Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-01866/USCOURTS-ca7-15-01866-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

---

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 15‐1866

UNITED STATES ex rel. DEBRA MARSHALL, et al.,

Plaintiffs‐Appellants,

v.

WOODWARD, INC.,

      Defendant‐Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:06‐CV‐01746 — Gary S. Feinerman, Judge.

____________________

ARGUED OCTOBER 29, 2015 — DECIDED DECEMBER 11, 2015

____________________

Before FLAUM, MANION, and ROVNER, Circuit Judges.  

FLAUM, Circuit Judge. Plaintiffs Debra Marshall and Peggy

Thurman bring this qui tam action against Woodward, Inc.

under the False Claims Act (“FCA”). Plaintiffs allege that

Woodward falsely certified helicopter engine parts that it

sold to the government. They also claim that Woodward vio‐

lated the FCA and Illinois state law by terminating their em‐

ployment. In the district court, Woodward moved for sum‐

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
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Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
No. 15‐1866 3

to the engine. Crucially, the functionality of the sensor de‐

pends on the amount of alcohol in the capillary tube; if any

alcohol leaks, the sensor will add more fuel than it should. A

defective sensor can cause the engine to smoke, decrease

thrust, lose horsepower, or burn up.

The T2 sensor has a total of eight “sealing joints” that

connect the various parts of the component and contain the

alcohol. Joints are sealed by “brazing,” a process that joins

two metal surfaces by melting a filler metal. Woodward clas‐

sifies its joints by category, such as Grade A, Grade B, and so

forth. These classifications help determine what procedures

are used to braze the joint and how the joint is inspected for

imperfections. One of the T2 sensor’s sealing joints, the joint

that connects the capillary tube to the sensor head at the bel‐

lows end, is designated as a Grade A joint (hereinafter “the

Grade A joint”). Plaintiffs allege that Woodward failed to

properly braze and inspect the Grade A joint.

Woodward, like every military supplier, must follow a

set of comprehensive quality requirements. Woodward de‐

velops these requirements and certifies compliance with

them when delivering parts and requesting payments. The

procedure for brazing and inspecting joints is generally gov‐

erned by Woodward’s Shop Procedure 865 (“SP‐865”).

Woodward can revise provisions of SP‐865 without notifying

or obtaining consent from GE or the DOD. Further require‐

ments for the Grade A joint are set forth in engineering

drawings and process drawings. The parties disagree about

the specific requirements for the Grade A joint, including: (1)

the appropriate diametrical clearance (i.e., the distance be‐

tween the capillary tube and the sensor head); (2) how “stop‐

off” and “flux” (materials used during the brazing process)

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
4 No. 15‐1866

are removed and detected; and (3) whether the joint’s non‐

visible edge must be inspected by an alternative to visual ex‐

amination, such as by X‐ray.

Whenever Woodward ships parts to GE or the DOD, it

must include a “Certificate of Conformance,” in which it

confirms that all shipments are “in the Quantities and Quali‐

ty called for, and were in all respects in accord with the ap‐

plicable specifications.” The district court assumed, and the

parties do not dispute on appeal, that Woodward certifies

that it has followed its quality requirements in manufactur‐

ing each part by including these certificates. Neither GE nor

the DOD accepts shipments without a certificate.

Prior to their termination in 2005, plaintiffs Marshall and

Thurman were long‐time employees of Woodward. They re‐

ceived all of their training at Woodward. Neither has a col‐

lege or technical degree. Both Marshall and Thurman

worked on the T2 sensor at Woodward. They were tasked

with brazing various joints on the sensor, but not the Grade

A joint.

On April 6, 2005, Marshall attended a meeting with T700

engineer Heather Diedrich, senior X‐ray technician Mark

Frutig, and two other engineers. Diedrich noted an increased

incidence of leakage in the T2 sensor. Marshall volunteered

to investigate the problem and asked Frutig to X‐ray the

Grade A joint. Based on Frutig’s findings and her own in‐

spection, Marshall determined that the diametrical clearance

of the joint was too small, that stop‐off and flux were not

removed, that there was insufficient braze in the joint, and

that braze from another joint was “masking” the problems

with the Grade A joint. Marshall also learned from Frutig

that the Grade A joint was not typically inspected by X‐ray.

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
No. 15‐1866 5

She concluded that the joint did not meet Woodward’s quali‐

ty standards and that the part was unsafe.

That same day, Marshall relayed her conclusions to her

direct supervisor, Mark Meichtry, and Meichtry’s supervisor,

Steven Gorman. In a series of emails, Marshall stated that

she would not perform her assigned tasks on the T2 sensor

until her concerns were properly addressed. Thurman was

included on some of these emails. On April 7, Meichtry re‐

sponded with an email to Marshall and Thurman saying,

“[l]et’s keep this job moving.” Marshall continued to inspect

leaking parts and reiterated her earlier findings. Frutig also

sent an email expressing the same concerns as Marshall. On

April 11, Marshall placed a hold on the production of T700

parts.

