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U.S. EX REL. FARRELL v. SKF

March 7, 2002

UNITED STATES OF AMERICA EX REL. CHARLES
V.
FARRELL, PLAINTIFF/RELATOR, VS. SKF USA, INC. D/B/A MRC BEARINGS, DEFENDANT.



The opinion of the court was delivered by: Charles J. Siragusa, United States District Judge

Decision and Order

INTRODUCTION

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.

BACKGROUND

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 the packaging.

DISCUSSION

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

The False Claims Act is a Civil War statute, amended once in 1943 and again in 1986. It provides for criminal and civil penalties for presenting a false claim against the United States. From its enactment, it has carried a qui tam provision, short for qui tam pro domino rage QAM pro se ipso in hac parte sequitur ("Who brings the action for the King as well as for himself"). See United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853, 857 (7th Cir. 1999). The 1986 amendments added a "jurisdictional"*fn1 bar to qui tam actions to protect against parasitic lawsuits. Id. at 858 (citation omitted). The purpose of the qui tam provision is "to encourage and reward the exposure of fraud against the government. . . ." Id. at 859.

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 definition is,

(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 contamination.

Orcutt dep. at 102.

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.


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