Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_13-cv-02599/USCOURTS-casd-3_13-cv-02599-2/pdf.json

Nature of Suit Code: 375
Nature of Suit: False Claims Act
Cause of Action: 31:3729 False Claims Act - Liability

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

JOSEPH EARL PERRY,

Plaintiff,

CASE NO. 13cv2599-LAB (JMA)

ORDER GRANTING SUMMARY

vs. JUDGMENT 

PACIFIC MARITIME INDUSTRIES

CORP., et al.,

Defendants.

When evaluating a False Claims Act case, courts must “ensure that government

contractors will not face onerous and unforeseen FCA liability as the result of noncompliance

with any of potentially hundreds of legal requirements established by contract. Payment

requests by a contractor who has violated minor contractual provisions that are merely

ancillary to the parties' bargain are neither false nor fraudulent.” United States ex rel. Kelly

v. Serco, Inc., 846 F.3d 325, 333 (9th Cir. 2017) (quotations and citation omitted). That’s the

case here.

Joseph Perry filed a qui tam action on behalf of the United States against his former

employer—Pacific Maritime Industries, Harcon Precision Metals, and owner John Atkinson

(“Pacific”)—for knowingly submitting false claims for payment to the United States in violation

of the False Claims Act. 31 U.S.C. § 3729. Perry says Pacific tried to cheat the Navy on

three contracts by supplying (1) overweight doors, (2) cheap locks, and (3) defective lockers.

The Court disagrees. Pacific's motion for summary judgment is granted. 

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Legal Standard

Summary judgment is appropriate when there's no genuine issue as to any material

fact. Fed. R. Civ. P. 56(c). “To survive summary judgment, the relator must establish

evidence on which a reasonable jury could find for the plaintiff.” Serco, Inc., 846 F.3d at 330

(9th Cir. 2017) (affirming summary judgment for defense contractor accused of submitting

fraudulent claims to Navy) (quotations and emphasis omitted). 

Analysis

Under the False Claims Act, Perry must prove that Pacific knowingly presented a false

claim for payment or approval. 31 U.S.C. § 3729 (a)(1)(A). “A misrepresentation about 1

compliance with a . . . contractual requirement must be material to the Government's

payment decision in order to be actionable under the False Claims Act.” Universal Health

Servs., Inc. v. United States, 136 S. Ct. 1989, 1996 (2016). Perry hasn't offered material

evidence that Pacific was trying to cheat the government. In fact, Perry didn't mention a

single case or offer any argument on how the specific aspects of the law apply to his claims.

I. Doors

A. Background

Pacific agreed to build 50 doors for Defense Logistics Agency for use on Navy ships.

The contract specified payment of some $86,000—roughly $82,500 for the doors and $3,500

for a First Article Test. The Test required Pacific to inspect one of the doors to ensure the

door complied with the contract specifications. The contract also required Defense Contract

Management Agency to approve the Test.2

Perry says the Test had two parts. Juvenal Torres performed the first part; Perry

performed the second part. The doors complied with all of the contract specifications, except,

on Perry’s reading of the relevant military provision, the doors were too heavy. Perry told

CEO John Atkinson and Engineering Manager Phu Vu. They disagreed. Atkinson said there

was no weight requirement for the doors. Perry alleges Atkinson instructed him to write down

Perry brings claims for the same violations under the false record and conspiracy 1

provisions of the Act as well. 31 U.S.C. § 3729(a)(1)(B) and (C).

 Dkt. 50 and Dkt. 44-5, Ex. L. 2

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“that all items tested” “were in conformance with the requirements.” Perry prepared the Test,

but refused to sign it. Instead, Juvenal Torres, Phu Vu, and Roger Kemp (Quality

Department) signed the Test.3

Pacific shipped the doors to Defense Logistics before Defense Contract Management

Agency approved the Test as the contract required. As a result, Defense Logistics paid

Pacific for the doors, but it never paid for the Test. About nine months after Pacific shipped

the doors, Defense Logistics modified the contract and deleted the provision requiring the

Test. Atkinson says the problem was that Pacific hadn’t performed a First Article Test in a

while, there was some confusion over what needed to be done, and ultimately, Pacific

performed a standard inspection of the 50 doors instead of a true First Article Test.4

B. Analysis

Perry alleges two false statements: (1) Perry’s statements on the First Article Test that 

the doors conformed with weight requirements even though they didn't; and (2) Torres, Vu,

and Kemp’s signatures approving the portion of the Test that Perry performed.