Diedrich and senior engineer David Kuchinski investi‐

gated Marshall’s concerns. On April 12, Meichtry informed

plaintiffs that “[t]he hold issue has been discussed with the

engineers and engineering leaders and the consensus was

the parts are good to ship.” Still, Marshall and Thurman re‐

fused to resume work on the sensor. In response, Meichtry

sent an email to plaintiffs stating that “(1) it’s going to take

too much time and cost too much money to fix these prob‐

lems, (2) GE wants the parts regardless of the problems and

(3) it’s the two of you against the world.” In addition, manu‐

facturing engineer Doug Hollenberger commented to plain‐

tiffs that at Woodward, quantity is number one and quality

is number two. Marshall persisted. She informed Meichtry

that she was going to disclose her concerns to the DOD. On

April 13, Meichtry suspended Marshall and sent Thurman

home early the next day.

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
6 No. 15‐1866

Later on April 14, Meichtry called Marshall and Thurman

into Woodward for a meeting with Diedrich, Gorman, hu‐

man resources manager Carol Smith, and quality director

Spitaman Tata. Gorman reiterated that the engineers had

concluded that the parts were “okay.” According to plain‐

tiffs, Gorman claimed that the sensors “leak slowly.” Mar‐

shall persisted in her objection. She maintained that another

joint masked the problems with the Grade A joint. She asked

that Woodward study the problems further. Tata agreed to

provide more X‐rays of the joint but the parties were other‐

wise unable to reach an agreement on how to proceed.

At 10:30 that night, Marshall and Thurman returned to

Woodward, gathered scrap T2 sensor parts, and cut two of

them open. Marshall claims she identified masking in these

parts.

On April 18, Meichtry and Diedrich provided plaintiffs

with sixteen X‐ray images of the joint. Only two of the imag‐

es were discernable. Although the discernable X‐rays

showed evidence of masking, Diedrich and another engineer

concluded that it was not problematic. Plaintiffs continued

to refuse to work on the T2 sensor. At that point, Meichtry

asked Marshall and Thurman to leave Woodward. The par‐

ties dispute whether they were fired or merely suspended.

The next day, Marshall called a Woodward hotline for re‐

porting suspected violations of Woodward’s quality policies.

Marshall left a message echoing her belief that there was “a

safety issue on the T700 sensor.” She claimed that the sensor

“does not meet the SP on the bellow end of the part ... .” In

response to Marshall’s message, Woodward’s General Coun‐

sel Robert Reuterfors referred the matter to Woodward’s

Business Conduct Oversight Committee (“BCOC”). Reuter‐

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
No. 15‐1866 7

fors told plaintiffs that they were on administrative leave

with pay pending the BCOC’s investigation.

Reuterfors asked senior engineer Ted Erickson to conduct

a special review of plaintiffs’ concerns and instructed him

that “[y]our overriding instruction ... is to prepare a report

that is accurate and correct from the standpoint of profes‐

sional engineering analysis. If you agree with the concerns

... you should say so and let the chips fall where they may.”

Erickson concluded that the Grade A joint was not inferior,

the diametrical clearance was proper, using stop‐off did not

affect the joint’s quality, X‐ray inspection was not necessary,

and any masking was not relevant. In a separate investiga‐

tion, Tata agreed with Erickson’s conclusions.

Based on these findings, the BCOC determined that

plaintiffs’ allegations were not credible and that they had

acted unreasonably by refusing to work. The BCOC advised

that Woodward would be justified in terminating them. On

May 6, 2005, Marshall and Thurman met with Meichtry and

Kirk Snyder, the leader of the group that produces the T2

sensor. Plaintiffs remained unwilling to work on the sensor,

and Snyder terminated them—for the second time, accord‐

ing to plaintiffs.

Meanwhile, on April 26, Marshall and Thurman met with

DOD Special Agent Daniel Boucek and expressed their con‐

cerns regarding the T2 sensor. Plaintiffs then met with De‐

fense Contract Management Agency Technical Specialist

Harrison DySard. DySard decided to review plaintiffs’ con‐

cerns. Under the pretense of a general audit, DySard investi‐

gated Woodward’s manufacturing process for the T2 sensor.

He reviewed Woodward’s operations, engineering drawings,

and procedures and met with Woodward engineers. DySard

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
8 No. 15‐1866

also consulted with his counterpart on‐site at GE, Ed Craft.

During DySard’s investigation, Tata falsely stated to DySard

that the Grade A joint was regularly inspected by X‐ray.

