United States v. Toyobo Co. Ltd

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

______________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 07-1144 (RWR)
)
TOYOBO CO. LTD. et al., )
)
Defendants. )
______________________________)

MEMORANDUM OPINION AND ORDER

The government filed a complaint against defendants Toyobo

Co. Ltd. and Toyobo America, Inc. (collectively “Toyobo”),

alleging violations of the False Claims Act (“FCA”), 31 U.S.C.

§§ 3729-33, as well as a common law claims for fraud and unjust

enrichment in connection with the sale of Zylon body armor.

Toyobo has moved to dismiss. The government has sufficiently

alleged and pled with particularity its FCA presentment and false

statements claims and its common law fraud and unjust enrichment

claims. However, the government has alleged sufficiently its FCA

conspiracy claims only as to the purported conspiracies between

Toyobo and the Zylon weavers, not as to the purported

conspiracies between Toyobo and any of the vest manufacturers.

Toyobo’s motion to dismiss therefore will be granted with respect

to the government’s FCA conspiracy claims as to Toyobo and the

vest manufacturers and denied in all other respects.
 - 2 -

BACKGROUND

The complaint alleges the following facts. Toyobo

manufactured the synthetic fiber “Zylon” for use in the

production of bulletproof vests. (Compl. ¶ 17.) Toyobo

contracted with two trading companies to distribute its Zylon

yarn to three weaving companies, which provided woven Zylon to

various vest manufacturers. (Id. ¶¶ 20-21, 23.) However,

“Toyobo kept complete control over access to and use of Zylon for

ballistic applications.” (Compl. ¶ 21.) Between 1999 and 2005,

these vest manufacturers sold vests to federal agencies, both

indirectly through the Multiple Award Schedule of the General

Services Administration (“GSA”) and directly. (Id. ¶¶ 10-12,

16.) The vest manufacturers also sold vests during this time

period to state, local, and tribal law enforcement authorities

under the Bullet Proof Vest Grant Partnership Act (“BPVGPA”)

Program, under which the federal government reimbursed these

authorities for up to fifty percent of the costs of the body

armor. (Id. ¶¶ 13-16.) Federal agencies paid more than

$30,000,000 to purchase more than 59,000 vests through the GSA

Schedule (id. at 12), and paid more than $4,600,000 on direct

purchases of more than 9,700 vests. (Id. ¶ 16.) The government

reimbursed state, local, and tribal authorities at least

$9,800,000 for the purchase of at least 46,000 vests. (Id.
 - 3 -

¶ 15.) The vest manufacturers offered five-year warranties on

all vests the government purchased. (Id. ¶¶ 12, 15-16.)

The government alleges that Toyobo’s Zylon “was defective

and degraded more quickly than Toyobo and the Zylon Vest

Manufacturers represented.” (Id. ¶ 1.) In 1997 and 1998, Toyobo

discovered that damage during the weaving process reduced the

expected strength of its Zylon fiber. (Id. ¶¶ 22, 25.) Internal

research suggested that Zylon suffered from hydrolysis, chemical

decomposition caused by exposure to water. (Id. ¶ 51.) Toyobo

also discovered that Zylon degraded when exposed to light. (Id.

¶¶ 30-31.) Toyobo performed accelerated aging testing, which

exposed Zylon to extreme heat and humidity for short periods of

time. These tests showed a significant drop in ballistic

performance. (Id. ¶¶ 47, 49.) As early as 1999, a Toyobo

executive stated at a meeting that “he did not think that Toyobo

could make things right with Zylon and the attendees at the

meeting discussed how Toyobo should not give out too much know-

how about Zylon.” (Id. ¶ 39.)

In July 2001, DSM, a Zylon vest manufacturer, reported to

Toyobo that a Zylon vest failed during ballistic testing, and

announced that it would put on hold its introduction to market of

its Zylon product. (Id. ¶¶ 52-53.) Although “Toyobo was deeply

concerned” with the ballistic failure, it “tried to hide its

concerns.” (Id. ¶ 58.) Toyobo informed the other vest
 - 4 -

manufacturers and other companies in the Zylon supply chain of

this development but assured them that “it had not found any

serious indication of Zylon strength degradation from its aging

tests using Zylon fiber[.]” (Id. ¶ 55.) However, Toyobo

disclaimed liability “for any use of Zylon fiber.” (Id.) After

DSM’s announcement, Honeywell International Corporation, a

manufacturer of vest components called Z Shields, temporarily

stopped shipping its Zylon products. (Id. ¶¶ 50, 59.) “[B]ased

on Toyobo representations that it had not found any ‘serious

indications’ from Toyobo’s internal testing of Zylon,” Honeywell

resumed selling Z Shields. (Id. ¶ 59.)

Toyobo began to release incomplete and misleading data to

the vest manufacturers. In July 2001, Toyobo informed the vest

manufacturers that its internal testing showed that Zylon’s

strength decreased at elevated temperatures and humidity levels,

but Toyobo “failed to release other data regarding Zylon that was

in its possession that would have shown the extent to which Zylon

degraded[.]” (Id. ¶ 60.) Toyobo released other data suggesting

that Zylon lost five percent of its strength over ten years under

foreseeable conditions and ten percent of its strength at forty

degrees Celsius and eighty percent humidity. The government

alleges that this data conflicted with evidence in Toyobo’s

possession at the time, and with data Toyobo obtained in later

testing. (Id. ¶¶ 61, 63.) Toyobo also announced a twenty-five
 - 5 -

to thirty-five percent loss of strength for Zylon “exposed to

fluorescent lamps for several weeks, but failed to state that

this 25-35% loss of Zylon strength had not occurred under extreme

conditions.” (Id. ¶ 67.) In November 2001, Toyobo released data

reflecting a “dramatic drop” in Zylon strength. (Id. ¶ 75.)

