In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 15‐1866
UNITED STATES ex rel. DEBRA MARSHALL, et al.,
Plaintiffs‐Appellants,
v.
WOODWARD, INC.,
Defendant‐Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:06‐CV‐01746 — Gary S. Feinerman, Judge.
____________________
ARGUED OCTOBER 29, 2015 — DECIDED DECEMBER 11, 2015
____________________
Before FLAUM, MANION, and ROVNER, Circuit Judges.
FLAUM, Circuit Judge. Plaintiffs Debra Marshall and Peggy
Thurman bring this qui tam action against Woodward, Inc.
under the False Claims Act (“FCA”). Plaintiffs allege that
Woodward falsely certified helicopter engine parts that it
sold to the government. They also claim that Woodward vio‐
lated the FCA and Illinois state law by terminating their em‐
ployment. In the district court, Woodward moved for sum‐
2 No. 15‐18666
maryy judgment.. The courtt granted th he motion, holding th
hat
even if Woodwa ard made fa alse statemeents to the governmen nt,
no reasonable ju ury could find that W Woodward d did so know
w‐
ingly and that the statemments weree material. The distriict
courtt also rejecteed plaintifffs’ retaliatio
on claims. M
Marshall an
nd
Thurm man appeal and for th he reasons tthat follow, we affirm.
I. Background
d
Woodward is
W s a governm ment contraactor that m manufactures
parts used in miilitary aircrrafts. One o of these parrts, the “T7000
HMU U,” regulatees fuel floww for engiines in Blaackhawk an nd
Apache helicoptters. Woodw ward sells the T700 H HMU to Gen‐
eral EElectric (“GE”) for inco orporation into helicop pter enginees.
It also
o sells the part directtly to the U
U.S. Departtment of D
De‐
fense (“DOD”) ffor spare an nd replacem ment parts.
On ne of the co
omponentss of the T7000 HMU is the “T2 sen‐
sor,” which helpps regulatee fuel flow by measurring changes
in airr temperatuure. A pictu
ure of the T22 sensor is included b be‐
low:
The ssensor has a a coil end a and a belloows end con nnected by y a
capilllary tube. TThe coil end d measuress changes in n air tempeer‐
ature. Any chan nge in temp perature caauses alcoh
hol containeed
in thee capillary tube to ex
xpand or ccontract, w
which in turrn
triggeers movement in the b bellows end d and contrrols fuel flo
ow
No. 15‐1866 3
to the engine. Crucially, the functionality of the sensor de‐
pends on the amount of alcohol in the capillary tube; if any
alcohol leaks, the sensor will add more fuel than it should. A
defective sensor can cause the engine to smoke, decrease
thrust, lose horsepower, or burn up.
The T2 sensor has a total of eight “sealing joints” that
connect the various parts of the component and contain the
alcohol. Joints are sealed by “brazing,” a process that joins
two metal surfaces by melting a filler metal. Woodward clas‐
sifies its joints by category, such as Grade A, Grade B, and so
forth. These classifications help determine what procedures
are used to braze the joint and how the joint is inspected for
imperfections. One of the T2 sensor’s sealing joints, the joint
that connects the capillary tube to the sensor head at the bel‐
lows end, is designated as a Grade A joint (hereinafter “the
Grade A joint”). Plaintiffs allege that Woodward failed to
properly braze and inspect the Grade A joint.
Woodward, like every military supplier, must follow a
set of comprehensive quality requirements. Woodward de‐
velops these requirements and certifies compliance with
them when delivering parts and requesting payments. The
procedure for brazing and inspecting joints is generally gov‐
erned by Woodward’s Shop Procedure 865 (“SP‐865”).
Woodward can revise provisions of SP‐865 without notifying
or obtaining consent from GE or the DOD. Further require‐
ments for the Grade A joint are set forth in engineering
drawings and process drawings. The parties disagree about
the specific requirements for the Grade A joint, including: (1)
the appropriate diametrical clearance (i.e., the distance be‐
tween the capillary tube and the sensor head); (2) how “stop‐
off” and “flux” (materials used during the brazing process)
4 No. 15‐1866
are removed and detected; and (3) whether the joint’s non‐
visible edge must be inspected by an alternative to visual ex‐
amination, such as by X‐ray.
