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Veridyne Corp. v. United States

United States Court of Appeals, Federal Circuit

July 15, 2014

VERIDYNE CORPORATION, Plaintiff-Cross-Appellant,
UNITED STATES, Defendant-Appellant

Page 1372

Appeals from the United States Court of Federal Claims in No. 06-CV-0150, Judge Christine O.C. Miller.

MARC LAMER, Kostos and Lamer, P.C., of Philadelphia, Pennsylvania, argued for plaintiff-cross-appellant.

ROBERT E. CHANDLER, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for defendant-appellant. With him on the brief were STUART F. DELERY, Acting Assistant Attorney General, JEANNE E. DAVIDSON, Director, STEVEN J. GILLINGHAM, Assistant Director, and DOUGLAS T. HOFFMAN Trial Attorneys.

Before DYK, CLEVENGER, and WALLACH, Circuit Judges.


Page 1373

Dyk, Circuit Judge.

Veridyne Corporation (" Veridyne" ) sued to recover on its contract with the government. The Court of Federal Claims (" Claims Court" ) held that Veridyne's contract claim was forfeited under the Forfeiture of Fraudulent Claims Act, 28 U.S.C. § 2514, also known as the Special Plea in Fraud Statute, but awarded Veridyne partial recovery under a quantum meruit theory. The government appeals the quantum meruit award. The Claims Court also awarded penalties to the government under the False Claims Act, 31 U.S.C. § 3729, and the antifraud provision of the Contract Disputes Act, 41 U.S.C. § 604 (2006) (recodified at 41 U.S.C. § 7103). Veridyne cross-appeals the award of penalties. We reverse the Claims Court's quantum meruit award to Veridyne and affirm the award of penalties to the government under the False Claims Act and Contract Disputes Act.

Page 1374


The contract in question was awarded pursuant to the Small Business Administration's (" SBA" ) 8(a) program. 15 U.S.C. § 637(a). This program is designed to help small, disadvantaged businesses. The program sets aside government contracts for businesses that are owned and controlled at least 51% by socially and economically disadvantaged individuals. To administer the program, the SBA contracts with federal agencies to provide goods and services, and subcontracts the actual performance of the work to disadvantaged businesses that have been certified by SBA as eligible for such contracts. Although the SBA has delegated the authority to negotiate with the SBA-qualified contractor to the Department of Transportation, and by extension, the Maritime Administration (" MARAD" ), " the SBA is responsible for approving the resulting contract before award," and the formal contract is between the SBA and the SBA-qualified contractor. 48 C.F.R. (" FAR" ) § § 19.808-1(c), id. 19.811-1(b). In June 1989, Veridyne, then Shepard-Patterson & Associates, Inc., was certified by the SBA for participation in SBA's 8(a) program. Veridyne's admission to the 8(a) program was for the standard nine-year term, and it was scheduled to " graduate" from the program in June 1998.

In March 1995, MARAD awarded to the SBA an indefinite delivery, indefinite quantity cost-plus-award-fee contract for services related to MARAD's logistics program. Later that month, the SBA awarded a subcontract containing the same terms as its contract with MARAD to Veridyne for one base year and up to four option years. The subcontract required Veridyne to provide services to MARAD " as needed in accordance with authorized written work orders." Pl.'s App'x (" P.A." ) 10, 363. MARAD paid Veridyne $20,324,289.15 for the services performed under the initial contract period.

In late 1997 or early 1998, Veridyne approached MARAD about extending the contract. MARAD was satisfied with Veridyne's performance and preferred to work with Veridyne rather than switch to another SBA-qualified business. Veridyne wanted to extend the contract before Veridyne graduated from the 8(a) program in June 1998. At the time, if the new contract award price exceeded $3 million, it would be subject to open competition between SBA-qualified businesses and could not be awarded as a sole-source contract. 15 U.S.C. § 637(a)(1)(D)(i)(II). If MARAD opened the new contract to competition, the process would delay the award until after June 1998, i.e., until after Veridyne's graduation from the program.

