United States v. Second Chance Body Armor Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

______________________________
)
UNITED STATES OF AMERICA, )
ex rel. WESTRICK, )
)
Plaintiffs, )
)
v. ) Civil Action No. 04-280 (RWR)
)
SECOND CHANCE BODY ARMOR )
INC., et al., )
)
Defendants. )
______________________________)
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 07-1144 (RWR)
)
TOYOBO CO. LTD, et al. )
)
Defendants. )
______________________________)

MEMORANDUM OPINION AND ORDER

The government brought these actions against defendants

Second Chance Body Armor, Inc. and related entities

(collectively “Second Chance”), Toyobo Co., Ltd. and Toyobo

America, Inc. (collectively “Toyobo”), and individual defendants

Thomas Bachner, Jr., Richard Davis, Karen McCraney, and Larry
 -2-

McCraney alleging violations of the False Claims Act (“FCA”), 31

U.S.C. §§ 3729-3733, and common law claims, in connection with

allegedly defective body armor material made or sold by the

defendants involving federally-funded purchases.

Toyobo and the government each move for partial summary

judgment on various claims in both actions. 1 In Civil Action 04-

280, Toyobo’s first motion for partial summary judgment “seeks

dismissal of the United States’ claims under the False Claims

Act, 31 U.S.C. § 3729(a)-(c), in Counts 1, 2, and 3 of the

Amended Complaint that are premised on the ‘at least 40,549’

Zylon-containing bullet-resistant vests purchased by federal

agencies off of the General Service Administration’s (‘GSA’)

Multiple Award Schedule (‘MAS’).” Defs.’ Toyobo Co., Ltd. and

Toyobo America Inc.’s Mem. of P. & A. in Supp. of Their Mot. for

Partial Summ. J., Civil Action No. 04-280, ECF No. 270-1

(“Toyobo’s Mot. for Partial Summ. J. [270]”) at 1. Toyobo filed

a second motion for partial summary judgment seeking dismissal

of “the United States’ claims under the False Claims Act in

Counts 1, 2, and 3 of the Amended Complaint related to vests

purchased by state, local, and tribal law enforcement agencies

1Toyobo Co., Ltd. and Toyobo America, Inc. are defendants in
both related actions, Civil Action No. 04-280 and Civil Action No.
07-1144, and the issues presented by the parties in the cross-
motions for partial summary judgment are similar in both actions.
The motions will be treated together in this opinion.
 -3-

for which the United States partially reimbursed those agencies

under the [Bullet Proof Vest Grant Partnership Act][.]” Toyobo

Co., Ltd. and Toyobo America Inc.’s Mem. of P. & A. in Supp. of

Their Mot. for Partial Summ. J., Civil Action No. 04-280, ECF

No. 343-1 (“Toyobo’s Mot. for Partial Summ. J. [343]”) at 2.

The government filed a motion for partial summary judgment, or

in the alternative summary adjudication of issues, on liability

for “sales of the Ultima vest to the United States pursuant to

the GSA Schedule[,]” and on “Toyobo’s liability for its false

statements in the form of its false and misleading degradation

reports.” United States’ Mot. for Partial Summ. J. Against

Defs. Toyobo Co. Ltd. and Toyobo America, Inc., Civil Action

No. 04-280, ECF No. 344-1 (“Gov’t Mot. for Partial Summ. J.”) at

1 n.1 and at 2.

In Civil Action 07-1144, Toyobo moves for partial summary

judgment on “the United States’ claims under the False Claims

Act (Counts 1, 2, and 3 of the Amended Complaint)” which

includes the claims related to the bullet proof vests sold on

the General Services Administration Schedule and those

reimbursed by the United States through the Bullet Proof Vest

Grant Partnership Act. Toyobo Co., Ltd. and Toyobo America

Inc.’s Mem. of P. & A. in Supp. of Their Mot. for Partial Summ.

J., Civil Action No. 07-1144, ECF No. 95-1 (“Toyobo’s Mot. for

Partial Summ. J. [95]”) at 1. The government moves for partial
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summary judgment as to “only those vests which were sold to the

United States by the Zylon Vest Manufacturers pursuant to the

GSA Multiple Award Schedule[,]” and does not address vests sold

through the Bulletproof Vest Grant Partnership Act. United

States’ Mem. of P. & A. in Supp. of its Mot. for Partial Summ.

J. Against Defs. Toyobo Co. Ltd. and Toyobo America, Inc., Civil

Action No. 07-1144, ECF No. 97-1 (“Gov’t Mot. for Partial Summ.

J. [97]”) at 2 n.3.

Because a genuine dispute as to material facts exists

regarding claims for Zylon vests sold off of the General Service

Administration’s Multiple Award Schedule after a 2002 contract

modification took effect, summary judgment will be denied to

both the defendants and the government as to those claims. As

the undisputed facts entitle defendants to judgment as a matter

of law on the claims for the remaining Zylon vests sold off of

that Schedule, summary judgment will be granted to the

defendants and denied to the government as to those claims.

Because a genuine dispute as to material facts exists regarding

whether Toyobo disseminated false information into the market,

summary judgment will be denied to both the government and the

defendants regarding claims for Zylon vests reimbursed through

the Bullet Proof Vest Grant Partnership Act.
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BACKGROUND

The background of this case is set forth in United States

ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F. Supp.

2d 129, 132-33 (D.D.C. 2010) and United States v. Toyobo Co.,

Ltd., 811 F. Supp. 2d 37, 41-44 (D.D.C. 2011). Briefly, the

government alleges that Second Chance and Toyobo contracted for

Toyobo to supply Second Chance with the synthetic fiber “Zylon”

for use in manufacturing Second Chance bulletproof vests.

Second Chance, 685 F. Supp. 2d at 132; Toyobo, 811 F. Supp. 2d

at 41-42. These Zylon vests were then sold to, or paid for by,

the federal government through two different programs - - the

General Services Administration contracting program and the

Bullet Proof Vest Grant Partnership Act program. The government

claims that Toyobo’s false and fraudulent actions under each

program give rise to liability under the False Claims Act.

Specifically, the government claims that the bullet proof vests

containing Zylon degraded without warning and did not maintain

the same level of bullet-resisting efficacy during the five year

warranty period. See Second Chance, 685 F. Supp. 2d at 132;

Toyobo, 811 F. Supp. 2d at 41-42. Furthermore, the government

claims that Second Chance and Toyobo knew that the vests were

unable to maintain their bullet-resisting efficacy during the

five year warranty period, did not inform the government or

other buyers about this degradation concern, and intentionally
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placed false information into the market suggesting that there

was no degradation concern. See Second Chance, 685 F. Supp. 2d

at 132; Toyobo, 811 F. Supp. 2d at 41-43.

A. General Services Administration Contracting Program

The General Services Administration (“GSA”), a federal

agency responsible for administering the Multiple Award Schedule

(“MAS”) contracting program, negotiates contracts for commercial

off-the-shelf items and makes those items available to various

federal agencies without the need for those agencies to

negotiate the prices or terms with contractors for themselves.

Defs. Toyobo Co., Ltd. and Toyobo America Inc.’s Statement of

Undisputed Material Facts in Supp. of Their Mot. for Partial

Summ. J., 04-cv-280, ECF No. 270-2 (“Toyobo’s SUMF [270]”) at

¶¶ 11-12; Defs. Toyobo Co., Ltd. and Toyobo America, Inc.’s

Statement of Undisputed Material Facts in Supp. of Their Mot.

for Partial Summ. J., 07-cv-1144, ECF No. 95-2 (“Toyobo’s SUMF

[95]”) at ¶¶ 7-8; United States’ Combined Separate Statement of

Material Facts (1) in Resp. to the Statement of Undisputed Facts

of Defs. Toyobo Co. Ltd. and Toyobo America, Inc. in Supp. of

Their Mot. for Partial Summ. J. against the United States; and

(2) in Supp. of the United States’ Statement of Facts in its

Opp’n to Toyobo’s Mot. for Partial Summ. J., 04-cv-280, ECF No.

