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United States ex rel. Christie v. Modern Manufacturing and Engineering, Inc.

United States District Court, D. Minnesota

July 3, 2018

UNITED STATES OF AMERICA ex rel. JOHN CHRISTIE, Plaintiff,
v.
MODERN MANUFACTURING AND ENGINEERING, INC. and HUE VAN LIEN, Defendants.

          Nathaniel F. Smith and Susan M. Coler, HALUNEN LAW, for John Christie.

          James F. Baldwin, MOSS & BARNETT, PA, for defendants.

          MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

          JOHN R. TUNHEIM CHIEF JUDGE

         This case involves an action for damages and civil penalties under the Federal False Claims Act, 31 U.S.C. §§ 3729-3733 (“FCA”). Relator John Christie, on behalf of the United States, alleges that Modern Manufacturing and Engineering, Inc. (“MME”) and its owner Hue Van Lien (collectively “Defendants”) falsely represented that MME followed required quality control processes in manufacturing parts to fulfill government contracts and subcontracts and falsely represented MME's status as a Small Disadvantaged Business (“SDB”) for purposes of government contracting. Presently before the Court is Defendants' Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).

         Because Christie fails to plead allegations of fraud with sufficient particularity, the Court will grant Defendants' motion and dismiss the action without prejudice.

         BACKGROUND

         I. FACTUAL BACKGROUND[1]

         Relator John Christie has been working for MME as a parts inspector since 2013, inspecting parts to ensure compliance with contractual requirements. (Compl. ¶¶ 11, 77, Sept. 7, 2016, Docket No. 1.) MME is a manufacturing company with its principal offices in Brooklyn Park, Minnesota. (Id. ¶ 14.) MME provides “milling, turning, and engineering services to a variety of contracting partners, including Alliant Techsystems (ATK), L3 Communications, Lockheed Martin, and Rockwell Collins” and manufactures parts used for aerospace, commercial, military, and medical applications. (Id. ¶ 12.) MME reported about $21 million in sales for 2012, and Christie estimates that 50 percent of its sales are to the Government. (Id. ¶ 13.) Hue Van Lien is the owner and CEO of MME. (Id. ¶ 15.) He is an Asian Pacific American. (Id.)

         A. Government Compliance Regulations 1. Inspection Standards

         The United States requires its contractors to meet various inspection standards, such as the Federal Acquisition Regulations (“FAR”). (See Id. ¶¶ 29-33.) Contracts involving “complex or critical items” require compliance with higher-level quality standards, which include a parts-inspection requirement dictated by MIL-STD-1916. (Id. ¶¶ 35-39.) MIL-STD-1916 is the currently approved Department of Defense Test Methods Standard for Acceptance of Product. (Id. ¶ 45.) When referenced in a contract, MIL-STD-1916 applies to the prime contractor “and should be extended to subcontractors or vendor facilities.” (Id. ¶ 47.) It requires contractors “to submit deliverables that conform to requirements and to generate and maintain sufficient evidence of conformance.” (Id. ¶ 48 (quoting MIL-STD-1916 Foreward, ¶ 7).)

         MIL-STD-1916 requires contractors to perform sampling inspection in accordance with certain standards unless the contractor has submitted an alternate acceptance method. (Id. ¶ 50 & n.3.) Section 4.2 sets out various sampling plans, indexed by verification levels and lot or production interval size. (Id. ¶¶ 50-52.) The purpose of inspecting sample sizes is to identify nonconforming units and implement corrective action for that portion of the lot to ensure that the government receives “only products that conform with all contract requirements and specifications.” (Id. ¶¶ 55-58.)

         2. Verification of Conformance

         Government contracts require verification of conformance under 48 C.F.R. § 52.246-15 in the form of a Certificate of Conformance. (Id. ¶ 40.) In some cases, the FAR allows these certificates to be used instead of source inspection at the discretion of the contracting officer. (Id. ¶ 41 (citing FAR § 46.504).)

         3. Small Disadvantaged Business Status

         Federal regulations require contractors intending to do business with the Government to submit and maintain accurate information in a central database called the System for Award Management (“SAM”). (Id. ¶ 60.) The SAM record “includes a series of representations and certifications by the participating business to verify eligibility to bid on federal government contracts set aside for small businesses of various types.” (Id. ¶¶ 62-63.) For a business claiming SDB status, the SAM record includes a certification that the business is SDB certified by the Small Business Administration (“SBA”) and that “no material change in disadvantaged ownership and control has occurred since [the business's] certification.” (Id. ¶ 64 (quoting FAR § 52.212-3(c)(10)(i)(A)).)

         To qualify as an SDB, a company must show that it is controlled by a socially and economically disadvantaged individual. (Id. ¶ 72 (citing 15 U.S.C. § 637(a)(4); 13 C.F.R. § 124.1002(b)(3)).) Asian Pacific Americans are presumed to be socially disadvantaged. (Id.) To qualify as economically disadvantaged, an individual must show diminished capital and credit opportunities. (Id.)

         Using the SAM, the SBA generates an internal database of small businesses called the Dynamic Small Business Search (“DSBS”). (Id. ¶ 67.) Government entities use the SAM and the DSBS to identify potential businesses that meet requirements for particular government contracts and to publish solicitations for bids in databases that are accessible to SAM-registered entities. (Id. ¶¶ 68-69.) Vendors submitting bids on government contracts must include relevant representations and certifications, including status as an SDB, either in the bid or through its SAM record. (Id. ΒΆΒΆ 70-71.) Any time a business willfully seeks and receives an award intended for SDBs by ...


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