The opinion of the court was delivered by: Charles J. Siragusa, United States District Judge
This qui tam action is brought by plaintiff/relator, a former employee
of defendant, claiming that defendant violated the False Claims Act,
codified at 31 U.S. Code § 3729 et seq., by presenting false claims
for payment for aerospace bearings. Relator alleges that the bearings
were not tested, cleaned, preserved and/or packaged for shipment in
accordance with military specifications as required in the contracts
between defendant and the U.S. government, as well as other contractors
who utilized the bearings to provide goods to the government as an
end-user. The case is now before the Court on relator's motion for
partial summary judgment and defendant's motion for summary judgment.
After considering the papers filed in support of and opposition to the
two motions, along with lengthy oral argument on October 25, 2001, the
Court grants relator's motion for partial summary judgment (finding that
MIL-P-197 was applicable to defendant) and grants defendant's motion for
summary judgment, dismissing the case.
Relator was an employee of SKF USA, doing business as MRC Bearings
("MRC" or "defendant") as a senior quality assurance supervisor until
June 1993. On May 14, 1993, MRC became aware of problems with the
cleaning and preservation tanks and the packaging systems at its plant.
This occurred when Jeffrey Kelly, a quality assurance representative for
Pratt & Whitney Canada, who had a permanent office at MRC's plant in
Falconer, New York, informed defendant's employee, Alan Lamb, that Pratt
& Whitney had detected cleanliness problems with certain MRC bearings.
Lamb and Kelly investigated and found problems in MRC's "white room."
They discovered that certain cleaning tanks in the white room were
dirty. Lamb paged relator and that was the first time relator learned of
the problems. Subsequent to being informed of the situation, defendant,
more specifically, discovered problems with bearing cleanliness for
bearings it manufactured from February 1991 through June 1993.
Relator told MRC management that, notwithstanding that MRC cleaned its
tanks and replaced the solvents, oils, and greases, MRC also had a duty
under the military specification MIL-P-197 to notify its customers of the
problem. Such customers included not only the U.S. government, but also
included customers who provided end products to the government made with
MRC bearings. MIL-P-197 is a military specification entitled "Packaging
of Bearings, Antifriction, Associated Parts and Subassemblies." It is a
process specification that was part of nearly all MRC contracts at issue
for the period of February 1991 to June 1993. Relator contends that MRC
did not comply with MIL-P-197 testing and bearing cleanliness standards
for the period; submitted government DD-250 payment voucher forms
asserting that MRC had complied with MIL-P-197; and failed to follow
contract specification obligations requiring MRC to notify the government
of non-conform- ing products.
In July 1993, defendant notified, among others, the Defense Contract
Management Command in Buffalo, New York ("DCMC-Buffalo") and General
Electric ("GE"), another of its customers, of the MRC bearing cleanliness
problems. The notification in the case of DCMC-Buffalo consisted of a
letter defendant sent stating in part that, "[r]esults of contamination
tests on bearings taken from stock and which were packaged between 2/91
and 5/93 indicated
that the cleanliness level of bearings was slightly
below MRC's expectation." G. Selden letter to DCMO-Buffalo (Jul. 16,
1993) at 1. Subsequently, in August 1993, MRC told GE that a certain
number of packaged bearings failed MRC's tests because of the presence of
abrasive-laden contaminates in the preservative oil and grease used in
Summary Judgment Standard
The law on summary judgment is well settled. Summary judgment may only
be granted if "the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c).
That is, the burden is on the moving party to demonstrate that the
evidence creates no genuine issue of material fact. Chipollini v. Spencer
Gifts, Inc., 814 F.2d 893 (3d Cir. 1987) (en banc). Where the non-moving
party will bear the burden of proof at trial, the party moving for summary
judgment may meet its burden by showing the evidentiary materials of
record, if reduced to admissible evidence, would be insufficient to carry
the non-movant's burden of proof at trial. See Celotex Corp. v. Catrett,
477 U.S. 317, 327 (1986). Once the moving party has met its initial
obligation, the opposing party must produce evidentiary proof in
admissible form sufficient to raise a material question of fact to defeat
a motion for summary judgment, or in the alternative, demonstrate an
acceptable excuse for its failure to meet this requirement. Duplantis v.
Shell Off-Shore, Inc., 948 F.2d 187 (5th Cir. 1991); Fed.R.Civ.P. 56(f).
Once the moving party has met its burden, mere conclusions or
unsubstantiated allegations or assertions on the part of the opposing
party are insufficient to defeat a motion for summary judgment. Knight v.
United States Fire Ins. Co., 804 F.2d 9 (2d Cir. 1986).
The court, of course, must examine the facts in the light most
favorable to the party opposing summary judgment, according the
non-moving party every inference which may be drawn from the facts
presented. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986);
Maguire v. Citicorp Retail Services, Inc., 147 F.3d 232, 235 (2d Cir.
1998). However, the party opposing summary judgment "may not create an
issue of fact by submitting an affidavit in opposition to a summary
judgment motion that, by omission or addition, contradicts the affiant's
previous deposition testimony." Hayes v. New York City, Department of
Corrections, 84 F.3d 614, 619 (2d Cir. 1996).