295 (“Govt.’s SUMF [295]”) at ¶¶ 11-12. “In 1995, GSA solicited

offers to sell body armor on the MAS.” Toyobo’s SUMF [270] at
 -7-

¶ 14; Toyobo’s SUMF [95] at ¶ 9; Govt.’s SUMF [295] at ¶ 14.

Second Chance responded to that solicitation and was

subsequently awarded a contract from the GSA. Toyobo’s SUMF

[270] at ¶¶ 17-19; Govt.’s SUMF [295] at ¶¶ 17-19. “On

October 23, 1998, GSA issued a modification of the Second Chance

contract to add certain new body armor models to the MAS, one of

which, the Ultima, contained Zylon.” Toyobo’s SUMF [270] at

¶ 20; Govt.’s SUMF [295] at ¶ 20. “On October 25, 1999, GSA

issued another modification of the Second Chance contract to add

another body armor model, the Tri-Flex, which also contained

Zylon.” Toyobo’s SUMF [270] at ¶ 22; Govt.’s SUMF [295] ¶ 22.

Various federal agencies purchased and received Zylon-containing

vests from the MAS, and were invoiced directly by Second Chance.

Toyobo’s SUMF [270] at ¶¶ 28-30; Govt.’s SUMF [295] at ¶¶ 28-30.

Each Zylon vest came with the standard commercial warranty.

Toyobo’s SUMF [270] at ¶¶ 16-18; Toyobo’s SUMF [95] at ¶ 22;

Govt.’s SUMF [295] at ¶¶ 16-18. The standard commercial

warranty substantively stated that the vests were

warranted to provide protection as stated on the
protective panel label and to be free of defects in
material and workmanship for the applicable warranty
period . . . . The protection properties of the
PANELS are warranted for five (5) years from the date
of purchase . . . . If a defect is found in material
or workmanship . . . during the applicable warranty
period, return the vest directly to SECOND CHANCE.
SECOND CHANCE, in its discretion, without cost to you,
will repair or replace the defective part or the
entire vest.
 -8-

Toyobo’s SUMF [270] ¶ 6; Govt.’s SUMF [295] at ¶ 6. The parties

disagree as to the proper interpretation of this warranty and as

to which, if any, additional agreements between the parties bear

on the current dispute.

B. Bullet Proof Vest Grant Partnership Act

The Bullet Proof Vest Grant Partnership Act (“BPVGPA”)

program is a partial reimbursement program for state, local, and

tribal law enforcement agencies. Toyobo’s SUMF [95] at ¶ 42;

Toyobo Co., Ltd. and Toyobo America Inc.’s Statement of

Undisputed Material Facts in Supp. of Their Mot. for Partial

Summ. J., 04-cv-280, ECF No. 343-2 (“Toyobo’s SUMF [343]”) at

¶¶ 5, 8; United States’ Resp. to Defs. Toyobo Co., Ltd. and

Toyobo America Inc.’s Statement of Undisputed Material Facts in

Supp. of Their Mot. for Partial Summ. J., 04-cv-280, ECF No.

357-1 (“Govt.’s SUMF [357]”) at ¶¶ 5, 8. The program operated

following seven essential steps. First, Second Chance sent at

least one Zylon vest to the National Institute of Justice

(“NIJ”) for the NIJ to certify that the vest complied with the

NIJ’s Ballistic Resistance of Body Armor Standard. Second, the

Bureau of Justice Assistance (“BJA”) placed the Zylon vest,

along with other NIJ certified vests, on a list of approved

vests. Third, a law enforcement agency used the BJA’s online

platform to inform the BJA that the agency intended to purchase
 -9-

approved vests. Fourth, the law enforcement agency purchased

the approved vests from the vest manufacturer. Fifth, when it

received the vests from the vest manufacturer, the law

enforcement agency confirmed to the BJA that the agency

purchased the vests. Sixth, the agency, after providing proof

of purchase, requested reimbursement from the federal

government’s BPVGPA fund. Seventh, the law enforcement agency

received a partial reimbursement for the costs of the purchased

vests. See Toyobo’s SUMF [343] at ¶¶ 5-27; Toyobo’s SUMF [95]

at ¶¶ 36-58; Govt.’s SUMF [357] ¶¶ 5-27.

The government alleges that Zylon vests provided through

these programs were defective and resulted in false claims being

submitted to the government. Specifically, the government

claims that some vests containing Zylon degraded spontaneously

and at a rate unpredictable to the purchasers, making the vests

unusable. Toyobo acknowledges some degradation of the Zylon

fiber, but argues that this degradation and its behavior

concerning the Zylon degradation issue do not constitute false

claims under the FCA. Now, both parties move for partial

summary judgment.

DISCUSSION

Under Federal Rule of Civil Procedure 56(a), a party may

move for summary judgment on an individual claim or part of a

claim. Fed. R. Civ. P. 56(a). Summary judgment is appropriate
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where the pleadings, the discovery and disclosure materials, and

any affidavits show “that there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter

of law.” Id.; accord Moore v. Hartman, 571 F.3d 62, 66 (D.C.

Cir. 2009). “The moving party bears the burden of providing a

‘sufficient factual record that demonstrates the absence of a

genuine issue of material fact.’” Walsh v. Fed. Bureau of

Investigation, 905 F. Supp. 2d 80, 84 (D.D.C. 2012) (quoting

Peavey v. Holder, 657 F. Supp. 2d 180, 187 (D.D.C. 2009)). At

the summary judgment stage, a court must draw all “‘justifiable

inferences’” from the evidence in favor of the nonmovant, Hunt

v. Cromartie, 526 U.S. 541, 552 (1999) (quoting Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)), but not assess

credibility or weigh the evidence. Anderson, 477 U.S. at 255.

“The nonmovant must either ‘come forward with specific facts

showing that there is a genuine issue for trial[,]’ or show that

the materials [submitted] by the movant do not establish the

absence of a genuine dispute.” United States v. DRC, Inc., 856

F. Supp. 2d. 159, 167 (D.D.C. 2012) (quoting Matsushita Elec.

Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587

(1986)). “The mere existence of a scintilla of evidence in

support of the plaintiff’s position will be insufficient; there

must be evidence on which the jury could reasonably find for the

plaintiff.” Anderson, 477 U.S. at 252. The same summary
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judgment standard applies to a motion for summary adjudication.

Barsamian v. City of Kingsburg, 597 F. Supp. 2d 1054, 1061 (E.D.

Cal. 2009) (citing, in part, California v. Campbell, 138 F.3d

772, 780–81 (9th Cir. 1998)).

I. TOYOBO’S MOTIONS FOR PARTIAL SUMMARY JUDGMENT ON THE GSA
MAS COUNTS

The government presents allegations under the False Claims

Act, 31 U.S.C. § 3729(a)(1)-(3)(2004). 2 Second Am. Compl., 04-

cv-280, ECF No. 408 at ¶¶ 287-297; Am. Compl., 07-cv-1144, ECF

No. 73 at ¶¶ 239-248. In order to prevail on a claim under the

version of the False Claims Act that was in effect when the

complaints were filed, the government must prove that a person

has “(1) knowingly present[ed], or cause[d] 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

[made], use[d], or cause[d] to be made or used, a false record

or statement to get a false or fraudulent claim paid or approved

by the Government,” or “(3) conspire[d] to defraud the

Government by getting a false or fraudulent claim allowed or

paid.” 31 U.S.C. § 3729(a)(1)-(3)(2004).