After receiving negative feedback from other companies in the

supply chain (see, e.g., id. ¶ 77), Toyobo “notified its

‘important customers’ that it would withdraw its November 2001

degradation data on the grounds that it was ‘statistically not

correct and not reliable.’ In January 2002, Toyobo . . .

replaced it with data that had the bad data points removed.”

(Id. ¶ 83.) During 2002 and 2003, Toyobo provided the vest

manufacturers with quarterly updates on its research “but did not

provide other ‘confidential’ and ‘top secret’ Toyobo internal

documents concerning Zylon research in its possession[.]” (Id.

¶ 87.)

Additionally, beginning in May 1999, Toyobo discovered that

its manufacturing process produced Red Thread, “a reddish,

discolored section of Zylon fiber which has a reduced tensile

strength.” (Id. ¶¶ 37, 41-42.) Although Toyobo implemented

countermeasures designed to reduce the occurrence of Red Thread,

“the Red Thread problem re-occurred continually during Toyobo’s

manufacture of Zylon.” (Id. ¶ 45.) When Hexcel, one of the

Zylon weavers, discovered Red Thread in its Zylon (id. ¶¶ 93,
 - 6 -

95), Toyobo admitted that it had observed a loss of strength in

Red Thread. (Id. ¶ 99.) Toyobo told Hexcel that “if the Red

Thread was controlled and short and small in number, they would

not harm the Zylon properties or its quality. At the time Toyobo

made this statement, it knew this statement was false and

misleading because it could not control the [ends with Red

Thread] and that they were neither short nor small in number.”

(Id. ¶ 101.) Lincoln Fabrics, another weaver, agreed to receive

from Toyobo Zylon inventory knowing that it might contain Red

Thread. (Id. ¶ 124.)

Toyobo took steps to induce various participants in the

Zylon supply chain to continue supplying Zylon products despite

questions about its suitability for ballistic applications. For

instance, Toyobo agreed to provide Hexcel a refund if its

customers stopped using Zylon. (Id. ¶ 76.) When Hexcel stopped

weaving Zylon after it became concerned about Red Thread, Toyobo

agreed to provide Hexcel with replacement Zylon fiber and

$240,000 in reimbursement. (Id. ¶¶ 102, 104, 111.)

Additionally, when Barrday, another weaver, stopped weaving Zylon

when it became concerned about possible degradation, Toyobo

agreed that Teijin Shoji, one of the Zylon trading companies,

would retain title to all Zylon delivered to Barrday. Teijin

Shoji later retained title to all Zylon delivered to Lincoln

Fabrics as well. (Id. ¶ 84.)
 - 7 -

In August 2005, the National Institute of Justice (“NIJ”)

issued a report detailing its own ballistics testing on Zylon

vests. The report revealed that the “bulk of the Zylon vests

failed the testing[.]” (Id. ¶ 126.) After the report issued, all

vest manufacturers stopped using Zylon. (Id.)

The government filed a complaint asserting claims against

Toyobo for FCA violations involving presenting fraudulent claims

(Count 1), making false statements (Count 2), and conspiracy

(Count 3), and for common law fraud (Count 4) and unjust

enrichment (Count 5).1 Toyobo has filed a motion to dismiss

under Federal Rule of Civil Procedure 12(b)(6), arguing that the

government failed to plead fraud with particularity as required

by Rule 9(b), failed to plead factual allegations that Toyobo

presented a false claim for payment, or that Toyobo made any

false statements or conspired to get the United States to pay a

claim, and failed to plead factual allegations that support its

fraud and unjust enrichment counts.

DISCUSSION

In evaluating a Rule 12(b)(6) motion, a court “‘may consider

only the facts alleged in the complaint, any documents either

attached to or incorporated in the complaint and matters of which

[a court] may take judicial notice.’” Trudeau v. FTC, 456 F.3d

178, 183 (D.C. Cir. 2006) (quoting EEOC v. St. Francis Xavier

1
The complaint misnumbered this Count.
 - 8 -

Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997)). A court

considering a Rule 12(b)(6) challenge must accept as true any

facts alleged by the plaintiff and grant all reasonable

inferences drawn from those facts. Browning v. Clinton, 292 F.3d

235, 242 (D.C. Cir. 2002). “To survive a motion to dismiss, a

complaint must contain sufficient factual matter, accepted as

true, to ‘state a claim to relief that is plausible on its

face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A

plaintiff must plead “factual content that allows the court to

draw the reasonable inference that the defendant is liable for

the misconduct alleged.” Id.

Rule 9(b) applies to FCA actions. United States ex rel.

Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C. Cir. 2002)

(noting that every circuit to consider the issue has held that

Rule 9(b) applies to FCA complaints). It provides that “[i]n

alleging fraud or mistake, a party must state with particularity

the circumstances constituting fraud or mistake. Malice, intent,

knowledge, and other conditions of a person’s mind may be alleged

generally.” Fed. R. Civ. P. 9(b). Motions to dismiss for

failure to plead fraud with sufficient particularity are

evaluated in light of the overall purposes of Rule 9(b) to

“ensure that defendants have adequate notice of the charges

against them to prepare a defense[,]” United States ex rel.
 - 9 -

McCready v. Columbia/HCA Healthcare Corp., 251 F. Supp. 2d 114,

116 (D.D.C. 2003), discourage “suits brought solely for their

nuisance value” or as “frivolous accusations of moral

turpitude[,]” United States ex rel. Joseph v. Cannon, 642 F.2d

1373, 1385 (D.C. Cir. 1981), and “‘protect reputations of . . .

professionals from scurrilous and baseless allegations of

fraud[.]’” Id. at 1385 n.103 (alteration in original) (quoting

Felton v. Walston & Co., Inc., 508 F.2d 577, 581 (2d Cir. 1974)).

Rule 9(b) does not abrogate Rule 8, and must be read in

light of Rule 8's requirement that allegations be simple,

concise, and direct, and short and plain statements of each

claim. Joseph, 642 F.2d at 1386; see also United States ex rel.

Pogue v. Diabetes Treatment Ctrs. of Am., Inc., 238 F. Supp. 2d

258, 269 (D.D.C. 2002) (“While . . . Rule 9(b) requires more

particularity than Rule 8, . . . Rule 9(b) does not completely

vitiate the liberality of Rule 8.”). In an FCA action, Rule 9(b)

requires that the pleader “‘state the time, place and content of

the false misrepresentations, the fact misrepresented and what

was retained or given up as a consequence of the fraud[,]’ . . .

[and] individuals allegedly involved in the fraud.” United

States ex rel. Williams v. Martin-Baker Aircraft Co., Ltd., 389

F.3d 1251, 1256 (D.C. Cir. 2004) (quoting Kowal v. MCI

Communic’ns Corp., 16 F.3d 1271, 1278 (D.C. Cir. 1994)). “In

sum, although Rule 9(b) does not require plaintiffs to allege
 - 10 -

every fact pertaining to every instance of fraud when a scheme

spans several years, defendants must be able to ‘defend against

the charge and not just deny that they have done anything

wrong.’” Id. at 1259 (quoting United States ex rel. Lee v.

SmithKline Beecham, Inc., 245 F.3d 1048, 1052 (9th Cir. 2001));

accord McCready, 251 F. Supp. 2d at 116 (reasoning that a court

“‘should hesitate to dismiss a complaint under Rule 9(b) if the

court is satisfied (1) that the defendant has been made aware of

the particular circumstances for which she will have to prepare a

defense at trial, and (2) that plaintiff has substantial

prediscovery evidence of those facts’” (quoting Harrison v.

Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.

1999))).

I. PRESENTING FALSE CLAIMS

The FCA created a cause of action against anyone who

“knowingly presents, or causes to be presented, to an officer or

employee of the United States Government . . . a false or

fraudulent claim for payment or approval[.]” 31 U.S.C.

§ 3729(a)(1) (2000).2 See also United States ex rel. Siewick v.

2
Congress amended the FCA in the Fraud Enforcement and
Recovery Act of 2009 (“FERA”), altering slightly the language in
the presentment provision. The amendment of the presentment
provision took “effect on the date of enactment of this Act and
shall apply to conduct on or after the date of enactment[.]”
P.L. 111-21, § 4 at 1625. Since the alleged conduct here
occurred before 2009, the provision as amended in 2009 does not
apply here, and references in this opinion to § 3729(a)(1) are to
the pre-amendment version.
 - 11 -

Jamieson Sci. & Eng’g, Inc., 214 F.3d 1372, 1374 (D.C. Cir.

2000). “[T]he elements of section 3729(a)(1) are (1) the

defendant submitted a claim to the government, (2) the claim was

false, and (3) the defendant knew the claim was false.” United

States ex rel. Harris v. Bernad, 275 F. Supp. 2d 1, 6 (D.D.C.

2003). Liability will attach to a claim for payment submitted to

a grantee of the government if “upon presentment of the claim[,]”

the government “reimburses the grantee for funds that the grantee

has already disbursed to the claimant.” United States ex rel.

Totten v. Bombardier Corp., 380 F.3d 488, 493 (D.C. Cir. 2004);

see also 31 U.S.C. § 3729(c) (2000). A subcontractor may be

liable under § 3729(a)(1) even when it did not itself present any

false claims to the government if it engaged in a fraudulent

scheme that induced the government to pay claims submitted by the

contractor. See United States ex rel. Westrick v. Second Chance

Body Armor, Inc., 685 F. Supp. 2d 129, 136 (D.D.C. 2010); Pogue,

238 F. Supp. 2d at 266 (“An argument that the presentation of the

claims was the work of another is unavailing as a means to avoid

liability under [§ 3729(a)(1)].”).

A. Falsity

A claim may be false under the FCA if it is either factually

or legally false. United States v. Sci. Applications Int’l

Corp., 555 F. Supp. 2d 40, 49 (D.D.C. 2008). A claim can be

“factually false if it invoices for services that were not
 - 12 -

rendered” or incorrectly describes goods or services provided.

