United States District Court, S.D. California
UNITED STATES OF AMERICA ex rel. DARRYN KELLY, Plaintiff,
SERCO, INC., a New Jersey Corporation, and DOES 1-5, Defendant.
WILLIAM Q. HAYES, District Judge.
The matters before the Court are Defendant Serco, Inc.'s Motion for Summary Judgment (ECF No. 65), Motions to File Documents Under Seal in support of its motion and reply (ECF Nos. 63, 68), and Motion to Strike testimony of Relator's expert, Kevin Martin (ECF No. 71).
On December 21, 2011, Relator Darryn Kelly, suing on behalf of the United States, initiated this action against Defendant Serco, Inc. based on the False Claims Act ("FCA") by filing a Complaint in this Court under seal. (ECF No. 3). On August 9, 2012, the Court ordered that the complaint be unsealed because the United States declined to intervene. (ECF No. 8). On September 7, 2012, Relator filed a First Amended Complaint ("FAC"). (ECF No. 11). The FAC alleges that Defendant tracked its time and costs pursuant to a government project in an unreliable and fraudulent manner by failing to follow the government's reporting requirements. Specifically, Defendant haphazardly collected time entries, fraudulently reallocated time among various tasks codes, and failed to track time in an automated system with the task codes that the government required. The FAC alleges that Relator reported these actions to a Department of Homeland Security ("DHS") employee, and Defendant retaliated by terminating him three weeks later.
The FAC asserts the following claims for relief: (1) submitting false claims in violation of the FCA, (2) making false records material to a false or fraudulent claim in violation of the FCA, (3) conspiring to violate the FCA, (4) retention of overpayments in violation of the FCA, (5) retaliation in violation of California Government Code section 12653(b), (6) unlawful retaliatory discharge in violation of California Labor Code section 1102.5, (7) termination in violation of public policy, and (8) breach of contract of continued employment. Defendant moves for summary judgment on all of Relator's claims.
On April 21, 2014, Defendant filed the Motion for Summary Judgment (ECF No. 65) concurrently with the Motion to File Documents Under Seal (ECF No. 63). On May 5, 2014, Relator filed an opposition. (ECF No. 66). On May 12, 2014, Defendant filed a reply with the Motion to File Documents under Seal and the Motion to Strike. (ECF Nos. 68, 70, 71). On May 16, 2014, Relator filed an opposition to the Motion to Strike. (ECF No. 72). On May 27, 2014, Defendant filed a reply in support of the Motion to Strike. (ECF No. 75).
A. The AWS Project
On an unspecified date, the Department of Homeland Security ("DHS") contracted the U.S. Navy, Space and Naval Warfare Systems ("SPAWAR") to upgrade the wireless communications systems in towers and facilities situated along the U.S./Mexico border. (Serco's SSUF ¶¶ 1-3, ECF No. 70-1 at 2-3). This project became known as the Advanced Wireless Systems Spectrum Relocation Project ("AWS Project"). Id. SPAWAR enlisted the services of Defendant Serco to work on the project. SPAWAR and Defendant did not need to enter into an AWS-specific contract because they had two ongoing contracts (known as "Indefinite Duration, Indefinite Quantity" contracts), the "NESS Contract" and "SPECTECH Contract." Id. ¶¶ 7, 9, 11. Pursuant to the NESS and SPECTECH contracts, SPAWAR would submit individual "Delivery Orders" to Defendant, detailing the work that Defendant was to complete for pay. Id. ¶¶ 12, 17, 19-24. SPAWAR submitted a total of seven Delivery Orders to Defendant for work on the AWS Project. Defendant performed work under six of these Delivery Orders, and periodically submitted invoices, known as public vouchers, to the Defense Finance and Accounting Service ("DFAS") in order to receive payment for work done under the Delivery Orders. Id. ¶¶ 31-32. It is undisputed that these vouchers "constitute Serco's demands for payment on the U.S. government for its work on the AWS project." Id. ¶ 33.
The first Delivery Order related to the AWS Project was Delivery Order No. 49, which covered a period of performance from September 2, 2009 to September 1, 2010. Id. ¶ 17. Under Delivery Order 49, Defendant submitted a total of 19 vouchers for a total of $876, 758.45. Id. ¶ 36. The second Delivery Order related to the AWS Project was Delivery Order No. 54, which covered a period of performance from January 25, 2010 to January 24, 2011. Id. ¶ 22. Under Delivery Order 54, Defendant submitted a total of 28 vouchers for a total of $4, 623, 908.61. Id. ¶ 37. Both of these Delivery Orders were given pursuant to the Ness Contract. Id. ¶¶ 36-37.