2 While the False Claims Act was amended in 2009, these
cases involve alleged violations of the Act’s provisions that
were in effect when the complaints were filed in 2004 and 2007.
 -12-

Toyobo argues that it is entitled to partial summary

judgment on the False Claim Act counts related to the bullet

proof vests sold through the GSA MAS program because the

government cannot prove that Toyobo, or Second Chance, submitted

a “false or fraudulent claim.” Toyobo’s Mot. for Partial Summ.

J. [270] at 13; Toyobo’s Mot. for Partial Summ. J. [95] at 13-

14. The government argues that Second Chance, and/or Toyobo,

submitted “false or fraudulent claims” by (1) knowingly

providing defective bullet proof vests to the government, (2)

providing vests that did not meet performance benchmarks over

time, (3) withholding degradation information and releasing

manipulated data, and (4) invoicing the government for a product

that Second Chance, and/or Toyobo, knew did not comply with the

terms of the contract. See United States’ Opp’n to the Mot. of

Defs. Toyobo Co. Ltd. and Toyobo America, Inc. for Partial Summ.

J. Against the United States, 04-cv-280, ECF No. 293 (“Gov’t

Opp’n to Toyobo’s Mot. for Partial Summ. J. [293]”) at 16-45;

see also United States’ Mem. of P. & A. in Opp’n to the Mot. of

Defs. Toyobo Co. Ltd. and Toyobo America, Inc. for Partial Summ.

J. Against the United States, 07-cv-1144, ECF No. 109 (“Gov’t

Opp’n to Toyobo’s Mot. for Partial Summ. J. [109]”) at 30-34.

United States v. Toyobo Co. Ltd, 811 F. Supp. 2d 37 (2011),

discussed at length the legal standard for falsity. That

opinion noted that
 -13-

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 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 regulation and was fraudulent.” United
States ex rel. Barrett v. Columbia/HCA Healthcare
Corp., 251 F. Supp. 2d 28, 33 (D.D.C. 2003).

Id. at 45. While that opinion resolved various motions to

dismiss and looked no further than the pleadings, there must be

sufficient evidence at the summary judgment stage to enable a

reasonable jury to find in favor of the movant. See Anderson,

477 U.S. at 252. Accordingly, Toyobo, as the movant, must
 -14-

demonstrate that the government lacks sufficient evidence to

prove that Toyobo, or Second Chance, submitted a claim that was

“false or fraudulent” within the meaning of the statute. See

Walsh, 905 F. Supp. 2d at 84.

A. Factual Falsity

A claim is “factually false if it invoices for services

that were not rendered.” Hockett, 498 F. Supp. 2d at 64. The

government argues that invoicing after “[t]he knowing sale of

defective bullet proof vests to the United States is a violation

of the FCA[,]” because the invoices are factually false. Gov’t

Opp’n to Toyobo’s Mot. for Partial Summ. J. [293] at 25; see

Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [109] at 30.

The government explains that the bullet proof vests sold to

various agencies through the GSA MAS were defective because they

did not meet several benchmarks of promised
performance of bullet proof vests: [They] could not
reliably provide protection for five years in actual
use as guaranteed by Second Chance and as expected by
the industry, the Government, and federal agency
customers; [they] did not retain all but 6 percent of
[their] V-50 speeds for five years as expressly set
out by the Second Chance catalog; and vests that were
dangerously defective could only be determined by
destructive testing, thereby destroying confidence in
all untested used Zylon vests.

Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [293] at 26.

Toyobo argues that “Second Chance’s standard commercial warranty

cannot render Second Chance’s invoices to federal agencies for

vests purchased off of the MAS factually false.” Toyobo’s Mot.
 -15-

for Partial Summ. J. [270] at 14; see Toyobo’s Mot. for Partial

Summ. J. [95] at 16. The government’s factual falsity arguments

rely on legal obligations, i.e. obligations to comply with

contractual guarantees, performance metrics, and other contract

terms - - all obligations that if violated sound in legal

falsity, but do not sound in factual falsity. See Hockett, 498

F. Supp. 2d at 64 (noting that a claim “is factually false if it

invoices for services that were not rendered,” and providing an

example of factual falsity where the defendant submitted a claim

stating “that patient X stayed [in a hospital receiving

services] for five days where [the patient] really stayed for

three”). Contra Gov’t Opp’n to Toyobo’s Mot. for Partial Summ.

J. [293] at 23-30 (erroneously arguing various legal obligations

as basis for factual falsity). The government does not allege

that Toyobo invoiced for 200 bullet proof vests and sent only

150 bullet proof vests; nor does the government allege that

Toyobo invoiced for bullet proof vests and instead sent

raincoats. The government’s claim here is not that it did not

receive bullet proof vests, but that the bullet proof vests in

this case did not comply with express and implied agreements.

Accordingly, the government’s reliance on a factual falsity

theory of liability as to the GSA MAS counts is misplaced, but

its supporting arguments are assessed below under a legal

falsity theory.
 -16-

B. Legal Falsity

A claim “may be legally false because of an express false

certification or an implied false certification.” Hockett, 498

F. Supp. 2d at 64 (citing In re Cardiac Devices Qui Tam Litig.,

221 F.R.D. 318, 345 (D. Conn. 2004) and United States ex rel

Mikes v. Straus, 274 F.3d 687, 697-98 (2d Cir. 2001). “[A]n

express false certification [is] ‘a claim that falsely certifies

compliance with a particular statute, regulation or contractual

terms, where compliance is a prerequisite for payment.’”

Toyobo, 811 F. Supp. 2d at 45. Also, a claim may be legally

false if “the contractor withheld information about its

noncompliance with material contractual requirements.” Sci.

Applications Int’l Corp., 626 F.3d at 1269. For example, courts

have found claims to be legally false when a company falsely

labeled radio kits claiming that the products met certain

specifications in the contract, which they did not meet, United

States v. Bornstein, 423 U.S. 303, 307 (1976); when a company

failed to test certain brake shoes, but submitted claims to the

government claiming that the brake shoes were tested in

accordance with the contractual requirements, United States ex

rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 304

(6th Cir. 1998); and when a company submitted counterfeit

regulators to the government claiming, by placing false labels
 -17-

on the product, that the product was genuine. United States v.

Nat’l Wholesalers, 236 F.2d 944, 946 (9th Cir. 1956).

1. Express false certification theory

The dispute between the parties over alleged express false

certifications raises two questions: (1) what comprised the

content of the contractual agreement between Second Chance and

the GSA, and (2) what is the nature and legal effect of the

warranty on the bullet proof vests provided by Second Chance

through the GSA MAS program.

a. Content of the contractual agreement

“Where parties to a contract have executed a completely

integrated written agreement, it supersedes all other

understandings and agreements with respect to the subject matter

of the agreement between the parties, whether consistent or

inconsistent[.]” Daisley v. Riggs Bank, N.A., 372 F. Supp. 2d

61, 68 (D.D.C. 2005) (quoting Masurovsky v. Green, 687 A.2d 198,

202 (D.C. 1996)). “Determining whether an agreement is

integrated requires examining ‘the intent of the parties at the

time they entered into the agreement.’” Id. (citing Piedmont

Resolution, LLC, v. Johnston, Rivlin, & Foley, 999 F. Supp. 34,

50 (D.D.C. 1998). “The first and most important step in

ascertaining that intent is examination of the contract itself,

for if a document is facially unambiguous, its language should

be relied upon as providing the best objective manifestation of
 -18-

the parties’ intent.” Id. (citing Hercules & Co., Ltd. v. Shama

Rest. Corp., 613 A.2d 916, 927 (D.C. 1992)) (internal quotation

marks omitted).

