Marsteller ex rel. United States v. Tilton

880 F.3d 1302
CourtCourt of Appeals for the Eleventh Circuit
DecidedJanuary 26, 2018
DocketNo. 16-11997
StatusPublished
Cited by14 cases

This text of 880 F.3d 1302 (Marsteller ex rel. United States v. Tilton) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Marsteller ex rel. United States v. Tilton, 880 F.3d 1302 (11th Cir. 2018).

Opinion

RIPPLE, Circuit Judge:

Relators Philip Marsteller and Robert Swisher brought this action against their former employer, MD Helicopters (“MD”), and codefendants Patriarch Partners (“Patriarch”), Lynn Tilton, and Colonel Norbert Vergez, under the qui tam provision of the False Claims Act (“FCA” or “Act”), 31 U.S.C. §§ 3729-30.1 The allegations of the complaint concern a series of contracts between the United States Army (“the Army”) and MD for the purchase and support of military helicopters. The complaint alleges that the defendants misled the Government by providing material false or incomplete information at two points in the transactional relationship, MD’s pre-con-tract representations to the Government to enter the contracts and MD’s submission of claims for payment. The complaint also describes other improprieties between Col. Vergez, then a representative of the Army, and the remaining defendants. These alleged improprieties included gifts and an offer of prospective employment.

In the district court, the defendants moved under Federal Rules of Civil Procedure 12(b)(6) and 9(b) for dismissal for failure to state a claim. They asserted that the complaint failed the specificity requirements applicable to allegations of fraud and that, in any event, the claims did not adequately state a case for liability. The district court granted the motion. It concluded that the complaint failed to establish liability under the implied certification theory, because the relators had not alleged adequately that a defendant had violated an express condition of payment or a material contractual requirement. The district court also concluded that the relators did not plead a fraud in the inducement theory, but that, if they had, it would have failed for the same reasons as the implied certification theory.

The relators have appealed. During the pendency of this appeal, the Supreme Court has examined the implied certification theory in Universal Health Services, Inc. v. United States ex rel. Escobar, - U.S. -, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016). We conclude that the district court must revisit whether the relators alleged facts sufficient to support a theory of implied certification as articulated in Escobar. We also conclude that the complaint did plead fraud in the inducement, and we therefore remand so that the district court can reexamine the allegations relating to that theory.

Accordingly, we vacate the judgment of the district court and remand for further proceedings consistent with this opinion.

I

BACKGROUND

A.

The allegations of the complaint concern a series of specific contracts between MD, an Arizona corporation that manufacturers high-performance helicopters, and the Army. The relators, Mr. Marsteller and Mr. Swisher, are the former Director of Sales and Marketing and the former Director of Military Business Development, respectively, for MD. Both are also Army veterans; indeed, Mr. Swisher remains a Major in the Army Individual Ready Reserve. At all times relevant to this action, Ms. Tilton has been CEO of MD and of Patriarch. Patriarch, which was founded and is wholly owned by Ms. Tilton, is a debt and equity investment and manage[1305]*1305ment company and performs services for MD.

From 2010 to 2012, Col. Vergez was a project manager at the Army’s Non-Standard Rotary Wing Aircraft Office (“NSRWA”) in Huntsville, Alabama. NSRWA is responsible for the procurement and support of non-standard rotor-craft, including procurement for the foreign military sales program (“FMS”) of the Department of Defense. In his role at NSRWA, Col. Vergez was personally and substantially involved in issuing, selecting, negotiating, pricing, and awarding FMS contracts.

The core of the complaint addresses five contracts between MD and the Army in 2011 and 2012. Under these agreements MD provided: (1) six helicopters to the Afghan Air Force, (2) logistical support to the Afghan Air Force, (3) three helicopters to the El Salvador Air Force, (4) two helicopters to the Government of Costa Rica, and (5) twelve helicopters to the Saudi Arabian National Guard. The forty-five-page complaint describes the interactions between MD and NSRWA on each of these bids and contracts. In describing several of the bid processes, the complaint alleges that the Army requested pricing data, presumably to establish the commercial reasonableness of the price proposed in MD’s bid. The complaint alleges that MD cherry-picked the highest priced prior sales and omitted lower-dollar sales. With respect to one such contract, for example, the complaint asserts that, in response to the Army’s request for a sales history,

MD only provided the Army information regarding the October 11, 2011 sale of an MD 500E to the Columbus, Ohio Police Department for the base price of $1,802,282, but did not disclose any other prior sales, including the May 20, 2011 sale of a new MD 500E helicopter to Fuchs Helikopter for the base price of $1,550,000. The Army relied on MD’s incomplete disclosure and was deprived of its ability to effectively negotiate a reasonable and lower price which caused the agreed base price for each aircraft to be higher than it would have been if MD had fully complied with the Army’s request for pricing data.[2]

With respect to’ án'other contract for helicopters for the Saudi Arabian National Guard, the complaint alleges that MD’s Chief Operations Officer sent a draft bid to Ms, Tilton that included a price of $2,178,000 and noted that the base price for the aircraft was $2,150,00Q.3 In replying to the email, Ms. Tilton asked, “Why is this not Army pricing?”4 The COO then recommended raising the bid to $2,300,000, and Ms. Tilton immediately approved it. Mr. Marsteller, one of the relators in this action, alerted Ben Weiser, an executive vice president at MD, that he believed that the- pricing was “criminal.”5 Weiser then contacted Ms. Tilton and asked her to “reconsider” the pricing, given that it was $150,000 more than the commercial list price that MD had published two-and-a-half months earlier.6 Ms. Tilton declined to lower the price, explaining that her decision was “not about the money but about consistency with the Army.”7

The complaint also contains allegations about Col, Vergez’s relationship with MD and his dealings with Ms. Tilton. According to the allegations, although he previously had met other MD employees, Col. [1306]*1306Vergez first met Ms. Tilton at an industry-event in March 2011, and informed her then that MD had won the bid to supply helicopters to the Afghan military. Ms. Tilton was impressed with Col. Vergez and began grooming him for a future role at MD; she also began traveling regularly to Huntsville to meet with him.

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Bluebook (online)
880 F.3d 1302, Counsel Stack Legal Research, https://law.counselstack.com/opinion/marsteller-ex-rel-united-states-v-tilton-ca11-2018.