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United States ex rel. Westrick v. Second Chance Body Armor, Inc.

United States District Court, District of Columbia

July 14, 2017

UNITED STATES OF AMERICA, ex rel., AARON J. WESTRICK, Ph.D., Plaintiffs,
v.
SECOND CHANCE BODY ARMOR, INC., et at., Defendants. UNITED STATES OF AMERICA, Plaintiff,
v.
TOYOBO COMPANY, LTD., et at., Defendants.

          OPINION

          PAUL L. FRIEDMAN, United States District Judge

         This matter is before the Court on the motion of the United States for reconsideration [Dkt. 450 in Civil Action No. 04-0280 and Dkt. 184 in Civil Action No. 07-1144] of the Court's September 4, 2015 Memorandum Opinion and Order granting in part and denying in part the parties' cross motions for partial summary judgment on the United States' common law claims and claims under the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq. (1994). See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d 1 (D.D.C. 2015), reconsideration denied in part sub nom. United States v. Second Chance Body Armor Inc., No. 04-0280, 2016 WL 3033937 (D.D.C. Feb. 11, 2016).[1] The United States contends that the Court erred in limiting its fraudulent inducement FCA claim because the Court failed to consider the declarations of General Services Administration (“GSA”) Contract Specialist Kellie Stoker. It also argues that the Court's express and implied false certification analysis failed to address several warranties, assurances, or so-called “extra-contractual considerations” in the government's contracts with vest manufacturers other than Second Chance Body Armor, Inc. (“Second Chance”). Toyobo Company, Ltd. and Toyobo America, Inc. (collectively, “Toyobo”) oppose the motion.[2] Upon consideration of the parties' written submissions, the relevant case law, the entire record in this case, and the oral argument held on May 11, 2016, the Court will grant reconsideration in part and deny it in part.[3]

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Judge Richard W. Roberts, to whom these two related (but not consolidated) cases were previously assigned, fully recounted their factual and procedural history in several prior opinions. See, e.g., United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 5-7; United States v. Toyobo Co., Ltd., 811 F.Supp.2d 37, 41-44 (D.D.C. 2011); United States ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F.Supp.2d 129, 132-33 (D.D.C. 2010). Nonetheless, the Court sets forth here the facts and procedural posture relevant to the United States' FCA claims in an effort to clarify the issues for trial.

         A. Factual Background

         The United States' Second Amended Complaint in Civil Action No. 04-0280 alleges that Toyobo contracted with Second Chance to sell them defective Zylon fiber for use in bulletproof vests, which Second Chance then sold to the United States under both (1) the Bulletproof Vest Partnership Grant Act of 1998, 42 U.S.C. § 3796ll, et seq. (“BPVGPA”), and (2) the General Services Administration's Multiple Award Schedule (“GSA MAS”). Second Amended Complaint ¶¶ 1-5 (Dec. 30, 2013) [Dkt. 408 in Civil Action No. 04-0280].[4] The United States' Amended Complaint in Civil Action No. 07-0144, by contrast, alleges the same conduct based on Toyobo's contracts with five vest manufacturers other than Second Chance: (1) Armor Holdings, Inc. and its subsidiaries American Body Armor, Inc., Safariland, Inc., and Pro-Tech; (2) Point Blank Body Armor, Inc. and its subsidiary Protective Apparel Corporation of America, Inc.; (3) First Choice Armor, Inc.; (4) Gator Hawk, Inc.; and (5) Protective Products International, Inc. (collectively, the “other vest manufacturers”). Am Compl. ¶¶ 1-5, 14-25; see also May 11, 2016 Hr'g Tr. at 12:19-13:11.