The government claims that the contract between Second

Chance and the GSA included (1) Second Chance’s five year

warranty, (2) a guarantee in Second Chance’s catalog stating

that the “Zylon vests would lose no more than 6 percent of their

ballistic performance over five years[,]” (3) a new material

clause in the original solicitation stating that “the Contractor

represents that supplies and components are new, including

recycled (not used or reconditioned) and are not of such age or

so deteriorated as to impair their usefulness or safety[,]” (4)

a workmanship clause in the 1998 GSA contract modification with

Second Chance that stated “each article must perform the

functions of its intended use,” (5) “a five year guarantee on

the protective qualities of ballistic panels [that] was standard

in the body armor industry,” and (6) the expectation that vests

sold as NIJ certified “would continue to stop bullets they had

been designed to stop throughout the warranty period.” Gov’t

Opp’n to Toyobo’s Mot. for Partial Summ. J. [293] at 22-23; see

Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [109] at 25.

Toyobo does not dispute that the contractual agreement included

the five year warranty, the new material clause, and the

workmanship clause. Toyobo Co., Ltd. and Toyobo America Inc.’s
 -19-

Reply Mem. of P. & A. in Further Supp. of Their Mot. for Partial

Summ. J., 04-cv-280, ECF No. 306 (“Toyobo’s Reply [306]”) at 7-

10; Toyobo Co., Ltd. and Toyobo America Inc.’s Reply Mem. of P.

& A. in Further Supp. of Their Mot. for Partial Summ. J., 07-cv-

1144, ECF No. 113 (“Toyobo’s Reply [113]”) at 7-12. However,

Toyobo does dispute the government’s contention that the

statements in Second Chance’s catalog, the industry standard, or

the expectations of NIJ are a part of the contractual agreement.

Toyobo’s Reply [306] at 8-11; Toyobo’s Reply [113] at 11-12.

The original contract agreement between the GSA and Second

Chance establishing the first non-Zylon bullet proof vests on

the MAS contained the following key language:

Your offer on Solicitation Number 7FXG-B3-95-8411-B
including the additions or changes made by you which
additions or changes are set forth in full above, is
hereby accepted as to the items listed above and on
any continuation sheets. This award consummates the
contract which consists of the following documents:
(a) the Government’s solicitation and your offer, and
(b) this award/contract. No further contractual
document is necessary.

Toyobo’s Mot. for Partial Summ. J. [270], Ex. 15, ECF No. 270-18

(“Second Chance’s 8/1/96 Award Contract”) at 2. The language

quoted above is “facially unambiguous” as to the parties’ intent

for the government’s solicitation, Second Chance’s offer, and

the “Award/Contract” letter to serve as the complete and

integrated terms of the contractual agreement. See, e.g.,

Daisley, 372 F. Supp. 2d at 68; Washington v. Thurgood Marshall
 -20-

Academy, Civil Action No. 03-2570 (CKK), 2006 WL 1722332 at *9

(D.D.C. June 19, 2006); see also, Toyobo’s Mot. for Partial

Summ. J. [270], Ex. 13, ECF No. 270-16 (“Carol Batesole Dep.”)

at 35:24 – 36:3 (negotiating party for the GSA agreeing that the

government’s solicitation, Second Chance’s offer, and the

Award/Contract letter “encompassed the contract between Second

Chance and the GSA”). Any term alleged to be a part of the

contractual agreement between GSA and Second Chance, then, must

be found in the government’s solicitation, Second Chance’s

offer, the “Award/Contract” letter, or a subsequent modification

of the contract.

Regarding in turn each disputed provision of the contract,

the government and Toyobo first disagree about the incorporation

of statements made in Second Chance’s catalog. Generally, “when

a document incorporates outside material by reference, the

subject matter to which it refers becomes part of the

incorporating document just as if it were set out in full.”

Tower Ins. Co. of New York v. Davis/Gilford, 967 F. Supp. 2d 72,

80 (D.D.C. 2013) (quoting BP Amoco Corp. v. NLRB, 217 F.3d 869,

874 (D.C. Cir. 2000)). The government asserts that the catalog

statements were part of the contractual agreement because they

were included with a 2002 modification to the original GSA MAS

contract. See Gov’t Opp’n [293] at 6 (citing Gov’t SUMF [295]

¶ U.S. Fact 21) (“This catalog guarantee was another express
 -21-

warranty that was incorporated into the GSA contract.”); see

also Gov’t SUMF [295], Ex. 74, ECF No. 297-3 (“Second Chance

Catalog Statement”) at 1 (“This modification is being submitted

to add new items, delete obsolete ones, and have our current

pricelist incorporated. Two copies of all product literature

and properly marked pricelists are attached.”). Because the

catalog statement was attached to the contract modification, it

was properly incorporated into the contractual agreement. See,

e.g., Tower Ins. Co. of New York, 967 F. Supp. 2d at 80;

Maryland Nat. Capital Park and Planning Comm’n v. Lynn, 514 F.2d

829, 833 (D.C. Cir. 1975) (“It is a general rule that reference

in a contract to extraneous writings renders them part of the

agreement for indicated purposes[.]”). Accordingly, the

following statement from the Second Chance catalog (“the 6%

guarantee”) was a term of the contract for all claims after the

2002 contract modification:

Second Chance also measures and records benchmark V-50
results at the time of certification. V-50 is a
scientifically reproducible ballistic limit employed
by the U.S. military that measures the velocity at
which 50% of the projectiles are stopped by the armor.
This number provides a reference point against which
we can measure the performance of the armor over time.
Second Chance guarantees its vest to perform at this
level within normal statistical variation (+/-6%)
during the five year guaranteed life of the vest. 3

3 This statement appears in the frequently asked questions
(“FAQ”) section of the Second Chance catalog in response to the
question: “To what standards are Second Chance vests certified?”
Second Chance Catalog Statement at 5. The following warranty
 -22-

Second Chance Catalog Statement at 5.

Second, the government and Toyobo disagree about

incorporating the industry standard into the contract. The

government does not point to anything in the government’s

solicitation, Second Chance’s offer, or the “Award/Contract”

that explicitly incorporates the government’s interpretation of

the five year industry standard. See Gov’t Opp’n to Toyobo’s

Mot. for Partial Summ. J. [293] at 22 (citing deposition

testimony about the advent of the five year warranty). Thus,

the industry standard is not an explicit term of the contractual

agreement.

Third, the government and Toyobo disagree about

incorporating into the contractual agreement NIJ’s expectations

about the longevity of the bullet proof vests. Specifically,

the government seems to argue that because vests bearing the

“NIJ Certified” label were expected to perform at a certain

level, Toyobo should be held liable under the FCA because some

vests deteriorated below the expectations that come with an “NIJ

Certified” label. Id. at 22. However, the government again

does not point to anything in the government’s solicitation,

language also appears in the FAQ section of the Second Chance
catalog: “Second Chance Warrants its ballistic armor for 5 years
to perform as stated on the label to protect against the
designated projectiles for each level. Warranty is null and
void if improper care, misuse or neglect occurs.” Id.
 -23-

Second Chance’s offer, or the “Award/Contract” that expressly

incorporates the expectations of NIJ, nor does the government

argue that Toyobo gained the “NIJ Certified” label for its vests

through faulty means. See id. at 22-23 (citing deposition

testimony from NIJ officials). NIJ expectations, at least as

the government has presented them, are not explicit terms in the

contractual agreement.