In an email to Boucek, DySard concluded that there was

“nothing either incorrect or wrong with the procedures, as‐

sembly, or testing of the sensors.” He noted that “[t]he spe‐

cific claim that the sensor was supposed to be x‐rayed but

hadn’t was found to be false based on a review of the x‐ray

records for that part.” Similarly, GE conducted its own inves‐

tigation and also concluded that there was no cause for con‐

cern. The government continues to order, pay for, and use

Woodward’s T2 sensor.

On March 30, 2006, plaintiffs filed a complaint under seal

in the Northern District of Illinois. The United States de‐

clined to intervene and the district court unsealed the com‐

plaint. Plaintiffs filed an amended complaint in March 2012.

Following discovery, Woodward moved for summary judg‐

ment and on March 27, 2015, the district court granted

Woodward’s motion. Marshall and Thurman appeal.

II. Discussion

We review a district court’s grant of summary judgment

de novo, examining the record in the light most favorable to

the nonmoving party. U.S. ex rel. Feingold v. AdminaStar Fed.,

Inc., 324 F.3d 492, 494 (7th Cir. 2003). Summary judgment is

appropriate if there is no genuine dispute of material fact

and the nonmoving party is entitled to judgment as a matter

of law. Id. (citing Fed. R. Civ. P. 56(c)).

The district court granted Woodward’s motion for sum‐

mary judgment on plaintiffs’ claim that Woodward violated

the FCA by making false statements to the government and

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
No. 15‐1866 9

their claim that Woodward violated the FCA and Illinois law

by terminating them. Plaintiffs renew both of these argu‐

ments on appeal.

A. False Claims

To state a claim under the FCA, plaintiffs must show that:

(1) the defendant made a statement in order to receive mon‐

ey from the government; (2) the statement was false; (3) the

defendant knew that the statement was false; and (4) the

false statement was material to the government’s decision to

pay or approve the false claim. U.S. ex rel. Yannacopoulos v.

Gen. Dynamics, 652 F.3d 818, 822, 828 (7th Cir. 2011).

The district court expressly assumed that Woodward

made false statements to the government in its Certificates of

Conformance. But the court concluded that the false state‐

ments were made without knowledge of their falsehood and

were immaterial to the government’s decision to pay. On ap‐

peal, plaintiffs challenge these two conclusions.

1. Knowledge

Under the FCA, a defendant must make a “knowingly”

false statement. 31 U.S.C. § 3729(a)(1)(B). The FCA defines

knowledge to include actual knowledge, deliberate igno‐

rance, or reckless disregard for the truth; knowledge does

not require specific intent to defraud. § 3729(b)(1). Accord‐

ingly, knowingly false statements do not include those that

are the product of “[i]nnocent mistakes or negligence ... .”

Yannacopoulos, 652 F.3d at 823 (citation and internal quota‐

tion marks omitted).

First, plaintiffs argue that proof of Woodward’s

knowledge turns solely on whether Woodward knew its

own quality requirements. They claim that it is undisputed

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
10 No. 15‐1866

that Woodward knows its own quality requirements and

thus, Woodward had the necessary knowledge for liability

under the FCA. However, this analysis overlooks the focus

of the knowledge inquiry: whether the false statements were

made with the requisite state of mind. Even if Woodward

was generally aware of its quality requirements, it lacked

“knowledge” if the particular false statements were the re‐

sult of a difference in interpretation or even negligence. Id.

Second, plaintiffs contend that Woodward did know that

their statements to the government were false. They point to

comments from Meichtry, Hollenberger, and Gorman as evi‐

dence that Woodward ignored quality concerns to meet its

customers’ demands. Plaintiffs claim that Woodward did not

take their concerns seriously and that the internal investiga‐

tions were insincere. But these stray remarks do not amount

to knowledge of falsity. They do not demonstrate that any‐

one at Woodward believed that plaintiffs’ concerns were val‐

id. And the evidence shows that Woodward did takes plain‐

tiffs’ concerns seriously. Woodward thoroughly investigated

plaintiffs’ allegations on at least two separate occasions.

Woodward’s engineers concluded that the parts were fine

and that the allegations were unfounded. Plaintiffs have not

produced evidence to show that Woodward’s investigations

were unreliable.

In fact, everyone at Woodward, including the engineers

who investigated plaintiffs’ concerns, disagreed with plain‐

tiffs. Meichtry and others in management deferred to Die‐

drich’s investigation. Even Frutig, who initially agreed with

Marshall, changed his mind based on the outcome of Die‐

drich’s investigation. Plaintiffs do not point to any evidence

that a decision‐maker at Woodward agreed with their con‐

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
No. 15‐1866 11

cerns at the time Woodward made the statements to the gov‐

ernment.

