United States v. Dyncorp International, LLC , 253 F. Supp. 3d 89 ( 2017 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Plaintiff,
v. Civil Action No. 16-1473 (ESH)
DYNCORP INTERNATIONAL, LLC,
Defendant.
MEMORANDUM OPINION
The United States has sued DynCorp International, a government contractor, to recover
alleged overcharges and to seek penalties related to DynCorp’s billing for services in Iraq.
DynCorp had a contract with the United States Department of State (“DOS”) to assist in training
a new Iraqi civilian police force. The government claims that DynCorp charged it unreasonable
rates for lodging and labor provided under the contract. In addition, the government alleges that
DynCorp made false statements and omitted material information about the rates that it charged.
The complaint asserts violations of the False Claims Act, as well as common law causes of
action for unjust enrichment, payment by mistake, and breach of contract. DynCorp has moved
to dismiss all claims. For the reasons explained herein, the Court will grant the motion in part
and deny it in part. Specifically, the government’s unjust enrichment and payment-by-mistake
claims are dismissed insofar as they are based on payment of cost-reimbursable charges.
BACKGROUND
After a competitive bid process, the DOS awarded DynCorp the CIVPOL Iraq contract in
2004. (Compl. at ¶¶ 32-37, ECF No. 1.) Under the contract, DynCorp was to provide lodging,
security, transportation, and other services to support the Iraqi civilian police force. (Id.)
DynCorp subcontracted the provision of lodging and labor to Corporate Bank Financial Services,
Inc. (Id. at ¶ 2.) According to the government, however, “DynCorp knew that the rates provided
by Corporate Bank . . . for hotel facilities and local national security guards, drivers, interpreters,
and managers were unreasonable.” (Id. at ¶ 4.) The government asserts that DynCorp
nonetheless accepted the unreasonable rates because it viewed Corporate Bank as a “strategic
partner.” (Id. at ¶ 49.)
Under the terms of the CIVPOL contract, the process for determining DynCorp’s charges
to the DOS depended upon the type of service. DynCorp billed for hotel accommodations and
for labor after July 2007 under cost-reimbursable line items, which permit a contractor to be
reimbursed for its actual costs, provided those costs are reasonable. (Id. at ¶¶ 40, 43.) From the
beginning of the contract through July 2007, DynCorp billed labor under an undefinitized firm-
fixed-price line item, which meant that the price was agreed upon but not until after performance
began. (Id. at ¶¶ 41-42.) DynCorp submitted price proposals for twelve different periods of
performance, as the DOS repeatedly requested extensions of performance. (Id. at ¶ 44.)
The complaint alleges that “[t]hroughout its CIVPOL performance, DynCorp
acknowledged internally that Corporate Bank’s hotels were overpriced and not competitive with
market rates in Baghdad.” (Id. at ¶ 57.) On February 1, 2005, Senior Vice President Spence
Wickham wrote in an internal email that the CEO needed “to be brought to the reality of the
markup on our current hotels” and that “DynCorp would not be able to ‘win the CIVPOL Iraq
business back if we allow these outrageous rates to continue.’” (Id.) DynCorp’s CIVPOL
contract manager noted in October 2005 that Corporate Bank’s hotel rates were unacceptable,
and the Iraq Support Manager stated in March 2006 that hotels just down the street were
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significantly cheaper. (Id. at ¶ 58.) A DynCorp administrator observed that Corporate Bank’s
rates were double the price of standard hotel rooms in Baghdad. (Id.) Furthermore, Vice
President for CIVPOL Operations Richard Cashon reported to DynCorp’s Board of Directors
that Corporate Bank regularly refused to provide documentation supporting its rates. (Id. at
¶ 61.) Nevertheless, DynCorp charged the DOS the rates that Corporate Bank claimed for the
hotels, without disclosing that they were uncompetitive. (Id. at ¶¶ 52, 55, 59.) “Instead, in a
letter dated February 24, 2005, Tim Crawley, DynCorp’s Vice President for Contract
Administration, told the DOS that DynCorp was unable ‘to negotiate rates below the current
level,’ because the ‘market is dictating the rate.’” (Id. at ¶ 59.)
Similarly, the government alleges that “DynCorp knowingly made material false
statements and key omissions about [the] unreasonable labor rates that distorted its negotiations
with the State Department.” (Id. at ¶ 64.) In the price proposal dated June 3, 2004, which
covered the period from April 17, 2004, to July 16, 2004, DynCorp stated that Corporate Bank’s
labor rates were “based on ‘historical data.’” (Id. at ¶ 66.) However, according to the
government, “DynCorp’s proposal quoted markedly higher labor rates than those that Corporate
Bank had agreed to bill DynCorp on April 1, 2004.” (Id.) The quoted rates were also
significantly higher than those that DynCorp had negotiated with Corporate Bank over the course
of its previous contract in support of the DOS in Iraq. (Id. at ¶ 67.)
On April 28, 2005, DynCorp “accepted a substantial increase in Corporate Bank’s labor
rates,” which meant that “the monthly rate for security guards and drivers more than tripled,
while the monthly rate for interpreters nearly doubled.” (Id. at ¶ 70). Yet, DynCorp informed
the government that its costs “for this extension period are consistent with previous periods.”
(Id. at ¶ 71.) “Interestingly, the amount listed under the ‘Corporate Bank Subcontract’ section
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. . . remained fairly constant — but that was only because DynCorp had stopped counting the
hotels in this section, and used a three-month period of time for its numbers instead of a four-
month period.” (Id.)
DynCorp submitted price proposals for labor that justified the rates “on the basis of a
‘vendor quote’” on the following occasions: June 13, 2005, August 1, 2005, February 6, 2006,
March 10, 2006, May 15, 2006, August 4, 2006, August 7, 2006, September 22, 2006,
September 25, 2007, and November 29, 2007. (Id. at ¶ 83.) Yet, according to the government,
DynCorp knew that the competition was paying significantly lower rates, that Corporate Bank’s
rates were inflated because of self-dealing with a jointly owned subcontractor, and that Corporate
Bank was not actually paying its employees the salaries that DynCorp incorporated into the rates
it proposed to the government. (Id. at ¶¶ 76, 78-80.) In June 2007, the charges for Corporate
Bank labor were transferred from the fixed-price line item to a cost-reimbursable line item. (Id.
at ¶ 82.)1 The government alleges that “DynCorp knew that Corporate Bank’s labor rates were
still not reasonable, yet charged them to the government nonetheless.” (Id.)
“Dyncorp’s proposals and charges to the government for Corporate Bank’s hotels and
labor services included additional amounts for Corporate Bank’s G&A cost rate. G&A costs are
costs a business incurs that are not directly attributable to a single specific contract, task order, or
other cost objective . . . .” (Id. at ¶ 85.) DynCorp estimated in 2003 that Corporate Bank would
have a G&A rate of 5 percent, but it accepted an 11 percent G&A rate in 2004 for the CIVPOL
contract. (Id. at ¶¶ 87, 89.) On November 1, 2004, a senior manager at DynCorp told Corporate
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The complaint is not consistent about whether labor charges were transferred from the fixed-
price line item to the cost-reimbursable line item in June or July 2007. (Compare Compl. at
¶¶ 41, 43 with id. at ¶ 82.) For ease of reference in this Memorandum Opinion, the Court will
refer to the two types of labor charges as “before July 2007” and “after July 2007.”
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Bank that “it could not possibly have suffered financially in 2004, given that its revenues had
tripled but DynCorp still continued ‘to use your 11% G&A rate which was calculated on a
revenue basis that was one third of what you have recognized in the operating year.’” (Id. at
¶ 89.) DynCorp allowed Corporate Bank to raise its G&A rate to 13 percent after August 12,
2006, despite the fact that it did not provide documentation of its total G&A costs or “any sort of
analysis that DynCorp could review.” (Id. at ¶ 93.)