That leaves the five year commercial warranty, the

workmanship clause, the new material clause, and the Second

Chance Catalog statement as the contractual language upon which

the government may rely to prove its express false certification

theory. The essence of the government’s argument is that

Toyobo, and Second Chance, made false claims after furnishing to

various government agencies bullet proof vests that they knew

did not comply with those four contractual provisions. Gov’t

Opp’n to Toyobo’s Mot. for Partial Summ. J. [293] at 22-26;

Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [109] at 24-

25. Specifically, the government argues that these contractual

terms individually or in tandem created an explicit obligation

for the bullet proof vests to perform at a specified level for

five years, at which level some of the vests did not perform;

and further that Toyobo and Second Chance knew when the vests

were sold to federal agencies that the vests would not meet the

expected performance level during the five year period. Gov’t
 -24-

Opp’n to Toyobo’s Mot. for Partial Summ. J. [293] at 25-26; see

also Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [109] at

24-25. The government finds this explicit obligation in the

obligation-creating language found in the four noted contract

terms.

b. Nature and legal effect of the warranty

At the heart of this case is a dispute over the meaning of

the word “warranty,” and other obligation-creating language.

“[A]s with any contract, if its terms are unambiguous on their

face, interpretation is considered a question of law

appropriately resolved by this court.” United States ex rel.

Dept. of Labor v. Ins. Co. of N. Am., 131 F.3d 1037, 1042 (D.C.

Cir. 1997) (citing NRM Corp. v. Hercules, Inc., 758 F.2d 676,

682 (D.C. Cir. 1985)). “Where, however, a contract provision is

ambiguous, extrinsic evidence may be necessary to ascertain the

mutual intent of the parties and thus resolve the ambiguity, and

its admission is within the province of the district court.”

Id. (citing America First Inv. Corp. v. Goland, 925 F.2d 1518,

1522 (D.C. Cir. 1991)). “[A] contract provision is ambiguous

‘if it is reasonably susceptible of different constructions, but

it is not ambiguous merely because the parties later disagree on

its meaning.’” Id. (quoting Bennet Enters., Inc. v. Domino’s

Pizza, Inc., 45 F.3d 493, 497 (D.C. Cir. 1995)).
 -25-

The word warranty, or a derivative of it, appears in two of

the contract terms properly relied on by the government. See

Second Chance’s 8/1/96 Award Contract at 5 (“WARRANTY

PROVISIONS: 5 years on ballistic panels, 2 years on carriers”),

and Second Chance Catalog Statement at 5 (“Second Chance

warrants its ballistic armor for 5 years to perform as stated on

the label to protect against the designated projectiles for each

level.”). The parties do not dispute that the warranty language

in these contract terms referred to Second Chance’s standard

commercial warranty, although the parties disagree about the

interpretation of the standard commercial warranty. See

Toyobo’s SUMF [270] ¶ 6; Gov’t SUMF [295] ¶ 6. Furthermore, the

parties agree that

Second Chance’s standard commercial warranty on its
body armor was stated differently at different times,
though remained consistent in substance, e.g.: ‘[T]his
vest is warranted to provide protection as stated on
the protective panel label and to be free of defects
in material and workmanship for the applicable
warranty period . . . . The protection properties of
the PANELS are warranted for five (5) years from the
date of purchase . . . . If a defect is found in
material or workmanship . . . during the applicable
warranty period, return the vest directly to SECOND
CHANCE. SECOND CHANCE, in its discretion, without
cost to you, will repair or replace the defective part
or the entire vest.’

Toyobo’s SUMF [270] ¶ 6; Gov’t SUMF [295] ¶ 6. The parties’

obligations under the warranty are facially unambiguous. If at

any point within the five-year period the bullet proof vests
 -26-

became defective, the owner was to send the vest to Second

Chance to be repaired or replaced. Nothing in the language of

the warranty explicitly guarantees that the vests will function

perfectly for the five-year period; indeed the warranty

presupposes that some of the vests may not survive the five-year

period. It may very well be a poor business decision to put a

product into the market with a warranty that the manufacturer

knows the product cannot satisfy, but poor business decisions do

not necessarily create an express false certification claim

under the FCA.

The government conflates two distinct ideas: defectiveness

and durability. A product is not defective simply because it

does not last as long as the parties expect it to, unless the

parties have explicitly contracted for a durability requirement

- - a requirement that cannot be found in the standard

commercial warranty here. See Walsh v. Ford Motor Co., 588 F.

Supp. 1513, 1535-1538 (D.D.C. 1984). In Walsh, as here, the

manufacturer warranted its product for a limited period of time

and promised to “repair, replace or adjust free any parts . . .

found to be defective in factory materials or workmanship.” Id.

at 1535. The plaintiffs in Walsh, relying on the warranty,

sought to have Ford Motor Company repair defects that may have

developed during the warranty period, but that were not brought

to Ford’s attention during the warranty period. Id. at 1536.
 -27-

The Walsh Court declined the plaintiffs’ invitation to

reinterpret the plain language of the warranty to include these

“latent defects.” Id. (“The Court cannot accept such a drastic

interpretation of the plain language of the warranty.”). Unlike

the plaintiffs in Walsh, the government became aware of the

defects in the bullet proof vests during the warranty period.

However, as did the plaintiffs in Walsh, the government asks

that the warranty be reinterpreted to require more than the

plain language of the warranty unambiguously requires. Second

Chance’s warranty reasonably bears only one promise - - if the

bullet proof vests become defective within five years, they will

be repaired or replaced.

The new material clause and the workmanship clause do no

more than the warranty provisions do to advance the government’s

argument that some vests were defective because they

deteriorated during the five year warranty period. The

operative language in the new material clause provides that “the

Contractor represents that supplies and components are new,

including recycled (not used or reconditioned) and are not of

such age or so deteriorated as to impair their usefulness or

safety.” Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J.

[293] at 22. The government has not alleged that Second Chance

used old materials in the construction of the vests, but instead

alleges that “[t]he vests deteriorated unpredictably and
 -28-

invisibly, and so impaired their usefulness or safety.” Id.

at 23. However, the plain language of the new material clause

would require some nexus between a falsely described condition

of the vests, and their component materials at the time of

delivery and the resulting impairment to establish falsity.

That is, the government would have to allege and show that the

vests were old, worn out, or in poor condition when delivered,

impairing their safety or usefulness. The government does not

claim that the vests were in poor condition because the vests

were old or created from used material when they were received.

Instead, the government claims that with no prior warning from

the defendants, the vests deteriorated during the life of the

vest. Because a durability requirement cannot be read into the

language of the new material clause, the new material clause

cannot provide the basis for an express false certification

claim under the FCA.

The workmanship clause provides that: “[a]n item contracted

for must be new, current model at the time of offer, unless

otherwise specified. Each article must perform the functions

for its intended use.” Gov’t SUMF [295], Ex. 23, ECF No. 295-2

(“10/13/1998 Contract Modification”) at 2; United States’

Separate Statement of Undisputed Material Facts in Supp. of its

Mot. for Partial Summ. J. or in the Alternative, Summ. Adjudic’n

of Issues Against Defs. Toyobo Co., Ltd. and Toyobo America
 -29-

Inc., 07-cv-1144, ECF No. 97-2 (“Gov’t SUMF [97]”) at ¶ U.S.