         In 1995, Toyobo began to communicate with the United States about the use of Zylon fiber for government “ballistic” applications such as bulletproofs vests. U.S. Supp., Ex. 23 at PDF page 143 [Dkt. 195]. In literature Toyobo sent to the United States at that time, Toyobo touted its testing data showing Zylon's “superior tensile strength, ” “high temperature abrasion resistance, ” low “moisture regain, ” and “stab[ility] against humidity.” Id., Ex. 24 at PDF pages 147-48. Those conversations led the United States to contract with Second Chance to sell Zylon bulletproof vests on the GSA MAS from 1995 to 2001. See Declaration of Kellie Stoker in Support of United States' Response to Toyobo's Motion for Partial Summary Judgment ¶¶ 4-8 (March 15, 2012) [Dkt. 194-4] (“First Stoker Declaration”).

         On March 30, 2001, Toyobo began to learn - through its own internal testing - that Zylon “stored in a warehouse for one year showed a strength lowering of about 20%.” U.S. Supp., Ex. 90 at 1-2 [Dkt. 195-2]; see also May 11, 2016 Hr'g Tr. at 49:24-49:25 (“[W]e are willing to agree that the beginning of the fraudulent period is March 2001.” (statement of government counsel)). In July 2001, notes from an internal Toyobo meeting show that Toyobo concluded that a “Zylon hydrolysis (?) problem [had] surfaced, ” that “[i]t is extremely regrettable that sufficient study was not done in the development stage and we feel responsible, ” and that Toyobo must “enlighten the bulletproof customers.” U.S. Supp., Ex. 52 at PDF pages 13-14 [Dkt. 195-2]. It was then that Toyobo created the “Zylon Strength Degradation Improvement Project, ” known as “ZKP, ” in order to “conduct an investigation to understand” why Zylon degraded under conditions of heat and humidity and “propose urgent measures” to address that degradation. Id., Ex. 95 at PDF page 167.

         On July 5, 2001, Toyobo sent the first of quarterly (and later, semi-annual) letters to “valued customers” including vest manufacturers and “[f]ederal scientists, ” see U.S. Supp. at 8, which described in very general terms Toyobo's Zylon so-called “aging test” under conditions of heat and humidity. See id., Exs. 6-22 at PDF pages 81-141 [Dkt. 195].[5] The first of those letters frankly stated the result of Toyobo's preliminary testing - evidenced by attached graphical data - that “the strength of Zylon fiber decreases under high temperature and humidity conditions” of 80 and 60 degrees Celsius and 80% humidity, id., Ex. 6 at PDF page 82, but it also stated that Toyobo “expect[ed] almost no strength loss at about 40 degree C even at 80% humidity.” Id. On July 19, 2001, Toyobo sent another letter to “valued customers, ” concluding that, despite that testing data, Toyobo “understand[s] that ZYLON fiber is a superior material for body armor[.]” Id., Ex. 100 at PDF page 195 [Dkt. 195-2]. Subsequent letters from Toyobo to Second Chance on July 25, 2001, and August 28, 2001, respectively, stated that Toyobo “ha[d] not reached [a] conclusion” about Toyobo's Zylon testing at 40 degrees Celsius and warned that any results were “provisional.” Id., Exs. 7-8, PDF pages 87, 90 [Dkt. 195].[6]

         By December 2001, Toyobo's internal ZKP project had compiled much more detailed and troubling findings about Zylon degradation than the anodyne data Toyobo communicated to vest manufacturers and federal scientists before and after that date. Toyobo and Second Chance convened a “crisis management meeting” on December 13, 2001, at which Toyobo researchers in the ZKP project produced data showing that Second Chance's bulletproof vests made with Toyobo's Zylon fiber degraded by 7% in less than two years, an amount of degradation which - according to the handwritten notes of Second Chance executive and pro se defendant in this case, Thomas Edgar Bachner, Jr. - would “put [defendants] out of express warranty before 5 years.” See Declaration of Jennifer L. Chorpening in Support of United States' Opposition to Defendant's Motion for Partial Summary Judgment, Ex. 19 at PDF pages 3, 10 [Dkt. 111].[7] Toyobo also compiled an internal report dated December 14, 2001, which cited “residual solvent (phosphoric acid)” as “the cause” of Zylon's degradation under conditions of heat and humidity, and suggested that “[i]t is important to reduce residual phosphorus amount” for “strength retention.” U.S. Supp., Ex. 49 at PDF pages 92, 94 [Dkt. 196]. A separate internal Toyobo report dated December 18, 2001, stated that, “[f]or the primary usage of Zylon in bulletproof vests, deterioration of strength under hot and humid conditions (in particular, deterioration of strength when the environment where it is used has temperatures near 40°C and is humid) is an extremely serious problem.” Id., Ex. 65 at PDF page 159 [Dkt. 196]. In the months following the “crisis management meeting” and these internal reports, Toyobo offered and Second Chance accepted substantial rebates worth millions of dollars on its Zylon purchases. See, e.g., id., Ex. 138 at 23-24 [Dkt. 195-5].[8]