The government alleges that “[b]y misrepresenting and omitting information reflecting
the true nature and bases of Corporate Bank’s rates, DynCorp skewed price negotiations with the
State Department and caused the State Department to agree to higher contract prices than it
otherwise would have.” (Id. at ¶ 6.) According to the government, “DynCorp knowingly passed
on millions of dollars of unjustified and inflated charges under the CIVPOL contract.” (Id. at
¶ 95.) An exhibit to the complaint lists the invoices that the government alleges are false. (See
Compl. Ex. B.) On the basis of these activities, the government asserts five causes of action:
violation of the False Claims Act, 31 U.S.C. § 3729(a)(1) (2006), by presenting false claims
(Count I); violation of the False Claims Act, 31 U.S.C. § 3729(a)(1)(b), by making or using false
records or statements material to a false claim (Count II); unjust enrichment (Count III); payment
by mistake (Count IV); and breach of contract (Count V).
DynCorp has moved to dismiss each of the government’s claims. (Def.’s Mot. Dismiss,
ECF No. 10; Def.’s Mem., ECF No. 10-1.) First, DynCorp argues that the government has not
adequately pled the falsity, materiality, and scienter elements of the False Claims Act counts.
(Def.’s Mem. at 15-36.) Second, DynCorp contends that those counts must be dismissed for
failure to allege fraud with particularity. (Id. at 37.) Third, DynCorp asserts that for some
allegedly false claims, the False Claims Act counts are barred by the statute of limitations. (Id. at
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38-45.) Fourth, DynCorp asks the Court to dismiss the unjust enrichment and payment-by-
mistake claims on the ground that an express contract existed between the parties. (Id. at 45-46.)
Finally, DynCorp argues that this Court lacks subject matter jurisdiction over the claim for
breach of contract. (Id. at 46-48).
ANALYSIS
The Court will address the False Claims Act counts and then each of the common law
causes of action. Beginning with the FCA presentment claim (Count I), the Court finds that the
government has adequately alleged falsity, materiality, and scienter under an implied
certification theory for the cost-reimbursable charges and a fraudulent inducement theory for the
fixed-price charges. The Court next concludes that the complaint also satisfies any additional
intent requirement for the FCA false statement claim (Count II). The government’s False Claims
Act allegations satisfy Rule 9’s particularity requirements and are not, based on the face of the
complaint, conclusively time-barred. Thus, these counts will not be dismissed. Next, the Court
addresses the claims for unjust enrichment and payment by mistake (Counts III and IV), and it
concludes that those claims must be dismissed to the extent they are based on the cost-
reimbursable charges. Finally, the Court finds that it has jurisdiction over the breach of contract
claim (Count V).
I. STANDARD OF REVIEW
In deciding a motion to dismiss, the Court “must accept as true all material allegations of
the complaint, and must construe the complaint in favor of the complaining party.” Ord v. Dist.
of Columbia, 587 F.3d 1136, 1140 (D.C. Cir. 2009) (quoting Warth v. Seldin, 422 U.S. 490, 501
(1975)). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face,’” Ashcroft v. Iqbal, 556
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U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The
Court must be able “to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. In fraud cases, Rule 9(b) imposes the additional requirement that the
plaintiff “must state with particularity the circumstances constituting fraud or mistake. Malice,
intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R.
Civ. P. 9(b).
II. FALSE CLAIMS ACT
In Counts I and II, the government asserts claims under two different sections of the False
Claims Act: the presentment provision and the false statement provision. (See Compl. at ¶¶ 96-
101 (citing 31 U.S.C. § 3729(a)(1) (2006); 31 U.S.C. § 3729(a)(1)(B) (2012)).) These two
sections are similar in many ways, and DynCorp has not distinguished them for purposes of most
of its arguments. For the sake of clarity, the Court addresses each provision separately and
concludes that neither Count I nor Count II should be dismissed.
A. Presentment of False Claims (Count I)
At the time of the activities alleged in this case, section 3729(a)(1) imposed liability on
anyone who “knowingly presents, or causes to be presented, to an officer or employee of the
United States Government or a member of the Armed Forces of the United States a false or
fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1) (2006). “The elements of a
presentment claim are that ‘(1) the defendant submitted a claim to the government, (2) the claim
was false, and (3) the defendant knew the claim was false.’” United States ex rel. Folliard v.
CDW Tech. Servs., 722 F. Supp. 2d 20, 26 (D.D.C. 2010) (quoting United States ex rel. Westrick
v. Second Chance Body Armor, Inc., 685 F. Supp. 2d 129, 134 (D.D.C. 2010)). Although the
statute does not state that the falsity must have been material, many courts have read into the
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statute a materiality requirement, which is often treated as part of the falsity element. I John T.
Boese, Civil False Claims & Qui Tam Actions § 2.04 (4th ed. updated 2017); see, e.g., United
States v. Science Applications Int’l Corp., 626 F.3d 1257, 1269, 1271 (D.C. Cir. 2010) (“SAIC”);
United States ex rel. Shemesh v. CA, Inc., 89 F. Supp. 3d 36, 45 (D.D.C. 2015) (“Shemesh I”).
DynCorp does not dispute that the government has adequately alleged the submission of claims
to the government, but it does challenge the sufficiency of the government’s allegations as to
falsity (including materiality) and scienter. (See Def.’s Mem.)
The government’s complaint asserts the presentment provision for dozens of allegedly
false claims, which include several different types of charges. (See Compl. Ex. B.) In the
complaint, the government categorizes the charges as hotel, labor, or G&A (which was added to
either hotel or labor charges). (Id. at ¶¶ 52-95.) The complaint further distinguishes charges as
billed under either cost-reimbursable or fixed-price line items. (Id. at ¶¶ 39-43.) DynCorp billed
for hotel accommodations and for labor after July 2007 under cost-reimbursable line items. (Id.
at ¶¶ 40, 43.) From the beginning of the contract through July 2007, DynCorp billed labor under
a firm-fixed-price line item. (Id. at ¶ 42.) DynCorp’s motion to dismiss distinguishes cost-
reimbursable charges from fixed-price ones on the basis of their different regulatory treatment,
and as a result, it makes different legal arguments for the two categories of charges. To address
DynCorp’s arguments, the Court will also divide its analysis between cost-reimbursable and
fixed-price charges.
i. Cost-Reimbursable Charges (Hotels, Labor after July 2007, and G&A)
DynCorp argues that the government’s claims as to the cost-reimbursable charges do not
satisfy the falsity, materiality, or scienter requirements for section 3729(a)(1). In particular,
DynCorp contends that the government has not adequately alleged that the charges were
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unreasonable, an unreasonable charge is not false, reasonableness is not material to payment, and
DynCorp could not have known that its charges would be found to be unreasonable. (See Def.’s
Mem. at 15-36.) As explained below, the Court rejects these arguments and finds that the
government has adequately alleged the elements of its claim under an implied certification
theory.
a. Falsity
Rather than identifying any express false statements in DynCorp’s claims for payment,
the government argues that it can demonstrate the falsity of the claims using either an implied
certification theory or a fraudulent inducement theory. (Gov.’s Opp. at 18-23, ECF No. 12.) The
Supreme Court recently considered whether a defendant could be liable under the False Claims
Act without ever making an express false statement. See Universal Health Servs., Inc. v. United
States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Escobar the Court held that “the implied
certification theory can be a basis for liability, at least where two conditions are satisfied: first,
the claim does not merely request payment, but also makes specific representations about the
goods or services provided; and second, the defendant’s failure to disclose noncompliance with
material statutory, regulatory, or contractual requirements makes those representations
misleading half-truths.” Id. at 2001.
Although DynCorp claims that specific representations are necessary to proceed on a
theory of implied certification (see Def.’s Mem. at 23), this is not the law of the D.C. Circuit.