1. Weight

“Knowing submission of claims that, as here, are not false or fraudulent, obviously

does not give rise to liability.” U.S. ex rel. Lindenthal v. Gen. Dynamics Corp., 61 F.3d 1402,

1412 (9th Cir. 1995). Perry says that he falsified the First Article Test on Atkinson's orders

by writing down that the doors “were in conformance with the requirements.” But that's not

what the Test says. Item 78, “Weight of Furnishing,” states that “the weight of the furnishing

shall not be greater than 105 percent of the weight shown.” Pacific’s comments for Item 78,

however, say “N/A” and “Not Required.” Perry doesn’t explain this contradiction.

5

/ / /

 Dkt. 45-1. 3

Dkt. 47-1 and Dkt. 45-1. Compare the “PMI Inspection Report” that Perry calls the 4

First Article Test (Dkt.45-4, Ex. A, B) with the “First Article Test” Pacific submitted with its

Reply. (Dkt. 47-1, Ex. JA-2.)

 Dkt. 45-1 and 45-4, Ex. A, B. Items 76 and 79 also mention weight, but Item 78 is 5

the controlling provision since Perry says he relied on the rule from Item 78 that the doors

couldn’t exceed 105% of the maximum weight.

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Pacific does. Atkinson explained that the form was pre-populated with “Not Required”

for Item 78 because the doors didn’t need to be a certain weight. Atkinson says his

company's been selling these doors to the Navy for 15 years. The Navy has never raised the

issue of a weight requirement. Pacific also provided a recent order for the same doors, for

the same customer, with an official First Article Test that doesn’t list any weight requirement.

Pacific says it “has no control over the final weight” because the contract requires Pacific to

use specific material to fabricate the doors in a specific way. In sum, Perry hasn't raised a

genuine issue of material dispute that Pacific made false statements about the doors’ weight.

See Universal Health, 136 S. Ct. at 2003–04.6

Even if there was a genuine dispute whether the notations on the First Article Test

were false, Perry still loses. Because courts grant summary judgment to government

contractors when the relator fails to produce “sufficient evidence to support an inference that

the defendants understood that they were interpreting the [contract] incorrectly.” U.S. ex rel.

Hochman v. Nackman, 145 F.3d 1069, 1076 (9th Cir. 1998). Perry argues that his

interpretation of an old and ambiguous military provision requires a certain weight for the

doors. But even if Perry has the better reading, he hasn’t offered sufficient evidence that

Pacific knowingly interpreted the antiquated provision to pawn-off overweight doors on the

Navy. See Hochman, 145 F.3d 1076 (affirming summary judgment because good faith

contract interpretation didn't give rise to requisite knowledge); see also Lindenthal, 61 F.3d

at 1412 (9th Cir. 1995).

2. First Article Test

The False Claims Act defines material to mean “having a natural tendency to

influence, or be capable of influencing, the payment or receipt of money or property.”

31 U.S.C. § 3729(b)(4). Perry says Pacific also falsified the First Article Test by having

Torres, Vu, and Kemp sign-off on the portion of the Test that Perry completed so that

Defense Logistics would pay for the doors.

/ / /

 Dkt. 44-10 and Dkt. 47-1.

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Perry's right. A “claim may be false even if the services billed were actually provided,

if the purported provider did not actually render or supervise the service.” United States v.

Mackby, 261 F.3d 821, 826 (9th Cir. 2001). Perry’s claim, however, doesn’t make it to a jury

because, unlike Mackby, the signatures weren’t material.

First, Perry hasn't offered evidence, argument, or authority that suggests these

signatures meet the “demanding” “materiality standard” under the False Claims Act.

Universal Health, 136 S. Ct. at 2003. The Supreme Court explained that courts must strictly

enforce the materiality standard:

The False Claims Act is not an all-purpose antifraud statute . . . or a vehicle for

punishing garden-variety breaches of contract . . . . A misrepresentation

cannot be deemed material merely because the Government designates

compliance with a . . . contractual requirement as a condition of payment. Nor

is it sufficient for a finding of materiality that the Government would have the

option to decline to pay if it knew of the defendant's noncompliance.

Materiality, in addition, cannot be found where noncompliance is minor or

insubstantial.

Id. (quotations omitted). Perry told Vu and Atkinson that the doors complied in all ways,

except, weight. But since there was no weight requirement (or Pacific made a good faith call

that there was no weight requirement), having other members of the quality assurance team

sign this report wasn't material. At best, the signatures are the type of “minor or insubstantial”

compliance theSupreme Court said doesn’t pass muster under theAct's “rigorous materiality

requirement.” Id. at 1996; see U.S. ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1019

(7th Cir. 1999) (“Even if this was an outright lie, the lie was immaterial.”).