         Despite the ZKP data regarding phosphorus and the 7% decline in Zylon performance over two years under conditions of heat and humidity, on June 5, 2002, Second Chance sent the GSA a letter enclosing a catalog for Zylon that “guarantee[d] its vests to perform at” the military's standard ballistics requirements “within normal statistical variation (6%) during the five-year guaranteed life of the vest.” U.S. Supp., Ex. 1 at PDF page 51 [Dkt. 195]. On August 5, 2002, a federal scientist emailed Toyobo researchers for “assistance” in testing the presence of phosphorus in Zylon fiber, id., Ex. 47 at PDF page 119 [Dkt. 195-1], to which Toyobo's researcher responded without mentioning its December 2001 internal data identifying phosphorus as the “cause” of degradation. Id., Ex. 48 at PDF page 122. In addition, in a May 2003 email to a federal scientist, Toyobo represented without elaboration that “[w]e established [a] basic recipe to improve [the] heat/humidity problem.” Id., Ex. 51 at PDF page 2 [Dkt. 195-2]. Toyobo also represented to the Department of Justice in an April 1, 2004 letter that “Zylon [is] an extremely strong fiber capable of producing very light and wearable bullet resistant vests.” Id., Ex. 66 at PDF page 71. Toyobo continued to send quarterly or semi-annual letters to vest manufacturers and to federal scientists concerning its “aging testing” until at least 2005. The final letter in the record from January 2005 simply advises recipients “to make use of these [sic] information for your application, ” without offering any firm conclusions as to how quickly and severely Toyobo degraded at 40 degrees Celsius and 80% humidity. Id., Ex. 22 at PDF page 140 [Dkt. 195]. On July 1, 2005, Toyobo issued a press release in which it maintained that Zylon was appropriate “for ballistic use” and that it was “not aware of any legitimate scientific evidence showing” that the residue of phosphoric acid is responsible for Zylon's degradation under conditions of heat and humidity. Id., Ex. 86 at PDF page 125 [Dkt. 195-2].

         The United States' did not finalize its own testing of Zylon under conditions of heat and humidity until September 20, 2005, years after Toyobo's internal research produced conclusions concerning the rates and causes of Zylon degradation. See U.S. Supp., Ex. 64 at 2 [Dkt. 195-2].

         B. Claims Brought by the United States

         These facts generally form the basis of the claims brought by the United States: that Toyobo, Second Chance, and certain individual officers of Second Chance violated the False Claims Act, 31 U.S.C. § 3729(a)(1)-(3) (1994), and engaged in common law fraud, payment by mistake, unjust enrichment, and breach of contract. See generally Am. Compl.; Second Amended Complaint [Dkt. 408 in Civil Action No. 04-0280].[9] During the course of litigation, the United States has developed four theories of how defendants allegedly violated the FCA: (1) factual falsity, whereby the United States alleges that defendants made “factual[ly] fals[e]” statements by invoicing the United States for services that defendants did not actually render, see United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 9-10; (2) express false certification, whereby the United States alleges that defendants made “legal[ly] fals[e]” statements to the United States by falsely certifying that bulletproof vests complied with certain statutory, regulatory, or contractual terms, see id. at 10-17; (3) implied false certification, whereby the United States alleges that defendants made statements to the United States that, even if not completely false, were at best half-truths that bulletproof vests complied with certain statutory, regulatory, or contractual terms, see id. at 17; and (4) fraudulent inducement, whereby the United States alleges that Toyobo committed a fraud on the market by “provid[ing] invalid assurances to the market and put[ting] manipulated data into the marketplace, ” and that Toyobo used the same assurances and data to fraudulently induce Second Chance and the other vest manufacturers. See id. at 21.[10]