Prior to Escobar, the D.C. Circuit held that “to establish the existence of a ‘false or fraudulent’
claim on the basis of implied certification of a contractual condition, the FCA plaintiff . . . must
show that the contractor withheld information about its noncompliance with material contractual
requirements.” SAIC, 626 F.3d at 1269. Because the Supreme Court in Escobar held that the
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implied certification theory was satisfied “at least” under the conditions it described and did “not
resolve whether all claims for payment implicitly represent that the billing party is legally
entitled to payment,” Escobar, 136 S. Ct. at 2000-01, the D.C. Circuit’s broader statement of the
implied certification theory remains good law after Escobar. Thus, the government can show
falsity by demonstrating that (1) a contractor withheld information about its noncompliance with
contractual or regulatory requirements; and (2) those contractual or regulatory requirements were
material.2
The government alleges that regulations required DynCorp’s charges to be reasonable,
but that DynCorp made claims for payment of unreasonable charges while withholding
information about their unreasonableness. (Compl. at ¶¶ 21-27, 52-95.) According to the
government, “[t]he Federal Acquisition Regulation (‘FAR’) is the principal regulation that
governs United States government contracts, including the CIVPOL contract.” (Id. at ¶ 21.)
“[T]he CIVPOL contract incorporated by reference FAR 52.216-7 (Allowable Cost and
Payment) (February 2002), which permits reimbursement of costs only to the extent they are
allowable under FAR Subpart 31.2.” (Id. at ¶ 23.) Under FAR Subpart 31.2, “[a] cost is
allowable only when the cost complies with all of the following requirements,” one of which is
“[r]easonableness.” 48 C.F.R. § 31.201-2(a). “A cost is reasonable if, in its nature and amount,
it does not exceed that which would be incurred by a prudent person in the conduct of
competitive business.” 48 C.F.R. § 31.201-3(a). Either when making initial payments or during
the audit process prior to final payment, the government may reduce payments by the amounts
that it finds are not allowable costs. 48 C.F.R. § 52.216-7(a), (g). If a claimed cost is “expressly
2
Under this test from the D.C. Circuit, materiality is a requirement for falsity rather than an
independent element of the claim. See SAIC, 626 F.3d at 1269.
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unallowable” — that is, “specifically named and stated to be unallowable” — penalties are
assessed against the contractor. 48 C.F.R. §§ 52.242-3(d), 31.001.
DynCorp does not dispute that its cost-reimbursable charges were required to be
reasonable, but it argues that the government has not adequately pled that the claimed charges
were unreasonable. (See Def.’s Mem. at 24-28.) DynCorp is wrong. The government has
alleged that high-level DynCorp employees stated that the hotel rates were “outrageous” and that
the labor rates were not competitive with the market. (Compl. at ¶¶ 57, 76.) The government
has also alleged that the G&A rate was inflated by failing to take into account all of Corporate
Bank’s revenue. (Id. at ¶¶ 88-90.) Taking all inferences in favor of the plaintiff, it is plausible
that the costs DynCorp claimed were not reasonable. Since the government has also alleged that
DynCorp withheld the unreasonableness of its rates from the government (see Compl. at ¶¶ 52,
59, 77, 81-82, 92, 94), the complaint satisfies the first requirement for falsity under the implied
certification theory: it alleges that a contractor withheld information about its noncompliance
with contractual or regulatory requirements.
Falsity under the implied certification theory also requires a second element: materiality.
In Escobar, the Supreme Court held that “a misrepresentation about compliance with a statutory,
regulatory, or contractual requirement must be material to the Government’s payment decision in
order to be actionable under the False Claims Act.” 136 S. Ct. at 2002. “The materiality
standard is demanding.” Id. at 2003. It is not sufficient for a finding of materiality “that the
Government would have the option to decline to pay if it knew of the defendant’s
noncompliance.” Id. Rather, it is relevant whether the government “consistently refuses to pay
claims . . . based on noncompliance with the particular . . . requirement” or, on the contrary,
“regularly pays a particular type of claim in full despite actual knowledge that certain
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requirements were violated.” Id. at 2003-04. “Materiality, in addition, cannot be found where
noncompliance is minor or insubstantial.” Id. at 2003.
A few district courts have addressed whether claims for unreasonable costs are false, but
they did so before the Supreme Court articulated the materiality standard in Escobar, and their
results have been inconsistent. One case involved allegations of a defendant’s “knowing
presentation of invoices for payment to the Government that consisted of unallowable and
unreasonable costs,” while “keep[ing] the Government in the dark about its excess materials and
wasteful ordering.” United States ex rel. Howard v. KBR, Inc., 139 F. Supp. 3d 917, 943, 945
(C.D. Ill. 2015). The judge acknowledged that reasonableness is highly contestable and “a
prudent businessperson may make mistakes and incur costs based on decisions that in retrospect
were unwise.” Id. at 943. However, given allegations that high-level employees sought to keep
the government in the dark about the wasteful ordering because they knew that auditors would
likely find fault with them, the judge concluded that the unreasonable claims could be
“objectively false.” Id. at 942-43.
In another case, a relator alleged that the contractor had accepted a subcontractor for
bottled water whose bid price was more than three times the quoted price submitted by the
lowest bidder. United States ex rel. Garzione v. PAE Gov. Servs., Inc., 164 F. Supp. 3d 806,
809-10 (E.D. Va. 2016). That court concluded that the contractor had not made a false implied
certification of reasonableness because “it would appear that payment is conditioned upon the
Contracting Officer’s determination of ‘reasonableness,’ not [the contractor]’s ‘certification’ of
reasonableness.” Id. at 815 n.8. That literalist approach no longer seems valid after Escobar,
which was issued two months after Garzione and clarified that “[w]hether a provision is labeled
a condition of payment is relevant to but not dispositive of the materiality inquiry.” 136 S. Ct. at
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2001. Instead, the focus of the materiality inquiry is on the government’s likely or actual
behavior in response to a misrepresentation. Id. at 2002-04.
Based on a consideration of the factors outlined in Escobar, this Court concludes that a
claim for costs that are significantly higher than reasonable satisfies the materiality requirement.
The fact that “the Government would have the option to decline to pay” is relevant but not
sufficient to find materiality. Escobar, 136 S. Ct. at 2003. Therefore, the FAR’s provision for
contracting officers to refuse to pay unreasonable costs is one indication that unreasonableness
may be material to some claims, but it does not automatically render unreasonableness material
in every instance. “Materiality . . . cannot be found where noncompliance is minor or
insubstantial.” Id. at 2003. Especially given that reasonableness is subjective, a contracting
officer’s determination that costs are unreasonable will not equate with substantial
noncompliance in every instance. Rather, a contractor’s claimed costs must be significantly
higher than reasonable in order to conclude that there was substantial noncompliance.
Furthermore, the government’s practice is important to the evaluation of materiality.
Escobar, 136 S. Ct. at 2003-04. Contrary to DynCorp’s argument, the fact that the government
frequently pays charges when they are billed and claws back unreasonable charges later does not
demonstrate that reasonableness is immaterial. (See Def.’s Mem. at 16-20.) That would be like
saying that because the IRS sometimes pays tax refunds before conducting audits, it does not
care whether tax returns are accurate. Whether the government chooses to pay before it audits is
an administrative matter. Therefore, information can qualify as material based on its capacity to
influence either the initial or the final payment decision. That said, the government’s established
procedure for disallowing unreasonable costs through the audit process without assessing
penalties suggests that it considers disagreements about reasonableness to be a routine element of
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the contracting process. This bolsters the Court’s conclusion that only claims for costs that are
significantly higher than reasonable warrant condemnation as “false” under the False Claims
Act.
The government has adequately alleged that DynCorp’s claimed costs for hotels, labor
after July 2007, and G&A were significantly higher than reasonable, so those claims satisfy
Escobar’s materiality standard. For hotel rates, statements by high-level DynCorp employees
that the Corporate Bank rates were “outrageous” and twice the price of other hotel rooms are
sufficient at the complaint stage to infer that the hotel rates were significantly higher than
reasonable. (See Compl. at ¶¶ 57-58.) For labor rates, DynCorp employees allegedly stated that
the competition was paying significantly less and that Corporate Bank itself was paying
significantly less to its employees than it had told DynCorp. (Id. at ¶¶ 76, 78-80.) Although
these allegations relate to rates before July 2007, the government alleges that labor rates after
July 2007 were only “marginally lower” than earlier rates. (Id. at ¶ 81.) Therefore, taking all
inferences in favor of plaintiff, the Court can infer that labor rates after July 2007 were
significantly higher than reasonable. For G&A rates, the government alleges that DynCorp
calculated that the rate should be 5 percent, but it nevertheless allowed Corporate Bank to charge
11 percent, which was based on a calculation that ignored Corporate Bank’s revenue from other
contracts. (Id. at ¶¶ 87-88.) It continued to allow 11 percent when Corporate Bank’s revenue
tripled, which should have decreased the G&A rate. (Id. at 89-90.) Finally, it permitted an
increase to 13 percent without any justification from Corporate Bank. (Id. at ¶ 93.) Again, the
Court can infer that the rates were significantly higher than reasonable. Therefore, the
government’s complaint adequately pleads falsity, including Escobar materiality, for the cost-
reimbursable charges (hotels, labor rates after July 2007, and G&A).