In March 1998, Veridyne submitted a proposal to MARAD for a new indefinite delivery, indefinite quantity, cost-plus-award-fee contract. Correspondence between Veridyne and MARAD before the submission specified that estimates for the new contract would not exceed " $3,000,000 in the aggregate." P.A. 139. As a result, the " proposed" cost specified in the proposal, including the five additional option years, was $2,999,949.00. P.A. 171. The proposal specified that " [a]ll contract terms and conditions are the same, and the original scope and technical content remain intact [as the original contract]." P.A. 147. Veridyne's representative certified in the proposal that " to the best of [his] knowledge and belief, the cost or pricing data (as defined in [FAR] 15.801 . . . [ i.e., 'all the facts that can be reasonably expected to contribute to the soundness of estimates of future costs']) submitted . . . in support of [the new contract], are accurate, complete and current." P.A. 165 (citing FAR 15.801 (1994)). These statements were inaccurate. Veridyne

Page 1375

well knew that the services to be provided under the extension would cost far in excess of $3,000,000, indeed, in excess of ten times that amount. P.A. 4. Veridyne even admitted that " the costs established in [the proposal] were never intended to reflect MARAD's actual needs, but were developed to meet SBA's $3 million limit." P.A. 36.

Similarly, although some MARAD officials did not believe that the $3,000,000 estimated cost represented the actual value of the services described in the proposal, other officials openly conceded that Veridyne had explicitly written the proposal " to remain within SBA's $3,000,000 threshold." P.A. 204. The Claims Court concluded that " MARAD personnel knew that the $3-million amount was merely a pretext to get around having to award [the new contract] subject to competition." P.A. 60; see also P.A. 11 (" MARAD contracting officials knowledgeable in approving the proposal vehicle and fully aware of the need to befog the SBA in order to obtain its approval actively participated in securing that approval." ).

In April 1998, MARAD officials approved the new contract and submitted a letter to SBA proposing that SBA approve the new contract without opening it to competition. Although Veridyne's proposal was not sent to the SBA, MARAD's letter to the SBA included Veridyne's misleading data and figures taken directly from the proposal and noted that " [t]he statement of work is unchanged from the current contract" and " [t]he total estimated amount of this requirement is $3,000,000." Resp. to Panel Request, Attachment A at 2, May 7, 2014, ECF No. 73. In May 1998, MARAD, Veridyne, and the SBA executed the new contract extending the service contract, known as Modification (" Mod" ) 0023, which had been drafted by MARAD to reflect Veridyne's proposal.

By 1999, even though the stated cost of Mod 0023 was about $3,000,000, MARAD's projected internal logistics budget for the years covered by Mod 0023 and the final year of the original Contract was $35,974,779. The work orders issued to Veridyne far exceeded the scope of Mod 0023. From 2001 to 2004, MARAD issued additional work orders to Veridyne, Veridyne completed the work, and MARAD paid Veridyne $31,134,931.12 for this work. The government does not now seek to recover these payments.

In part due to MARAD's cost overruns, the Department of Transportation Office of Inspector General began investigating the execution of Mod 0023 in July 2003. By September 2004, the Inspector General concluded that Veridyne had obtained Mod 0023 through fraud. In October 2004, MARAD's Chief Counsel instructed MARAD officials that, " [e]ffective immediately, MARAD is to make no payments to Veridyne on any contract, without express approval by me." P.A. 337. MARAD did not notify Veridyne until December 2004, when MARAD issued a stop order suspending contract performance and informed Veridyne of its view that Mod 0023 was void ab initio . At the time of the December stop order, invoices numbered 260-264 were outstanding to MARAD and had not been paid. After the stop order, Veridyne continued to do work for MARAD and submitted three additional invoices, numbered 265-267. MARAD never paid Veridyne the amounts invoiced in 260-267.

On June 13, 2005, Veridyne submitted invoices 260-267 as certified claims pursuant to the Contract Disputes Act (" CDA" ), 41 U.S.C. § 604 (2006) (recodified at 41 U.S.C. § 7103). MARAD informed Veridyne that it would not issue a final decision on these claims ...

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