         The United States relied on all four theories in instituting its suit against Toyobo and Second Chance in Civil Action No. 04-0280, see Second Amended Complaint ¶¶ 287-97 [Dkt. 408 in Civil Action No. 04-0280], and in its suit against Toyobo alone in Civil Action No. 07-1144, concerning Toyobo's actions with respect to the other vest manufacturers. See Am. Compl. ¶¶ 239-48. The four theories also cut across vests sold by Second Chance and the other vest manufacturers to (1) the United States through the GSA MAS and (2) state, local, and tribal authorities through the BPVGPA. See Second Amended Complaint ¶¶ 287-97 [Dkt. 408 in Civil Action No. 04-0280]; Am. Compl. ¶¶ 239-48.

         With respect to the express and implied false certification claims, the United States identifies six things with which it asserts Second Chance and the other vest manufacturers falsely certified their compliance: (1) three express provisions of the GSA MAS contracts and (2) three “extra-contractual considerations” for those contracts. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 16. While not entirely coextensive, these same six contractual provisions or extra-contractual considerations are generally the same “assurances” that, it alleges, caused state, local, and tribal authorities to purchase vests from defendants and seek reimbursement from the United States under the BPVGPA. Id. at 20-21. For example, when the state of Pennsylvania purchased vests for which it would seek reimbursement from the United States under the BPVGPA, it executed contracts with Second Chance and the other vest manufacturers in which those manufacturers attested that the vests would “be free of any defects affecting durability, serviceability or the safety of the user” and “be warranted for a minimum of five (5) years to meet the ballistic-resistant and deformation requirements of [National Institute of Justice (“NIJ”)] . . . .” See United States' Opposition to Defendant's Motion for Partial Summary Judgment, Ex. 85 at PDF page 5 [Dkt. 109-14].

         The three provisions of the contracts between the United States and Second Chance - as well as those between the United States and other vest manufacturers - are: (1) a five-year commercial warranty clause that the vests are “warranted to provide protection as stated on the protective panel label and to be free of defects in material and workmanship for the applicable warranty period, ” see United States' Second Motion for Reconsideration, Ex. 81 at PDF page 3 [Dkt. 207-32]; (2) a “workmanship” clause requiring that “[a]ny item contracted for must be new, current model at the time of offer, unless otherwise specified[, ]” and “[e]ach article must perform the functions for its intended use, ” see Declaration of Kellie Stoker in Support of United States' Motion for Partial Summary Judgment (June 20, 2013) [Dkt. 97-11] (“Second Stoker Declaration”), Ex. 10 at PDF page 64 [Dkt. 100-2]; and (3) a “new materials” clause that “the Contractor represents that supplies and components are new, including recycled (not used or reconditioned) and are not of such age or so deteriorated as to impair their usefulness or safety.” See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 11.[11]