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b. Scienter
A presentment action under the False Claims Act requires not just a false claim but also
that the defendant presented it “knowingly.” 31 U.S.C. § 3729(a)(1) (2006). The False Claims
Act defines knowingly to include “actual knowledge of the information,” “deliberate ignorance
of the truth or falsity of the information,” or “reckless disregard of the truth or falsity of the
information.” Id. § 3729(b). Proof of specific intent to defraud is not required. Id.
“Establishing knowledge . . . on the basis of implied certification requires the plaintiff to prove
that the defendant knows (1) that it violated a contractual obligation, and (2) that its compliance
with that obligation was material to the government’s decision to pay.” SAIC, 626 F.3d at 1271.
“[U]nder the FCA, ‘collective knowledge’ provides an inappropriate basis for proof of scienter”
because it “allows ‘a plaintiff to prove scienter by piecing together scraps of ‘innocent’
knowledge held by various corporate officials, even if those officials never had contact with each
other or knew what others were doing in connection with a claim seeking government funds.’”
Id. at 1274-75 (quoting United States ex rel. Harrison v. Westinghouse Savannah River Co., 352
F.3d 908, 918 n. 9 (4th Cir. 2003) (“Savannah River Co. II”)). On the other hand, “actual
knowledge possessed by individual company employees” or a conclusion that “the company
acted recklessly” based on “the actions of employees or [the company’s] systems and structure”
would be sufficient. Id. at 1276. To address concerns about potentially open-ended liability in
implied certification cases, the Supreme Court and the D.C. Circuit have both emphasized that
courts should engage in “strict enforcement” of the scienter requirement. Escobar, 136 S. Ct. at
2002; SAIC, 626 F.3d at 1270.
The government has adequately alleged the first part of the scienter requirement —
knowledge of a contractual or regulatory violation — by alleging that high-level DynCorp
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employees made statements about the rates being significantly higher than reasonable. Senior
Vice President Spence Wickham referred to the hotel rates as “outrageous,” DynCorp’s CIVPOL
contract manager noted that the rates were unacceptable, and other officials stated that cheaper
hotel rooms were available elsewhere. (Compl. at ¶¶ 57, 58.) Tim Crawley, DynCorp’s Vice
President for Contract Administration, told Corporate Bank that the competition was paying
significantly less for labor. (Id. at ¶¶ 59, 76.) DynCorp executives also knew that Corporate
Bank was paying significantly less to its employees than the salaries it had agreed upon, and
DynCorp’s CIVPOL Contract Manager referred to that practice as fraud. (Id. at ¶¶ 79-80.)
Although these statements about labor rates predated July 2007, it is reasonable to infer that the
executives knew that the rates continued to be unreasonable after July 2007. In addition, the
Court can infer DynCorp’s knowledge that G&A rates were unreasonable from the government’s
allegations that DynCorp estimated Corporate Bank should have a much lower G&A rate than
what it accepted, and a senior manager at DynCorp commented to Corporate Bank about the high
rate. (Id. at ¶¶ 87, 89.) These statements all suggest actual knowledge that the rates were
significantly higher than reasonable. Since the CIVPOL contract incorporated the FAR’s
reasonableness requirements by reference (see Compl. at ¶ 23), DynCorp executives who knew
that the rates were unreasonable either had actual knowledge that such rates violated the contract
or acted with reckless disregard.
Taking all inferences in favor of the plaintiff, the Court can also infer that DynCorp had
the requisite scienter that significant noncompliance with reasonableness requirements would be
material to the government’s payment decisions. First, it is common sense that the government
would not pay claims if it knew that they were outrageously excessive. Second, the regulatory
provisions for the government to refuse to pay unreasonable charges confirm that reasonableness
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is material to payment. See 48 C.F.R. § 52.216-7(a), (g). DynCorp either had actual knowledge
of these regulations or was reckless for failing to learn about the regulations governing its
contract. Contrary to DynCorp’s argument, the fact that the government frequently pays charges
when they are billed and claws back unreasonable charges after the audit process could not have
indicated to DynCorp that reasonableness was immaterial. (See Def.’s Mem. at 30.) Rather, it
merely demonstrated that the government was willing to assume that charges were proper until
an audit revealed otherwise.
This case does not present the “collective knowledge” problem that the D.C. Circuit
identified in SAIC. That Court was concerned about attributing knowledge to a company based
on “piecing together scraps of ‘innocent’ knowledge held by various corporate officials.” SAIC,
626 F.3d at 1274-75 (quoting Savannah River Co. II, 352 F.3d at 918 n. 9). Here, taking the
government’s allegations as true, individual employees’ knowledge was not innocent.
According to the complaint, high-level executives knew that DynCorp was charging excessively
unreasonable rates, and those same executives were at least reckless with respect to the
materiality of such noncompliance with regulatory requirements.
In sum, the complaint satisfies the elements of a presentment claim based on the cost-
reimbursable charges. Under a theory of implied certification, the government has adequately
alleged falsity (including Escobar materiality) and scienter.
ii. Fixed-Price Charges (Labor before July 2007)
With respect to the fixed-price charges, DynCorp again argues that the government has
not adequately alleged the falsity, materiality, or scienter requirements of section 3729(a)(1). In
addition to the arguments on those elements that it made for the cost-reimbursable charges, it
also contends that the FAR reasonableness provisions do not apply to fixed-price charges, so
17
there can be no false implied certifications of reasonableness. (Def.’s Mem. at 24-25.) Turning
to the allegedly false affirmative statements, DynCorp argues that they were not false or made
with knowledge, and they did not induce the government to accept and pay inflated rates.
(Def.’s Reply at 3-6.) The Court concludes that the government has adequately alleged a
presentment claim as to the fixed-price charges under a fraudulent inducement theory.
a. Falsity
For fixed-price charges, the Court finds that the implied certification theory does not
apply, but the government has set forth a claim under a fraudulent inducement theory. The
problem with applying the government’s implied certification theory to fixed-price charges is
that the regulatory provisions about reasonableness do not apply to prices in the same way that
they apply to costs. In evaluating the government’s implied certification theory as applied to
DynCorp’s cost-reimbursable charges, the Court relied on FAR Subpart 31.2, which states that
“[a] cost is allowable only when the cost complies with all of the following requirements,” one
of which is “[r]easonableness.” 48 C.F.R. § 31.201-2(a) (emphasis added). “A cost is
reasonable if, in its nature and amount, it does not exceed that which would be incurred by a
prudent person in the conduct of competitive business.” Id. § 31.201-3(a) (emphasis added).
The government points the Court to a provision which states that the cost principles in FAR Part
31 “shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to
contracts and subcontracts whenever (a) cost analysis is performed, or (b) a fixed-price contract
clause requires the determination or negotiation of costs.” Id. § 31.102. However, the
government never alleges or argues in its opposition that either of the conditions specified in
section 31.102 applies to the fixed-price contract terms at issue here. (See Gov.’s Opp. at 17.)
Despite the fact that the plain language of these FAR reasonableness provisions does not
18
indicate any application to the fixed-price terms, the government argues that “cost principles
should apply.” (Gov.’s Opp. at 17.). According to the government, “even though [the line item
for labor before July 2007] was denominated as a fixed price [line item], it was more akin to a
cost [line item] because performance began before costs were negotiated.” (Id.) But because the
government has not alleged that the fixed-price line item for labor stated that it required any
determination or negotiation of costs, as opposed to a negotiation of price, the government’s
argument seems to be merely a policy argument (not a legal requirement under FAR Subpart
31.2) that reasonableness requirements ought to apply to undefinitized fixed-price line items.