Whenever Woodward ships parts to GE or the DOD, it
must include a “Certificate of Conformance,” in which it
confirms that all shipments are “in the Quantities and Quali‐
ty called for, and were in all respects in accord with the ap‐
plicable specifications.” The district court assumed, and the
parties do not dispute on appeal, that Woodward certifies
that it has followed its quality requirements in manufactur‐
ing each part by including these certificates. Neither GE nor
the DOD accepts shipments without a certificate.
Prior to their termination in 2005, plaintiffs Marshall and
Thurman were long‐time employees of Woodward. They re‐
ceived all of their training at Woodward. Neither has a col‐
lege or technical degree. Both Marshall and Thurman
worked on the T2 sensor at Woodward. They were tasked
with brazing various joints on the sensor, but not the Grade
A joint.
On April 6, 2005, Marshall attended a meeting with T700
engineer Heather Diedrich, senior X‐ray technician Mark
Frutig, and two other engineers. Diedrich noted an increased
incidence of leakage in the T2 sensor. Marshall volunteered
to investigate the problem and asked Frutig to X‐ray the
Grade A joint. Based on Frutig’s findings and her own in‐
spection, Marshall determined that the diametrical clearance
of the joint was too small, that stop‐off and flux were not
removed, that there was insufficient braze in the joint, and
that braze from another joint was “masking” the problems
with the Grade A joint. Marshall also learned from Frutig
that the Grade A joint was not typically inspected by X‐ray.
No. 15‐1866 5
She concluded that the joint did not meet Woodward’s quali‐
ty standards and that the part was unsafe.
That same day, Marshall relayed her conclusions to her
direct supervisor, Mark Meichtry, and Meichtry’s supervisor,
Steven Gorman. In a series of emails, Marshall stated that
she would not perform her assigned tasks on the T2 sensor
until her concerns were properly addressed. Thurman was
included on some of these emails. On April 7, Meichtry re‐
sponded with an email to Marshall and Thurman saying,
“[l]et’s keep this job moving.” Marshall continued to inspect
leaking parts and reiterated her earlier findings. Frutig also
sent an email expressing the same concerns as Marshall. On
April 11, Marshall placed a hold on the production of T700
parts.
Diedrich and senior engineer David Kuchinski investi‐
gated Marshall’s concerns. On April 12, Meichtry informed
plaintiffs that “[t]he hold issue has been discussed with the
engineers and engineering leaders and the consensus was
the parts are good to ship.” Still, Marshall and Thurman re‐
fused to resume work on the sensor. In response, Meichtry
sent an email to plaintiffs stating that “(1) it’s going to take
too much time and cost too much money to fix these prob‐
lems, (2) GE wants the parts regardless of the problems and
(3) it’s the two of you against the world.” In addition, manu‐
facturing engineer Doug Hollenberger commented to plain‐
tiffs that at Woodward, quantity is number one and quality
is number two. Marshall persisted. She informed Meichtry
that she was going to disclose her concerns to the DOD. On
April 13, Meichtry suspended Marshall and sent Thurman
home early the next day.
6 No. 15‐1866
Later on April 14, Meichtry called Marshall and Thurman
into Woodward for a meeting with Diedrich, Gorman, hu‐
man resources manager Carol Smith, and quality director
Spitaman Tata. Gorman reiterated that the engineers had
concluded that the parts were “okay.” According to plain‐
tiffs, Gorman claimed that the sensors “leak slowly.” Mar‐
shall persisted in her objection. She maintained that another
joint masked the problems with the Grade A joint. She asked
that Woodward study the problems further. Tata agreed to
provide more X‐rays of the joint but the parties were other‐
wise unable to reach an agreement on how to proceed.
At 10:30 that night, Marshall and Thurman returned to
Woodward, gathered scrap T2 sensor parts, and cut two of
them open. Marshall claims she identified masking in these
parts.
On April 18, Meichtry and Diedrich provided plaintiffs
with sixteen X‐ray images of the joint. Only two of the imag‐
es were discernable. Although the discernable X‐rays
showed evidence of masking, Diedrich and another engineer
concluded that it was not problematic. Plaintiffs continued
to refuse to work on the T2 sensor. At that point, Meichtry
asked Marshall and Thurman to leave Woodward. The par‐
ties dispute whether they were fired or merely suspended.