         The three “extra-contractual considerations” that the United States alleges animated the bargain it struck when purchasing the vests from Second Chance and the other vest manufacturers are: (1) a 6% “catalog guarantee” that Second Chance “guarantees its vests to perform at this level [in V50 ballistics performance] within normal statistical variation (6%) during the five-year guaranteed life of the vest, ” see U.S. Supp., Ex. 1 at PDF page 51 [Dkt. 195]; (2) a guarantee that “[a]ll Second Chance vests are [National Institute of Justice] certified to the most recent standards, ” id.; and (3) a guarantee that “[t]he protective properties of the PANELS are warranted for five (5) years from date of purchase.” See United States Second' Motion for Reconsideration, Ex. 28 at PDF page 15 [Dkt. 208]. Importantly, only Second Chance's catalog and not the catalogs of any other vest manufacturer contained the 6% guarantee. See First Stoker Declaration ¶¶ 9, 17 [Dkt. 194-4]. Second Chance made the 6% catalog guarantee in the “product literature” it attached to a June 5, 2002 letter to GSA proposing a contract “modification” for its GSA MAS contract. See United States Motion for Partial Summary Judgment, Ex. 6 at PDF page 23 [Dkt. 258-5 in Civil Action No. 04-0280].

         C. Procedural Posture

         In September 2015, Judge Roberts granted in part and denied in part defendants' motion for partial summary judgment, and denied the United States' motion for partial summary judgment. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 22.[12]

         With respect to the United States' FCA claims related to the BPVGPA, Judge Roberts stated that “Toyobo's motion for partial summary judgment as to the BPVGPA counts will be denied.” United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 21. In his opinion, Judge Roberts discussed only the United States' fraudulent inducement theory for its FCA claims related to the BPVGPA, and explained that the theory was “based on the claim that Toyobo placed false information into the market that caused the individual agencies to purchase the Zylon vests, for which the government partially reimbursed the agencies.” Id. at 20. Judge Roberts found genuine issues of material fact surrounding fraudulent inducement with respect to the BPVGPA claims as to whether Toyobo (1) “assured the industry that it had not found any serious indication of Zylon strength degradation when Toyobo actually did have such data, ” and (2) “released into the market manipulated Zylon degradation data.” Id. at 20-21.

         Judge Roberts's treatment of the United States' FCA claims related to the GSA MAS is more complex because he addressed each of the United States' four theories discussed above, see supra at 8-9, but he did so only with respect to Second Chance's contracts with the United States to sell vests on the GSA MAS and not the contracts of the other vest manufacturers.[13] First, Judge Roberts granted summary judgment to defendants on the United States' factual falsity theory because the United States has not alleged that defendants “‘invoice[d] for services that were not rendered.'” See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 9 (quoting United States ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F.Supp.2d 25, 64 (D.D.C. 2007)). He explained that “[t]he government does not allege that Toyobo invoiced for 200 bulletproof vests and sent only 150 bulletproof vests; nor does the government allege that Toyobo invoiced for bulletproof vests and instead sent raincoats.” Id. at 10. Rather, he said, the claim is not that the government did not receive bulletproof vests but “that the bulletproof vests . . . did not comply with express and implied agreements.” Id. Reliance on a factual falsity theory therefore was “misplaced.” Id.[14]

         Second, Judge Roberts granted summary judgment to defendants on the United States' express and implied false certification theories, except with respect to claims (1) “that arose after the 2002 [Second Chance] contract modification was executed” and (2) that are based on noncompliance with the 6% catalog guarantee. See United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 17. Judge Roberts granted summary judgment to defendants for all vests sold before 2002 because that is when Second Chance included the 6% guarantee in the catalog it sent to the United States and, relying on the catalog, the United States modified its GSA MAS contract with Second Chance. Id. Judge Roberts did not explicitly address the United States' express or implied false certification claims with respect to vest manufacturers other than Second Chance.

