United States v. Stewart & Stevenson

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 16, 2005
• Docket: 04-20209
• Status: Unpublished

Opinion

United States Court of Appeals Fifth Circuit F I L E D CORRECTED August 8, 2005 UNITED STATES COURT OF APPEALS FIFTH CIRCUIT Charles R. Fulbruge III Clerk

No. 04-20209

United States of America, ex rel., WERNER STEBNER,

Plaintiff-Appellant,

versus

STEWART & STEVENSON SERVICES, INC.; MCLAUGHLIN BODY CO.,

Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Texas (4:96-CV-3363)

Before KING, Chief Judge, BARKSDALE, and STEWART, Circuit Judges.

PER CURIAM:*

For this action under the qui tam provisions of the False

Claims Act, 31 U.S.C. § 3729 et seq., Relator Werner Stebner

challenges: (1) the summary judgment awarded Stewart & Stevenson

Services, Inc. (S&S), and McLaughlin Body Co. (MBC); and (2) the

costs awarded S&S. Concerning the summary judgment, Stebner

contends the defendants submitted false and fraudulent claims to

the United States during the course of a military contract. The

judgment is AFFIRMED; the appeal from the costs-award, DISMISSED.

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. I.

In 1991, the Government contracted with S&S to build a Family

of Medium Tactical Vehicles (FMTV); they were a variety of models

of two-and-a-half ton to five-ton military trucks (cargo, dump,

tractor, and wrecker) with enclosed cabs. S&S contracted with MBC

to produce the cabs. From 1993 until 1998, S&S produced FMTVs

under the relevant contracts. (The Government has since awarded

S&S two more FMTV contracts.) One specification requires that

FMTVs be free of corrosion during the first ten years of use.

To monitor the FMTVs’ production, the Government established

a Defense Plant Representative Office (DPRO) adjacent to S&S’s

Sealy, Texas, manufacturing plant. Approximately 30 Government

personnel were assigned to that DPRO: contract specialists helped

administer the contract and oversaw any modifications or revisions;

property specialists maintained FMTVs delivered and stored in

Sealy; and quality assurance specialists audited and monitored

manufacturing processes and assembly of the vehicles and conducted

100% vehicle inspection and testing.

Contract payment was conducted as follows. S&S submitted

monthly progress payments for up to 85% of its costs for producing

FMTVs that month. Upon conditional acceptance of a vehicle, S&S

invoiced the Government for 90% of its total contract price, from

which the Government deducted the 85% attributable to the progress

payment. Upon final acceptance, the Government paid S&S the

2 balance. Progress-payment invoices were submitted on Government

Standard Form 1443, which contained a certification that the costs

reflected on the form were actually incurred by S&S or would be

incurred. The vehicle-acceptance documents included Government

form DD250 (“Material Inspection and Receiving Report”), the

Vehicle Inspection Record, and the Final Inspection Record. The

on-site Government officials reviewed and completed these forms and

inspected the FMTVs. Upon the Government’s being satisfied with a

vehicle, its representative signed the DD250, indicating

conditional or final acceptance. All documents were then returned

to S&S, which converted the DD250 into an invoice and submitted it

for payment. The DD250 contained no express certifications of

contractual compliance. (Only Government officials’ signatures

appeared on the DD250.)

The Government accepted the FMTVs in stages; acceptance of

produced vehicles was conditional prior to the Government’s

granting First Article Approval (FAA) for full-scale production.

Vehicles presented to the Government for conditional acceptance

were stored in a Government-controlled area at the Sealy plant

until FAA was granted. It was not granted until the vehicle design

passed a series of tests; the test results informed design

modifications. During the life of the contract, the Government and

S&S agreed to numerous amendments which specified needed vehicle

modifications suggested by the various test results.

3 Conditionally-accepted vehicles not in accordance with the final

design were retrofitted to conform, then re-submitted for approval.

After a final design was agreed upon in 1995, S&S began

retrofitting the conditionally-accepted vehicles. During the

retrofit, S&S found corrosion problems on the cabs and cargo beds

of many of the vehicles. S&S informed the Government immediately.

In response, on 19 January 1996, S&S and the Government negotiated

modifications, which, inter alia, required S&S to: produce a Cab

Corrosion Report disclosing the corrosion’s “root cause”; repair

vehicles that had certain corrosion levels; and refrain from

submitting for acceptance vehicles with severe corrosion. The

modifications allowed S&S to submit certain vehicles for acceptance

but allowed the Government to withhold up to $2,000 per

conditionally-accepted vehicle.