Since the alleged fixed-price labor charges are not legally required to comply with the
reasonableness provisions in FAR Subpart 31.2, there can be no implied certification of
compliance with those provisions.
As an alternative, the government directs the Court to another FAR provision, which
states that “[t]he prime contractor or subcontractor shall . . . [c]onduct appropriate cost or price
analyses to establish the reasonableness of proposed subcontract prices” and “[i]nclude the
results of these analyses in the price proposal.” 48 C.F.R. § 15.404-3. This provision does not
support the government’s implied certification theory. First, it directs contractors and
subcontractors to perform analyses of reasonableness, but it does not state that offered prices
must be reasonable. Nor has the government provided any authority to support an argument that
implied certifications of compliance with anything other than explicit statutory, regulatory, or
contractual provisions would be legally sufficient. Second, because this provision directs
contractors to submit the results of their analyses in their price proposals, there is no implied
certification that a contractor has made any evaluation of reasonableness other than what it
reports in the proposal. Therefore, under an implied certification theory, the government has not
19
sufficiently alleged the falsity of DynCorp’s fixed-price charges.
Instead, the Court must turn to the government’s fraudulent inducement theory. Under a
fraudulent inducement theory, a contractor is liable “for each claim submitted to the Government
under a contract which was procured by fraud, even in the absence of evidence that the claims
were fraudulent in themselves.” United States ex rel. Bettis v. Odebrecht Contractors of Cal.,
Inc., 393 F.3d 1321, 1326 (D.C. Cir. 2005). There are two major variations of the fraudulent
inducement theory. See United States ex rel. Morsell v. Symantec Corp., 130 F. Supp. 3d 106,
120-21 (D.D.C. 2015). One type requires that “a party makes promises at the time of contracting
that it intends to break.” See United States ex rel. Head v. Kane Co., 798 F. Supp. 2d 186, 196
(D.D.C. 2011). The other type requires that false statements “induced the government to make
the initial contract” or caused it to agree on particular contract terms or modifications. See
United States ex rel. Westrick v. Second Chance Body Armor Inc., 128 F. Supp. 3d 1, 18 (D.D.C.
2015). For example, this Court previously found that the government had stated a claim based
on the fraudulent inducement theory when it alleged that the contractor’s false statements about
its typical discounting practices led the government to agree to inflated prices. Shemesh I, 89 F.
Supp. 3d at 47-52. Here, the government’s theory is of this second type.
According to the government, its agreement as to fixed-price labor rates was induced by
false statements in DynCorp’s price proposals. (Gov.’s Opp. at 19-23.) In the complaint, the
government has identified three different types of allegedly false statements and has specified the
dates of the price proposals in which each type appears. The Court finds that the complaint
adequately pleads falsity for some, but not all, of the statements.
First, in the price proposal dated June 3, 2004, DynCorp stated that the labor rates for
Corporate Bank were based on “historical data.” (Compl. at ¶ 66.) However, according to the
20
government, “DynCorp’s proposal quoted markedly higher labor rates than those that Corporate
Bank had agreed to bill DynCorp on April 1, 2004.” (Id. at ¶ 66.) The quoted rates were also
significantly higher than those that DynCorp had negotiated with Corporate Bank over the course
of its previous contract supporting the work of the DOS in Iraq. (Id. at ¶ 67.) In response to the
government’s allegation of falsity, DynCorp argues that it was permitted to propose higher prices
for labor than what Corporate Bank actually charged. (Def.’s Reply at 17-18.) According to
DynCorp, it would never make a profit without charging the government more than Corporate
Bank charged DynCorp, and furthermore, contractors are expected to propose prices that take
into account the possibility that their costs will increase during the period of the fixed-price
contract. (Id.)
The government has plausibly alleged that the reference to “historical data” was false.
According to the complaint, DynCorp “bill[ed] its own overhead and profit on top of the already
inflated labor rates.” (Compl. at ¶ 84.) Assuming that to be true, there is no basis for DynCorp’s
argument that it had to inflate the labor rates to make a profit. The government alleges that
DynCorp submitted the price proposal on June 3, 2004, and that it covered the period from April
17, 2004, to July 16, 2004. (Id. at ¶ 66.) Given that the price was set for a period of only three
months and that the proposal was submitted when half of that period had already passed, the
Court can reasonably infer that DynCorp should not have needed to build in a significant margin
to cover a change in costs after agreement was reached upon the price. Thus, taking all
inferences in favor of the government at this stage, the term “historical data” could be understood
to mean that the proposed prices were consistent with historical costs, while the government’s
allegations support an inference that this was not the case.
Second, the government alleges that DynCorp falsely informed the government on June
21
20, 2005, that its rates “for this extension period are consistent with previous periods.” (Compl.
at ¶ 71; see Gov.’s Opp. at 11 n.1.) In fact, DynCorp had “accepted a substantial increase in
Corporate Bank’s labor rates,” which meant that “the monthly rate for security guards and
drivers more than tripled, while the monthly rate for interpreters nearly doubled.” (Id. at ¶ 70.)
Given the alleged increase in rates, the Court concludes that the government has adequately pled
falsity.
Third, the government alleges that DynCorp submitted price proposals for labor that
presented the rates as “justified on the basis of a ‘vendor quote’” on the following occasions:
June 13, 2005, August 1, 2005, February 6, 2006, March 10, 2006, May 15, 2006, August 4,
2006, August 7, 2006, September 22, 2006, September 25, 2007, and November 29, 2007.
(Compl. at ¶ 83.) According to the government, DynCorp knew that the competition was paying
significantly lower rates, that Corporate Bank’s rates were inflated because of self-dealing with a
jointly owned subcontractor, and that Corporate Bank was not actually paying its employees the
salaries that DynCorp incorporated into the rates proposed to the government. (Id. at ¶¶ 76, 78-
80.) The government’s allegations do not permit a reasonable inference that the references to
“vendor quote” were false. That language merely suggests that the proposed price is based on a
quote from the vendor, Corporate Bank. Although the government has alleged that Corporate
Bank charged unreasonably inflated rates, it has not alleged that the prices DynCorp proposed to
the government on the identified dates were inconsistent with the rates that Corporate Bank
quoted to DynCorp. Indeed, the government alleges that “DynCorp repeatedly quoted Corporate
Bank’s inflated direct salary rates to the State Department . . . .” (Id. at ¶ 78.) Therefore, the
government has adequately pled the falsity of the references to “historical data” and “consistent
with previous periods,” but not “vendor quote.”
22
Falsity of statements in price proposals does not end the inquiry, because DynCorp’s
claims for payment are only considered false if the prior false statements caused the government
to award the contract to DynCorp or to agree on certain contractual terms. See Second Chance
Body Armor, 128 F. Supp. 3d at 18. Some courts also refer to this causation requirement as
materiality. See, e.g., Shemesh I, 89 F. Supp. 3d at 51-52. The government alleges that “[b]y
misrepresenting and omitting information reflecting the true nature and bases of Corporate
Bank’s rates, DynCorp skewed price negotiations with the State Department and caused the State
Department to agree to higher contract prices than it otherwise would have.” (Compl. at ¶ 6.)
During the time that DynCorp billed labor under the fixed-price line item, the price for the labor
was a term of the contract. (See id. at ¶ 42.) Since DynCorp submitted separate price proposals
for 12 different periods of performance (see id. at ¶ 44), the Court must evaluate whether the
alleged false statements could plausibly have induced the government’s agreement on labor
prices for each period of performance.
For the period from April 17, 2004, to July 16, 2004, DynCorp’s price proposal contained
the allegedly false justification that the rates were based on “historical data.” (Compl. at ¶ 66.)
One of the primary methods that the government is supposed to use to evaluate whether to accept
a price is “[c]omparison of the proposed prices to historical prices paid, whether by the
Government or other than the Government, for the same or similar items.” 48 C.F.R. § 15.404-
1(b)(2)(ii). Therefore, at the complaint stage, the Court can reasonably infer that DynCorp’s
justification of its proposed prices as based on “historical data” could have induced the
government to agree to the prices.