         Judge Roberts focused his reasoning on the 6% catalog guarantee because he found that it is an “ambiguous” term of Second Chance's GSA MAS contract. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 16-17. He explained that the parties offered multiple “reasonable interpretation[s], ” but because “[n]either party ha[d] put forward evidence that negates [the other's] interpretation[, ]” a jury must resolve that ambiguity. Id. Judge Roberts also found that “[t]he 6% guarantee is a contract term that might impose a durability requirement.” Id. at 17. He distinguished “defectiveness” from “durability” because “[a] product is not defective simply because it does not last as long as the parties expect it to, unless the parties have explicitly contracted for a durability requirement, ” and expressed skepticism that the parties would include a durability requirement in their contracts where, as here, they also included a “repair and replace” provision. Id. at 14-15.[15] He explained that “[n]othing in the language” of the contract “explicitly guarantees that the vests will function perfectly for the five-year period; indeed the [contract] presupposes that some of the vests may not survive the five-year period.” Id. at 14. Judge Roberts concluded that “a jury must determine” whether the 6% catalog guarantee in Second Chance's GSA MAS contract with the United States is, in fact, a durability requirement. Id. at 17.

         Beyond the 6% catalog guarantee, Judge Roberts rejected the three contract provisions and the two other “extra-contractual considerations” as bases for express or implied false certification claims and granted summary judgment to defendants on these claims. United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 14-16. He explained that: (1) “Nothing in the language of the [contract's general commercial] warranty explicitly guarantees that the vests will function perfectly for the five-year period; indeed the warranty presupposes that some of the vests may not survive the five-year period, ” id.; (2) the United States “has not alleged” that defendants failed to comply with the contract's new materials clause by, for example, “us[ing] old materials in the construction of the vests, ” id. at 15; (3) the workmanship clause cannot impose a durability requirement because it refers to the “intended use” of the vests, begging the question of whether the parties intended the vests to last for five years, id. at 15-16; and (4) “there is no evidence that the[] extra-contractual considerations” of NIJ certification and protective properties “were a part of, or otherwise informed, the actual contracting.” Id. at 16.

         Finally, with respect to the United States' fraudulent inducement FCA claims related to the GSA MAS, Judge Roberts held that “[t]he government has not presented any evidence that suggests that [it] relied on the allegedly manipulated data when making the contract modifications to add Zylon vests to the GSA MAS, ” i.e., “that Toyobo's allegedly manipulated data caused the government to place the Zylon vests on the GSA MAS.” United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F.Supp.3d at 19. Judge Roberts found the lack of reliance dispositive and granted summary judgment to defendants on the United States' fraudulent inducement FCA claims related to the GSA MAS “[b]ecause . . . the government cannot bear its burden to prove that false claims were submitted or fraudulently induced in relation to those Second Chance Zylon vests placed on the GSA MAS before 2002.” Id. (emphasis added). He therefore granted Toyobo's motions for partial summary judgment related to the vests placed on the GSA MAS. Id.[16]

         The United States moved for reconsideration “on three issues” in Judge Roberts's September 4, 2015 Memorandum Opinion and Order on summary judgment, arguing: (1) its fraudulent inducement analysis conflicted with Judge Roberts's 2011 Memorandum Opinion and Order resolving defendants' motion to dismiss, United States v. Toyobo Co., 811 F.Supp.2d 37 (D.D.C. 2011); (2) its fraudulent inducement analysis failed to address two declarations of GSA Specialist Kellie Stoker demonstrating the United States' reliance on defendants' alleged misconduct; and (3) its express and implied false certification analysis failed to address “several warranties” in the GSA MAS contracts with vest manufacturers other than Second Chance that constitute “express language setting forth a five-year durability requirement.” Mot. at 2-3.

         In his February 11, 2016 Memorandum Opinion and Order, Judge Roberts denied the United States' motion for reconsideration on the first issue “insofar as they assert a conflict with an earlier ruling and a failure to consider other manufacturers' warranties.” United States v. Second Chance Body Armor Inc., 2016 WL 3033937, at *5. Judge Roberts reserved ruling on the United States' second issue and ordered supplemental briefing concerning: “(1) what, if any, information the government had that was contradicted by data that Toyobo withheld; (2) how, if at all, the withheld data contradicted the data within the government's possession; and (3) what, if any, duty Toyobo had to disclose the withheld data in order to avoid making a fraudulent ...


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