At around the same time, the FMTV was being subjected to the

contractually-mandated Accelerated Corrosion Test (ACT), which

simulated the required ten-years of corrosion-free use. The tested

vehicle failed the ACT. Because the vehicles’ cabs, manufactured

by MBC, exhibited most of the corrosion, S&S and Government

inspectors began investigating MBC’s production facility and

processes. Stebner, as the S&S employee in charge of the Cab

Corrosion Report, also inspected the FMTVs and MBC’s facility. He

found internal and external cab corrosion on the vehicles; blamed

inadequacies at MBC’s production facility and its use of faulty

4 products and sealing procedures; and concluded MBC’s corrosion-

prevention coating product and processes did not conform to

contractual requirements and produced “junk”.

S&S instructed Stebner not to include the totality of his

assessment in the Cab Corrosion Report, but to say the systems were

only bad “some of the time”. Stebner refused, and was removed from

the project. In any event, the Government was aware of the

conditions at MBC’s facilities; officials from both DPRO and other

Government offices inspected the facilities and determined MBC’s

processes were inadequate. The Government also knew of other

possible sources of corrosion, such as faulty windshield seals.

The Cab Corrosion Report was presented to the Government on 2 April

1996.

Approximately six months later, after two retrofitted vehicles

failed testing for the negotiated corrosion-repair, the Government

suspended conditional acceptance of any vehicles evidencing

corrosion or which had undergone corrosion repair. After further

negotiations, the Government and S&S agreed on two contract

modifications. The Government would resume acceptance if S&S: (1)

provided a ten-year corrosion warranty, capped at $10 million, on

vehicles already manufactured or being manufactured (entered

November 1996); and (2) modified the contract to provide fully

galvanized cabs (entered March 1997). The Government agreed to

increase the price for the galvanized-cab vehicles because it

believed galvanization would extend the vehicles’ corrosion-free

5 life-span past the contracted-for ten years. The Government

considered these two modifications the “final resolution of the

corrosion problems”.

Pursuant to the False Claims Act (FCA), Stebner filed this

action under seal on 8 October 1996, after the Government suspended

all acceptance but before the corrosion settlement was reached. In

his 19 March 1997 second amended complaint, Stebner claimed S&S and

MBC made false representations and certifications to the Government

with intent to defraud and made “misleading minimization in reports

to the Government of known systemic problems in the coating and

cleaning process of the FMTV”. This action was stayed pending

appellate review of United States ex rel. Riley v. St. Luke’s

Episcopal Church, 982 F. Supp. 1261 (S.D. Tex. 1997) (individuals

lack standing to file FCA claims on behalf of the United States);

was administratively closed in November 1997; but was re-opened on

Stebner’s 1 June 2000 motion, following the Supreme Court’s

decision in Vermont Agency of Natural Res. v. United States ex rel.

Stevens, 529 U.S. 765 (2000) (individuals have standing to file FCA

claims on behalf of the United States). On 29 August 2000, the

Government elected not to intervene in this action.

In 2001, the district court granted S&S’s motion to dismiss

for failure to state a claim, following our precedent in Riley, 196

F.3d 514 (5th Cir. 1999) (qui tam provisions of FCA

unconstitutional). United States ex rel. Stebner v. Stewart &

6 Stevenson, No. H-96-3363 (S.D. Tex. 13 March 2001)(unpublished).

After a different result was reached for Riley in en banc

proceedings, see Riley, 252 F.3d 749 (5th Cir. 2001)(en banc), our

court summarily vacated the district court decision in this action

and remanded. See United States ex rel. Stebner v. Stewart &

Stevenson, No. 01-20272 (5th Cir. 2 July 2001)(unpublished).

On remand, the parties filed cross-motions for summary

judgment. S&S contended: (1) it submitted no false claims within

the meaning of the FCA; (2) the Government’s knowledge of the

manufacturing processes and corrosion issues precludes any claim of

falsity; and (3) Stebner’s claims are barred by the contractual

resolution of the corrosion problem. S&S and MBC jointly contended

the certifications provided by MBC applied only to its contract

with S&S, not to compliance with S&S’s contract with the

Government.

In moving for summary judgment, Stebner contended: S&S filed

DD250 and progress payment claims for vehicles it knew did not meet

the contract’s corrosion standards; MBC violated the FCA by falsely

certifying to S&S that the cabs and production processes complied

with the contract; and S&S violated the FCA by accepting MBC’s

false claims.

The district court awarded summary judgment to S&S and MBC,

concluding: S&S did not submit false claims, either express or

implied, to the Government; and there were no false claims because

7 there was no material misrepresentation to the Government and it

received the benefit of the bargain. United States ex rel. Stebner

v. Stewart & Stevenson, 305 F. Supp. 2d 694 (S.D. Tex. 2004).