United States ex rel. Hockett v. Columbia/HCA Healthcare Corp.,

498 F. Supp. 2d 25, 64 (D.D.C. 2007). Alternatively, a claim is

legally false if it contains an express false certification ––

that is, “a claim that falsely certifies compliance with a

particular statute, regulation or contractual terms, where

compliance is a prerequisite for payment.” Id. (internal

quotations marks omitted). A claim also may be legally false

under an implied certification theory. Id. One way to plead a

false claim under this theory is to plead “that the contractor

withheld information about its noncompliance with material

contractual requirements.” United States v. Sci. Applications

Int’l Corp., 626 F.3d 1257, 1269 (D.C. Cir. 2010). A contractual

requirement can be considered material if “both parties to the

contract understood that payment was conditional on compliance

with the requirement at issue.” Id.; see also United States v.

TDC Mgmt. Corp., Inc., 288 F.3d 421, 426 (D.C. Cir. 2002) (noting

that withholding “‘information critical to the decision to pay’”

is a false claim (quoting Ab-Tech Constr., Inc. v. United States,

31 Fed. Cl. 429, 434 (Fed. Cl. 1994))). Another way to plead an

implied certification claim is to plead that the government would

not have paid funds to a party had it known of a violation of a

law or regulation, and “the claim submitted for those funds

contained an implied certification of compliance with the law or
 - 13 -

regulation and was fraudulent.” United States ex rel. Barrett v.

Columbia/HCA Healthcare Corp., 251 F. Supp. 2d 28, 33 (D.D.C.

2003).

Here, the government alleges that it believed it was

purchasing vests that met a five-year warranty against defects

(see Compl. ¶¶ 12, 15-16), and that Toyobo failed to disclose or

selectively disclosed information to vest manufacturers that

revealed that the vests were defective and that cast doubt on the

vests’ ability to satisfy the warranty. (See id. ¶¶ 22, 30, 37,

41, 49, 55-56, 59-61, 77-83, 87, 101.) Because the government

does not allege in its complaint that any of the companies that

Toyobo supplied with Zylon invoiced for services not rendered or

described incorrectly the goods that they provided to the

government, the government has not pled that Toyobo caused any

factually false claims to be submitted to the government. Nor

has the government pled an express false certification claim,

since the complaint does not allege that any of the relevant

contracts contained express provisions requiring five-year

warranties against defects. Additionally, the government has not

pled an implied certification claim. The complaint does not

allege facts that support an inference that either the government

or Toyobo understood to be a condition of payment the requirement

that the vests satisfy a five-year warranty by remaining fit for

use as body armor for five years. Cf. United States v. Honeywell
 - 14 -

Int’l Inc., Civil Action No. 08-961 (RWR), 2011 WL 2672624, at

*4-5 (D.D.C. July 8, 2011) (holding that the allegation that “had

the United States known of the defective nature of the Z Shield

Vests it would not have purchased them for use in the ballistic

protection of law enforcement officers” sufficient to support the

inference that the implied requirement that the vests satisfy

their five-year warranty was material). Nor does the complaint

allege that “the government would not have honored the claim

presented to it if it were aware of the violation” of the

requirement that the vests be certified by the NIJ. See Barrett,

251 F. Supp. 2d at 33.

B. Fraudulent Inducement

Even in the absence of allegations that the claims

themselves were false, however, claims alleged to have been

submitted under a contract procured by fraud can be actionable.

See United States ex rel. Bettis v. Odebrecht Contractors of

Cal., Inc., 393 F.3d 1321, 1326 (D.C. Cir. 2005). Congress

intended that “‘each and every claim submitted under a contract

. . . or other agreement which was originally obtained by means

of false statements or other corrupt or fraudulent conduct . . .

constitutes a false claim” under § 3729(a). Id. (quoting S. Rep.

No. 99-345, at 9 (1986)). In United States ex rel. Schwedt v.

Planning Research Corp., 59 F.3d 196, 197 (D.C. Cir. 1995), the

defendant contracted to design software for an agency within the
 - 15 -

Department of Labor. The court of appeals noted that the

plaintiff could have pled a § 3729(a)(1) claim by alleging that

the defendant “made an initial misrepresentation about its

capability to perform the contract in order to induce the

government to enter into the contract[,] and . . . this original

misrepresentation tainted every subsequent claim made in relation

to the contract[.]” Id. at 199.

The government’s complaint here alleges –– just as the court

in Schwedt hypothesized that a complaint could –– that Toyobo’s

misrepresentations about Zylon’s accelerated deterioration

induced the vest manufacturers to sell Zylon vests to the

government. (See Compl. ¶ 23 (alleging that Toyobo “forward[ed]

. . . technical information to the weavers and the body armor

manufacturers”); ¶ 39 (alleging that Toyobo executives met to

discuss Zylon and the attendees “discussed how Toyobo should not

give out too much know-how about Zylon”); ¶ 41 (alleging that

Toyobo misled the vest manufacturers about the date of the

appearance of Red Thread in its Zylon); ¶ 55 (alleging that after

DSM put the introduction of Zylon products on hold, “Toyobo

assured the body armor manufacturers and the weavers that it had

not found any serious indication of Zylon strength degradation

from its aging tests using Zylon fiber, but stated that it

assumed no liability for any use of Zylon fiber”); ¶ 60 (alleging

that while Toyobo admitted in a letter to the vest manufacturers
 - 16 -

that Zylon strength deteriorated at elevated temperatures and

humidity levels, Toyobo failed to release data in its possession

that showed the true extent of the degradation and that Toyobo’s

manufacturing process was not functioning properly); ¶ 67

(alleging that Toyobo omitted from report on Zylon degradation in

extreme conditions data reflecting degradation in non-extreme

conditions).) These misrepresentations tainted all of the vest

manufacturers’ claims for payment from the government, as the

government has alleged that “the Zylon fiber [Toyobo] sold for

use in Zylon body armor was defective and degraded more quickly

than Toyobo and the Zylon Vest Manufacturers represented[,]” and

“[a]s a result . . . , the United States paid for defective Zylon

body armor.” (Id. ¶ 1.) Thus, the complaint states a

§ 3729(a)(1) claim under a fraudulent inducement theory. See

Honeywell, 2011 WL 2672624, at *6; Westrick, 685 F. Supp. 2d at

137 (holding that government pled sufficiently an FCA claim by

alleging that defendant’s misrepresentations about Zylon

degradation induced the government to pay claims for payment).

