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False Claims Act Statistics, News & Analysis

District Court Shreds Defendant's Hopes of Summary Judgment on Materiality Due to Government's "Mixed Signals"

In a decision earlier this Spring, the D.C. District Court denied cross-motions for summary judgment in a government-intervened implied false certification suit alleging that defendant Capitol Supply sold document shredders through the General Services Administration (“GSA”) website that did not comply with the Trade Agreements Act (“TAA”) because they were manufactured in China. United States ex rel. Scutellaro v. Capitol Supply, No. 10-1094, 2017 WL 1422364 (D.D.C. Apr. 19, 2017).  The court’s decision leaves the parties to march onwards towards trial, which currently is set for early August, but may be postponed at least a month due to the temporary unavailability of a key government witness on the issue of materiality.

The government, relator, and Capitol Supply moved for summary judgment on whether Capitol Supply’s alleged failure to comply with the TAA was material, with each arguing that the court could decide the issue in their favor as a matter of law. The court disagreed. As to the government’s and relator’s motion, it noted that the GSA sent Capitol Supply seventeen notices of noncompliance with the TAA and a Cure Notification Letter declaring its performance unacceptable due in part to its noncompliance.  But the GSA also never gave Capitol Supply a negative mark for country of origin tracking during its regular Contractor Assistance Visits, and, during the course of this seven year lawsuit, actually renewed seven of Capitol Supply’s contracts, and awarded it two new ones. These facts seem like grade-A fodder for the defendant to make an Escobar-type materiality argument that payment with knowledge of noncompliance is strong evidence that a requirement is not material.  Capitol Supply did not mention materiality in its opening summary judgment brief, which was filed pre-Escobar. After requested by the court, it filed a supplemental brief on materiality, but the court appears to have overlooked its arguments that the government’s noncompliance letters and contract renewals showed that compliance was not material. Instead, the court considered, then rejected, Capitol Supply’s other argument that because the country of origin would have been “marked in a conspicuous place” on the products, the government’s failure to reject them indicates a lack of materiality. The court declined to grant summary judgment to any party, finding that the “mixed signals” being sent by the GSA left materiality as a fact issue best left for the jury. We expect Capitol Supply will have strong arguments on materiality at trial based on the plain language of Escobar and follow-on cases such as McBride, where payment with knowledge of noncompliance was sufficient to defeat materiality.

The Public Disclosure Bar
Capitol Supply also moved for summary judgment based on the public disclosure bar, arguing that the information in the complaint had previously been disclosed in a subscription-based online database, the public docket in a previous case, and sales information collected through FOIA requests.  The court denied Capitol Supply’s motion because although one could conceivably have pieced together TAA violations by cross-checking the U.S. Customs and FOIA information with the GSA website, “nothing in the public domain . . . disclosed that the defendant was selling” noncompliant products to the government.  No single public disclosure evidenced that Capitol Supply sold TAA noncompliant products to the government. The database reports “nowhere mention[] the defendant,” nor did the expert report in the previous case directly refer to Capitol Supply, which was not a defendant in that case. And even though FOIA responses may constitute a public disclosure, the information obtained through FOIA requests did not specifically contain country of origin information for the products . The court also held that a prior lawsuit against Capitol Supply involving the same GSA contracts did not qualify as a public disclosure because the prior complaint had been dismissed under Rule 9(b), and could not have meaningfully alerted the government to the alleged fraud in the instant case.

The court also ruled that there were genuine issues of material fact as to scienter and damages. We will continue to monitor this case for noteworthy developments as it proceeds to trial. 

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Morgan Kelley Summer Associate