United States of America EX Rel. Et. Al. v. Raytheon Company et al

NOTICE OF MOTION AND MOTION to Dismiss Case

C.D. Cal.July 19, 2016

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) Kimberly A. Dunne (SBN 142721) kdunne@sidley.com Sean A. Commons (SBN 217603) scommons@sidley.com Christopher S. Munsey (SBN 267061) cmunsey@sidley.com SIDLEY AUSTIN LLP 555 West Fifth Street, Suite 4000 Los Angeles, California 90013 Telephone: (213) 896-6000 Facsimile: (213) 896-6600 Alan Charles Raul (pro hac vice) araul@sidley.com SIDLEY AUSTIN LLP 1501 K Street, NW Washington, DC 20005 Telephone: (202) 736-8000 Facsimile: (202) 736-8711 Attorneys for Raytheon Company UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION UNITED STATES OF AMERICA EX REL. STEVEN MATESKI, Plaintiff, vs. RAYTHEON COMPANY, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 06-3614 ODW (FMOx) Assigned to: Hon. Otis. D. Wright II DEFENDANT RAYTHEON COMPANY’S NOTICE OF MOTION AND MOTION TO DISMISS RELATOR’S FOURTH AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 8, 9, 10, AND 12(b)(6); MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF [Filed concurrently with [Proposed] Order] Date: September 12, 2016 Time: 1:30 p.m. Place: Courtroom 11 ) Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 1 of 29 Page ID #:3303 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE THAT, on September 12, 2016 at 1:30 p.m., before the Honorable Otis D. Wright II in Courtroom 11 of the United States District Court for the Central District of California, located at 312 N. Spring Street, Los Angeles, California, Defendant Raytheon Company (“Raytheon”) will and hereby does move the Court under Rules 8, 9, 10, and 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the Fourth Amended Complaint (the “Complaint”) filed by the relator Steven Mateski (“Relator”) under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. This motion to dismiss (“Motion”) is made following the conference of counsel pursuant to L.R. 7-3, which took place in person at the offices of Sidley Austin LLP on October 19, 2012, with follow-up telephonic conferences between counsel in May 2016 and on June 30, 2016 following the remand from the Ninth Circuit to specifically address the impact of the Supreme Court’s recent decision in Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 579 U.S. __, 136 S. Ct. 1989, 2001 (2016) (“Escobar”). Consistent with positions taken by Relator during the briefing on a prior motion to dismiss, Relator confirmed that the theory of liability alleged in the Complaint is one of implied false certification (Dkt. 116 at 12), the post-2008 allegations in the Complaint are merely “foundational” background (Dkt. 116 at 23:13-19), and Relator intends to “defend the Complaint” as currently drafted, rather than seek leave to amend. This Motion is made on the following grounds: 1. The Complaint should be dismissed under Rules 9(b) and 12(b)(6) because it does not comply with Escobar, which establishes a new pleading standard for an “implied false certification” theory of liability under the FCA. The Complaint does not allege “specific representations” about goods or services provided in a request for payment, nor does it allege a purported failure to disclose noncompliance with material statutory, regulatory, or contractual requirements that rendered the Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 2 of 29 Page ID #:3304 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) representations “misleading half-truths.” Escobar, 136 S. Ct. at 2001. 2. The Complaint cannot satisfy the “rigorous” and “demanding” standard for pleading materiality under the FCA. Escobar, 136 S. Ct. at 2002-03. Relator alleges that the Government continued to pay the prime contractor (Northrop Grumman Corporation (“Northrop”)) for, and accepted delivery of, a satellite sensor developed by Raytheon, despite being made fully aware by Relator of the matters raised in the Complaint by 2006, more than five years before the first satellite launched. As Escobar explains, “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.” Id. at 2003. 3. Relator purports to assert claims under 31 U.S.C. § 3729(a)(1), which in the relevant pre-2009 time period required a defendant to “present[]” an invoice to the Government for payment. These claims must fail because Raytheon submitted its invoices to the Government’s prime contractor Northrop, and not the Government. Allison Engine Co. v. U.S. ex rel. Sanders, 553 U.S. 662, 669-71 (2008). 4. Similarly, Relator asserts claims under 31 U.S.C. § 3729(a)(2), which required a defendant to use a false statement “to get” the Government to pay an invoice; but here, the Government’s prime contractor Northrop paid and approved Raytheon’s invoices. Allison Engine, 553 U.S. at 669-71. 5. Relator’s rambling and conclusory 134-page Complaint violates Rules 8 and 10 of the Federal Rules of Civil Procedure. McHenry v. Renne, 84 F.3d 1172, 1177-78 (9th Cir. 1996). At a minimum, Raytheon submits that this Court should not be required to interpret, and Raytheon should not be required to answer, the Complaint in its current form. This Motion is based upon this Notice of Motion and Motion, the attached Memorandum of Points and Authorities, all pleadings and other documents on file Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 3 of 29 Page ID #:3305 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) with this Court, as well as any other evidence or argument that may be presented before or at the time of the hearing on this Motion. Dated: July 18, 2016 SIDLEY AUSTIN LLP By: /s/ Kimberly A. Dunne Kimberly A. Dunne Attorneys For Raytheon Company LA1 2586036v.1 Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 4 of 29 Page ID #:3306 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) TABLE OF CONTENTS Page INTRODUCTION ..................................................................................................... 1 BACKGROUND ....................................................................................................... 3 A. Procedural History ...................................................................... 3 B. VIIRS And The NPOESS Program ............................................ 4 C. Raytheon’s Cost-Plus Subcontract With Northrop ..................... 5 D. Extensive Government Oversight Of VIIRS .............................. 6 E. Relator’s Work On VIIRS .......................................................... 7 F. Relator’s Allegations .................................................................. 7 LEGAL STANDARD ................................................................................................ 8 ARGUMENT ............................................................................................................. 9 I. Relator’s Claims Fail To Meet FCA Pleading Standards For Falsity And Materiality Established By The Supreme Court In Escobar. ................................................................................................. 9 A. Relator Cannot Allege Facts To Meet The Requirements For Implied False Certification Liability Under Escobar. ......... 9 B. Relator Cannot Satisfy The “Rigorous” And “Demanding” Standard For Materiality Under The FCA. ....... 12 II. The Supreme Court’s Decision in Allison Engine Compels Dismissal. ............................................................................................ 15 A. Raytheon, As A Subcontractor, Did Not “Present” Invoices To The Government As Required By Subsection 3729(a)(1) For Claims Relating To Pre-2009 Conduct. ........... 16 B. Raytheon Did Not Use A False Record or Statement “To Get” The Government To Pay Invoices Submitted To Northrop As Required By Subsection 3729(a)(2) For Claims Relating To Pre-2009 Conduct. .................................... 