The next day, Marshall called a Woodward hotline for re‐
porting suspected violations of Woodward’s quality policies.
Marshall left a message echoing her belief that there was “a
safety issue on the T700 sensor.” She claimed that the sensor
“does not meet the SP on the bellow end of the part … .” In
response to Marshall’s message, Woodward’s General Coun‐
sel Robert Reuterfors referred the matter to Woodward’s
Business Conduct Oversight Committee (“BCOC”). Reuter‐
No. 15‐1866 7
fors told plaintiffs that they were on administrative leave
with pay pending the BCOC’s investigation.
Reuterfors asked senior engineer Ted Erickson to conduct
a special review of plaintiffs’ concerns and instructed him
that “[y]our overriding instruction … is to prepare a report
that is accurate and correct from the standpoint of profes‐
sional engineering analysis. If you agree with the concerns
… you should say so and let the chips fall where they may.”
Erickson concluded that the Grade A joint was not inferior,
the diametrical clearance was proper, using stop‐off did not
affect the joint’s quality, X‐ray inspection was not necessary,
and any masking was not relevant. In a separate investiga‐
tion, Tata agreed with Erickson’s conclusions.
Based on these findings, the BCOC determined that
plaintiffs’ allegations were not credible and that they had
acted unreasonably by refusing to work. The BCOC advised
that Woodward would be justified in terminating them. On
May 6, 2005, Marshall and Thurman met with Meichtry and
Kirk Snyder, the leader of the group that produces the T2
sensor. Plaintiffs remained unwilling to work on the sensor,
and Snyder terminated them—for the second time, accord‐
ing to plaintiffs.
Meanwhile, on April 26, Marshall and Thurman met with
DOD Special Agent Daniel Boucek and expressed their con‐
cerns regarding the T2 sensor. Plaintiffs then met with De‐
fense Contract Management Agency Technical Specialist
Harrison DySard. DySard decided to review plaintiffs’ con‐
cerns. Under the pretense of a general audit, DySard investi‐
gated Woodward’s manufacturing process for the T2 sensor.
He reviewed Woodward’s operations, engineering drawings,
and procedures and met with Woodward engineers. DySard
8 No. 15‐1866
also consulted with his counterpart on‐site at GE, Ed Craft.
During DySard’s investigation, Tata falsely stated to DySard
that the Grade A joint was regularly inspected by X‐ray.
In an email to Boucek, DySard concluded that there was
“nothing either incorrect or wrong with the procedures, as‐
sembly, or testing of the sensors.” He noted that “[t]he spe‐
cific claim that the sensor was supposed to be x‐rayed but
hadn’t was found to be false based on a review of the x‐ray
records for that part.” Similarly, GE conducted its own inves‐
tigation and also concluded that there was no cause for con‐
cern. The government continues to order, pay for, and use
Woodward’s T2 sensor.
On March 30, 2006, plaintiffs filed a complaint under seal
in the Northern District of Illinois. The United States de‐
clined to intervene and the district court unsealed the com‐
plaint. Plaintiffs filed an amended complaint in March 2012.
Following discovery, Woodward moved for summary judg‐
ment and on March 27, 2015, the district court granted
Woodward’s motion. Marshall and Thurman appeal.
II. Discussion
We review a district court’s grant of summary judgment
de novo, examining the record in the light most favorable to
the nonmoving party. U.S. ex rel. Feingold v. AdminaStar Fed.,
Inc., 324 F.3d 492, 494 (7th Cir. 2003). Summary judgment is
appropriate if there is no genuine dispute of material fact
and the nonmoving party is entitled to judgment as a matter
of law. Id. (citing Fed. R. Civ. P. 56(c)).
The district court granted Woodward’s motion for sum‐
mary judgment on plaintiffs’ claim that Woodward violated
the FCA by making false statements to the government and
No. 15‐1866 9
their claim that Woodward violated the FCA and Illinois law
by terminating them. Plaintiffs renew both of these argu‐
ments on appeal.
