The district court denied the defendants’ motion to dismiss a qui tam action alleging they falsified quality test reports for certain engine parts for Air Force fighter jets. The defendants argued the relator failed to describe the details of the alleged scheme, failed to show that any false claims were submitted, and failed to prove that the allege violation was material. However, the court found the relator specifically described how quality test results were falsified and tied this violation to the contract’s specific instructions. The court also found it beyond contention that the relator alleged the defendants had submitted false claims, as the government was the only customer for the manufactured item. The court also found the question of materiality was open, even though the government continued to award contracts to the defendants and pay invoices. The court was persuaded by the relator’s assertions that the defendants are the government’s sole source for the jet engines, that finding a replacement contractor would be time-consuming and expensive, and that the government could have addressed the alleged fraud in the follow-on contracts.
United Technologies Corporation and Pratt & Whitney moved to dismiss a qui tam action alleging the companies submitted false claims to the Department of Defense and fired relator Peter J. Bonzani Jr. in retaliation for his protected activity.
In his complaint, Bonzani alleged the defendants failed to follow contractually required processes for manufacturing rotors for the F-22 and F-25 fighter jet engines. Bonzani was hired by PW to assist in all aspects of robotic spray coating of military jet engine parts and was directed to determine why recent test samples were failing the contractually required testing, when they had passed earlier tests. Bonzani discovered that earlier tests had been conducted with equipment that could be manipulated to produce the required results. When Bonzani reported his findings that the lab employees had “cheated” and taken short cuts to obtain he required test results with the older equipment, he was interrogated, placed on leave, and escorted from PW’s facility. Ninety days later, his employment was terminated. This action followed.
In his complaint, Bonzani asserted that these falsified lab reports contravened PW’s contact, which incorporated FAR and DFARS provisions requiring PW to maintain a quality-control system, to certify conformance with the contract, and to abide by PW’s own manual as the higher-level contract quality requirement. Bonzani also alleged illegal retaliation for his protected activity.
In their motion to dismiss, the defendants argued that Bonzani’s complaint failed to discuss key details about the spray coating and testing specifications at issue and how those requirements were allegedly violated, failed to identify any actual nonconforming parts produced and delivered to the government, and failed to show the existence and content of any false statements made to the government concerning these parts. The court considered each argument in turn.
First, the defendants argued Bonzani failed to detail the content of the spray-coating and test specifications he alleged they failed to follow, and therefore could not demonstrate contractual noncompliance. However, the court found the relator had in fact identified the underlying test specification that defendants failed to follow. For example, the complaint sufficiently pled that the contract adopted the PW Manual as the higher-level contract requirement and that defendants therefore were required to adhere to the standards and process set forth in the PW Manual. The court found that manual required that the sample rotors be constructed and spray-coated under conditions that mimic the manufacture of the actual rotors.
Because the lab manipulated the equipment used for the quality control tests to ensure the sample items passed the tests, PW could not show that the actual rotors would be manufactured under the same conditions. The court held that Bonzani plausibly alleged that the sample parts were able to pass quality testing in the past solely because the tests were not performed according to the contractually required quality control requirements. Further, the court held the relator showed how this violated the requirements of the PW Manual, which was incorporated into the contract as a quality control requirement. The court also held that Bonzani plausibly asserted that PW failed to adhere to the contractually required inspection system.
Next, the defendants argued that the complaint failed to plead the details of the fraud from 2012 to 2015—the period before Bonzani inspected the plant—with particularity and plausibility and failed to allege with particularity and plausibility that defendants produced or delivered a single nonconforming part. However, the court disagreed. The court found the relator alleged that every rotor for every F-22 engine manufactured for the government under the contract was spray-coated at the same facility, using the same equipment that Bonzani determined was improperly manipulated.
During his time at the facility, Bonzani was told there had been no changes to the spray techniques, materials, or equipment from 2012 to the date of his inspection. Bonzani concluded that the test failures he was tasked to investigate should have occurred several years prior, and would have absent the manipulation of the equipment.
Bonzani also alleged that employees at the plant explained how the tests were manipulated, that this was an ongoing issue, and that this issue was common knowledge. The court found the relator provided a sufficient factual basis for his claims. The court also held that the defendants’ own conduct supported Bonzani’s allegations. Within twenty-four hours after Bonzani had discovered the alleged fraud and notified management of his concerns, defendants suspended him.
Next, the defendants argued Bonzani failed to show they had ever produced or delivered a nonconforming engine. However, the court first noted Bonzani had identified the applicable contract term governing spray-coating and testing the parts, and explained how PW violated it. Therefore, the court held that Bonzani plausibly alleged with particularity that the defendants delivered nonconforming parts to the government. The court explained that the relator did not have to identify exactly when a single nonconforming part was delivered, but satisfied his pleading requirement by describing in detail the contractual requirements and the violations.
Finally, the defendants argued Bonzani did not create a strong inference that any false claims were submitted. The court again disagreed, finding that the defendants manufactured and sold F119 engines to the government under a contract, and, in return, the government paid the defendants roughly $3.7 billion. In this case, the contract involved one government buyer and only nonconforming parts. Further, the defendants certified compliance with the contract every time they requested payment for an engine delivered to the government. The court found it would stretch the imagination to infer that false claims were not submitted.
The court also held Bonzani satisfied the materiality standard by pleading that adherence to the relevant contractual provisions constituted a condition of payment. Bonzani asserted that the contract preserves the government’s right to withhold consideration for a variance at the time of delivery which may be returned to the contractor upon resolution of the variance. Bonzani argued this was a condition of payment and the court agreed that the complaint adequately characterized the issue in contention as within the contract’s definition of variance and noncompliance. Bonzani also argued that the defendants’ failure to adhere to this contractual provision affects the reliability of the engine, and creates a defect that cannot be eliminated by repair. The court found the government could withhold payment based on this issue.
The court also agreed that the defendants were aware of the materiality of the issue. Employees at the facility manipulated equipment so that the rotors would be manufactured to meet standards that would allow them to pass the relevant tests. After the equipment was upgraded, the rotors no longer passed the tests and production was halted and PW outsourced the spray-coating to another company. This evidence suggested the defendants understood the contractual requirements involving proper spray-coating protocols to be material to the government’s payment decision.
The defendants argued the government continued to award contracts and make payments to PW after the allegations were raised, suggesting the requirement was not material. In response, Bonzani noted that the government had many reasons to continue to buy engines and parts from PW, its only supplier. The engines are sophisticated technology manufactured exclusively by the defendants, and any changes could cause significant delay and additional expense. Bonzani argued that absent discovery, the parties don’t know why the government entered into the new contract or what terms were negotiated. The court agreed, finding that a reasonable person would find the spray-coating requirements material to the government’s decision to accept delivery of the parts and pay the invoices. Further, the court again noted that the defendants’ decision to halt production and outsource the spray-coating process suggested they believed the contract provision was important.
Finally, the court found that Bonzani had adequately pled scienter. Bonzani presented evidence showing the original equipment had been manipulated to allow the parts to pass quality tests, that the manipulation was not accidental, and that the manipulation was common knowledge outside the lab. The defendants knowingly used the wrong spray gun for several years and continued to do so after Bonzani recommended a different one. Further, upon inspection of the engine parts, Bonzani concluded that the defects caused by the inappropriate equipment and processes were readily apparent.