Fact 32. The government argues that “[a] deteriorated vest does

not perform the functions of its intended use.” Gov’t Opp’n to

Toyobo’s Mot. for Partial Summ. J. [293] at 23. The intended

use for bullet-proof vests is to stop bullets. There is no

dispute between the parties that some of the vests performed

this function, and some of them did not. See Gov’t Opp’n to

Toyobo’s Mot. for Partial Summ. J. [293] at 29; Toyobo’s Reply

[306] at 9-10. For those vests that did not meet their intended

use, the government argues that their failure is a function of

the vests inability to meet the government’s interpretation of

the warranty requirements. See Gov’t Opp’n to Toyobo’s Mot. for

Partial Summ. J. [293] at 29. As is discussed above, the plain

language of the warranty provision cannot bear the government’s

interpretation. The workmanship clause, then, is an

insufficient basis for an express false certification claim

under the FCA.

Even if the term “warranty” were ambiguous, which the

government does not explicitly argue, the government would need

to put forward objective evidence of extra-contractual

statements that inform the meaning of the warranty. See Mesa

Air Grp., Inc. v. Dep’t of Transp., 87 F.3d 498, 503 (D.C. Cir.

1996) (“However, when a court determines that a contract’s

language is ambiguous as a matter of law, it must consider other
 -30-

factors in determining the intentions of the parties in

constructing the agreement. To be sure, the existence of an

ambiguity must be demonstrated by objective evidence.”

(citations omitted)). Presumptively, the government would offer

the industry standard and NIJ expectation evidence that was

excluded from consideration in the analysis above. Taking the

government’s factual assertions regarding the industry standard

and NIJ expectation evidence as true, there is no evidence that

these extra-contractual considerations were a part of, or

otherwise informed, the actual contracting for Second Chance

vests to be placed on the GSA MAS. The government’s broad

assertion that “[h]ad the United States known that the Second

Chance Zylon vests were defective and would not meet the above

benchmarks, the United States would not have accepted or paid

for the vests” makes perfect sense, but the government does not

substantiate with record evidence that its assertion stemmed

from a false warranty. Gov’t Opp’n to Toyobo’s Mot. for Partial

Summ. J. [293] at 26-27; see also Gov’t Opp’n to Toyobo’s Mot.

for Partial Summ. J. [109] at 35.

In defending against Toyobo’s motions for partial summary

judgment, the government also relies on the 6% guarantee in the

Second Chance catalog. This guarantee applies only to those

claims after the 2002 contract modification - - the time at

which the Second Chance catalog was properly incorporated into
 -31-

the terms of the agreement between the parties. The plain

language of the Second Chance catalog statement guaranteed that

the vests would not fail to perform at the certified V-50 level

within “normal statistical variation (+/-6%) during the five

year guaranteed life of the vest.” Second Chance Catalog

Statement at 5. Toyobo argues that the 6% guarantee is “an

explanation of how Second Chance would interpret its standard

commercial warranty,” i.e., if the vests deteriorated below 6%

of the certified V-50 level, the vest would be replaced or

repaired consistent with the standard commercial warranty.

Toyobo’s Mot. for Partial Summ. J. [270] at 17. This may be a

reasonable interpretation of the 6% guarantee, especially in

light of the warranty language that appears on the same page of

the Second Chance Catalog as the 6% guarantee. See Second

Chance Catalog Statement at 5. However, the government’s

reading of the 6% guarantee as an independent term of the

agreement may also be a reasonable interpretation of the

guarantee language. Neither party has put forward evidence that

negates either interpretation of the 6% guarantee. “If there is

more than one interpretation that a reasonable person could

ascribe to the contract, while viewing the contract in context

of the circumstances surrounding its making, the contract is

ambiguous.” Nextel Spectrum Acquisition Corp. v. Hispanic Info.

& Telecomm. Network, Inc., 503 F. Supp. 2d 334, 338 (D.D.C.
 -32-

2007) (citing Morgan v. American Univ., 534 A.2d 323, 330 (D.C.

1987)). “The choice among reasonable interpretations of an

ambiguous contract is for the fact-finder to make based on the

evidence presented by the parties to support their respective

interpretations.” Id. (citing Howard Univ. v. Best, 484 A.2d

958, 966 (D.C. 1984)). Since a jury must decide whether Second

Chance’s 6% guarantee was an express false certification for the

vests purchased from the GSA MAS after the 2002 contract

modification, Toyobo’s motion for partial summary judgment as to

those claims will be denied.

2. Implied false certification

The D.C. Circuit recently held

that to establish the existence of a “false or
fraudulent” claim on the basis of implied
certification of a contractual condition, the FCA
plaintiff - - here the government - - must show that
the contractor withheld information about its
noncompliance with material contractual requirements.
The existence of express contractual language
specifically linking compliance to eligibility for
payment may well constitute dispositive evidence of
materiality, but it is not, as [the defendant] argues,
a necessary condition. The plaintiff may establish
materiality in other ways, such as through testimony
demonstrating that both parties to the contract
understood that payment was conditional on compliance
with the requirement at issue.

Sci. Applications Int’l Corp., 626 F.3d at 1269. Relying on an

implied false certification theory, the government argues that

“[t]he invoices submitted by Second Chance constituted an

implied certification that the Zylon vests would meet their
 -33-

five-year warranty of ballistic performance and the 6% catalog

guarantee.” Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J.

[293] at 31. The government also argues that Second Chance’s

alleged failure to meet industry standards and NIJ-compliance

testing standards rendered the invoices impliedly false

certifications. Id. at 34.

The D.C. Circuit’s test for falsity based on an implied

certification theory requires the government to prove (1) that

Toyobo withheld information about its noncompliance with (2)

material contract requirements. Sci. Applications Int’l Corp.,

626 F.3d at 1269. The underlying dispute here - - whether a

material contract requirement existed that the bullet-proof

vests meet certain benchmarks for a five-year period - -

implicates the second prong of the D.C. Circuit’s test. 4 The 6%

guarantee is a contract term that might impose a durability

requirement, and a jury must determine that. Because the issues

of whether any material contract term imposes a durability

requirement for GSA MAS claims after the 2002 contract

4 Sci. Applications Int’l Corp. involved no dispute between
the parties that Science Applications International Corporation
(“SAIC”) was required to refrain from conflict of interest
relationships and to notify the government if any conflict of
interest relationships arose. 626 F.3d at 1261-65. Instead,
the key issue in Sci. Applications Int’l Corp. was whether
falsity based on the implied certification theory can be
satisfied when the contract does not expressly condition payment
on a particular obligation in the contract. Id. at 1264-65.
 -34-

modification was executed, and whether an implied false

certification theory applies in this matter cannot be decided at

the summary judgment stage, Toyobo’s motion for partial summary

judgment on the GSA MAS claims that arose after the 2002

contract modification was executed will be denied.

C. Fraudulent Inducement

“Although the focus of the FCA is on false ‘claims,’ courts

have employed a ‘fraud-in-the-inducement’ theory to establish

liability under the Act for each claim submitted to the

Government under a contract which was procured by fraud, even in

the absence of evidence that the claims were fraudulent in

themselves.” United States ex rel. Bettis v. Odebrecht

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

(citation omitted).

To prevail under [a] fraudulent inducement theory,
[the government] must prove not only that the omitted
information was material but also that the government
was induced by, or relied on, the fraudulent statement
or omission when it awarded the contract. . . . In
essence, the essential element of inducement or
reliance is one of causation. [The government] must
show that the false statements upon which [the
government] relied, assuming [it] establishes that it
did, caused [the government] to award the contract at
the rate that it did.