A. False Claims
To state a claim under the FCA, plaintiffs must show that:
(1) the defendant made a statement in order to receive mon‐
ey from the government; (2) the statement was false; (3) the
defendant knew that the statement was false; and (4) the
false statement was material to the government’s decision to
pay or approve the false claim. U.S. ex rel. Yannacopoulos v.
Gen. Dynamics, 652 F.3d 818, 822, 828 (7th Cir. 2011).
The district court expressly assumed that Woodward
made false statements to the government in its Certificates of
Conformance. But the court concluded that the false state‐
ments were made without knowledge of their falsehood and
were immaterial to the government’s decision to pay. On ap‐
peal, plaintiffs challenge these two conclusions.
1. Knowledge
Under the FCA, a defendant must make a “knowingly”
false statement. 31 U.S.C. § 3729(a)(1)(B). The FCA defines
knowledge to include actual knowledge, deliberate igno‐
rance, or reckless disregard for the truth; knowledge does
not require specific intent to defraud. § 3729(b)(1). Accord‐
ingly, knowingly false statements do not include those that
are the product of “[i]nnocent mistakes or negligence … .”
Yannacopoulos, 652 F.3d at 823 (citation and internal quota‐
tion marks omitted).
First, plaintiffs argue that proof of Woodward’s
knowledge turns solely on whether Woodward knew its
own quality requirements. They claim that it is undisputed
10 No. 15‐1866
that Woodward knows its own quality requirements and
thus, Woodward had the necessary knowledge for liability
under the FCA. However, this analysis overlooks the focus
of the knowledge inquiry: whether the false statements were
made with the requisite state of mind. Even if Woodward
was generally aware of its quality requirements, it lacked
“knowledge” if the particular false statements were the re‐
sult of a difference in interpretation or even negligence. Id.
Second, plaintiffs contend that Woodward did know that
their statements to the government were false. They point to
comments from Meichtry, Hollenberger, and Gorman as evi‐
dence that Woodward ignored quality concerns to meet its
customers’ demands. Plaintiffs claim that Woodward did not
take their concerns seriously and that the internal investiga‐
tions were insincere. But these stray remarks do not amount
to knowledge of falsity. They do not demonstrate that any‐
one at Woodward believed that plaintiffs’ concerns were val‐
id. And the evidence shows that Woodward did takes plain‐
tiffs’ concerns seriously. Woodward thoroughly investigated
plaintiffs’ allegations on at least two separate occasions.
Woodward’s engineers concluded that the parts were fine
and that the allegations were unfounded. Plaintiffs have not
produced evidence to show that Woodward’s investigations
were unreliable.
In fact, everyone at Woodward, including the engineers
who investigated plaintiffs’ concerns, disagreed with plain‐
tiffs. Meichtry and others in management deferred to Die‐
drich’s investigation. Even Frutig, who initially agreed with
Marshall, changed his mind based on the outcome of Die‐
drich’s investigation. Plaintiffs do not point to any evidence
that a decision‐maker at Woodward agreed with their con‐
No. 15‐1866 11
cerns at the time Woodward made the statements to the gov‐
ernment.
Plaintiffs maintain that Steve Krugler, a Woodward engi‐
neer, knew that the Grade A joint’s inspection procedure vio‐
lated Woodward’s quality requirements. In 1997, Krugler
removed the X‐ray requirement for the Grade A joint. Plain‐
tiffs allege that Krugler did not provide a compliant alterna‐
tive to X‐ray inspection and that he knew that this omission
violated Woodward’s quality requirements. However,
Krugler did not testify to that effect. Krugler explained at the
time that X‐ray inspection was unnecessary, and he reiterat‐
ed that belief during litigation. Instead, plaintiffs rely on tes‐
timony by their own experts, Roger Moseley and Jeff
Diestelmeier, to suggest that Krugler knew that X‐ray in‐
spection or another alternative inspection was required. Spe‐
cifically, Moseley testified that “when [Krugler] removed the
x‐ray inspection from this joint, he knew he had to do some‐
thing else and didn’t do it.”
Testimony regarding the knowledge of another person
based merely upon speculation is insufficient to demonstrate
a genuine issue of material fact. See Widmar v. Sun Chem.