17 III. The Complaint Grossly Violates Basic Pleading Requirements. ....... 20 CONCLUSION ........................................................................................................ 21 Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 5 of 29 Page ID #:3307 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) TABLE OF AUTHORITIES Page(s) Cases Allison Engine Co. v. U.S. ex rel. Sanders, 553 U.S. 662 (2008)......................................................................................... passim Ashcroft v. Iqbal, 556 U.S. 662 (2009).................................................................................................. 8 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)............................................................................................ 8, 10 Davis v. City of Long Beach, CV-08-3902, 2008 WL 5382431 (C.D. Cal. Dec. 22, 2008) ............................. 9, 20 Garcia v. IndyMac Bank, F.S.B., No. 2:12-cv-02997, 2012 WL 1745782 (C.D. Cal. May 16, 2012) ....................... 20 Hatch v. Reliance Ins. Co., 758 F.2d 409 (9th Cir. 1985) .................................................................................. 20 McHenry v. Renne, 84 F.3d 1172 (9th Cir. 1996) ........................................................................ 9, 20, 21 McNeil v. Home Budget Loans, No. CV 09-7588, 2010 WL 1999580 (C.D. Cal. May 13, 2010) ............................. 8 Nevijel v. N. Coast Life Ins. Co., 651 F.2d 671 (9th Cir. 1981) .................................................................................. 20 Pazargad v. Wells Fargo Bank, N.A., No. CV 11-4524, 2011 WL 3737234 (C.D. Cal. Aug. 23, 2011) ............................ 8 Rowe v. Educational Credit Mgm’t Corp., 559 F.3d 1028 (9th Cir. 2009) .................................................................................. 8 Schmidt v. Herrmann, 614 F.2d 1221 (9th Cir. 1980) .......................................................................... 20, 21 Sprewell v. Golden State Warriors, 266 F.3d 984 (9th Cir. 2001) .................................................................................. 10 Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 6 of 29 Page ID #:3308 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) ...................................................................... 8, 11, 16 U.S. ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374 (7th Cir. 2003) .................................................................................. 20 U.S. ex rel. Laird v. Lockheed Martin Eng’g Science Servs. Co., 491 F.3d 254 (5th Cir. 2007) .................................................................................... 5 U.S. ex rel. Mateski v. Raytheon Co., 816 F.3d. 565 (9th Cir. 2016) ............................................................................. 4, 14 U.S. ex rel. McLain v. KBR, Inc., No. 1:08-CV-499, 2013 WL 710900 (E.D. Va. Feb. 27, 2013) ............................. 11 U.S. ex rel. Rafizadeh v. Continental Common, Inc., 553 F.3d 869 (5th Cir. 2008) .................................................................................. 19 U.S. ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004) .......................................................................... 16, 17 U.S. ex rel. Unite Here v. Cintas Corp., No. C 06-2413, 2008 WL 1767039 (N.D. Cal. Apr. 16, 2008) .............................. 12 U.S. ex rel. Winkler v. BAE Sys., Inc., 957 F. Supp. 2d 856 (E.D. Mich. 2013) ................................................................. 19 United States v. Ehrlich, 643 F.2d 634 (9th Cir. 1981) .................................................................................... 9 United Techs. Corp. v. U.S., 27 Fed. Cl. 393 (1992) .............................................................................................. 5 Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 579 U.S. __, 136 S. Ct. 1989 (2016) ............................................................... passim Statutes and Regulations 10 U.S.C. § 2433 ............................................................................................................ 7 31 U.S.C. § 3729(a) (1994)................................................................................... passim 31 U.S.C. § 3729(a)(1) (2008) ............................................................................... 15, 16 48 C.F.R. § 16.301-1 ...................................................................................................... 6 Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 7 of 29 Page ID #:3309 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iv RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) 48 C.F.R. § 16.301-2 ................................................................................................ 5, 15 48 C.F.R. § 16-305 ......................................................................................................... 6 Rules Fed. R. Civ. P. 8 .................................................................................................... passim Fed. R. Civ. P. 9 .................................................................................................... passim Fed. R. Civ. P. 10 ............................................................................................... 3, 20, 21 Fed. R. Civ. P. 12 ....................................................................................................... 3, 8 Other S. Rep. No. 111-10, 2009 WL 787872 (111th Cong. 2009) ........................................ 19 Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 8 of 29 Page ID #:3310 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) MEMORANDUM OF POINTS AND AUTHORITIES Raytheon Company (“Raytheon”) moves to dismiss Relator Steven Mateski’s (“Relator”) Fourth Amended Complaint (the “Complaint”) under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. INTRODUCTION Since the parties last appeared before this Court, and shortly after remand from the Ninth Circuit, the Supreme Court established the pleading standards to allege (1) an FCA claim based on an implied false certification - Relator’s theory of liability in this case - and (2) the element of materiality under the FCA. Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 579 U.S. __, 136 S. Ct. 1989 (2016) (“Escobar”). Raytheon seeks to dismiss the Complaint because it fails to meet these rigorous pleading requirements. In Escobar, the Supreme Court made clear that the FCA does not impose liability merely for asking to be paid for work. To plead a false claim based on an implied certification theory, a relator must allege that the claim for payment made “specific representations” about the goods or services, and that the defendant failed to disclose noncompliance with material statutory, regulatory, or contractual requirements, thereby making the specific representations “misleading half-truths.” While Relator describes a litany of supposed “nonconformances,” errors, and poor record-keeping practices, he nowhere identifies a “specific representation” in a Raytheon invoice to Northrop that rendered the invoice a “misleading half truth.” 136 S. Ct. at 2001. Given Relator’s admission that Raytheon could seek “waivers” from contract specifications because Raytheon worked under a “cost-plus” contract reserved for complex development projects where specifications change, Relator’s inability to plead sufficient facts of a false claim is unsurprising. The Complaint also cannot survive the standard for materiality adopted in Escobar, which is both “rigorous” and “demanding.” Significantly, Escobar identifies materiality as a matter appropriate for resolution “on a motion to dismiss ….” 