The government has set out in detail the time, place, and content

of the false representations and identified individuals allegedly

involved in the fraud, such that its allegations satisfy the

requirements of Rule 9(b).

Toyobo argues that the government has misconstrued the

relevant warranty as one that guaranteed service for five years
 - 17 -

and that the vest manufacturers warranted only that they would

replace or repair a defective shield within five years of its

retail purchase. (Defs.’ Mem. of P. & A. in Supp. of Their Mot.

to Dismiss (“Defs.’ Mem.”) at 17-18.) Toyobo cites in support of

its argument two “exemplar” warranties that it claims demonstrate

that the vest manufacturers did not guarantee future performance

of their products. (Id. at 18 n.15; Lyle Decl., Exs. 12-13.)

This argument has no bearing on the government’s fraudulent

inducement theory, which hinges not on the vests’ inability to

satisfy a five-year warranty but rather on Toyobo’s attempts to

prevent the vest manufacturers and the government from learning

that Zylon fiber degraded more quickly than Toyobo represented it

would. Even if the scope of the relevant warranties had some

bearing on the government’s fraudulent inducement theory, these

warranties are not attached to the complaint and need not be

considered in assessing whether the complaint adequately pleads a

cause of action. See St. Francis Xavier Parochial Sch., 117 F.3d

at 624 n.3 (refusing to consider materials not attached to the

pleadings when reviewing district court ruling on a motion to

dismiss). Toyobo’s argument raises questions of fact that are

more appropriately resolved after discovery closes, such as the

scope of these warranties and whether the vest manufacturers

issued warranties with comparable language upon every sale, given

that Toyobo admittedly refers to the warranties as examples. See
 - 18 -

Honeywell, 2011 WL 2672624, at *5. Thus, these factual issues

will not be resolved at the motion to dismiss stage of the

litigation, where the plaintiff’s factual allegations are

accepted as true.3

Toyobo also cites an admission from the NIJ warning law

enforcement agencies that warranties from the manufacturers of

bullet-proof vests do not reflect the anticipated service life of

the product. (Def.’s Mem. at 18-19 and n.17 (citing Nat’l Inst.

of Justice, Selection & Application Guide to Personal Body Armor,

NIJ Guide 100-01 (Nov. 2001)).) Here again Toyobo raises a

factual issue that is not resolved appropriately on a motion to

dismiss. The argument also has no bearing on the government’s

fraudulent inducement theory, which does not rest on the

anticipated service life of the vests.

C. Causation

For a plaintiff to allege a cause of action under

§ 3729(a)(1)’s “causes to be presented” prong, it must allege

that the defendant’s conduct was “at least a substantial factor

in causing, if not the but-for cause of, submission of false

3
While Toyobo argues that claims for vests reimbursed under
the BPVGPA cannot be false because the vests met the BPVGPA
requirement to be certified according to the NIJ Standard (Defs.’
Mem. at 12), this argument applies only to implied false
certifications of compliance with a law or regulation. It has no
bearing on whether the government has stated a claim under the
theory that Toyobo fraudulently induced vest manufacturers into
submitting to the government claims for payment.
 - 19 -

claims.”4 Miller v. Holzmann, 563 F. Supp. 2d 54, 119 n.95

(D.D.C. 2008), vacated in part and remanded on other grounds by

United States ex rel. Miller v. Bill Harbert Int’l Constr., Inc.,

608 F.3d 871 (D.C. Cir. 2010). The government has alleged that

Toyobo marketed Zylon to the vest manufacturers, and that Toyobo

induced with the prospect of refunds, rebates, and reimbursements

vest manufacturers and other companies in the Zylon supply chain

to continue producing Zylon products –– and selling them to the

government –– when questions arose about Zylon’s suitability for

ballistics applications.5 (Compl. ¶¶ 20, 35, 76, 84, 86, 102,

104, 111). These allegations amply satisfy the causation

requirement.

4
Toyobo’s argument that the government has not alleged that
Toyobo caused the vest manufacturers to place five-year
warranties on their vests (Defs.’ Mem. at 22) has no impact on
whether the government has satisfied the causation requirement.
The relevant inquiry is whether Toyobo caused the manufacturers
to present to the government claims for payment. The five-year
warranty bears no relation to these claims for payment. To the
extent that the existence of a five-year warranty is relevant at
all, it bears only on the falsity of the claims submitted to the
government. However, the government has stated a fraudulent
inducement claim regardless of whether the vests carried a five-
year warranty.
5
Although the government has alleged that vest
manufacturers had some knowledge about Zylon degradation, the
complaint nonetheless states an FCA claim against Toyobo by
alleging that it withheld and misrepresented data that would have
provided a more complete picture of Zylon’s unsuitability as a
ballistic material.
 - 20 -

