements; and (2) those contractual or regulatory requirements were material.[2]

         The government alleges that regulations required DynCorp's charges to be reasonable, but that DynCorp made claims for payment of unreasonable charges while withholding information about their unreasonableness. (Compl. at ¶¶ 21-27, 52-95.) According to the government, “[t]he Federal Acquisition Regulation (‘FAR') is the principal regulation that governs United States government contracts, including the CIVPOL contract.” (Id. at ¶ 21.) “[T]he CIVPOL contract incorporated by reference FAR 52.216-7 (Allowable Cost and Payment) (February 2002), which permits reimbursement of costs only to the extent they are allowable under FAR Subpart 31.2.” (Id. at ¶ 23.) Under FAR Subpart 31.2, “[a] cost is allowable only when the cost complies with all of the following requirements, ” one of which is “[r]easonableness.” 48 C.F.R. § 31.201-2(a). “A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.” 48 C.F.R. § 31.201-3(a). Either when making initial payments or during the audit process prior to final payment, the government may reduce payments by the amounts that it finds are not allowable costs. 48 C.F.R. § 52.216-7(a), (g). If a claimed cost is “expressly unallowable” - that is, “specifically named and stated to be unallowable” - penalties are assessed against the contractor. 48 C.F.R. §§ 52.242-3(d), 31.001.

         DynCorp does not dispute that its cost-reimbursable charges were required to be reasonable, but it argues that the government has not adequately pled that the claimed charges were unreasonable. (See Def.'s Mem. at 24-28.) DynCorp is wrong. The government has alleged that high-level DynCorp employees stated that the hotel rates were “outrageous” and that the labor rates were not competitive with the market. (Compl. at ¶¶ 57, 76.) The government has also alleged that the G&A rate was inflated by failing to take into account all of Corporate Bank's revenue. (Id. at ¶¶ 88-90.) Taking all inferences in favor of the plaintiff, it is plausible that the costs DynCorp claimed were not reasonable. Since the government has also alleged that DynCorp withheld the unreasonableness of its rates from the government (see Compl. at ΒΆΒΆ 52, 59, 77, ...

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