II.

Stebner challenges the summary judgment and the costs awarded

S&S. We address the summary judgment first.

A.

A summary judgment is reviewed de novo. E.g., GDF Realty

Investments, Ltd. v. Norton, 326 F.3d 622, 627 (5th Cir. 2003),

cert. denied, 125 S. Ct. 2898 (2005). Such judgment is proper when

“there is no genuine issue as to any material fact and ... the

[movant] is entitled to a judgment as a matter of law”. FED. R.

CIV. P. 56(c); e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323

(1986). All inferences must be drawn in favor of the nonmovant,

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 587-88 (1986); but, “there is no issue for trial unless there

is sufficient evidence favoring the nonmoving party for a jury to

return a verdict for that party. If the evidence is merely

colorable, or is not significantly probative, summary judgment may

be granted”. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50

(1986) (internal citations omitted).

Stebner asserts violations under the following FCA provisions:

(a) Liability for certain acts. – Any person who –

8 (1) 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; [or] (2) 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; ... is liable to the United States Government for a civil penalty....

31 U.S.C. § 3729(a)(1), (a)(2). The FCA defines “claim” as “any

request or demand, whether under a contract or otherwise, for money

or property”. 31 U.S.C. § 3729(c). “It is only those claims for

money or property to which a defendant is not entitled that are

‘false’ for purposes of the False Claims Act.” United States v.

Southland Mgmt. Corp., 326 F.3d 669, 674-75 (5th Cir. 2003) (en

banc) (citation omitted).

Stebner asserts: the district court interpreted too narrowly

the meaning of “claim”; an FCA violation has occurred when, as

here, goods do not conform to contractual specifications but

invoices are submitted to the Government. Stebner contends the

district court failed to analyze sufficiently the summary judgment

evidence as to MBC and erred when it concluded: there was no

implied certification in the DD250 or progress reports; MBC’s

certifications to S&S were not false claims under the FCA; and

there can be no false claim where the Government has received the

benefit of its bargain.

9 S&S and MBC respond: Stebner fails to identify any false

claims; the Government’s contractual resolution with S&S negates

any alleged false claims; there was no knowing submission of false

claims because the Government was informed of all corrosion

problems; and Stebner cannot establish that the claims, if false,

were material to the Government’s decision to pay.

Based upon our review of the record and the parties’ briefs

and oral arguments, summary judgment in favor of S&S and MBC was

appropriate. The claims S&S submitted to the Government were the

progress payment requests and the Government-signed DD250. Neither

expressly certified compliance with every provision of the overall

contract. Our court has not adopted an implied theory of

certification. See U.S. ex rel. Willard v. Humana Health Plan of

Texas Inc., 336 F.3d 375, 381-82 (5th Cir. 2003). Even if we were

to do so, FCA liability would not attach in this action. The

Government was involved in the design, production, testing, and

modification of the FMTVs; and S&S and the Government negotiated

contract modifications in response to the well-documented corrosion

problem. The Government retained, and exercised, its discretion to

conditionally accept or refuse to accept FMTVs that did not meet

contractual standards; and the DD250 was not signed by the

Government until it was ready to accept a vehicle. See Southland,

326 F.3d at 675. As a result, S&S’s subcontractor, MBC, did not

10 “cause[] a prime contractor to submit a false claim to the

Government”. United States v. Bornstein, 423 U.S. 303, 309 (1976).

B.

Concerning his challenge to the approximately $ 42,000 in

costs awarded S&S, Stebner filed a notice of appeal from the 2

February 2004 judgment on 1 March 2004, after S&S had filed its

bill of costs on 17 February and Stebner had filed a motion on 27

February for review of costs. On 7 April, the district court

granted S&S’s original bill of costs.

That 7 April decision was an independently appealable order.

See Pope v. MCI Telecomm. Corp., 937 F.2d 258, 266-67 (5th Cir.

1991). “Where the appellant notices the appeal of a specified

judgment only ... this court has no jurisdiction to review other

judgments or issues which are not expressly referred to and which

are not impliedly intended for appeal.” Id. at 266 (internal

quotation and citations omitted); FED. R. APP. P. 3(c)(1)(B) (notice

of appeal must “designate the judgment, order, or part thereof

being appealed”). Stebner’s 1 March notice of appeal specifies

appeal only from the 2 February judgment. Because he failed to

file a supplemental notice of appeal, specifying the 7 April costs-

award, we lack jurisdiction to review this issue. See Pope, 937

F.2d at 266-67.

11 III.

For the foregoing reasons, the judgment is AFFIRMED; the

appeal from the costs-award, DISMISSED.

AFFIRMED IN PART; DISMISSED IN PART