136 S. Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 9 of 29 Page ID #:3311 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) Ct. at 2004 n.6. A material misrepresentation is one to which the Government “would attach importance” in deciding whether to pay and where knowledge of the matter “would have induced [the Government] to act differently.” Id. at 2003 n.5. The Complaint itself demonstrates that Relator cannot plausibly meet this materiality requirement. Relator alleges that he disclosed all of the matters raised in the Complaint “with particularity” at a July 2006 meeting attended by numerous Government representatives, years before the first satellite launched. Compl. ¶ 4, pp. 3-4. Armed with knowledge of everything in the Complaint, the Government did not order the prime contractor, Northrop, to stop paying Raytheon or to demand refunds. Dkt. 117 at 8:18-22, 9 n.5, 10:24-26. Instead, after working hand-in-hand with Northrop and Raytheon for several more years, the Government accepted delivery and launched the first satellite in 2011. Id. In light of these facts, Relator has not plausibly alleged that the purported defects-which Relator had disclosed to the Government-were material to the Government’s payment decisions. In addition, Relator has confirmed, both in prior pleadings and during the meet and confer for this motion, that his FCA claims only pertain to pre-2009 conduct. Dkt. 116 at 23:13-19 (“allegations after 2008 are not false claims”). Accordingly, the Supreme Court’s decision in Allison Engine governs his claims. Allison Engine Co. v. U.S. ex rel. Sanders, 553 U.S. 662 (2008). Under Allison Engine, the Complaint fails as a matter of law because Relator admits that Raytheon submitted invoices to Northrop, not the Government, and Northrop (not the Government) approved and paid those invoices. Relator cannot demonstrate that Raytheon “presented” a claim to the Government for payment, or presented a claim to Northrop knowing that the Government would approve and pay the claim. Id. at 669-671 Because Relator remains unable to allege sufficient facts to state a claim after ten years, four amendments, and 134 pages of allegations, and because Relator’s FCA claims fail under both Escobar and Allison Engine, the Court should dismiss the Complaint with prejudice. At a minimum, the Complaint should be dismissed for Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 10 of 29 Page ID #:3312 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) failure to comply with the most basic requirements of Rules 8 and 10. A complaint is supposed to guide the Court and the parties throughout the course of litigation, and this 134-page Complaint is rambling, confusing, and unanswerable in its current form. BACKGROUND A. Procedural History Relator filed his original complaint on June 9, 2006, naming Raytheon and Northrop as defendants. Dkt. 1. Shortly thereafter, on July 14, 2006, Relator met with “at least fifteen top Executives, Engineers and Special Agents” from the National Aeronautics and Space Administration (“NASA”), the National Oceanic and Atmospheric Administration (“NOAA”) within the Department of Commerce, the Department of Defense (“DOD”), and other federal agencies and disclosed “with particularity” the allegations underlying the Complaint. Compl. ¶ 4, p. 3; ¶ 16, p. 9; Dkt. 116 at 15-16 (listing attendees); Dkt. 117, Ex. A (listing attendees). Relator “briefed” the attendees “on the RAYTHEON false claims alleged in the Qui Tam Complaint.” Dkt. 116-4 at 3-4; Dkt. 117 at 20. Additional meetings were held on February 15, 2007 and March 9, 2007. Compl. ¶ 4, p. 3. At the February 15, 2007 meeting, Relator was “interrogated” for “six hours on the VIIRS false claims” by a NASA expert. Id. ¶ 16, pp. 8-9. Relator provided the Government with at least twelve written disclosures by early 2010, (id. ¶ 4, pp. 3-4), which is the year the Government accepted delivery of the VIIRS satellite sensor developed by Raytheon that is at issue in this case (id. ¶ 5, p. 5). After conducting an investigation for several years, the Department of Justice declined to intervene on July 16, 2012. Dkts. 82-83. On September 5, 2012, Relator amended his Complaint for the fourth time. Dkts. 7, 19, 53, 88. Raytheon responded by filing a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction and a motion to dismiss under Rules 8, 9, 10, 12(b)(6), and 12(f). Dkts. 96, 98. On February 26, 2013, the Court granted the Rule 12(b)(1) motion, finding that the Complaint was “based upon” allegations or transactions publicly disclosed prior to the Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 11 of 29 Page ID #:3313 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) filing of this action, and that Relator was not an “original source” of the public disclosures. Dkt. 127. The Court denied the alternative motion to dismiss as moot without addressing the merits of Raytheon’s arguments. Dkt. 127 at 9. Relator appealed the dismissal for lack of subject matter jurisdiction. On March 7, 2016, the Ninth Circuit reversed, ruling that Relator’s complaint is not “based upon” publicly disclosed allegations or transactions. U.S. ex rel. Mateski v. Raytheon Co., 816 F.3d. 565 (9th Cir. 2016). Although public disclosures showed the Government knew prior to the filing of this case of “deviat[ions] from a number of contract, management, and policy directives,” as well as problems characterized as “numerous, major, profound, serious, severe, significant, systemic, worsening, costing billions of dollars, and resulting in decreased functionality,” the panel held that those “very generalized problems with VIIRS” were not sufficient to disclose the “precise” purported technical defects described in the Complaint. Id. at 572, 579. On April 20, 2016, Raytheon’s request for rehearing or rehearing en banc was denied and, on April 29, 2016, the Ninth Circuit issued the mandate returning the matter to this Court. B. VIIRS And The NPOESS Program Raytheon developed the VIIRS sensor for the National Polar-Orbiting Operational Environmental Satellite System (“NPOESS”), a satellite system used for collecting meteorological, oceanographic, environmental, and climatic data and imagery. Compl. ¶¶ 10-11. NPOESS was widely acknowledged to be “the most complex environmental satellite program ever developed,” and VIIRS represented a groundbreaking technology for that system. Dkt. 99 at 600 (Ex. 59 at 23).1 NPOESS was managed as a joint program under an Integrated Program Office (“IPO”) consisting of DOD, NASA, and NOAA. Compl. ¶ 12. On October 28, 2011, the first VIIRS unit was launched into space aboard the NPOESS Preparatory Project. Dkt. 99 1 This Court previously took judicial notice of these and other documents in connection with granting Raytheon’s prior motion to dismiss, (see Dkt. 127 at 4, 6), and the Ninth Circuit considered the same judicially-noticeable materials on appeal. Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 12 of 29 Page ID #:3314 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) at 146 (RJN Ex. 50 at 1).2 By all accounts, the satellite has been a stunning success, and NASA subsequently awarded two prime contracts-valued at $1.7 billion-to Raytheon for the NASA and NOAA-managed satellite program to replace VIIRS. Dkt. 106 ¶ 9. C. Raytheon’s Cost-Plus Subcontract With Northrop In October 2000, the IPO contracted with Raytheon to design and develop VIIRS. Dkt. 106 ¶ 4. In August 2002, the IPO selected Northrop as the prime contractor to supervise the development of NPOESS, which included overseeing VIIRS. Id. ¶ 5; Compl. ¶ 3. The same month, Raytheon’s contract with the IPO was terminated, and Northrop subcontracted the design and manufacturing work for VIIRS to Raytheon. Id. As a subcontractor, Raytheon presented “invoices to and received payment through the Prime Contractor NORTHROP, instead of directly to and from the United States.” Dkt. 117 at 10:24-26. Federal regulations provide for cost-plus-award-fee (“cost-plus”) contracts for highly developmental projects where, as here, “[u]ncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract.” 48 C.F.R. § 16.301-2. “[B]y definition,” the “precise level of effort and the nature of the work to be done” under a cost-plus type contract are “both unknown at the outset ….” U.S. ex rel. Laird v. Lockheed Martin Eng’g Science Servs. Co., 491 F.3d 254, 257 (5th Cir. 2007). As a result, under cost-plus contracts, “[t]he government assumes the risk of performance ….” United Techs. Corp. v. U.S., 27 Fed. Cl. 393, 399-400 (1992) (holding as a matter of law that government could not pursue a claim for allegedly defective helicopter spindles under cost-plus development contract) (quoting with approval treatise explaining that, under a cost-plus contract, “it is extremely remote that the contractor would incur any liabilities for defective or untimely work”). 2 The Complaint incorrectly alleges NPOESS launched in 2010. Compl. ¶ 16. Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 13 of 29 Page ID #:3315 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) Raytheon was hired under a cost-plus contract due to the “inherent complexity, development challenges, and program risk” associated with NPOESS and VIIRS. Dkt. 99 at 750 (Ex. 61 at 51). Northrop reimbursed Raytheon for actual costs and labor (including allocation of indirect costs), and at its discretion paid an award fee for profit based upon Northrop’s (not the Government’s) evaluation of Raytheon’s performance. Dkt. 106 ¶ 8; 48 C.F.R. §§ 16.301-1, 16.305. Raytheon submitted monthly invoices to Northrop for costs (Dkt. 117 at 9 n.5, 10:24-26; Dkt. 106 ¶ 9), and applied separately to Northrop, usually on a biannual basis, for award fees (i.e., profits above costs). Id. The contract allowed Raytheon to request “waivers” from contract specifications before and after-the-fact. Dkt. 106, Ex. 1 at 30, § 8.5; Compl. ¶ 17 pp. 10-11 (incorporating by reference VIIRS subcontract and related documents). Raytheon could grant itself waivers for “minor” deviations and request approval from Northrop for “major” deviations. Id. Relator acknowledges that Northrop granted waivers for major deviations, but disputes that Northrop followed proper procedures in granting the waivers by “letter.” Dkt. 117 at 14-15. The Complaint does not allege that any request for a waiver was denied. D. Extensive Government Oversight Of VIIRS Because VIIRS was critical to the overall success of NPOESS, VIIRS was subject to significant oversight. Beginning in December 2002, Government administrators required monthly status reports. Dkt. 99 at 706 (Ex. 61 at 7). Raytheon’s subcontract also provided for periodic performance reviews at pre- determined milestones. For example, in July 2004, Raytheon presented to Northrop and the IPO information about an electronic subassembly. Compl. ¶¶ 18, 31; Dkt. 106 ¶ 10. During that presentation, among other things, Raytheon identified deviations from original specifications, including (1) use of prohibited materials, (2) deviations from electrostatic discharge safety protocols, (3) deviations from quality best practices, (4) testing deficiencies, (5) documentation errors in build history books, (6) tracing and procurement issues, and (7) use of “redlined” drawings (i.e., Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 14 of 29 Page ID #:3316 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) engineering drawings revised by hand). Compl. ¶¶ 18, 22, 24, 26, 32, 43, 46, 48; see also Dkt. 99 at 319 (Ex. 54 at 20). In 2004 and 2005 respectively, Northrop and the IPO maintained on-site presences at Raytheon. Dkt. 99 at 357, 720, 978, 985 (Ex. 55 at 31; Ex. 61 at 21; Ex. 57 at 11, 18). Oversight of the NPOESS and VIIRS programs increased in November 2005, when the three federal agencies overseeing NPOESS created a second, separate “Program Executive Office”-apart from the IPO-to provide supplemental and independent oversight of VIIRS. Compl. ¶ 14. Not long thereafter, the Department of Defense had to “certify” the program under the Nunn-McCurdy Act because it had by then exceeded original cost estimates by more than 25 percent. Dkt. 99 at 585 (RJN Ex. 59 at 8); 10 U.S.C. §§ 2433, 2433(a)-(b). The Department of Defense certified the program on June 6, 2006, but acknowledged that it would produce “fewer satellites” with “less sensors, while costing more money.” Dkt. 99 at 602 (RJN Ex. 59 at 25). E. Relator’s Work On VIIRS Relator began to work on the VIIRS program in January 2005 as a Principal Production Planner/Material Control Specialist and as a Senior Technical Support Engineer throughout 2006. He was brought onto the program to assist with rework on one subcomponent. Compl. ¶ 46. In both positions, his primary responsibilities consisted of writing and reviewing assembly instructions and engineering drawings. Id. He logged approximately 100 hours to the program in 2007, before leaving the VIIRS program entirely to work on unrelated projects. Relator resigned from Raytheon effective July 2008. F. Relator’s Allegations Relator’s 134-page Complaint contains one cause of action under the FCA and alleges that, beginning in 2002, Raytheon charged for work that varied from contract specifications or purported engineering standards. E.g., Compl. ¶¶ 16, 18-52, 54-67, 69-71. Relator has clarified that “ALLEGATIONS AFTER 2008 ARE NOT FALSE CLAIMS,” but instead “foundational” to explain how alleged contract deviations Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 15 of 29 Page ID #:3317 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) “have caused degradation and failure of NPOESS VIIRS in space today.” Dkt. 116 at 23:13-19. Relator does not allege that Raytheon increased amounts charged under the cost-plus contract by adding fees for non-existent parts or for labor not actually performed. Rather, he believes Raytheon was not entitled to charge for actual costs incurred due to supposed deviations from contract specifications and engineering standards, as well as various other putative conduct he labels “reckless nonconformance.” LEGAL STANDARD “Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” McNeil v. Home Budget Loans, No. CV 09-7588, 2010 WL 1999580, at *2 (C.D. Cal. May 13, 2010) (J. Otis D. Wright II). Because “the doors of discovery” do not unlock “for a plaintiff armed with nothing more than conclusions” (Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009)), the Court can disregard conclusory allegations, unwarranted deductions and inferences, and allegations contradicted by materials incorporated into the complaint by reference, materials subject to judicial notice (McNeil, 2010 WL 1999580, at *2), or concessions in opposition briefs, which “are not considered matters outside the pleadings” (Rowe v. Educational Credit Mgm’t Corp., 559 F.3d 1028, 1032 (9th Cir. 2009).) In addition, a complaint - particularly an FCA complaint subject to Rule 9(b) - must allege a plausible claim for fraud with particularity before “a potentially massive factual controversy [can] proceed.