United States ex rel. Thomas v. Siemens AG, 991 F. Supp. 2d 540,

569 (E.D. Pa. 2014) (citing United States ex rel. Marcus v.

Hess, 317 U.S. 537, 543-44 (1943)). Toyobo presents two
 -35-

preliminary arguments as to why the fraudulent inducement theory

should not be considered in this case at all.

First, Toyobo argues that “to proceed under a fraudulent

inducement theory, the United States must prove that the 1995

contract was ‘originally obtained . . . through fraud.’”

Toyobo’s Mot. for Partial Summ. J. [270] at 23 (citing United

States ex rel. Head v. Kane Co., 798 F. Supp. 2d 186, 196-97

(D.D.C. 2011)); see also Toyobo’s Mot. for Partial Summ. J. [95]

at 26-27. The government argues that “[a] party can be

fraudulently induced to modify or extend a contract[,]” and that

the government was in fact fraudulently induced to modify the

contract to add Zylon vests. Gov’t Opp’n to Toyobo’s Mot. for

Partial Summ. J. [293] at 41-42 (citing United States ex rel.

Frascella v. Oracle Corp., 751 F. Supp. 2d 842, 855-56 (E.D. Va.

2010) and Veridyne Corp. v. United States, 86 Fed. Cl. 668

(2009)); see also Gov’t Opp’n to Toyobo’s Mot. for Partial Summ.

J. [109] at 35-36. Because each contract modification provided

an opportunity for Second Chance to add new products to the GSA

MAS program and a new opportunity for reliance on allegedly

false statements, there is no reason to limit the opportunities

for fraudulent inducement to the original 1995 contract. If

false statements were used to induce the government to make

bullet-proof vests available to various federal agencies, those

statements are a violation of the FCA whether they induced the
 -36-

government to make the initial contract or any subsequent

modifications.

Next, Toyobo argues that the fraudulent inducement theory

cannot be applied to it in this case because Toyobo did not

actually contract with the government itself. See Toyobo’s Mot.

for Partial Summ. J. [270] at 25-26; Toyobo’s Mot. for Partial

Summ. J. [95] at 28-29; Toyobo’s Reply [306] at 16-17. However,

Toyobo’s attempt to limit the fraudulent inducement theory in

such a way is at odds with that theory’s history in FCA

doctrine. The apparent genesis, or at least the prominent

beginning, of the fraudulent inducement theory under the FCA is

found in United States ex rel. Marcus v. Hess, 317 U.S. 537

(1943), superseded by statute on other grounds as recognized in

Schindler Elevator Corp. v. United States ex rel. Kirk, 131

S. Ct. 1885, 1893-94 (2011). See Odebrecht Contractors of Cal.,

Inc., 393 F.3d at 1326 (“The most prominent [fraudulent

inducement] case[] is United States ex rel. Marcus v. Hess.”).

In Hess, the Supreme Court held a group of potential federal

contractors liable under the FCA for colluding in the bidding

process and artificially increasing bid prices. 317 U.S. at

537, 539. The Court reasoned that the provisions of the FCA

“considered together, indicate a purpose to reach any person who

knowingly assisted in causing the government to pay claims which

were grounded in fraud, without regard to whether that person
 -37-

had direct contractual relations with the government.” Id. at

544-45. Hess shows that the lack of a direct contractual

relationship between Toyobo and the government should not end

the analysis. Indeed, only one of the bidders engaged in the

artificial bid inflation scheme in Hess ultimately received a

contract from the government, but all of the “bid-rigging”

companies were liable under the FCA. Toyobo’s preliminary

arguments do not present a barrier to applying the fraudulent

inducement theory in this case.

Regarding the parties’ substantive arguments, the

government claims that “Toyobo’s withholding of key degradation

information and releasing data that it had manipulated in order

to present a more favorable degradation trend line” substantiate

a claim under the fraudulent inducement theory. Gov’t Opp’n to

Toyobo’s Mot. for Partial Summ. J. [293] at 44-45; see also

Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [109] at 37-

38. Assuming that the government is correct that Toyobo

manipulated data to present a more favorable degradation trend

line and that the government became aware of the data at some

point before a contract modification, the government would still

need to demonstrate that it relied on the manipulated data when

making the decision to initially contract or modify the

contractual agreement. See United States ex rel. Thomas, 991 F.

Supp. 2d at 569-70. The government has not presented any
 -38-

evidence that suggests that the government relied on the

allegedly manipulated data when making the contract

modifications to add Zylon vests to the GSA MAS. Indeed, Toyobo

has presented evidence which suggests that the data was not

relied upon by the government during the contract modifications.

See Carol Batesole Dep. at 55:1 – 55:13 (the negotiating party

for the GSA explaining that price, not scientific data served as

the basis for contract modifications). Because the government

has not presented any evidence that Toyobo’s allegedly

manipulated data caused the government to place the Zylon vests

on the GSA MAS, the government’s fraudulent inducement theory as

to those counts cannot survive.

Because Toyobo has sufficiently demonstrated that the

government cannot bear its burden to prove that false claims

were submitted or fraudulently induced in relation to those

Second Chance Zylon vests placed on the GSA MAS before 2002,

Toyobo’s Motions for Partial Summary Judgment [95, 270] on

Counts 1, 2, and 3 related to the vests placed on the GSA MAS

will be granted. Because a genuine dispute as to material facts

exists as to those Zylon vests purchased through the GSA MAS

after the 2002 contract modification, specifically under the

legal falsity analysis, Toyobo’s Motions for Partial Summary

Judgment [95, 270] on Counts 1, 2, and 3 related to those vests

will be denied.
 -39-

II. TOYOBO’S MOTIONS FOR PARTIAL SUMMARY JUDGMENT ON BPVGPA
COUNTS

The government alleges that Toyobo fraudulently induced

contracts between various agencies and Second Chance that were

partially reimbursed under the BPVGPA. See United States’ Mem.

of P. & A. in Opp’n to the Mot. for Partial Summ. J. of Defs.

Toyobo Co. Ltd. and Toyobo America, Inc., 04-cv-280, ECF No. 357

(“Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [357]”) at

25; Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [109] at

34-35. The government’s fraudulent inducement theory for the

BPVGPA counts is based on the claim that Toyobo placed false

information into the market that caused the individual agencies

to purchase the Zylon vests, for which the government partially

reimbursed the agencies. Gov’t Opp’n to Toyobo’s Mot. for

Partial Summ. J. [357] at 11-13; Gov’t Opp’n to Toyobo’s Mot.

for Partial Summ. J. [109] at 34-35. Toyobo’s second motion for

partial summary judgment attacks the government’s fraudulent

inducement theory on three grounds. 5 Toyobo’s Mot. for Partial

5The government’s brief opposing Toyobo’s dispositive
motion on the BPVGPA counts does not defend against Toyobo’s
argument that no claims submitted for the BPVGPA program were
factually false or legally false. Instead, the government
argues that “Toyobo’s (1) fraudulent inducement of Government
officials involved with the BPVGPA program, the federal
researchers who attempted [to] determine Zylon’s effectiveness
as a ballistic-resistant material and the Agencies that
purchased bulletproof vests, [and the] (2) misconduct in causing
Second Chance to make implied false certifications relating to
its warranties and catalog guarantees,” sufficiently establish
 -40-

Summ. J. [343] at 17-19. First, Toyobo argues that there was no

contract between Toyobo or Second Chance and the government

under the BPVGPA program. Id. at 17; Toyobo’s Mot. for Partial

Summ. J. [95] at 28. While neither Toyobyo nor Second Chance

had a direct contract with the federal government for the vests

sold under the BPVGPA program, there were contracts between

Second Chance and the various agencies. Each sale of a vest to

an agency that was later reimbursed by the federal government

through the BPVGPA program was a contract to which Second

Chance, and consequently Toyobo, bore a significant relationship

as direct supplier, and materials-provider, respectively. As is

discussed above, demonstrating falsity under a fraudulent

inducement theory does not necessarily require a contractual

relationship between the government and the party alleged to

have engaged in the fraudulent inducement. Toyobo’s argument

that the lack of a direct contractual relationship between it

and the federal government entitles it to partial summary

judgment on the BPVGPA counts fails.

