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United States v. Safran Group, S.A.

United States District Court, N.D. California, San Jose Division

May 9, 2017

UNITED STATES OF AMERICA, et al., Plaintiffs,
v.
SAFRAN GROUP, S.A., et al., Defendants.

          ORDER DENYING RELATORS' MOTION FOR LEAVE TO FILE FOURTH AMENDED COMPLAINT Re: Dkt. No. 78

          LUCY H. KOH United States District Judge

         Relators Vincent Hascoet (“Hascoet”) and Philippe Desbois (“Desbois”) (collectively, “Relators”), on behalf of the United States of America (the “United States”) and the State of California (“California”) (collectively, the “Government Plaintiffs”), sued Safran Group, S.A. (“Safran Global”), Morpho, S.A. a.k.a. Safran Identity & Security, S.A. (“Safran Security”), and Safran U.S.A., Inc. (“Safran USA”) (collectively, “Defendants”) for violation of the federal False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., and the California False Claims Act (“California FCA”), Cal. Gov't Code § 12651 et seq. Before the Court is Relators' Motion for Leave to File Fourth Amended Complaint Adding Additional Safran/Morpho Subsidiaries in U.S. (“Motion for Leave to File a Fourth Amended Complaint”). ECF No. 78 (“Mot.”). Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument and vacates the hearing scheduled for May 11, 2017. Having considered the submissions of the parties, the relevant law, and the record in this case, the Court DENIES Relators' Motion for Leave to File Fourth Amended Complaint.

         I. BACKGROUND

         A. Factual Background

         This case is an FCA and California FCA qui tam action in which Relators are suing Defendants on behalf of the United States and California. Relators are allegedly former employees of Defendants, insiders, who bring this action to recover on fraudulent claims for payment allegedly submitted to the United States and California. Specifically, Relators allege that Defendants sold the United States and California Russian fingerprint identification technology while representing it to be French technology. Additionally, Relators allege that Defendants expressly or impliedly certified that Defendants had complied with the Sherman Antitrust Act, 15 U.S.C. §§ 1-7, and The Trade Agreements Act of 1979 (“Trade Act”), 19 U.S.C. §§ 2501-581, even though Defendants were allegedly in violation of both statutes. The Court first describes the corporate structure of Defendants and related entities as alleged in the Third Amended Complaint (“TAC”), then describes Relators' relationship with Defendants, and finally describes the violations alleged in the TAC.

         Relators allege that Defendant Safran Global is a corporation that was formed under the laws of France in 2005 through the merger of Sagem Securite SA. (“Sagem”) and Snecma S.A. (“Snecma”). TAC ¶ 9. Although Safran Global was allegedly formed through the merger of Sagem and Snecma, Relators allege that both Sagem and Snecma continue to operate as subsidiaries of Safran Global. Id. Sagem “develops and supplies high-precision opto-mechanical, electronics, and optical solutions for defense, astronomy, research, and industry applications worldwide.” Id. ¶ 12. Snecma “designs, develops, produces and markets engines for civil and military aircraft, launch vehicles and satellites.” Id.

         Defendant Safran USA is a Delaware corporation that is 97.5% owned by Safran Global and 2.5% owned by Defendant Safran Security. Id. ¶ 10. Defendant Safran Security is a French corporation and, until May 2016, was named “Morpho, ” “Morpho Group, ” or “Morpho, S.A.” Id. ¶ 13. Safran Security is 75% owned by Safran Global and 25% owned by Safran USA. Id. Relators allege that Safran Global does business in the United States and in California as Safran USA and Safran Security. Id. ¶ 10.

         Relators allege that they were employees of Defendants and entities related to Defendants. Id. ¶ 4 (“Both are former employees [of] entities of [Safran Global].”). Relator Desbois is a French national who lives in Russia. Id. ¶ 4. Desbois worked for Defendants or entities related to Defendants from November 2007 to September 2014. Id. ¶ 6. Specifically, Desbois first was the Chief Financial Officer (“CFO”) in the Russian branch of Safran Global. Id. Later, Desbois served as the Chief Executive Officer (“CEO”) of “Morpho Russia.”[1] Id. Desbois' job at “Morpho Russia” ended in September 2014, and it is unclear from the TAC whether he quit or was terminated.

         Relator Hascoet is also a French national who lives in Russia. Id. ¶ 4. From July 23, 2012 to May 31, 2014, Hascoet was the Deputy Director of the Russian branch of a company named PowerJet. Id. ¶ 7. PowerJet was a “joint venture” between Snecma and another company named “NPO Saturn.” Id. Relators provide no further detail about PowerJet or NPO Saturn. Relators allege that Hascoet wrote a “comprehensive report” for Snecma in which he outlined “myriad acts of bribery, unlawful gifts, bogus transactions, tax evasion, and false certifications of compliance with laws.” Id. The TAC does not specify whether these actions in the report occurred in PowerJet alone or occurred as part of Safran Global's operations more generally. Relators allege that Hascoet's employment was terminated due to his “complaints and reports about these compliance issues.” Id.

         During their tenures at Defendants and entities related to Defendants, Hascoet and Desbois “engaged in extensive professional communications with one another regarding compliance issues, ” including the issues that are the focus of the instant suit. Id. Allegedly, “Desbois and Hascoet also closely collaborated in regard to communicating with the United States Securities & Exchange Commission (“SEC”) regarding Defendants' serious issues of noncompliance.” Id.

         Based on this alleged insider information, Relators make three allegations as the basis of their FCA and California FCA claims. First, Relators allege that Defendants sold fingerprint identification products created by Safran Security to the United States and California. Id. ¶ 14. Relators allege that Defendants falsely claimed that the technology used in the Safran Security fingerprint identification technology was French technology when it was actually Russian technology. Id. ¶ 16. Relators allege that they learned of this misrepresentation because Sagem, one of the two companies that merged to become Safran Global and now acts as a subsidiary of Safran Global, entered a technology license agreement with Papillon ZAO (“Papillon”) in which Papillon licensed its technology to Sagem. Id. ¶ 18. The licensing agreement states that the technology that was licensed to Sagem was Russian technology. Id. ¶ 18. Allegedly, this Russian technology became part of the Safran Security fingerprint identification products. Id. ¶ 23-29.

         Second, Relators allege that Defendants and Papillon reached an agreement where they would “divide up the world market for fingerprint identification products, and would not compete in each other's market.” Id. ¶ 31. Relators allege that this agreement violated the Federal Acquisition Regulation and the Sherman Antitrust Act, 15 U.S.C. §§ 1-7. Id. ¶ 32. This violation allegedly rendered Defendants' claims false because Defendants had made written representations to the United States and California that certified compliance with the Federal Acquisition Regulations and the Sherman Antitrust Act. Id.

         Third, Relators allege that Defendants “routinely and regularly falsely certified, in writing, ” that Defendants were in compliance with the Trade Act, 19 U.S.C. §§ 2501-2581. Allegedly, products are only Trade Act compliant if they are made in the United States or one of the designated countries listed in the Code of Federal Regulations, 48 C.F.R. 25.003. Id. ¶ 34. Russia is not one of the designated countries, which allegedly renders Defendants' representations false.

         B. Procedural History

         On February 17, 2015, Relators filed the instant suit in the Northern District of California under seal. ECF No. 1. The case was assigned to Magistrate Judge Howard Lloyd. On April 19, 2016, the United States declined to intervene in the instant suit. ECF No. 5. On July 29, 2016, California also declined to intervene. ECF No. 13.

         On August 5, 2016, the instant suit was unsealed. On August 10, 2016, Relators filed a first amended ...


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