II. FALSE STATEMENTS

The FCA also creates a cause of action against anyone who

“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.” 31 U.S.C. § 3729(a)(2) (2000).6

Section 3729(a)(2) attaches FCA liability to a defendant who

prepares in support of a claim a statement it knows to be a

misrepresentation, even if that defendant did not actually submit

either the claims or the statement to the government. Totten,

380 F.3d at 501 (noting that “(a)(2) is complementary to (a)(1),

designed to prevent those who make false records or statements

. . . from escaping liability solely on the ground that they did

not themselves present a claim for payment or approval”); see

also Harris, 275 F. Supp. 2d at 6 (noting that “the main purpose

of section 3729(a)(2) is to remove any defense that the

defendants themselves did not submit false claims to the

6
FERA amended § 3729(a)(2). The amended provision, 31
U.S.C.A. § 3729(a)(1)(B) (West 2011), creates a cause of action
against anyone who “knowingly makes, uses, or causes to be made
or used, a false record or statement material to a false or
fraudulent claim[.]” FERA provided for § 3729(a)(1)(B)’s
retroactive application “to all claims under the False Claims Act
. . . that are pending on or after” June 7, 2008. P.L. 111-21,
§ 4 at 1625. The word “claims,” as it applies in the relevant
provision, refers to “a defendant’s request for payment” and not
to “civil actions for FCA violations.” United States v. Sci.
Applications Int’l Corp., 653 F. Supp. 2d 87, 107 (D.D.C. 2009)
vacated in part and remanded on other grounds by Sci.
Applications Int’l Corp., 626 F.3d 1257. Because the complaint
does not allege that any requests for payment were pending after
August 2005, the unamended false statements provision applies.
 - 21 -

government”). To prove a violation of the false statements

provision, “a plaintiff must show that (1) the defendant created

a record and used this record to get the government[] to pay its

claim, (2) the record was false, and (3) the defendants knew that

the record was false.”7 Harris, 275 F. Supp. 2d at 6.

Toyobo argues that its “statements were immaterial to the

United States’ decision to purchase Zylon vests” as “evidenced by

the fact that the United States . . . continued to purchase vests

until 2005, well after it was presented with all of the

information regarding degradation of Zylon.” (Defs.’ Mem. at 21

(emphasis omitted).) Although the false statements provision as

amended by the Fraud Enforcement and Recovery Act of 2009

contains by its plain text a materiality requirement,8 see 31

U.S.C. § 3729(a)(1)(B) (West 2011), the unamended version

7
Although Toyobo argues that “the United States has failed
to show that Toyobo ‘knowingly caused’ any . . . false statement
to be presented to the United States” (Defs.’ Mem. at 22),
§ 3729(a)(2) does not require a plaintiff to prove that a
defendant caused a false statement to be presented to the United
States. Merely making a false statement is sufficient to violate
this provision. To the extent that § 3729(a)(2) contains any
causation requirement, that requirement applies to getting the
government to pay a claim for payment, and the defendants do not
dispute that the government has alleged sufficiently that
Toyobo’s false statements were a substantial factor in getting
the government to pay the vest manufacturers’ claims for payment.
8
“A false statement is material if it ‘has a natural
tendency to influence agency action or is capable of influencing
agency action.’” United States ex rel. Fago v. M&T Mort. Corp.,
518 F. Supp. 2d 108, 118 (D.D.C. 2007) (quoting United States ex
rel. Berge v. Bd. of Trs. of Univ. of Ala., 104 F.3d 1453, 1460
(4th Cir. 1997)).
 - 22 -

applicable to the government’s claims here contains no such

requirement. Rather, “a plaintiff asserting a § 3729(a)(2) claim

must prove that the defendant intended that the false record or

statement be material to the Government’s decision to pay or

approve the false claim.” Allison Engine Co., Inc. v. United

States ex rel. Sanders, 553 U.S. 662, 665 (2008). The inquiry is

not one of objective materiality but rather of the intent of the

defendant who made the false statements. “[A] subcontractor

violates § 3729(a)(2) if the subcontractor submits a false

statement to the prime contractor intending for the statement to

be used by the prime contractor to get the government to pay its

claim.” Id. at 671. Allison Engine interpreted the provision to

make a defendant “‘answerable for . . . the natural, ordinary and

reasonable consequences of his conduct’” but not more. Id. at

672 (quoting Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 470

(2006)). The government has alleged adequately that the natural

consequences of Toyobo misrepresenting and concealing unfavorable

data about Zylon’s degradation was to cause the vest

manufacturers to submit to the government false claims for

payment. See Honeywell, 2011 WL 2672624, at *8.

Even if the unamended § 3729(a)(2) could be construed to

contain a materiality requirement, the government has alleged in

its complaint that Toyobo’s false statements influenced its

payment decisions. (See Compl. ¶ 1 (“As a result of Toyobo’s
 - 23 -

. . . representations, the United States paid for defective Zylon

body armor”). Nowhere in the complaint does the government

allege that it possessed all available information and data

regarding Zylon degradation prior to 2005. Whether sufficient

information about Zylon degradation was in the public domain

before the government decided to stop purchasing Zylon vests is a

question of fact inappropriate for resolution at the pre-

discovery motion to dismiss stage.