Second, Toyobo argues that no false statements were made.

Toyobo’s Mot. for Partial Summ. J. [343] at 18; Toyobo’s Mot.

for Partial Summ. J. [95] at 30. Toyobo suggests that “it would

an FCA claim. Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J.
[357] at 2-3. Toyobo’s attack on the government’s factual and
legal falsity theories as to the BPVGPA counts accordingly are
deemed conceded.
 -41-

have been impossible for Toyobo to have made any statements to

induce the government with respect to its BVPA reimbursements”

because “[t]he only relevant representation made to the

government when law enforcement agencies sought BVPA

reimbursement was that the vests were on the BJA’s list of NIJ-

certified vests.” Toyobo’s Mot. for Partial Summ. J. [343] at

18; Toyobo’s Mot. for Partial Summ. J. [95] at 30. The

government argues that it was fraudulently induced to make

reimbursements due to false statements made by Toyobo that were

relied on by the various agencies when they selected vests.

Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [357] at 25;

Gov’t Opp’n to Toyobo’s Mot. for Partial Summ. J. [109] at 38-

39. Specifically, the government alleges that Toyobo “assured

the industry that it had not found any serious indication of

Zylon strength degradation” when Toyobo actually did have such

data. United States’ Separate Statement of Undisputed Material

Facts in Supp. of its Mot. for Partial Summ. J. or, in the

Alternative, Summ. Adjudic’n of Issues, Against Defs. Toyobo Co.

Ltd. and Toyobo America, Inc., 04-cv-280, ECF No. 344-4 (“Gov’t

SUMF [344]”) at ¶ U.S. Fact 62; 6 Gov’t SUMF [97] at ¶ U.S. Fact

62. Furthermore, the government alleges that Toyobo released

into the market manipulated Zylon degradation data. Gov’t SUMF

6The government incorporated by reference Gov’t SUMF [344]
into Gov’t SUMF [357].
 -42-

[344] at ¶ 117; Gov’t Opp’n to Toyobo’s Mot. for Partial Summ.

J. [109] at 37. Toyobo disputes both of these allegations.

Resp. of Toyobo Co. Ltd. and Toyobo America, Inc. to United

States’ Separate Statement of Undisputed Material Facts in Supp.

of its Mot. for Partial Summ. J., or in the Alternative, Summ.

Adjudic’n of Issues Against Defs. Toyobo Co. Ltd. and Toyobo

America, Inc., ECF No. 358-1 (“Toyobo’s SUMF [358]”) at ¶¶ 62,

117. This factual dispute as to the nature and validity of

Toyobo’s assurances to the market present a genuine dispute as

to material facts that cannot be resolved at the summary

judgment stage. Moore, 571 F.3d at 66. If Toyobo provided

invalid assurances to the market and put manipulated data into

the marketplace, that could allow the government to demonstrate

that it was fraudulently induced to reimburse for vests that

agencies selected in reliance on Toyobo’s assertions.

Third, Toyobo argues that the fraudulent inducement theory

should not extend to third parties and that the nexus between

Toyobo and the “claim” that was presented to the government is

too attenuated. Toyobo’s Mot. for Partial Summ. J. [343] at 18-

19; Toyobo’s Mot. for Partial Summ. J. [95] at 31-32. Since

demonstrating falsity under a fraudulent inducement theory does

not necessarily require a contractual relationship between the

government and the party alleged to have engaged in the

fraudulent inducement, Toyobo’s third party liability argument
 -43-

is insufficient in and of itself to warrant partial summary

judgment. Toyobo’s argument that the nexus between the

government and Toyobo on the BPVGPA counts is too attenuated may

deserve further attention if the government sufficiently proves

that Toyobo disseminated false information. However, there is

no need to reach this issue now. If the government cannot prove

that Toyobo actually disseminated false information, which is

currently in dispute, then there may be no reason to turn to

Toyobo’s attenuation argument. This issue cannot be properly

resolved on the current motion for partial summary judgment

because reaching the question requires resolution of a genuine

dispute as to material facts.

Because a genuine dispute as to material facts exists,

Toyobo’s motion for partial summary judgment [343] will be

denied, and Toyobo’s motion for partial summary judgment [95] as

to the BPVGPA counts will be denied.

III. GOVERNMENT’S MOTION FOR PARTIAL SUMMARY JUDGMENT

The government “seeks partial summary judgment, or in the

alternative, summary adjudication of issues, on liability only

with respect to a portion of the United States’ claims for

violations of FCA Sections 3729(a)(1) and (2).” Gov’t Mot. for

Partial Summ. J. [344] at 1; see also Gov’t Mot. for Partial

Summ. J. [97] at 2. Only the vests related to the GSA MAS

program are at issue in the government’s motion. Gov’t Mot. for
 -44-

Partial Summ. J. [344] at 1 n.1; see also Gov’t Mot. for Partial

Summ. J. [97] at 2 n.3. As is discussed above, a genuine

dispute as to material facts exists on the GSA MAS-related

counts, specifically whether the 6% guarantee contains the

durability requirement that the government claims. Thus, the

government’s motions for partial summary judgment [97, 344] will

be denied.

CONCLUSION AND ORDER

For the foregoing reasons, it is hereby

ORDERED that Toyobo’s Motion for Partial Summary Judgment

in Civil Action 04-280 [270], and Toyobo’s Motion for Partial

Summary Judgment in Civil Action 07-1144 [95], be, and hereby

are, DENIED in part and GRANTED in part. Summary judgment is

granted as to the government’s claims related to Zylon vests

sold off of the GSA MAS before the 2002 contract modification,

but denied as to the government’s claims related to Zylon vests

sold off of the GSA MAS after the 2002 contract modification.

It is further

ORDERED that Toyobo’s Motion for Partial Summary Judgment

in Civil Action 04-280 [343] be, and hereby is, DENIED. It is

further

ORDERED that the United States’ Motion for Partial Summary

Judgment in Civil Action 04-280 [344] be, and hereby is, DENIED.

It is further
 -45-

ORDERED that the United States’ Motion for Partial Summary

Judgment in Civil Action 07-1144 [97] be, and hereby is, DENIED.

It is further

ORDERED that all pending motions in limine in Civil Action

04-280, namely, ECF Nos. 374, 375, 376, 377, 378, 379, 380, 381,

382, 383, 384, 385, 386; and Civil Action 07-1144, namely, ECF

Nos. 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134,

be, and hereby are, STAYED. The parties shall confer and file a

joint status report no later than 11/4/2015 detailing which

motions in limine still must be resolved after this Opinion and

setting forth a proposed schedule on which these cases should

proceed.

SIGNED this 4th day of September, 2015.

/s/
________________________
RICHARD W. ROBERTS
Chief Judge