The next period that the government challenges — May 17, 2005, to July 15, 2005 — is
the one for which DynCorp is alleged to have falsely told the DOS that its rates “for this
23
extension period are consistent with previous periods.” (Compl. at ¶ 71.) This statement, similar
to the “historical data” statement, could have induced agreement because the government
evaluates the reasonableness of prices by how they compare to the prices that the government
has paid in the past. See 48 C.F.R. § 15.404-1(b)(2)(ii). Although one might argue that the
government should have compared the new quoted rates to the rates it had paid in the past and
thus realized that DynCorp’s statement about consistency was inaccurate, the government alleges
that DynCorp took steps to conceal the increase in rates. “Interestingly, the amount listed under
the ‘Corporate Bank Subcontract’ section . . . remained fairly constant — but that was only
because DynCorp had stopped counting the hotels in this section, and used a three-month period
of time for its numbers instead of a four-month period.” (Compl. at ¶ 71.) Taking all inferences
in favor of the plaintiff, it can be inferred that the government relied on DynCorp’s statement
about consistency and thus it could have induced the government’s agreement on prices.
For the remainder of the period when labor was charged under the fixed-price line item,
the government’s only allegation of falsity in the price proposals deals with the “vendor quote”
justifications. (See Compl. at ¶ 83.) The Court has already determined that the complaint does
not adequately allege that it was false to refer to the rates as based on a “vendor quote,” so that
language cannot support a fraudulent inducement theory. However, the facts alleged in the
complaint support an inference that the government’s agreements on prices for periods after July
2005 would have been fraudulently induced by the allegedly false statement on June 20, 2005,
that the proposed rates were “consistent with previous periods.” (See Compl. at ¶ 71.) Once the
government accepted the prices for May to July 2005, the contracting officer was to use those
prices as a benchmark to evaluate subsequent price proposals pursuant to 48 C.F.R. § 15.404-
1(b)(2)(ii). As a result, it is plausible that the fraudulent inducement of the first price agreement
24
would in turn induce subsequent price agreements.
Thus, the complaint adequately pleads fraudulent inducement of the government’s
agreement on all challenged labor prices under the fixed-price line item. In response, DynCorp
argues that the government has not adequately pled that DynCorp’s claims for payment were
false, because “the Government does not allege that DI actually charged the allegedly fraudulent
rates in its proposals.” (Def.’s Reply at 3-5.) In fact, the government does allege that “[e]ach of
[DynCorp’s price] proposals reflected the various rates for Corporate Bank’s services, and
DynCorp generally used the rates when billing the State Department for Corporate Bank’s
services.” (Compl. at ¶ 3.) Although “DI believes that for many time periods, it billed the
Government based on the actual charges it received from Corporate Bank — thus affording the
Government the benefit of lower rates, even though the contract contained higher fixed rates that
DI would have been permitted to charge” (Def.’s Reply at 18 n.7), the Court cannot dismiss the
government’s claim simply because DynCorp disputes the facts. The complaint plausibly alleges
that DynCorp’s false statements induced the government to accept higher labor prices than it
otherwise would have. Therefore, it adequately alleges that the claims for fixed-price labor
charges were false under a theory of fraudulent inducement.
b. Scienter
Like all presentment claims, a claim based on a fraudulent inducement theory requires
scienter. United States ex rel. Harrison v. Savannah River Co., 176 F.3d 776, 788 (4th Cir.
1999) (“Savannah River Co. I”). Since section 3729(a)(1) imposes liability only on defendants
who “knowingly” present false claims, the defendant in a fraudulent inducement case must have
known that the statements inducing the agreement were false. See id. at 791; Shemesh I, 89 F.
Supp. 3d at 49-51. As explained above, knowledge for False Claims Act purposes includes
25
deliberate ignorance or reckless disregard for the truth or falsity of information. 31 U.S.C.
§ 3729(b); Savannah River Co. I, 176 F.3d at 785. Collective knowledge by employees within a
company is not sufficient. SAIC, 626 F.3d at 1274-75; see supra Part II.A.i.b.
In Shemesh I, this Court found adequate allegations of scienter in a case that involved a
similar theory of fraudulent inducement. See 89 F. Supp. 3d 36. There, the relator’s theory was
that the contractor fraudulently induced agreement on inflated contract prices by providing
inaccurate information about the company’s standard pricing policies. Id. at 47-52. Although
“relator had[d] failed to identify a specific employee who knew he or she was submitting a false
claim for payment or was making a false statement to the government,” the Court noted
allegations that the company’s policy was to offer substantial discounts on its list prices and that
high-level employees stated this policy. Id. at 50-51. These allegations were “sufficient . . . for
the Court to reasonably infer that [the contractor’s] employees knew that the pricelist was not a
current and accurate representation of [the contractor’s] pricing practices and that all claims
submitted pursuant to the MAS contract were false.” Id. at 51. Similarly, the Court can
reasonably infer that DynCorp employees knew their statements about proposed prices were
false and therefore claims using those prices were false.
Based on the allegations in the complaint, DynCorp either had actual knowledge or acted
with reckless disregard for the truth of its statements about “historical data” and consistency with
previous periods. With respect to the price proposal containing the justification based on
“historical data,” the government alleges that just two months before the proposal, DynCorp and
Corporate Bank had agreed on much lower labor rates than those in the proposal. (Compl. at
¶ 66.) In addition, the proposed rates were significantly higher than those that DynCorp had
negotiated with Corporate Bank for a similar contract over the course of the previous year. (Id.
26
at ¶¶ 28, 67.) That DynCorp had actual knowledge of both the proposed rates and the historical
rates is not enough for scienter, because independently those are innocent pieces of information.
However, if the DynCorp employees preparing the price proposal described the proposed prices
as based on “historical data” without actually checking the prices that DynCorp had agreed upon
with Corporate Bank in the recent past, they acted with reckless disregard for the truth of the
description. If they did check those recent prices, they had actual knowledge of the discrepancy
between historical rates and the proposal. In either case, the scienter requirement is satisfied.
With respect to DynCorp’s statement that its proposed labor prices for the period from
May 17, 2005, to July 15, 2005, were “consistent with previous periods for procurement”
(Compl. at ¶ 71), the government alleges that DynCorp had recently agreed to increase the rates
significantly. “On April 28, 2005, DynCorp, by and through its senior management, including
Tim Crawley (Vice President for Contracts Administration) and John Supina (Senior Vice
President for Business Administration), accepted a substantial increase in Corporate Bank’s labor
rates. As a result of this increase, the monthly rate for security guards and drivers more than
tripled, while the monthly rate for interpreters nearly doubled.” (Id. at ¶ 70.) Assuming the truth
of these allegations, DynCorp again either had actual knowledge that the statement about
consistency was wrong, or it was reckless for failing to check the rates for prior periods before
making a statement about the comparison.
Thus, the government has adequately alleged the elements of a presentment claim for the
fixed-price charges. Under a theory of fraudulent inducement, the complaint alleges the falsity
of claims (including false statements and causation), as well as scienter.
B. False Statements (Count II)
In addition to suing DynCorp for its allegedly false claims under the presentment
27
provision of the False Claims Act (Count I), the government also challenges the same conduct
under the false statement provision of the Act (Count II). The false statement provision was
amended in 2009, and the parties dispute which version applies to this case. Before May 20,
2009, the provision was codified at 31 U.S.C. § 3729(a)(2) and created liability for anyone 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.” Since the enactment of the Fraud
Enforcement and Recovery Act (FERA) on May 20, 2009, the provision has been codified at 31
U.S.C. § 3729(a)(1)(B) and creates liability for anyone who “knowingly makes, uses, or causes
to be made or used, a false record or statement material to a false or fraudulent claim.”
A presentment claim and a false statement claim reach similar conduct, but the false
statement claim is easier to prove in some ways while harder in other ways. On the one hand,
whereas a presentment claim requires that the defendant “presents, or causes to be presented,” a
false claim to the government, 31 U.S.C. § 3729(a)(1) (2006), the false statement claim allows
someone else to have presented the false claim, as long as the defendant made a false statement.