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 558 (2007). A relator must plead with specificity the facts surrounding the “who, what, when, where, and how” of fraud, and connect those facts to the making of false claims for payment, not merely describe allegedly false or fraudulent conduct. U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011); Pazargad v. Wells Fargo Bank, N.A., No. CV 11-4524, 2011 WL 3737234, at *5 (C.D. Cal. Aug. 23, 2011) (J. Otis D. Wright, II). Because each payment that results Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 16 of 29 Page ID #:3318 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) from a false act constitutes a separate claim under the FCA, United States v. Ehrlich, 643 F.2d 634, 637-38 (9th Cir. 1981), even where a complaint may adequately allege some FCA claims, those that are not adequately pled can be dismissed. District courts also may dismiss convoluted complaints that violate basic pleading requirements, including the duty to keep allegations “simple, concise, and direct.” Fed. R. Civ. P. 8(d)(1); McHenry v. Renne, 84 F.3d 1172, 1177, 1179 (9th Cir. 1996) (affirming dismissal with prejudice for violating Rule 8); Davis v. City of Long Beach, CV-08-3902, 2008 WL 5382431, at *5 (C.D. Cal. Dec. 22, 2008) (J. Otis D. Wright, II) (dismissing complaint for violating Rule 8). ARGUMENT I. Relator’s Claims Fail To Meet FCA Pleading Standards For Falsity And Materiality Established By The Supreme Court In Escobar. In Escobar, the Supreme Court recently established the standard for pleading both an “implied false certification” theory of falsity, and the “rigorous” and “demanding” standard for materiality under the FCA. The Complaint falls far short of those requirements and confirms that Relator cannot seek relief under the FCA. A. Relator Cannot Allege Facts To Meet The Requirements For Implied False Certification Liability Under Escobar. To seek relief under the FCA, Relator must allege one or more of the following theories for why a claim for payment was false or fraudulent: (1) a factually false claim - i.e., a claim that is false on its face due to a knowingly false statement or material omission; (2) a false express certification in connection with a claim for payment; or (3) a false implied certification, where a claim for payment “makes specific representations about the goods or services provided … [and] the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” See Escobar, 136 S. Ct. at 2001. Relator confirmed during the prior motion to dismiss briefing (Dkt. 117 at 12) and the parties’ “meet and confer” under Local Rule 7-3 that this case rests Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 17 of 29 Page ID #:3319 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) entirely upon an “implied false certification” theory. Relator must, but cannot, meet either of the requirements recently established by the Supreme Court in Escobar for implied false certification claims. First, Relator does not allege that any claim for payment submitted by Raytheon to Northrop included “specific representations” about the goods and services provided. That alone is fatal to this Complaint after Escobar. The few references in the Complaint to Raytheon invoices or “vouchers” reveal nothing about their supposed content, beyond the conclusory assertion that they were “false.” E.g., FAC ¶ 22, p. 36 (“Raytheon … invoiced NPOESS and caused VIIRS false claims regarding at least (32) thirty-two VIIRS 100 Level subsystem units and NPOESS sensors”); ¶ 71, p. 132 (Raytheon allegedly submitted “false NPOESS VIIRS vouchers,” and “made false certified statements and records … to secure approval and payment of vouchers”); Prayer for Relief, p. 88 (seeking penalties “for each and every invoice false claim”). Conclusory allegations do not satisfy the plausibility standard of Rule 8, (Twombly, 550 U.S. at 555), much less the higher Rule 9(b) standard. E.g., Sprewell v. Golden State Warriors, 266 F.3d 984, 990 (9th Cir. 2001) (holding district courts may disregard “conclusory” allegations when ruling on motions to dismiss). Second, even if Relator could identify a “specific representation” in an invoice as the basis for an implied certification, he would need to allege facts showing how that representation caused an invoice to be false or misleading. Escobar illustrates what type of facts must be plead to survive a motion to dismiss. In Escobar, the defendant submitted claims to the state Medicaid program that included billing codes corresponding both to specific medical services and specific job titles for staff delivering those services. 136 S. Ct. at 1997-98, 2000. The relator alleged that, in fact, the staff lacked qualifications and licensing required to use those billing codes. The Court found that non-compliance with the licensing requirements made the representations inherent in submission of the billing codes false and misleading: “Anyone informed that a social worker at a Massachusetts mental health clinic Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 18 of 29 Page ID #:3320 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) provided a teenage patient with individual counseling services would probably-but wrongly-conclude that the clinic had complied with core Massachusetts Medicaid requirements (1) that the counselor ‘treating children [is] required to have specialized training and experience in children’s services,’ 130 Code Mass. Regs. § 429.422, and also (2) that, at a minimum, the social worker possesses the prescribed qualifications for the job, § 429.424(C).” Id. at 2000. Here, in stark contrast to Escobar, the Complaint does not tie any representation in any invoice to any statute, regulation, or contract provision that would cause the representation to be false or misleading. Although the Complaint recounts purported engineering errors and other supposed misconduct, and labels everything “fraud,” Relator makes no attempt to tie any purported misconduct to any specific claim for payment. For example, Relator alleges that Raytheon forged “build history books” by adding entries after the fact (Compl. ¶ 24, p. 40),3 but does not (and cannot) allege that any invoice contained a representation about when entries were made or that the books were continuously kept up to date. E.g., U.S. ex rel. McLain v. KBR, Inc., No. 1:08-CV-499, 2013 WL 710900, at *5-7 (E.D. Va. Feb. 27, 2013) (dismissing FCA complaint where plaintiff failed to allege any connection between falsified testing logs and claims for payment). Under Escobar and Ninth Circuit precedent, FCA claims cannot be based on generalized allegations that are not connected to specific claims for payment. Such claims fail as a matter of law. See 136 S. Ct. at 1999-2000; Cafasso, 637 F.3d at 1057-58 (affirming dismissal of lengthy FCA complaint that “identifie[d] a general 3 Although Relator asserts the build history books were forged, the facts alleged in the Complaint demonstrate the opposite. Multiple entries were signed and dated on the same day by the same person, revealing to anyone reviewing the books that the sign- offs occurred after the fact, not contemporaneously by each of the individuals who performed the work. Compl. ¶ 24. Relator also alleges that Northrop knew about incomplete entries because it directed Raytheon to update the books (id.), and Raytheon cannot commit fraud by following the prime contractor’s instructions. In any event, these and similar baseless allegations about supposed misconduct are beside the point because Relator never ties any of them to a specific representation in a request for payment. Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 19 of 29 Page ID #:3321 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) sort of fraudulent conduct but specifie[d] no particular circumstance of any discrete fraudulent statement” in connection with a request for payment). At most, Relator may be able to allege a breach of contract, which alone cannot support liability under the FCA. Escobar, 136 S. Ct. at 2003; see also U.S. ex rel. Unite Here v. Cintas Corp., No. C 06-2413, 2008 WL 1767039, at *9-10 (N.D. Cal. Apr. 16, 2008). Because the Complaint does not adequately allege either of the two Escobar pleading requirements for FCA claims based on false implied certification, it should be dismissed. B. Relator Cannot Satisfy The “Rigorous” And “Demanding” Standard For Materiality Under The FCA. Escobar also held that, because the FCA is not “an all-purpose antifraud statute” or a “vehicle for punishing garden-variety breaches of contract or regulatory violations,” the FCA’s materiality requirement is “rigorous” and “demanding.” Escobar, 136 S. Ct. at 2002-03. The Court stressed that a motion to dismiss is appropriate where a relator fails to “plead[] facts to support allegations of materiality” with plausibility and particularity. Id. at 2004 n.6. Here, the Complaint further fails because Relator does not, and cannot, plausibly allege that any implied misrepresentation or omission was material to decisions to pay Raytheon’s invoices. For purposes of the FCA, materiality focuses on the “effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” Id. at 2002. A misrepresentation is material only if the Government “would attach importance in determining [its] choice of action” and if knowledge of the matter “would have induced [the Government] to act differently.” Id. Indicia of materiality include when the Government expressly identifies a requirement as a condition of payment, or “consistently refuses to pay claims in the mine run of cases” based on specific types of noncompliance. Id. at 2003. In contrast, it is insufficient to allege that the Government merely would have had “the option to decline to pay if it knew of the defendant’s noncompliance.” Id. “[I]f the Government pays a particular claim in Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 20 of 29 Page ID #:3322 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.” Id. (emphasis added). Similarly, “if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.” Id. at 2003-04 (emphasis added). Here, the Court need not speculate about whether the Government would have acted differently with full knowledge. First, in the context of a program already under regular and intense scrutiny, Relator alleges that he “briefed” at least fifteen senior Government officials responsible for the program about the allegations in the Complaint with “particularity” beginning in mid-2006. See supra Background §§ A; Compl. ¶ 4, pp. 3-4; ¶ 16, p. 9. But despite sharing such so-called detailed knowledge, Relator does not allege that either Northrop or the Government took any action to stop payments to Raytheon, even though the first satellite launch did not occur until 2011. Rather, the Complaint acknowledges that, until “at least 2012,” Raytheon’s invoices were paid under the NPOESS VIIRS contract. Id. ¶ 71, p. 132. Thus, the Government “regularly pa[id] [this] particular type of claim in full despite actual knowledge that certain requirements were [allegedly] violated, and [] signaled no change in position,” which constitutes the strongest possible evidence that the matters raised in the Complaint are not material. Escobar, 136 S. Ct. at 2003-04. The “actual behavior of the recipient of the alleged misrepresentation” refutes the supposed materiality of the matters raised by Relator. Id. at 2002. Second, even before Relator’s disclosures in connection with this lawsuit, Northrop and the Government learned through regular program scrutiny and reports by Raytheon that various contract specifications were not strictly followed. Dkt. 99 at 319 (Ex. 54 at 20) (Northrop and Government found during 2004 review that Raytheon “had deviated from a number of contract, management, and policy Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 21 of 29 Page ID #:3323 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) directives…”); see also, e.g., Mateski, 816 F.3d. at 572-73, 579.4 Northrop and the Government had onsite presences at Raytheon by 2005, and Relator alleges that during a July 30, 2004 “Consent to Integrate” inspection, Northrop discovered purportedly “illegal rework.” Compl. ¶ 54, p. 95. Similarly, Relator alleges that in 2005, Raytheon created “several publications … to disclose these Program Wide Defective Non-Conformances” regarding destructive physical analysis testing, and took several steps to address the issue in “an attempt to appease the customer.” Id. ¶ 23, pp. 37-38. Relator also alleges that earlier than “2004-2005, … the Customers [i.e., the Government and Northrop] were displeased with the poor Unit performance, poor Build History Book Documentation of the Assembly, Poor Test Record documentation, etc.” Id. ¶ 24, p. 39. Despite Northrop’s and the Government’s awareness of these purported contract deviations supposedly discovered by Relator, the Complaint does not allege that any of them caused the Government to direct Northrop to refuse to pay Raytheon’s invoices. Again, Relator admits that Raytheon continued to be paid under the terms of the cost-plus contract. Id. ¶ 71, p. 132. Furthermore, Relator does not allege any of the factors that Escobar identifies as indicative of materiality. Relator does not allege that Northrop or the Government made compliance with any of the purportedly breached specifications an express condition of payment under Raytheon’s subcontract. Escobar, 136 S. Ct. at 2003. Relator also has not alleged that Raytheon had any basis to believe that the Government had consistently refused to pay under cost-plus contracts based on similar design defects or engineering missteps requiring rework, build history book discrepancies, or other manufacturing and testing issues as alleged here. Id. And Relator does not, and cannot, allege that Northrop or the Government rejected 4 The Ninth Circuit acknowledged disclosures in Congressional hearings and reports, as well as other public documents, about “deviat[ions] from a number of contract, management, and policy directives,” as well as other problems variously categorized as “numerous, major, profound, serious, severe, significant, systemic, worsening, costing billions of dollars, and resulting in decreased functionality.” Id. at 572, 579. Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 22 of 29 Page ID #:3324 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) Raytheon’s invoices or the delivery of VIIRS. Compl. ¶ 5, p.5.5 VIIRS was a highly complex project that required the development of new technologies and/or manufacturing methodologies, and “[u]ncertainties involved in contract performance d[id] not permit costs to be estimated with sufficient accuracy to use any type of fixed-price contract.” 48 C.F.R. § 16.301-2(a)(2). Due to these uncertainties, Raytheon’s subcontract expressly contemplated deviations, including by permitting after-the-fact waivers of both minor and major deviations. See Dkt. 106 & Ex. 1 at 30, § 8.5; Compl. ¶ 17, pp. 10-11 (incorporating by reference VIIRS subcontract and related documents). In sum, the Government knew from the outset that deviations from contractual specifications were to be expected, exercised oversight over Raytheon, learned of changes in contract specifications before Relator made disclosures for this lawsuit, and conducted an investigation based on Relator’s disclosures. Yet, even with this knowledge, the Government not only continued to fund the program and allow Northrop to pay Raytheon’s invoices for years, but it also accepted delivery of VIIRS and rewarded Raytheon with contracts for the next generation of satellite sensors. On these facts, rather than plausibly allege materiality, the Complaint affirmatively demonstrates a lack of materiality. Relator’s claims should be dismissed. II. The Supreme Court’s Decision in Allison Engine Compels Dismissal. Relator’s Complaint also fails to comply with separate Supreme Court authority, Allison Engine, 553 U.S. 662. Allison Engine made clear in the context of subcontracting relationships that, for FCA claims arising before 2009, (1) Subsection 3729(a)(1) requires Relator to allege and prove that Raytheon presented claims to the Government for payment, and (2) Subsection 2739(a)(2) requires Relator to allege and prove that the Government relied on false records or statements by Raytheon as a 5 The Government also subsequently awarded Raytheon multiple contracts on NPOESS’ successor satellite program. Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 23 of 29 Page ID #:3325 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) condition of paying Raytheon’s invoices.6 Allison Engine applies here because Relator has admitted that “[a]llegations after 2008 are not false claims,” and instead are “foundational” background to explain how Raytheon’s conduct purportedly “caused degradation and failure of NPOESS VIIRS ….” Dkt. 116 at 23:13-19. Allison Engine disposes of this action as a matter of law because Relator concedes that Northrop, not the Government, approved and paid Raytheon’s invoices. Dkt. 117 at 10:23-26. A. Raytheon, As A Subcontractor, Did Not “Present” Invoices To The Government As Required By Subsection 3729(a)(1) For Claims Relating To Pre-2009 Conduct. To state a viable claim under Subsection 3729(a)(1), Relator must allege that Raytheon “knowingly present[ed], or cause[d] 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) (2008). As the Supreme Court explained in Allison Engine, Congress presumably acted “intentionally and purposefully” when it added the “presentment requirement” to Subsection 3729(a)(1) in light of “the absence of anything similar in” other provisions of the FCA. 553 U.S. at 671. Indeed, Subsection 3729(a)(1) contains a “clear textual requirement that a claim be presented to a federal officer or employee” for payment and, thus, that no FCA claim can lie where, as here, a defendant presented claims for payment to a non-governmental entity. E.g., U.S. ex rel. Totten v. Bombardier Corp., 380 F.3d 488, 492 (D.C. Cir. 2004); accord Allison Engine, 553 U.S. at 667-68 (noting that the district court and Circuit Court rejected the Subsection 3729(a)(1) claim against the subcontractor). 6 The Complaint suggests that, because the satellite containing VIIRS launched after 2009, the 2009 amendments to the FCA could apply here. Compl. ¶ 5. The law is to the contrary (Cafasso, 637 F.3d at 1051 n.1) and, in any event, Relator clarified during the prior motion to dismiss briefing and the “meet and confer” for this motion, that this case concerns FCA claims before 2009. Dkt. 116 at 23:13-19 Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 24 of 29 Page ID #:3326 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) Relator cannot argue that presenting a claim for payment to a prime contractor who will seek reimbursement from the Government is equivalent to presenting a claim for payment by the Government: such an argument would disregard the plain language of Subsection 3729(a)(1), as well as amendments to the FCA adopted after Allison Engine. As the D.C. Circuit recognized, “We could say that submitting a claim to [a prime contractor] is ‘just like’ or ‘equivalent to’ or ‘effectively’ submitting a claim to ‘an officer or employee of the United States Government,’ and that subsection (a)(1) is therefore satisfied, but those would just be different ways of saying that we are not going to read (a)(1) as written by Congress.” Totten, 380 F.3d at 494. Congress “could readily have” amended “subsection (a)(1) to provide that claims be presented to the Government or a grantee or recipient of Government funds.” Id. at 496 (emphasis in original). But it did not. The language of Subsection (a)(1) remained largely unchanged for more than 100 years until 2009 when, in response to Allison Engine, Congress struck and replaced Subsection (a)(1) with what is now Subsection (a)(1)(A), which imposes liability upon a person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. 3729(a)(1)(A) (2009-2016). Given that Relator’s claims fall squarely within the holding of Allison Engine, and his claims relate only to the pre-2009 timeframe, the Court should dismiss all Subsection 3729(a)(1) claims with prejudice. B. Raytheon Did Not Use A False Record or Statement “To Get” The Government To Pay Invoices Submitted To Northrop As Required By Subsection 3729(a)(2) For Claims Relating To Pre-2009 Conduct. Subsection 3729(a)(2) imposes liability on a person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government ….” 31 U.S.C. § 3729(a)(2) (2008). Here, Relator admits that Northrop, not the Government, paid Raytheon and, thus, Raytheon did not use a false record or statement “to get” the Government to pay Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 25 of 29 Page ID #:3327 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) or approve its invoices. Dkt. 117 at 10:24-26. Regardless, the Complaint also does not identify any false record or statement that the Government relied upon as a condition of paying Raytheon (or, for that matter, Northrop). For both of these reasons, his FCA claims under Subsection 3729(a)(2) fail as a matter of law. Under Allison Engine, a subcontractor cannot be liable under Section 3729(a)(2) where, as here, it submits a claim knowing and intending that the prime contractor, not the Government, will approve and pay the claim, even if the subcontractor knows that the prime contractor will be reimbursed by the Government. Allison Engine Co., 553 U.S. at 671. Specifically, the Supreme Court rejected the argument that “it is sufficient for a § 3729(a)(2) plaintiff to show that a false statement [by a subcontractor] resulted in the use of Government funds to pay a false or fraudulent claim.” Id. at 668. A subcontractor must have used a false record or payment “to get” a claim “paid or approved by the Government,” which “is not the same as getting a false or fraudulent claim paid using ‘government funds.’” Id. at 669-70. It is essential that “a claim be ‘paid … by the Government’ and not by another entity.” Id. at 670 (alterations in original). Furthermore, although a subcontractor does not need to “cause[] a false record or statement to be presented or submitted to the Government” to be liable (id. at 671), the subcontractor must have “intend[ed] for the Government to rely on that false statement as a condition of payment” of its claim. Id. at 672. In short, for liability to attach under Subsection 3729(a)(2), a subcontractor must have submitted a false record or statement to the prime contractor intending for it to be used by that prime contractor “to get” the Government to pay the subcontractor’s claims. Id. at 671-72. In this case, Relator admits that Raytheon sent “invoices to and received payment through the Prime Contractor NORTHROP, instead of directly to and from the United States.” Dkt. 117 at 10:24-26. This alone defeats his claims under Subsection 3729(a)(2). See Allison Engine Co., 553 U.S. at 669-71. Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 26 of 29 Page ID #:3328 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) In addition, these claims fail because, even ignoring the fact that Northrop approved Raytheon’s invoices, the Complaint does not identify - with the particularity required by Rule 9(b) or otherwise - any false record or statement on which the Government relied as a condition of purportedly approving for payment an invoice Raytheon submitted to Northrop. See id.; see also U.S. ex rel. Rafizadeh v. Continental Common, Inc., 553 F.3d 869, 873-75 (5th Cir. 2008) (affirming dismissal of Section 3729(a)(2) claim post-Allison Engine due to failure to plead with particularity in compliance with Rule 9(b)). Relator previously asked the Court to disregard Allison Engine on policy grounds, arguing that “subcontractor RAYTHEON cannot evade FCA liability because it caused the presentation of invoices to and received payment through the Prime Contractor NORTHROP, instead of directly to and from the United States Government.” Dkt. 117 at 10. That is not a valid basis for disregarding Supreme Court authority recently cited with approval in Escobar. See 136 S. Ct. at 2003. Moreover, Relator’s position ignores that Congress subsequently amended the FCA to undo the holding in Allison Engine, which Congress viewed as “allow[ing] subcontractors paid with Government money to escape responsibility ….” S. Rep. No. 111-10, 2009 WL 787872 (111th Cong. 2009). Congress replaced Subsection 3729(a)(2) with the current Subsection 3729(a)(1)(B), eliminating the requirement of direct payment by the Government and imposing liability on a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(B)). Consequently, Relator’s Subsection 3729(a)(2) claims fail as a matter of law. Relator has admitted that his claims pertain only to pre-2009 conduct, that Raytheon worked as a subcontractor and billed the prime contractor Northrop, and that Northrop approved and paid Raytheon’s invoices. Thus, it is impossible for him to cure these deficiencies through amendment. E.g., U.S. ex rel. Winkler v. BAE Sys., Inc., 957 F. Supp. 2d 856, 871(E.D. Mich. 2013) (granting motion to dismiss because relator had Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 27 of 29 Page ID #:3329 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) not alleged facts establishing violations of Subsections (a)(1) and (a)(2) and admittedly did not know defendant’s billings practices). III. The Complaint Grossly Violates Basic Pleading Requirements. In addition to failing on its merits, the complaint should be dismissed for failing to comply with basic pleading requirements. The Ninth Circuit, this Court, and courts across the country have consistently dismissed - often with prejudice - lengthy complaints that violate basic pleading requirements. E.g., McHenry, 84 F.3d at 1177, 1179 (affirming dismissal with prejudice of 53-page third amended complaint).7 Imprecise and lengthy complaints place “an undue burden upon any defendant attempting to answer it as well [as] an undue burden on a court.” Davis, 2008 WL 5382431, at *5 (dismissing complaint for violating Rule 8). No judge should be expected to “navigate” a 100+ page complaint to ferret out whether or to what extent a relator can link “specific allegations of fraud” to an actual “claim for payment.” U.S. ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 378-79 (7th Cir. 2003) (affirming dismissal of a similarly verbose FCA complaint for violating Rule 8). Relator’s complaint violates every pleading standard. It is not “simple, concise, and direct.” Fed. R. Civ. P. 8(d)(1). It does not use “numbered paragraphs.” Fed. R. Civ. P. 10(b). It has what can at best be described as numbered sections stretching over pages that are not “limited as far as practicable to a single set of circumstances.” Id. Each section purports to summarize conduct spanning a decade or more. Much of the Complaint also is impenetrable due to undefined acronyms and ungrammatical 7 See also Hatch v. Reliance Ins. Co., 758 F.2d 409, 415 (9th Cir. 1985) (70-page first amended complaint dismissed with prejudice as “confusing and conclusory and not in compliance with Rule 8”); Nevijel v. N. Coast Life Ins. Co., 651 F.2d 671, 674 (9th Cir. 1981) (23-page first amended complaint dismissed with prejudice as “verbose, confusing, and conclusory”); Schmidt v. Herrmann, 614 F.2d 1221, 1224 (9th Cir. 1980) (30-page second amended complaint dismissed with prejudice due to “confusing, distracting, ambiguous, and unintelligible” allegations); Garcia v. IndyMac Bank, F.S.B., No. 2:12-cv-02997, 2012 WL 1745782, at *1-2 (C.D. Cal. May 16, 2012) ((J. Otis D. Wright II) (dismissing 76-page complaint as violating Rule 8). Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 28 of 29 Page ID #:3330 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 RAYTHEON’S MOTION TO DISMISS PURSUANT TO FRCP 8, 9, 10, AND 12(b)(6) sentences and paragraphs. Relator cannot blame such glaring defects on the specificity requirements of Rule 9. The Complaint also does not comply with Rule 9 and, in any event, Rule 9 is “not an invitation to disregard Rule 8’s requirement of simplicity, directness, and clarity.” McHenry, 84 F.3d at 1178. A complaint that falls so far below basic pleading standards “should not be permitted to stand ….” Schmidt v. Herrmann, 614 F.2d 1221, 1224 (9th Cir. 1980). At a minimum, Raytheon should not be required to answer the Complaint in its current form. CONCLUSION For the foregoing reasons, the Court should dismiss Relator’s Fourth Amended Complaint with prejudice or, in the alternative, direct Relator to file an amended complaint that complies with Rules 8, 9, and 10. Dated: July 18, 2016 SIDLEY AUSTIN LLP By: /s/ Kimberly A. Dunne Kimberly A. Dunne Attorneys For Raytheon Company Case 2:06-cv-03614-ODW-FMO Document 154 Filed 07/19/16 Page 29 of 29 Page ID #:3331 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 [PROPOSED] ORDER GRANTING RAYTHEON’S MOTION TO DISMISS PURSUANT TO FED. R. CIV. P. 8, 9, 10, AND 12(b)(6) Kimberly A. Dunne (SBN 142721) kdunne@sidley.com Sean A. Commons (SBN 217603) scommons@sidley.com Christopher S. Munsey (SBN 267061) cmunsey@sidley.com SIDLEY AUSTIN LLP 555 West Fifth Street, Suite 4000 Los Angeles, California 90013 Telephone: (213) 896-6000 Facsimile: (213) 896-6600 Alan Charles Raul (pro hac vice filed) araul@sidley.com SIDLEY AUSTIN LLP 1501 K Street, NW Washington, DC 20005 Telephone: (202) 736-8000 Facsimile: (202) 736-8711 Attorneys for Raytheon Company UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION UNITED STATES OF AMERICA EX REL. STEVEN MATESKI, Plaintiff, vs. RAYTHEON COMPANY, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 06-3614 ODW (FMOx) Assigned to: Hon. Otis. D. Wright II [PROPOSED] ORDER GRANTING DEFENDANT RAYTHEON COMPANY’S MOTION TO DISMISS RELATOR’S FOURTH AMENDED COMPLAINT PURSUANT TO FED. R. CIV. P. 8, 9, 10, AND 12(b)(6) [Filed Currently with Defendant Raytheon Company’s Notice of Motion and Motion to Dismiss] Date: September 12, 2016 Time: 1:30 p.m. Place: Courtroom 11 ) Case 2:06-cv-03614-ODW-FMO Document 154-1 Filed 07/19/16 Page 1 of 2 Page ID #:3332 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 [PROPOSED] ORDER GRANTING RAYTHEON’S MOTION TO DISMISS PURSUANT TO FED. R. CIV. P. 8, 9, 10, AND 12(b)(6) The matter before the Court is defendant Raytheon Company’s (“Raytheon’s”) motion to dismiss the Fourth Amended Complaint filed by relator Steven Mateski (“Relator”) pursuant to Rules 8, 9, 10, and 12(b)(6) of the Federal Rules of Civil Procedure (the “Motion”). The Motion came on regularly for hearing on September 12, 2016. The Court, having considered the parties’ submissions as well as oral argument, hereby rules as follows : Raytheon’s Motion is GRANTED with prejudice. The Complaint does not set forth sufficient facts to state a plausible claim for relief under the False Claims Act. In addition, the Complaint does not set forth sufficient facts to plead a False Claims Act claim, which sounds in fraud, with particularity. The Court further finds that amendment would be futile because Relator has had four opportunities to amend, has failed to set forth sufficient facts to state a plausible claim despite 134 pages of allegations, and has not identified additional facts that he could allege to cure these deficiencies. The clerk shall close the file. IT IS SO ORDERED. Dated: , 2016 By: The Honorable Otis D. Wright II United States District Court Judge ACTIVE 216091571v.1 Case 2:06-cv-03614-ODW-FMO Document 154-1 Filed 07/19/16 Page 2 of 2 Page ID #:3333