B. The Earned Value Management System ("EVMS") and Hours and Task Recording
The EVMS is an accounting and management tool required to be implemented in the performance of certain federal government contracts. The guidelines for utilizing this system are laid out in the American National Standards Institute/Electronic Industries Alliance Standard 748 ("ANSI 748"). See Pl.'s Ex. B, ECF No. 66-4. The Federal Regulations call for government contractors performing certain government contracts to implement an EVMS compliant with ANSI 748. For "cost or incentive contracts valued at $20, 000, 000 or more, " or whenever else an EVMS is required, Department of Defense agencies are instructed to "[u]se the provision(s) at [48 C.F.R. sections 252.234-7001, 52.234-2, and 52.234-3] in the solicitation" and "the clause at 252.234-7002... in the solicitation and contract." 48 C.F.R. § 234.203. 48 C.F.R. section 252.234-7002 ("DFARS") is long form clause, requiring an "Earned Value Management System (EVMS) that complies with [ANSI 748]" and detailing how the contractor is to get its EVMS validated by the appropriate agency. 48 C.F.R. § 252.234-7002. Similarly, for other federal government contracts, "[t]he contracting officer shall insert a clause that is substantially the same as the clause at [48 C.F.R. section 52.234-4] in solicitations and contracts that require a contractor to use EVMS." 48 C.F.R. § 34.203(c). 48 C.F.R. section 52.234-4 ("FARS") is also a long form clause, requiring an "Earned Value Management System (EVMS) that has been determined by the Cognizant Federal Agency (CFA) to be compliant with [ANSI 748] to manage this contract." 48 C.F.R. § 52.234-4.
It is undisputed that neither FARS or DFARS were incorporated by reference into the NESS or SPECHTECH contracts. See Serco's SSUF ¶ 13, ECF No. 70-1 at 7-8. However, ANSI 748 was listed under "APPLICABLE DOCUMENTS" in Delivery Order Nos. 49 and 54. (Brown Decl., Exs. C and D, ECF No. 64-1 at 117-18, 164-65). Those sections of the delivery orders provided that "[i]n the event of a conflict between the text of this SOW and the applicable document cited herein, the text of this SOW should take precedence." Id. at 117, 164. These Delivery Orders also required Defendant to provide, among other Deliverables, Earned Value Management ("EVM") Reports "as called out in the CDRL [Contract Data Requirements List] requirements." Id. at 119-20. The CDRLs state that, with respect to EVM reports, "[c]ontract format acceptable. Create reports using MS Office Applications." see, e.g., id. at 175.
The process used by SPAWAR and Defendant in preparing these EVM reports, termed Contract Performance Reports ("CPRs"), involved multiple components. Defendant's AWS team members would enter the time spent on each Delivery Order daily into Serco's own accounting system. (Serco's SSUF ¶ 35, ECF No. 70-1 at 18). Tom Helman, who headed the AWS Project at Serco, would then use the accounting system and individual employees' records to compile a monthly Hours Report. Id. ¶ 50. Helman testified that he would submit these monthly Hours Reports to Mike Melechinsky, a Project Manager for the AWS project at SPAWAR, but for the first year of the project, Helman would provide monthly hours totals only, not broken down by the various task codes. (Helman Dep. at 66:17-67:9, ECF No. 66-8 at 5-6). Hours Reports from SPAWAR, NAVFAC (another Navy agency working on the AWS Project), and Defendant would then be combined into an Actual Cost Report, provided to DHS. (Serco's SSUF ¶ 53, ECF No. 70-1 at 27). John Mitchell and Suzette Mankel, SPAWAR Project Managers, and Raymond Day, the EVM lead for Serco, would then insert data from the Actual Cost Report into an "Integrated Master Schedule" ("IMS"), "which function was to break down a large project into a task by task basis, ordered according to sequence, then estimate the projected time and cost to complete each task, then track the actual performance against the estimates." Id. ¶¶ 54, 56; Mitchell Dep. at 54:12-56:1, ECF No. 65-9 at 52-54). The IMS included a series of thousands of tasks, known as a "Work Breakdown Structure" ("WBS"). Id. ¶ 55. Finally, data from the IMS would be used to create final EVM reports, CPRs and "CSSRs." Id. ¶ 58.