The false statement claim is a “safety net designed to cover ‘knowing’ conduct that is used to
support false claims even though the defendant does not directly present the false claim.” Boese,
supra, § 2.01[C]. On the other hand, a false statement claim requires the additional elements that
the defendant made a false statement and that the statement was “to get a false or fraudulent
claim paid” (before May 20, 2009) or “material” to the false claim (after May 20, 2009).
Compare 31 U.S.C. § 3729(a)(2) (2006) with 31 U.S.C. § 3729(a)(1)(B) (2012). A plaintiff
cannot recover under both the presentment provision and the false statement provision for the
same conduct, but it can plead both claims in the alternative. United States ex rel. Harris v.
Bernad, 275 F. Supp. 2d 1, 6 (D.D.C. 2003).
28
DynCorp has made only one argument about why Count II should be dismissed even if
Count I is not dismissed. The only argument that is unique to Count II is that the pre-FERA
version of the false statement provision applies to this case and that the government has not
adequately alleged the specific intent required by that provision. (See Def.’s Mem. at 32-36.)
A year before Congress passed FERA, the Supreme Court interpreted the pre-FERA false
statement provision to require that the defendant had the “purpose” of getting a false claim paid.
Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 668-69 (2008). “[A] plaintiff
asserting a § 3729(a)(2) claim must prove that the defendant intended that the false record or
statement be material to the Government’s decision to pay or approve the false claim.” Id. at 665
(emphasis added). Congress reacted to Allison Engine by changing the language of the provision
to require merely that the false statement be “material” to the false claim. See 31 U.S.C.
§ 3729(a)(1)(B) (2012); Folliard, 722 F. Supp. 2d at 34. Although the amendment containing
the materiality language was enacted on May 20, 2009, Congress provided that it “shall take
effect as if enacted on June 7, 2008, and apply to all claims under the False Claims Act that are
pending on or after that date.” 31 U.S.C. § 3729 note (citation omitted). The opinion in Allison
Engine was issued on June 9, 2008. See 553 U.S. 662.
The applicability of the pre-FERA intent requirement to this case depends on whether the
retroactivity provision’s reference to pending “claims” refers to cases or claims for payment.
The government filed its complaint against DynCorp on July 19, 2016. (See Compl.) If
“claims” means cases, the pre-FERA intent requirement does not apply to any of the false claims
that the government has alleged in this case, because the case was pending after June 7, 2008.
However, DynCorp had submitted nearly all of the allegedly false claims for payment before
June 7, 2008. (Id. Ex. B.) The government has not alleged whether any of those claims for
29
payment remained pending after June 7, 2008. But, if “claims” means claims for payment, the
pre-FERA intent requirement applies to the allegedly false claims that were no longer pending on
June 7, 2008.
Courts have split on whether FERA’s amendment to the false statement provision is
retroactive to cases or to claims for payment pending after June 7, 2008. As Judge Wilkins has
noted, the majority of circuits have interpreted “claims under the False Claims Act” to refer to
cases, but the majority of judges in this district have interpreted it to refer to claims for payment.
United States ex rel. Landis v. Tailwind Sports Corp., 51 F. Supp. 3d 9, 46 (D.D.C. 2014). The
primary arguments for the latter interpretation are that § 3729(b)(2) defines a “claim” as a
“request or demand . . . for money or property,” and the retroactivity provision specifies that
another amendment “shall apply to cases pending on the date of enactment.” See, e.g., United
States v. Science Applications Int’l Corp., 653 F. Supp. 2d 87, 106-07 (D.D.C. 2009), vacated in
part and remanded on other grounds, 626 F.3d 1257 (D.C. Cir. 2010). The primary arguments
for interpreting “claims under the False Claims Act” to mean cases are that “[t]here is no such
thing as a request or demand for payment under the False Claims Act,” and interpreting FERA as
retroactive to cases makes Congress’s chosen date logical because it “eliminate[s] the approach
taken in Allison Engine without reopening judgments that were already final when Allison
Engine was decided.” United States ex rel. Garbe v. Kmart Corp., 824 F.3d 632, 639-41 (7th
Cir. 2016).
At this stage, it is not necessary for the Court to take a position on the proper
interpretation of the retroactivity provision. As the Court explained in a previous case, it “can
think of few situations where a party would submit a claim for payment directly to the
government without intending that the government pay it.” Folliard, 722 F. Supp. 2d at 35.
30
Here, taking all inferences in favor of the plaintiff, the Court can reasonably infer that if
DynCorp knowingly submitted outrageous costs while withholding information about their
unreasonableness, it did so with the intent that the government not realize the outrageousness of
the costs and therefore pay the claims. Likewise, the Court can reasonably infer that a contractor
who provides justifications for its prices does so with the intent that the government accept the
justifications and agree to the proposed prices. Because the government’s complaint satisfies the
pre-FERA intent requirement, the Court need not decide at this point whether the pre-FERA
intent requirement actually applies. The Court concludes that none of DynCorp’s arguments
regarding falsity, materiality, or scienter warrant dismissal of Count II.
C. Particularity
Rule 9(b) provides that “[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and
other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). The D.C.
Circuit has interpreted the rule to require that the “pleader . . . state the time, place and content of
the false misrepresentations, the fact misrepresented and what was retained or given up as a
consequence of the fraud.” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1278 (D.C. Cir.
1994) (quoting United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981)).
“Rule 9(b) does not require plaintiffs to allege every fact pertaining to every instance of fraud
when a scheme spans several years.” United States ex rel. Williams v. Martin-Baker Aircraft
Co., 389 F.3d 1251, 1259 (D.C. Cir. 2004). Rather, plaintiffs must provide “sufficient
information to allow for preparation of a response.” Id. at 1256 (quoting Joseph, 642 F.2d at
1385).
DynCorp argues that “the Complaint does not allege with particularity the contents of
31
each voucher, or how the vouchers were supposedly false, or why the alleged falsity was
material.” (Def.’s Mem. at 37.) However, there was no reason for the complaint to make
separate allegations about each individual claim for payment, because the government’s
allegations apply to whole categories of claims. Furthermore, the government is permitted to
rely on specific examples to support its allegations. See Martin-Baker Aircraft Co., 389 F.3d at
1259. Thus, it was adequate for the government to allege that rates were unreasonable over a
period of time and to support that allegation with statements by DynCorp executives about the
outrageousness of rates at particular times, rather than providing specific information about each
challenged rate.
Next, DynCorp contends that “[t]he Complaint also fails to allege, for each purportedly
false voucher, the specific portion of the Corporate Bank charge that was purportedly
unreasonable.” (Def.’s Mem. at 37.) But DynCorp has provided no legal basis for requiring an
FCA plaintiff to plead the precise amount of its damages. That information is neither an element
of the government’s claims, nor necessary to allow DynCorp to prepare a defense. The
government has provided an extremely detailed complaint that lists every claim for payment
alleged to be false, specifies the affirmative statements or implied certifications that allegedly
made the claims false, and quotes statements by DynCorp employees to support an inference of
scienter. Nothing more is necessary to satisfy Rule 9(b).
D. Statute of Limitations
According to DynCorp, “a significant percentage of the DI invoices that the Government
alleges to be false claims — approximately 18 percent — fall outside of the applicable statute of
limitations.” (Def.’s Mem. at 6.) A civil action for False Claims Act violations “may not be
brought — (1) more than 6 years after the date on which the violation of section 3729 is
32
committed, or (2) more than 3 years after the date when facts material to the right of action are
known or reasonably should have been known by the official of the United States charged with
responsibility to act in the circumstances, but in no event more than 10 years after the date on
which the violation is committed, whichever occurs last.” 31 U.S.C. § 3731(b). Here, the
complaint alleges that “DynCorp executed tolling agreements with the United States that tolled
the running the statute of limitations from January 29, 2011, to [the filing of the complaint],” and
“[t]he Department of Justice neither knew nor reasonably should have known facts giving rise to
its FCA and common law claims prior to January 29, 2008, or three years prior to the tolled
period.” (Compl. at ¶¶ 18-19.) DynCorp’s argument is that the “official” in § 3731(b)(2) need
not be a DOJ official, and the government has failed to allege that no official with responsibility
knew or reasonably should have known about the facts. (Def.’s Mem. at 38-44.) It follows,
DynCorp says, that the government is constrained by the six-year statute of limitations in
§ 3731(b)(1), and thus, claims related to invoices submitted before January 29, 2005 (six years
before the effective date of the tolling agreement) are untimely. (Id. at 44.)