Second, the Supreme Court explained that “if the Government pays a particular claim

in full despite its actual knowledge that certain requirements were violated, that is very strong

evidence that those requirements are not material.” Universal, 136 S. Ct. at 2003–04. Here,

Defense Logistics agreed to pay the full contract price for the 50 doors even though it knew

Defense Contract Management Agency didn’t review the First Article Test.

/ / /

/ / /

/ / /

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* * *

In sum, Perry hasn't offered evidence that Pacific knowingly attempted to defraud the

government by selling them overweight doors or submitting a First Article Test. Pacific's

motion for summary judgment on Perry's claims related to the doors is granted.

II. Locks

A. Background

Perry says that Pacific contracted to make combination locks for the Navy. Similar to

the contract provision for the doors, the locks contract references an outdated military

provision that redirects manufacturers to an updated, but ambiguous provision—UL 768.

Perry reads UL 768 to require that Pacific produce a more expensive, higher-grade lock.

Pacific reads UL 768 as an ambiguous provision that offers contracting parties discretion to

select the appropriate lock for the intended use.7

B. Analysis

Where the “evidence shows only a disputed legal issue[,] that is not enough to

support a reasonable inference that the [representation] was false within the meaning of the

False Claims Act.” Hagood v. Sonoma Cty. Water Agency, 81 F.3d 1465, 1477 (9th Cir.

1996). Perry testified that he wasn't sure “if the customer knows that they're getting the

. . . inferior lock.” His declaration filed in support of his motion didn't even address this claim.

The complaint alleges that Pacific “fraudulently represent[ed] that” the more expensive

“combination locks had been installed” when in fact, Pacific was using less expensive locks.

Perry’s offered no evidence that Pacific made false representations to the Navy that it had

installed the more expensive lock.8

Even if Perry could point to evidence and he was right about his interpretation of UL

768, he didn't offer “sufficient evidence to support an inference that the defendants

understood that they were interpreting the [contract] incorrectly.” Hochman, 145 F.3d at

1076. Atkinson submitted evidence, and Perry's testimony confirmed, that no one in the

 Dkt. 50. 7

 Dkt. 45-4, Ex. L, Dkt. 44-9 at 158; and Dkt. 1. 8

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industry uses the locks that Perry says UL 768 requires. Perry’s alternative take on UL 768

doesn’t create a material, triable issue of fact that Pacific knew more expensive locks were

required, but decided to use cheaper locks anyway. Perry’s “argument raises questions of

contract interpretation rather than false claims.” U.S. ex rel. Butler v. Hughes Helicopters,

Inc., 71 F.3d 321, 326 (9th Cir. 1995). Pacific's motion for summary judgment on Perry's

claims related to the combination locks is granted.9

III. Lockers

A. Background

Perry says Pacific contracted with Austal to make three different types of lockers for

the Navy. The contract required the lockers to pass shock-testing, but Perry says they didn't.

Perry alleges that Pacific asked him to sign-off on some paperwork concerning the lockers

that Perry thought would amount to a false representation so he refused. Pacific, however,

says it didn't have any contracts with Austal while Perry was employed.10

B. Analysis

“To survive summary judgment, the relator must establish evidence on which a

reasonable jury could find for the plaintiff.” Serco, 846 F.3d at 330 (9th Cir. 2017). Perry's

only evidence supporting this claim was his own testimony that he was “pretty sure” he was

asked to approve a document involving a contract with Austal. But Pacific produced evidence

that it only sold lockers to Austal two years after Perry was terminated and it performed the

requisite shock tests when required. Perry hasn't rebutted this evidence. He's failed to offer

evidence that a jury could rely on to find for him. Pacific's motion for summary judgment on

Perry's claims related to the lockers is granted.11

/ / /

/ / /

/ / /

 Dkt. 44-10. 

9

 Dkt. 44-10; 44-7, Ex. U; and Dkt.44-11.

10

 Dkt. 44-9, Ex. CC at 142, 146-47; Dkt. 44-7, Ex. U; and Dkt. 45-1.

11

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Conclusion

Pacific’s motion for summary judgment is granted. The Clerk shall close the case.

IT IS SO ORDERED.

DATED: May 30, 2017

HONORABLE LARRY ALAN BURNS

United States District Judge

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