C. Serco's EVM Performance
Serco employees kept track of their time manually, instead of "an automated time keeping system that is tied to control accounts so that contemporaneous tracking of time can be achieved." (Relator's Statement of Additional Undisputed Facts ("SAUF") ¶ 138, ECF No. 66-1 at 43). Relator testified that Serco employees only charged their time to a single charge code. (Kelly Dep. at 115:24-116:13, ECF No. 66-10 at 8-9). Relator's Expert Kevin Martin opines that the Actual Cost Reports and final CPR reports submitted to DHS were inherently inaccurate as a result of this practice. (Expert Report of Kevin Martin at 8, ECF No. 66-3 at 10).
After the first year of the project, Helman started asking employees for a breakdown of their total time by task category in order to provide more detailed Hours Reports to SPAWAR. (Helman Dep. at 68:10-72:12, ECF No. 65-9 at 309-13). To do this, Helman would ask employees for a breakdown of their time at the end of the month. Id. at 72:2-12. Helman testified that these time allocations were estimates, and that he did not disclose this fact to SPAWAR or DHS because they would not have cared. Id. at 72:17-73:13. Relator testified that he could only recall two occasions where Helman requested an estimate of a breakdown of his hours on the AWS project for the prior month. (Kelly Dep. at 122:12-123:3, ECF No. 66-10 at 10-11).
In addition to time tracking, Relator also relies on his expert in identifying sixteen different ANSI 748 guidelines that Defendant failed to comply with in performing the Delivery Orders. (Relator's SAUF ¶ 136, ECF No. 66-1 at 41-42).
Relator testified that on two occasions, he witnessed inaccurate EVM reporting, or the encouragement of inaccurate EVM reporting. On one occasion, he observed Raymond Day, the EVM lead for Serco, and Mike Phillips, the Project Manager at SPAWAR, improperly moving budget figures around in preparing a CPR report. Relator testified: "Raymond [Day], it seemed, was attempting to kind of coach Mike [Phillips], as to how to apply the numbers against the budget" in a way so as to avoid giving "a bad EVM number down the road." (Kelly Dep. at 173:11-14, ECF No. 66-10 at 14). Relator further testified that, if an actual cost did not fit well within the budget, Day and Phillips would move that dollar figure to a budgeted item that would look better on the report. Id. at 173:24-175:1. On another occasion, Relator testified that he overheard his fellow employee, Colleen, tell Relator's supervisor, Tom Helman, that she didn't feel comfortable billing full-time to the AWS Project. Helman responded: "[H]a, that's nothing, there's a guy over at SPAWAR named Steve Gable who is charged to this project and has never worked a single hour on it." Id. at 190:7-191:6.
D. Changes in Defendant's Performance
Early in the performance of Delivery Order 49, Defendant attempted to set up automated time tracking but informed SPAWAR that it was unable to do so. In January 2010, Defendant advised SPAWAR that its internal accounting system could not accommodate "all the 2000 project task line items" of the Work Breakdown Structure. (Serco's SSUF ¶ 43, ECF No. 70-1 at 21). John Mitchell, a Project Manager at SPAWAR for the AWS Project, testified that he advised Denise Ellison of Serco that Serco did not need to install an automated time-tracking system and that it was acceptable to track time manually. (Mitchell Dep. at 87:3-89:1, ECF No. 65-9 at 76-78). Mitchell also testified that he would have sought DHS's approval before tracking time in this manner. Id. at 221:1-21. SPAWAR did not find the CPR reports helpful, and "constantly requested that DHS drop the EVM requirements." (Serco's SSUF ¶ 62, ECF No. 70-1 at 32). The project managers at SPAWAR did not use the CPR (EVM) reports to manage the project, and instead limited use of these reports for DHS reporting. Id. ¶ 63. From January 2010 onward, Defendant's employees would track and provide its monthly costs on Excel spreadsheets, although it is disputed as to how accurately this was done. Id. ¶ 47. Between January 2010 and April 2011, DHS revised the EVMS reporting requirements on the AWS project at least four times. Id. ¶¶ 65-67, 69.
E. Relator Kelly's Employment with Serco
Relator was hired by Defendant in October of 2009 as an EVM Analyst III, whose duties included "identifying and investigating deviations from the EVMS with respect to project management for the AWS project." (FAC ¶ 5, ECF No. 11 at 3). Relator testified that in the month prior to his termination, he reported Defendant's allegedly fraudulent cost tracking to Terri Van, a DHS officer in Washington D.C., and that, following his reporting, DHS "really started to dig into the contract performance reports and the schedule and became a lot more scrutinizing of what they were looking at." (Kelly Dep. 215:17-217:24, 218:15-219:7, ECF No. 66-10 at 23-27). Relator was laid off on May 4, 2011, and Serco personnel told him he was being laid off because SPAWAR and DHS decided to downsize the EVM requirement for the AWS project. (Magana Decl., Ex. D., ECF No. 65-7 at 18; Serco's SSUF ¶ 97, ECF No 70-1 at 49). Following Kelly's termination, there was no longer an EVM Analyst position within Serco. Id. ¶ 98.