Most courts have concluded that “the official of the United States charged with
responsibility to act in the circumstances,” 31 U.S.C. § 3731(b)(2), must be an official from the
Department of Justice. See United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593, 606-
08 (S.D.N.Y. 2013); United States v. Carell, 681 F. Supp. 2d 874, 881-82 (M.D. Tenn. 2009);
United States v. Tech Refrigeration, 143 F. Supp. 2d 1006, 1009 (N.D. Ill. 2001); United States
v. Inc. Vill. of Island Park, 791 F. Supp. 354, 361-64 (E.D.N.Y. 1992). A major reason for this
interpretation is that the False Claims Act makes the Attorney General responsible for
investigating and prosecuting violations. 31 U.S.C. § 3730(a); see, e.g., Tech Refrigeration, 143
F. Supp. 2d at 1009. However, one of these courts emphasized that there was “patently
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inconsistent authority,” Island Park, 791 F. Supp. at 363, and another opted for the narrow
interpretation of “official” because ambiguous statutes of limitations should be construed in
favor of the government, Carell, 681 F. Supp. 2d at 882. One judge concluded that senior army
officials did qualify as officials charged with responsibility, although the relator had not argued
that only DOJ officials should qualify, and the Second Circuit held that the court should have
dismissed the case for lack of subject matter jurisdiction without reaching the statute of
limitations. See United States ex rel. Kreindler & Kreindler v. United Techs. Corp., 777 F. Supp.
195, 204-05 (N.D.N.Y. 1991), affirmed on other grounds by 985 F.2d 1148 (2d Cir. 1993). A
major treatise on the False Claims Act argues that “the official . . . with responsibility to act”
should not be limited to DOJ officials, because other government agencies have an important
role in investigating fraud. Boese, supra, § 5.02[B][2][b].
For purposes of this motion, the Court need not decide whether “the official . . . with
responsibility to act” must be a DOJ official. Dismissal on the basis of a statute of limitations “is
appropriate only if the complaint on its face is conclusively time-barred.” De Csepel v. Republic
of Hungary, 714 F.3d 591, 603 (D.C. Cir. 2013) (quoting Firestone v. Firestone, 76 F.3d 1205,
1209 (D.C. Cir. 1996)). “[T]he statute of limitations is an affirmative defense that does not need
to be anticipated and rebutted by the complaint.” M.K v. Tenet, 196 F. Supp. 2d 8, 13 (D.D.C.
2001). Thus, if a complaint does not indicate when the conditions giving rise to the claim
occurred, the court should not dismiss the complaint based on the statute of limitations. Id. at 14.
The government’s False Claims Act suit against DynCorp is not conclusively time-barred,
because the complaint does not show when any government official knew or should have known
the facts material to these claims. Therefore, it would be premature to dismiss any claims based
on the statute of limitations.
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In sum, the Court will deny DynCorp’s motion to dismiss the government’s claims under
the False Claims Act. The government’s complaint plausibly alleges the elements of a
presentment claim and a false statement claim. It does so with sufficient particularity, and these
claims are not conclusively time-barred based on the face of the complaint.
III. COMMON LAW CAUSES OF ACTION
A. Unjust Enrichment and Payment by Mistake
In Count III, the unjust enrichment claim, the government asserts that “DynCorp has been
unjustly enriched by reason of the government’s erroneous and mistaken payment of monies to
DynCorp.” (Compl. at ¶ 106.) In Count IV, the payment-by-mistake claim, the government
alleges that “[t]he United States paid these funds to DynCorp under the mistaken belief that the
proposals made by DynCorp to the State Department were based upon reasonable and allowable
costs and prices when they were not.” (Id. at ¶ 111.) DynCorp argues that the Court should
dismiss Counts III and IV because quasi-contractual claims cannot proceed when a plaintiff has
alleged that the parties had an express contract. (Def.’s Mem. at 45-46.)
Generally, plaintiffs who have alleged the existence of an express contract cannot bring
claims for unjust enrichment or payment by mistake, because “the existence of a valid contract
between the parties negates the need for the court to imply a contract by law.” United States v.
Kellogg Brown & Root Servs., Inc., 800 F. Supp. 2d 143, 160-61 (D.D.C. 2011); United States v.
First Choice Armor & Equip., Inc., 808 F. Supp. 2d 68, 77-78 (D.D.C. 2011). There is, however,
an exception for False Claims Act cases where the government alleges that the contract was
invalid because the defendant fraudulently induced the government to enter into the contract —
including an agreement on a particular price. United States ex rel. Shemesh v. CA, Inc., 89 F.
Supp. 3d 67, 80-81 (D.D.C. 2015) (“Shemesh II”); Kellogg Brown & Root, 800 F. Supp. 2d at
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160-61. The government may plead contractual and quasi-contractual claims in the alternative,
but it “may not recover damages on legally inconsistent theories.” Shemesh II, 89 F. Supp. 3d at
80.
Applying this standard, the Court finds that the unjust enrichment and payment-by-
mistake claims can proceed for the fixed-price labor charges but not the cost-reimbursable
charges. As the Court explained in Part II.A.ii, the government has adequately alleged that
DynCorp fraudulently induced it to agree to inflated prices for labor under the fixed-price line
item. Once the parties agreed upon a price, it became a term of the contract. (See Compl. at
¶ 42.) Since the government has alleged that the contractual terms were fraudulently induced, it
can pursue quasi-contractual claims with respect to the fixed price labor charges. In contrast, the
government has not alleged fraudulent inducement of any contractual term governing the cost-
reimbursable charges. It does not allege that DynCorp obtained the entire CIVPOL contract by
fraud, nor has it argued that DynCorp’s submission of costs and the government’s payment or
rejection of them created any new contractual terms. Therefore, the Court will dismiss Counts
III and IV to the extent that they are based on DynCorp’s bills for cost-reimbursable charges.
B. Breach of Contract
The government’s final claim is for breach of contract. According to Count V of the
complaint, DynCorp breached the CIVPOL contract by claiming costs that were not reasonable
and by allowing its subcontractor to charge unreasonable rates. (Compl. at ¶¶ 114-15.)
DynCorp contends that this Court has no subject matter jurisdiction over the government’s claim
for breach of contract. (Def.’s Mem. at 46-47.) Under the Contract Disputes Act, jurisdiction
over breach of contract claims arising from government contracts exists only in agencies and the
U.S. Court of Federal Claims, unless they are claims “involving fraud.” 41 U.S.C. §§ 7103(a),
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(c), 7104. When “the same factual allegations form the basis for both the government’s FCA
claims and breach of contract claims, the CDA jurisdictional limit does not bar the government’s
breach of contract claim.” First Choice Armor, 808 F. Supp. 2d at 80; Shemesh II, 89 F. Supp.
3d at 80; Kellogg Brown & Root, 800 F. Supp. 2d at 160. DynCorp argues that the fraud
exception is not applicable “because . . . the Government has failed to state a cognizable FCA
claim.” (Def.’s Mem. at 47.) On the contrary, as the Court has concluded that the government
has stated cognizable FCA claims, the Court also has jurisdiction over claims for breach of
contract that arise from the same facts.
CONCLUSION
For the foregoing reasons, the Court will deny DynCorp’s motion to dismiss the
government’s complaint, except that it will dismiss Counts III and IV to the extent that they are
based on allegations about cost-reimbursable charges. A separate Order accompanies this
Memorandum Opinion.
/s/ Ellen Segal Huvelle
ELLEN SEGAL HUVELLE
United States District Judge
Date: May 19, 2017
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