III. CONSPIRACY TO DEFRAUD

Anyone who “conspires to defraud the Government by getting a

false or fraudulent claim allowed or paid” may be subject to 31

U.S.C. § 3729(a)(3) (2000) liability.9 The FCA does not define a

conspiracy, but courts have held that general civil conspiracy

principles apply to FCA conspiracy claims. See, e.g., Westrick,

685 F. Supp. 2d at 140; United States ex rel. Durcholz v. FKW

Inc., 189 F.3d 542, 545 n.3 (7th Cir. 1999). To state a claim

under the FCA for conspiracy, the government must plead that the

defendant “conspired with one or more persons to have a

fraudulent claim paid by the United States, . . . that one or

more of the conspirators performed any act to have such a claim

9
Congress also amended this provision in FERA. The amended
provision imposes liability on anyone who “conspires to commit a
violation” of any substantive section of § 3729(a). 31 U.S.C.
§ 3729(a)(1)(C). However, this provision does not apply
retroactively, P.L. 111-21, § 4 at 1625, and the claim will be
analyzed under the unamended statute.
 - 24 -

paid by the United States, and . . . that the United States

suffered damages as a result of the claim.”10 United States v.

Bouchey, 860 F. Supp. 890, 893 (D.D.C. 1994). To state a claim

under the FCA for conspiracy, a plaintiff must plead that the

alleged conspirators agreed to make use of a false record or

statement to achieve the end of getting the government to pay a

claim.11 See Allison Engine, 553 U.S. at 665.

Toyobo argues that the government’s allegations “do not

indicate any agreement between Toyobo and any other party to

conspire to defraud the United States.” (Defs.’ Mem. at 27.)

The government responds that it has pled adequately that Toyobo

“entered into agreements with numerous companies participating in

the chain of Zylon vest production[.]” (U.S. Br. in Opp’n to

Defs.’ Mot. to Dismiss at 33.) While the paragraphs of the

complaint to which the government cites refer to meetings between

Toyobo and vest manufacturers (see, e.g., Compl. ¶¶ 105, 112),

10
While there is disagreement among courts and commentators
as to whether damages are a necessary element of a Section (a)(3)
claim, compare United States ex rel. Finney v. Nextwave Telecom,
Inc., 337 B.R. 479, 489 (S.D.N.Y. 2006) with John T. Boese, Civil
False Claims and Qui Tam Actions 2-29 n.62 (3d ed. 2006), here
damages are clearly alleged because the government paid the
claims at issue.
11
The government argues that such an intent requirement is
inconsistent with § 3729(b), which provides that “no proof of
specific intent to defraud is required.” However, § 3729(b)
applies only to the terms “knowing” and “knowingly,” which appear
in § 3729(a)(1) and (a)(2), but not in (a)(3). Section 3729(b)
therefore does not limit the showing of intent necessary to state
a claim for conspiracy under the unamended § 3729(a)(3).
 - 25 -

the complaint is devoid of factual allegations that support the

inference that Toyobo and the vest manufacturers entered into any

agreements for the purpose of getting the government to pay a

claim. The government’s allegations that the vest manufacturers

were aware by mid-2001 that Zylon was defective (Compl. ¶¶ 54-55)

yet continued to sell Zylon vests through 2005 are insufficient

to aver that Toyobo and the vest manufacturers agreed to

anything. Moreover, the notion that Toyobo conspired with the

vest manufacturers is inconsistent with the government’s

allegations that Toyobo misrepresented the extent and severity of

Zylon’s degradation to the vest manufacturers to induce them to

continue to sell their vests to the government. (See Compl.

¶¶ 85, 87, 105, 112, 135(a)(1).) See also supra I(B). Thus,

Toyobo’s motion to dismiss will be granted with respect to the

government’s FCA conspiracy claim as to Toyobo and the vest

manufacturers. See United States ex rel. Amin v. George

Washington Univ., 26 F. Supp. 2d 162, 165 (D.D.C. 1998) (citing

the complaint’s failure to “identify any agreement between the

parties to defraud the government or to engage in any act that

could constitute an attempt to defraud the government” (emphasis

omitted)); Corsello v. Lincare, Inc., 428 F.3d 1008, 1014 (11th

Cir. 2005) (rejecting a plaintiff’s conspiracy claim where he

failed to provide specific allegations of an agreement or overt

act).
 - 26 -

However, the government’s allegations are sufficient to

state a claim under the FCA for conspiracy with respect to Toyobo

and its weavers. The government alleges that Hexcel sought for

Toyobo to indemnify it if Hexcel’s customers stopped using Zylon

and that Toyobo and Hexcel agreed that Toyobo would provide a

refund to Hexcel in such an event. (Compl. ¶ 76.) Toyobo also

agreed to provide Hexcel with replacement Zylon fiber and

$240,000 in reimbursement in an attempt to restart Hexcel’s

weaving after Hexcel became concerned about Red Thread. (Id.

¶¶ 102, 104, 111.) Additionally, Toyobo and Barrday agreed that

Teijin Shoji would retain title to Zylon delivered to Barrday to

weave, and the parties entered into this arrangement to get

Barrday to resume weaving Zylon. (Id. ¶ 84.) Finally, Lincoln

fabrics agreed to receive from Toyobo Zylon inventory knowing

that it might contain Red Thread. (Id. ¶ 124.) The government

has pled throughout its complaint that the purpose of all of

these agreements was to convince the weavers to continue weaving

Zylon despite questions about its ballistic suitability. Because

the vest manufacturers could not produce vests without woven

Zylon, these allegations are sufficient to satisfy the

requirement that the agreements had the purpose of getting claims

paid by the government. The detailed allegations about the

meetings between Toyobo and the weavers fulfills the requirements

for an FCA conspiracy claim under Rule 9(b) at the motion to
 - 27 -

dismiss stage in the litigation. See Westrick, 685 F. Supp. 2d

at 141 (finding sufficient allegations of an FCA conspiracy where

the government claimed that defendants agreed not to warn

customers about Zylon degradation).12

IV. COMMON LAW FRAUD

A plaintiff in an FCA action may plead -- if not ultimately

recover upon -- alternative common law theories. See Fed. R.

