United States of America v. KBR INC

IN THE UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF ILLINOIS

ROCK ISLAND DIVISION

UNITED STATES OF AMERICA )

ex rel. GEOFFREY HOWARD and )

ZELLA HEMPHILL, )

)

Plaintiffs, )

)

v. ) Case No. 11-4022

)

KBR, INC., and KELLOGG BROWN & )

ROOT SERVICES, INC., )

)

Defendants. )

ORDER AND OPINION

Pending before the Court is Defendants KBR, Inc. and Kellogg Brown & Root Services,

Inc.’s Motion for Reconsideration. ECF No. 214. Defendants ask the Court to reconsider its July

9, 2020 Order and Opinion denying KBR’s Motion to Dismiss the Complaint for Lack of Subject

Matter Jurisdiction. For the reasons stated below, this motion is DENIED.

BACKGROUND

The Court explained the factual background of this case in more detail its initial opinion.

ECF No. 213. In short, Defendants are government contractors and Relators brought a case under

the False Claims Act (“FCA”) accusing Defendants of a knowing failure to redistribute excess

product. The Realtors allege that Defendants’ failure to redistribute excess product resulted in

Defendants overbuying, which the Government would not have reimbursed had Defendants not

concealed their failures. The Court recently denied Defendants’ Motion to Dismiss, finding that

the Relators were the original source of certain information related to Defendants’ allegedly

fraudulent activity. While there had been a public disclosure of some information related to

Plaintiffs’ alleged wastefulness, the Court determined that the Relators had direct and

independent knowledge of fraudulent activity and materially added to the publicly disclosed

information. Accordingly, the Court found that the Defendants met the original source exception

to the public disclosure bar and declined to dismiss the Complaint. Defendants filed this motion

to reconsider, arguing that the Court applied the wrong standard to determine whether the

Relators materially added to the publicly disclosed information. This opinion follows.

LEGAL STANDARD

“Pre-judgment orders, such as [rulings on] motions to dismiss, are interlocutory and may

be reconsidered at any time.” Cameo Convalescent Ctr., Inc. v. Percy, 800 F.2d 108, 110 (7th

Cir. 1986). A court should reconsider an interlocutory order where necessary to “correct manifest

errors of law,” Caisse Nationale de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264, 1269

(7th Cir. 1996) (citation omitted), which “occur[] when the district court commits a ‘wholesale

disregard, application, or failure to recognize controlling precedent.’” Michel v. Princeville

Cmty. Unit Sch. Dist. #326 Bd. of Educ., 317 F.R.D. 555, 559 (C.D. Ill. 2016) (quoting Burritt v.

Ditlefsen, 807 F.3d 239, 253 (7th Cir. 2015)); see also Bank of Waunakee v. Rochester Cheese

Sales, Inc., 906 F.2d 1185, 1191 (7th Cir. 1990) (motion for reconsideration particularly

appropriate where court “has made an error not of reasoning but of apprehension”) (internal

quotation marks omitted).

DISCUSSION

Defendants argue that the Court correctly determined that the Relators’ claims were

publicly disclosed before the lawsuit was filed but that the Court wrongly determined that the

Relators’ claims fell within the original source exception to the bar on FCA claims for publicly

disclosed information. Defendants assert that the Court cited and applied the incorrect standard

for determining whether Relators were an original source of certain information.

Defendants explain that there was a 2010 revision to the statute governing FCA claims.

The amendments both changed “what constitutes a public disclosure” under 31 U.S.C. §

3730(e)(4)(A) and revised the definition of “original source” under section 3730(e)(4)(B).

Bellevue v. Universal Health Servs. of Hartgrove, Inc., 867 F.3d 712, 718 (7th Cir. 2017). In the

initial opinion, the Court applied the pre-2010 version of the law to determine whether the

Relators’ FCA claims were publicly disclosed before Relators filed the lawsuit. Defendants agree

that was correct because the amendments to that portion of the statute were not retroactive.

However, Defendants argue that the Court mistakenly applied the pre-2010 definition of the

“original source” exception when it should have applied the post-2010 version of that subsection

because that amendment was retroactive. While Defendants acknowledge that the changes to the

“original source” is a “clarification rather than a substantive change,” they argue that citing the

pre-2010 version of the law constituted a manifest error of law that requires the Court’s

reconsideration of its prior opinion. ECF No. 215 at 4 (citing Bellevue, 867 F.3d at 718).

Defendants also complain that the Court ignored several Seventh Circuit cases that they cited in

their original briefs.