Subject Matter Jurisdiction
In its motion, defendant contends that relator's allegations fail to
meet the "subject matter jurisdiction" requirements of 31 U.S. Code
§ 3730(e)(4). That section provides in part that,
(4)(A) No court shall have jurisdiction over an action
under this section based upon the public disclosure of
allegations of transactions in a criminal, civil, or
administrative hearing, in a . . . congressional,
administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the
news media, unless the action is brought by the
Attorney General or the person bringing the action is
an original source of the information.
Section 3730(e) also contains a definition of "original source." That
(4)(A) For purposes of this paragraph, "original
source" means an individual who has direct and
independent knowledge of the information on which the
allegations are based and has voluntarily provided the
information to the Government before filing an action
under this section which is based on the information.
Defendant contends that relator has failed to prove subject matter
jurisdiction under this section by a preponderance of the evidence.
Defendant argues the record makes clear that this suit "is based upon
allegations of fraud which were the subject of an extensive
administrative investigation which was `publicly disclosed' as that term
is used in the statute." Memorandum of Law in Support of Defendant's
Motion for Summary Judgement ("Defendant's Memorandum") at 24-25.
Defendant maintains that Jeffrey Wickwire, one of the government's
quality assurance representatives, investigated the contamination issue
for the purpose of determining whether the bearings violated any contract
specifications during mid-May 1993. Defendant states that Wickwire's
investigation shows that the public officials who had managerial
responsibility for the "very claims being made," constituted a public
disclosure, citing United States ex rel. Mathews v. Bank of Farmington,
166 F.3d 853 (7th Cir. 1999) in support.
On the other hand, relator responds that he was the source of
information about the bearing cleanliness problems to DCMC's Quality
Assurance Branch Chief, Dennis Orcutt, Wickwire's supervisor, in a
telephone call to Orcutt on July 12, 1993, and the source of information
for G.E. Memorandum of Law in Opposition to Defendant's Motion for
Summary Judgment ("Relator's Opposition Memorandum") at 6. Relator also
contends that defendant understated the extent and severity of the
problem, thereby misleading Wickwire and Orcutt. Relator relies on cases
holding that notice of a contract violation to "low level governmental
officials" is insufficient to avoid liability under the False Claims
Act. See United States ex rel. Mayman v. Martin Marietta Corp.,
894 F. Supp. 218, 223-224 (D. Maryland 1995); United States ex rel.
Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir.
1991); United States ex rel. Kreindler & Kreindler v. United Technologies
Corp., 985 F.2d 1148 (2d Cir. 1993).
The threshold question is whether the bearing cleanliness problems were
publically disclosed. Relator does not dispute that it was Kelly of Pratt
& Whitney Canada who first brought the problem to MRC's attention on May
14, 1993. See Statement of Undisputed Facts ("Defendant Statement") at 6
13; Rule 56 Statement in Response to Defendant's Statement of Undisputed
Facts at ¶ 2. Nor,
does Relator dispute that MRC notified Wickwire, the
resident government quality assurance representative, on May 14, 1993.
Id. at ¶ 23. Rather, relator contends that defendant misled the
government as to the extent of the problems. On this point, relator also
relies on the July 16, 1993 letter of Gary Selden, defendant's quality
assurance manager, to DCMO-Buffalo (Jul. 16, 1993) at 1.*fn2 In this
correspondence, Seldon revealed only that "[r]esults of contamination
tests on bearings taken from stock and which were packaged between 2/91
and 5/93 indicated that the cleanliness level of bearings was slightly
below MRC's expectation," (emphasis added). This was a gross
understatement of the problems and even implied that the bearings still
met military specifications, but fell short only of MRC's own
specifications. Selden's cleverly worded letter obscured the issue of
whether the bearings violated military specifications, as is borne out by
Orcutt's deposition testimony, in which he stated that it was not until
receiving relator's information that he understood the degree of the
contamination. See Orcutt dep. at 102. Selden also told Orcutt, during
his July 13, 1993 visit to defendant's plant in Jamestown, New York, that
11 out of 32 pieces tested (34.4%) failed; yet, he told G.E. that 21 out
of 32 pieces tested (65.6%) failed. See Fleming aff.*fn3 at ¶ 22. In
this regard, Orcutt testified that after receiving Seldon's letter, he
received information from relator that influenced his understanding of
the degree of the contamination. He stated,
[t]here was the comment [slightly below
expectations], there was Mr. Farrell's [relator's]
phone calls and visits to me. There was a lack of
knowledge on my part to what degree this thing was.
There was a lack of knowledge on our part as to the
degree of contamination and the types of indications,
linear indications . . . [l]ength of a piece of
Further, Orcutt testified, in response to relator's counsel's
questioning, that despite MRC's tests after learning of the contamination
problem, MRC had a continuing duty to test all the materials used in the
manufacture of these precision bearings. Orcutt dep. at 232. MRC had an
obligation to see that contamination was at or under the allowed
contamina- tion in MIL-P-197. Id. at 233. Finally, Orcutt concluded that
MIL-P-197 would apply to defendant if it was a condition of the contracts
between the government and defendant for the manufacture of the
bearings. Id. at 233.