Corp., 772 F.3d 457, 460 (7th Cir. 2014) (explaining that a
plaintiff must rely on more than “speculati[on] as to [a de‐
fendant’s] state of mind, or other intuitions, hunches, or ru‐
mors” to defeat summary judgment). Moreover, Moseley’s
testimony relates to knowledge existing roughly fifteen
years before the relevant time period. Hence, Moseley’s tes‐
timony is insufficient to show that Krugler had knowledge
that Woodward’s certifications were false at the time that
they were made. In sum, we agree with the district court that
12 No. 15‐1866
no reasonable jury could impute knowledge of falsity to
Woodward based on the evidence presented.
2. Materiality
Additionally, to prevail under the FCA, plaintiffs must
show that the allegedly false statements were material to the
government’s decision to pay. The FCA defines material as
“having a natural tendency to influence, or be capable of in‐
fluencing, the payment or receipt of money or property.”
§ 3729(b)(4). We have described this as an objective standard.
United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008) (“The
question is not remotely whether [the defendant] was sure to
be caught … but whether the omission could have influ‐
enced the agency’s decision. That’s an objective standard
… .”).
Plaintiffs make a circular argument that the materiality
inquiry should focus on whether Woodward’s certificates
were capable of influencing the decision to pay. According to
plaintiffs, because the government would not have paid
Woodward without a certificate and Woodward would not
have knowingly submitted a false certificate, a false state‐
ment on a certificate is necessarily material. We disagree.
Following plaintiffs’ logic, any false statement contained in a
certificate, no matter how inconsequential, would be materi‐
al. This would nullify the materiality requirement and make
even “minor technical violations” material. U.S. ex rel. Lamers
v. City of Green Bay, 168 F.3d 1013, 1019 (7th Cir. 1999) (“Such
minor technical violations … do not give rise to an FCA
claim.”).
Furthermore, our case law focuses on whether the false
statement itself, rather than the certificate or document con‐
No. 15‐1866 13
taining that statement, is capable of influencing the govern‐
ment’s decision. See, e.g., Yannacopoulos, 652 F.3d at 828 (fo‐
cusing on whether defendant’s “failure to check the proper
box in the Certification Agreement was a material false
statement”); Rogan, 517 F.3d at 452 (assessing whether the
“statement or omission” itself is material). Hence, the ap‐
propriate inquiry is whether Woodward’s allegedly false
statements—that the Grade A joint meets its quality stand‐
ards—are capable of influencing the government’s decision.
With this in mind, we conclude that Woodward’s false
statements were immaterial. The government learned of
plaintiffs’ concerns, thoroughly investigated them, and de‐
termined that they were meritless. To this day, the govern‐
ment continues to pay for and use the T2 sensor. Therefore,
the government’s actual conduct suggests that the allegedly
false statements were immaterial. GE also conducted an in‐
vestigation into plaintiffs’ allegations and reached the same
conclusion as the government. In addition, Woodward has
the right to change its shop procedures at any time without
the government’s permission. If specific quality standards
are truly material to the government’s decision to buy the
sensor, it would be odd to give Woodward a unilateral right
to change them.
Plaintiffs maintain that because materiality is an objective
standard, the government’s actual conduct is irrelevant.
However, as the district court correctly found, plaintiffs mis‐
interpret the materiality standard. Our prior case law estab‐
lishes that the government’s conduct is relevant to assessing
materiality. See, e.g., Yannacopoulos, 652 F.3d at 831 (consider‐
ing that “the agency failed to take action when it actually
learned of the supposed misrepresentation”); U.S. ex rel. Lus‐
14 No. 15‐1866
by v. Rolls‐Royce Corp., 570 F.3d 849, 855 (7th Cir. 2009) (“If
the military services knew what they were getting and de‐
cided to accept blades that [plaintiff] deems ‘inferior’ rather
than pay a higher price, then [defendant] will prevail on the
merits.”); Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732–
33 (7th Cir. 1999) (“[Plaintiff] has not offered any evidence
tending to show that the omission … was material to the
United States’ buying decision; the Department of Justice has
conspicuously declined to adopt [plaintiff’s] position or to
prosecute this claim on its own behalf. As far as this record
reveals, the federal government is 100% satisfied with the
blood products … .”).