III. Motion for Summary Judgment (ECF No. 65)
Defendant moves for summary judgment on all eight of Relator's claims for relief.
A. Summary Judgment Standard
"A party may move for summary judgment, identifying each claim or defense-or the part of each claim or defense-on which summary judgment is sought. The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A material fact is one that is relevant to an element of a claim or defense and whose existence might affect the outcome of the suit. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The materiality of a fact is determined by the substantive law governing the claim or defense. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The moving party has the initial burden of demonstrating that summary judgment is proper. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 153 (1970). Where the party moving for summary judgment does not bear the burden of proof at trial, "the burden on the moving party may be discharged by showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325; see also United Steelworkers v. Phelps Dodge Corp., 865 F.2d 1539, 1542-43 (9th Cir. 1989) ("[O]n an issue where the plaintiff has the burden of proof, the defendant may move for summary judgment by pointing to the absence of facts to support the plaintiff's claim. The defendant is not required to produce evidence showing the absence of a genuine issue of material fact with respect to an issue where the plaintiff has the burden of proof. Nor does Rule 56(c) require that the moving party support its motion with affidavits or other similar materials negating the nonmoving party's claim.") (quotation omitted).
If the moving party meets the initial burden, the nonmoving party cannot defeat summary judgment merely by demonstrating "that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586; see also Anderson, 477 U.S. at 252 ("The mere existence of a scintilla of evidence in support of the nonmoving party's position is not sufficient."). The nonmoving party must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324 (quotations omitted). The nonmoving party's evidence is to be believed, and all justifiable inferences are to be drawn in its favor. See Anderson, 477 U.S. at 256.
B. Submitting False Claims in Violation of the False Claims Act, 31 U.S.C. § 3729(a)(1)(A) (First Claim)
i. Contentions of the Parties
Defendant contends that the only "claims" submitted to the government for payment were the public vouchers submitted for payment under the delivery orders, and that Relator has not identified anything false about the public vouchers. (ECF No. 65-1 at 11). Defendant asserts that Relator does not identify problems with the total dollars billed to the government. Defendant further asserts that it made no implied or express certification, as a condition of payment, that it was complying with ANSI 748. Defendant contends that Plaintiff's "allegations" at best establish nothing more than a regulatory violation, which does not give rise to FCA liability. Id. at 22.
Defendant contends that any alleged failure to comply with ANSI 748 is not material because there is no evidence that, "had the payments been broken down in the method [Relator] asserts was required, the government would have paid any more or less to Serco." Id. at 24. Finally, Defendant contends that it cannot be liable where the government had approved of its method of submitting its monthly cost reports on Excel spreadsheets.
Relator contends that Defendant implicitly certified compliance with ANSI 748 because compliance with ANSI 748 was a condition of payment on the AWS Project. First, Relator contends that Defendant's submitted vouchers implicitly certified compliance with ANSI 748 because the government would not have paid Defendant had it known about non-compliance with ANSI 748. (ECF No. 66 at 21). Second, Relator contends that compliance with ANSI 748 was required by law, pursuant to OMB Circular A-11, HSAM 3034.200(a)(3), and 48 C.F.R. 234.203. Id. at 11-12. As to 48 C.F.R. § 234.203, Relator contends that compliance was required because the NESS Contract was valued in excess of $20 Million. Id. Third, Relator contends that the Delivery Orders at issue expressly required compliance with ANSI 748 as a condition of payment. Relator contends that this express condition is supported by the fact that a substantial portion of the deliverables required by the Delivery Orders were related to EVM reporting, and EVM reports must comply with ANSI 748. Id. at 22. Relator further contends that these Delivery Orders were also "completion delivery orders, " meaning that unless the deliverables are actually delivered, payment is improper. Id. at 9. Finally, Relator contends ANSI 748 condition was not waived because John Mitchell, the SPAWAR project manager, did not have authority to waive contractual requirements. Id. at 14.
Relator asserts that Defendant did not comply with the ANSI 748 condition in many regards, including: failing to set up "control accounts, " failing to assign control managers, failing to integrate timekeeping and accounting with control accounts, and failing ...