The differences between the pre-2010 and the 2010 revisions to the “original source”

definition are relatively slight. Before 2010, § 3730(e)(4)(B) defined original sources as “an

individual who has direct and independent knowledge of the information on which the

allegations are based.” The 2010 version of § 3730(e)(4)(B) provides that an original source is an

individual “who has knowledge that is independent of and materially adds to the publicly

disclosed allegations or transactions.” 31 U.S.C. § 3730(e)(4)(B) (2010) (emphasis added). As

Defendants point out, the amended definition of “original source” now “controls” in all FCA

actions, Bellevue, 867 F.3d at 720, “‘regardless of when a person claiming to be an original

source acquired his knowledge.’” Cause of v. Chicago Transit Auth., 815 F.3d 267, 283, n.22

(7th Cir. 2016) (quoting U.S. ex rel. Bogina v. Medline Industries, Inc., 809 F.3d 365, 368–69

(2016)).

While the Court cited the pre-2010 version of the law and cited some cases applying the

old version of the law, it also acknowledged the requirement that the Relators “materially add” to

the publicly disclosed information. The “materially added” phrase is only found only in the post

2010 version of the statue and is the primary distinction between the old and new version of the

statute. Accordingly, the Court applied the correct standard, and in any event, the alteration was

not intended to substantively change the statue. In support of its finding that the Relators

materially added to the publicly disclosed information, the Court cited the reports that

demonstrated:

(1) the head of KBR’s Kuwait Support Office deleted Relator Howard’s

reports that showed over $600 million in unnecessary materials

stockpiled in KBR’s warehouses, because it was “too dangerous” to

risk the Government finding the report during an audit; (2) emails

from 2009 where a KBR manager stated it should not show

underutilization on anything; (3) emails where KBR directed its

employees not to speak to anyone outside of KBR about internal

business allegedly after Relator Howard alerted KBR’s senior

management about KBR’s cross-leveling failures; and (4) KBR not

correcting hundreds of millions of dollars of excess materials in virtual

storerooms because doing so would risk governmental audits.

ECF No. 213 at 13. In short, the Court applied the correct standard and cited several important

pieces of evidence to support the Relators’ assertion that Defendants engaged in knowing fraud

as opposed to mere negligence.

Defendants further complain that the Court cited a Third Circuit case instead of their

preferred Seventh Circuit opinions. ECF No. 215 at 7 (citing Bellevue, 867 F.3d 712; Cause of

Action, 815 F.3d 267). Defendants cited these opinions in their initial briefing (ECF No. 198 at

17), and a motion for reconsideration is not the time to rehash arguments that the Court has

already reviewed. However, the Court will briefly explain why these cases are distinguishable.

In Bellevue, the relator provided information that when the facility was over capacity, patients

would sleep on a rollout bed in the group therapy room rather than a patient room, but that the

facility was still billing Medicaid for inpatient care. Bellevue, 867 F.3d at 714. Before the relator

filed suit, the hospital voluntarily provided information to authorities. The relator argued that the

government only had information that the facility was over capacity without any reference to a

knowing misrepresentation of facts. Id. at 718. There, the court found that the government had

enough information to “infer scienter” and the public disclosure bar applies “where one can

infer, as a direct and logical consequence of the disclosed information, that the defendant

knowingly—as opposed to negligently—submitted a false set of facts to the Government.” Id. at

718–19 (quoting Cause of Action, 815 F.3d at 27). The court further observed that the relator did

not have personal knowledge over the facility’s billing practice and he “necessarily” had to infer

that the facility was knowingly overbilling. According to the court, there was no reason that the

government could not make that same inference based upon the information that it had. Id. at

719.

In Cause of Action, the court noted that the relators only provided two additional pieces

of information. One was that the defendant knowingly misreported data, but that piece of

information was not directly based on information that the relator had about the defendant’s

knowledge or lack thereof. Instead, the relator made an inference that was based upon available

facts. The Government already had those facts and was “in an identical position to infer scienter

from the publicly disclosed Audit Report.” Id. at 282. The court observed that the second piece

of information was a broadening of the timeframe of misreporting. However, the few additional

allegations were insufficient when they pertained to the same entity and described “the same

allegedly fraudulent conduct . . . as the publicly disclosed information.” Id. Accordingly, the

purported additional facts were not enough in the case of Cause of Action.

Unlike the relators in Bellevue and Cause of Action, Relators here provided specific

concrete examples that suggest fraud. They were not simply providing their own inference from

information already disclosed but instead, disclosed new information and provided emails that

supported their assertion that Defendants were engaged in a knowing cover-up as opposed to

mere negligence. Plaintiffs sufficiently alleged that information had not previously been

disclosed and thus, their claims fall outside the public disclosure bar.

CONCLUSION

Defendants have not demonstrated that the Court committed a manifest error of law or

that a reconsideration is otherwise appropriate in these circumstances. Accordingly, their Motion

for Reconsideration [214] is DENIED.

ENTERED this 25th day of September, 2020.

/s/ Michael M. Mihm

Michael M. Mihm

United States District Judge