Utah Court Dismisses False-Certification Case Alleging Submission of False Certificates of Conformance
On September 22, 2015, the U.S. District Court for the District of Utah dismissed a qui tam complaint brought against Triumph Gear Systems, Inc. (“TGS”) and its parent company Triumph Group, Inc. (“Triumph”). In an opinion issued by District Judge Dale A. Kimball, the Court found that the complaint failed at the “most basic level” to identify a single false claim submitted to the government. U.S. ex rel. Blyn v. Triumph Grp., Inc., No. 2:12CV922 DAK, 2015 WL 5593893 (D. Utah Sept. 22, 2015). The procedural posture of the case, in addition to the substantive decision, is a lesson for the unwary.
Donald E. Little (a former lawyer with TGS’s predecessor company Rolls Royce North America) and Kurosh Motaghed (former Director of Information Technology at TGS) (together “Relators”) brought suit against Defendants TGS and Triumph under the False Claim Act (“FCA”) concerning the sale of nonconforming gears for use by the United States in civilian and military aircraft.
The original Complaint in this matter was filed by Little (as an attorney) in 2012 on behalf of qui tam relator Joe Blyn. However, in 2013, Little filed an Amended Complaint, which removed Blyn and substituted himself and Motaghed as Relators. Shortly after the government provided notice that it was declining to intervene in the matter in 2014, the Amended Complaint was unsealed and Defendants filed their First Motion to Dismiss. Instead of responding to the Motion, seeking leave from the Court, or a stipulation from Defendants, Relators filed a “First Substantive Amended Complaint,” which was eventually treated as a Second Amended Complaint (“SAC”). While the Court ultimately found other reasons to dismiss the SAC without prejudice, it nonetheless recognized Relator’s improper filing. The Court also highlighted Defendants’ argument that “Relators have provided no basis upon which Mr. Blyn could simply assign his standing to [Little and Kurosh]” – citing 31 U.S.C. § 3730(c)(3) (“[i]f the Government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action”) (emphasis added). The Court, citing FRCP 11, “instruct[ed] the Relators to thoroughly consider this issue, among the other issues discussed in this decision, in analyzing whether they have a good faith basis to file a Third Amended Complaint.”
With respect to the merits of the case, Relators alleged that because applicable drawings required consistent case depth from one gear tooth to the next, and because of an allegedly known physical phenomenon preventing consistent case depth (not a manufacturing deficiency, but a physical impossibility), every gear sold by TGS to the government violates the FCA because TGS signed Certificates of Conformance certifying, among other things, that “materials or parts were produced in conformance with all contractually applicable customer or government specifications.” Relators claimed that “a manufacturer cannot both follow the drawings standards and manufacture a gear that fulfills the contract requirements.”
The Court, nonetheless, found that while Relators’ made many allegations about a variety of issues, “they have failed to connect these allegations to the actual submission of a false claim to the government.” That is, recognizing that Relators had the benefit of reading Defendants’ First Motion to Dismiss prior to filing their SAC, “Relators still have not stated the elements necessary to establish a facially plausible claim for relief under FRCP 8(a), and they still have not provided the particulars necessary to satisfy the heightened pleading standards applicable to an FCA fraud claim.”
The Court reiterated that it was “incumbent upon Relators to allege with particularity both (a) the violation of a specific contractual provision and (b) that compliance with that provision was necessary for the government to pay a claim for payment.” The Court noted that there is no false claim and therefore no violation if the government would have paid the claim despite knowing of the deficiency. See e.g., U.S. ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1219 (10th Cir. 2008) (“[a] false certification is . . . actionable under the FCA only if it leads the government to make a payment which it would not otherwise have made”); U.S. ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1169 (10th Cir. 2010) (“[A] false certification . . . is actionable under the FCA only if it leads the government to make a payment which, absent the falsity, it may not have made.”).