Plaintiffs also challenge the reliability of the govern‐
ment’s investigation. Accordingly, plaintiffs argue that the
outcome of DySard’s investigation and the government’s
continued decision to pay for and use the sensor should not
be dispositive. They point to inadequacies in DySard’s inves‐
tigation, particularly that Tata falsely told DySard that
Woodward regularly inspected the Grade A joint by X‐ray.
However, DySard testified in his deposition that he was not
misled by Tata’s statement. He stated that he knew that
Woodward did not X‐ray the Grade A joint as part of its reg‐
ular inspection process. DySard also testified that Tata’s false
statement did not affect the outcome of his investigation. As
a result, plaintiffs’ attack on the government’s investigation
is unpersuasive. And even if the government was misled by
Tata’s false statement at the time, it has since been made
aware of Woodward’s actual practices yet continues to buy
and use the sensor. Hence, we agree with the district court
that Woodward’s allegedly false statements were not materi‐
al.
No. 15‐1866 15
B. Retaliation
Finally, plaintiffs bring claims for retaliatory discharge
under the FCA and Illinois state law. Plaintiffs allege that
they were terminated because they raised concerns with the
T2 sensor, which they argue is protected conduct under the
FCA and Illinois law. The district court held that plaintiffs
were terminated for insubordination and not for any pro‐
tected conduct.
To pursue a retaliation claim under the FCA, employees
must show that they were terminated because of their pro‐
tected conduct. 31 U.S.C. § 3730(h); Halasa v. ITT Educ. Servs.,
Inc., 690 F.3d 844, 847 (7th Cir. 2012). Similarly, under Illinois
law, Marshall and Thurman must demonstrate that they
were “(1) discharged; (2) in retaliation for [their] activities;
and (3) that the discharge violates a clear mandate of public
policy.” Darchak v. City of Chicago Bd. of Educ., 580 F.3d 622,
628 (7th Cir. 2009) (quoting Blount v. Stroud, 904 N.E.2d 1, 9
(Ill. 2009)). Although we have not squarely addressed this
issue, the parties agree that under both the FCA and Illinois
law plaintiffs must demonstrate “but for” causation. That is,
plaintiffs must show that they would not have been termi‐
nated but for their protected conduct.
Plaintiffs maintain that they were terminated by
Meichtry on April 18, an allegation we must accept on a mo‐
tion for summary judgment. They also point to the fact that
Marshall told Meichtry that she would disclose her concerns
to the DOD prior to their termination. Accordingly, plaintiffs
argue that Meichtry fired them in retaliation for Marshall’s
threat to disclose her concerns to the government.
16 No. 15‐1866
But even reviewing the record in the light most favorable
to plaintiffs, we agree with the district court that any reason‐
able jury would find that plaintiffs were terminated because
of their insubordination, not protected activity. First, we
agree with the district court that plaintiffs were in fact in‐
subordinate. Plaintiffs contend that they were following
their training to protect U.S. military personnel, and thus
were not insubordinate. But their training did not authorize
them to repeatedly refuse to resume working in the face of
direct commands from multiple supervisors and an investi‐
gation dismissing their concerns.
Second, we also agree with the district court that plain‐
tiffs’ insubordination was the but for cause of their termina‐
tion. Certainly, Woodward’s management was irritated by
plaintiffs’ allegations. But Woodward terminated Marshall
and Thurman only after investigating their concerns, inform‐
ing plaintiffs that their concerns were unfounded, and giv‐
ing plaintiffs multiple opportunities to resume their as‐
signed tasks. Instead, plaintiffs engaged in insubordination
by repeatedly refusing to work when faced with overwhelm‐
ing evidence contradicting their allegations. The BCOC in‐
vestigation, which determined that Woodward would be jus‐
tified in terminating plaintiffs because of their insubordina‐
tion, further bolsters the conclusion that plaintiffs were fired
because of insubordination, not protected activity. Therefore,
the district court correctly concluded that no reasonable jury
could find that plaintiffs were terminated because of pro‐
tected activity.
III. Conclusion
For the foregoing reasons, we AFFIRM the judgment of the
district court.