Civ. P. 8(d)(3); see also United States ex rel. Purcell v. MWI

Corp., 254 F. Supp. 2d 69, 79 (D.D.C. 2003). A successful claim

for common law fraud requires “(1) a false representation (2) in

reference to a material fact (3) made with knowledge of its

falsity (4) and with the intent to deceive (5) with action taken

in reliance upon the representation.” Pence v. United States,

316 U.S. 332, 338 (1942). Nondisclosure may form the basis of a

common law fraud claim, Witherspoon v. Philip Morris Inc., 964 F.

Supp. 455, 459 (D.D.C. 1997), particularly –– but not exclusively

–– where a party has a duty to disclose material information.

See Daisley v. Riggs Bank, N.A., 372 F. Supp. 2d 61, 78 (D.D.C.

2005); Sage v. Broad. Publ’ns, Inc., 997 F. Supp. 49, 52 (D.D.C.

1998). The government has alleged that Toyobo failed to disclose

12
The government’s allegations with respect to any
agreement between Toyobo and Second Chance are not at issue in
this case. (See Compl. ¶ 1 (“This lawsuit expressly excludes any
claims for defective Zylon body armor sold to the United States
and to state, local, and tribal law enforcement agencies by
Second Chance Body Armor, Inc., which are the subject of a
separate False Claims Act qui tam lawsuit[.]”).)
 - 28 -

or affirmatively misrepresented evidence of, among other things,

the material fact of Zylon’s degradation. (Compl. ¶¶ 20, 55, 59-

60, 66-67, 79, 83, 87, 96, 112-13.) Moreover, the government has

alleged that Toyobo had knowledge of the misrepresentation of its

data (id. ¶¶ 1, 22, 25, 56, 87, 140) and intended to deceive the

government. (Id. ¶ 142.) The government relied upon Toyobo’s

misrepresentations. (Id. ¶¶ 1, 143.) These allegations are

sufficient to state a claim for common law fraud. See Westrick,

685 F. Supp. 2d at 141.

V. UNJUST ENRICHMENT

To state a claim for unjust enrichment, a plaintiff must

allege that a benefit was conferred upon a defendant, the

defendant accepted the benefit, and it would be unjust for the

defendant not to pay the plaintiff the value of the benefit.

Miller v. Holzmann, Civil Action No. 95-1231 (RCL), 2007 WL

710134, at *7 (D.D.C. Mar. 6, 2007). “[U]njust enrichment must

be determined by the nature of the dealings between the recipient

of the benefit and the party seeking restitution, and those

dealings will necessarily vary from one case to the next.” 4934,

Inc. v. D.C. Dep’t of Employment Servs., 605 A.2d 50, 56 (D.C.

1992); see also In re Lorazepam & Clorazepate Antitrust Litig.,

295 F. Supp. 2d 30, 51 (D.D.C. 2003). In re Lorazepam, 295 F.

Supp. 2d at 51, refused to dismiss a claim for unjust enrichment

brought by a group of plaintiffs, including insurance companies,
 - 29 -

against drug manufacturers for payments made to reimburse

subscribers for prescriptions. The court held that the theory of

unjust enrichment could apply to indirect payments because the

plaintiffs had properly alleged the defendants’ enrichment to the

plaintiffs’ own detriment and not just to the detriment of the

plaintiffs’ subscribers. Id.

Toyobo argues that the government has not stated an unjust

enrichment claim because “any benefit conferred by the United

States was conferred on the Vest Manufacturers –– either directly

or indirectly –– not Toyobo.” (Defs.’ Mem. at 33.) However, the

government alleges that “the United States paid for defective

bulletproof vests made of Zylon due to false statements and

omissions by Toyobo” and that Toyobo “received money, . . .

indirectly, to which they were not entitled.” (Compl. ¶¶ 147,

149.) Toyobo does not dispute that it retained all the monies

from its sales to the vest manufacturers, and the government

amply has stated a claim for unjust enrichment. See Honeywell,

2011 WL 2672624, at *9. Whether Toyobo actually performed its

contract in full, such that the government received the benefit

of its bargain, is a question of fact that is inappropriate for

resolution at the motion to dismiss stage.

CONCLUSION AND ORDER

The government has stated FCA presentment and false

statements claims and common law fraud and unjust enrichment
 - 30 -

claims, and it has pled its fraud allegations with respect to

these claims with sufficient particularity to meet the standards

articulated under Rule 9(b). The government has also stated an

FCA conspiracy claim as between Toyobo and the Zylon weavers, but

not as between Toyobo and any of the vest manufacturers.

Accordingly, it is hereby

ORDERED that Toyobo’s motion [14] to dismiss be, and hereby

is, GRANTED with respect to the government’s FCA conspiracy

claims as between Toyobo and the vest manufacturers and DENIED in

all other respects.

SIGNED this 2nd day of September, 2011.

__________/s/_______________
RICHARD W. ROBERTS
United States District Judge