Plaintiffs maintain that Steve Krugler, a Woodward engi‐

neer, knew that the Grade A joint’s inspection procedure vio‐

lated Woodward’s quality requirements. In 1997, Krugler

removed the X‐ray requirement for the Grade A joint. Plain‐

tiffs allege that Krugler did not provide a compliant alterna‐

tive to X‐ray inspection and that he knew that this omission

violated Woodward’s quality requirements. However,

Krugler did not testify to that effect. Krugler explained at the

time that X‐ray inspection was unnecessary, and he reiterat‐

ed that belief during litigation. Instead, plaintiffs rely on tes‐

timony by their own experts, Roger Moseley and Jeff

Diestelmeier, to suggest that Krugler knew that X‐ray in‐

spection or another alternative inspection was required. Spe‐

cifically, Moseley testified that “when [Krugler] removed the

x‐ray inspection from this joint, he knew he had to do some‐

thing else and didn’t do it.”

Testimony regarding the knowledge of another person

based merely upon speculation is insufficient to demonstrate

a genuine issue of material fact. See Widmar v. Sun Chem.

Corp., 772 F.3d 457, 460 (7th Cir. 2014) (explaining that a

plaintiff must rely on more than “speculati[on] as to [a de‐

fendant’s] state of mind, or other intuitions, hunches, or ru‐

mors” to defeat summary judgment). Moreover, Moseley’s

testimony relates to knowledge existing roughly fifteen

years before the relevant time period. Hence, Moseley’s tes‐

timony is insufficient to show that Krugler had knowledge

that Woodward’s certifications were false at the time that

they were made. In sum, we agree with the district court that

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12 No. 15‐1866

no reasonable jury could impute knowledge of falsity to

Woodward based on the evidence presented.

2. Materiality

Additionally, to prevail under the FCA, plaintiffs must

show that the allegedly false statements were material to the

government’s decision to pay. The FCA defines material as

“having a natural tendency to influence, or be capable of in‐

fluencing, the payment or receipt of money or property.”

§ 3729(b)(4). We have described this as an objective standard.

United States v. Rogan, 517 F.3d 449, 452 (7th Cir. 2008) (“The

question is not remotely whether [the defendant] was sure to

be caught ... but whether the omission could have influ‐

enced the agency’s decision. That’s an objective standard

... .”).

Plaintiffs make a circular argument that the materiality

inquiry should focus on whether Woodward’s certificates

were capable of influencing the decision to pay. According to

plaintiffs, because the government would not have paid

Woodward without a certificate and Woodward would not

have knowingly submitted a false certificate, a false state‐

ment on a certificate is necessarily material. We disagree.

Following plaintiffs’ logic, any false statement contained in a

certificate, no matter how inconsequential, would be materi‐

al. This would nullify the materiality requirement and make

even “minor technical violations” material. U.S. ex rel. Lamers

v. City of Green Bay, 168 F.3d 1013, 1019 (7th Cir. 1999) (“Such

minor technical violations ... do not give rise to an FCA

claim.”).

Furthermore, our case law focuses on whether the false

statement itself, rather than the certificate or document con‐

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
No. 15‐1866 13

taining that statement, is capable of influencing the govern‐

ment’s decision. See, e.g., Yannacopoulos, 652 F.3d at 828 (fo‐

cusing on whether defendant’s “failure to check the proper

box in the Certification Agreement was a material false

statement”); Rogan, 517 F.3d at 452 (assessing whether the

“statement or omission” itself is material). Hence, the ap‐

propriate inquiry is whether Woodward’s allegedly false

statements—that the Grade A joint meets its quality stand‐

ards—are capable of influencing the government’s decision.

With this in mind, we conclude that Woodward’s false

statements were immaterial. The government learned of

plaintiffs’ concerns, thoroughly investigated them, and de‐

termined that they were meritless. To this day, the govern‐

ment continues to pay for and use the T2 sensor. Therefore,

the government’s actual conduct suggests that the allegedly

false statements were immaterial. GE also conducted an in‐

vestigation into plaintiffs’ allegations and reached the same

conclusion as the government. In addition, Woodward has

the right to change its shop procedures at any time without

the government’s permission. If specific quality standards

are truly material to the government’s decision to buy the

sensor, it would be odd to give Woodward a unilateral right

to change them.

Plaintiffs maintain that because materiality is an objective

standard, the government’s actual conduct is irrelevant.

However, as the district court correctly found, plaintiffs mis‐

interpret the materiality standard. Our prior case law estab‐

lishes that the government’s conduct is relevant to assessing

materiality. See, e.g., Yannacopoulos, 652 F.3d at 831 (consider‐

ing that “the agency failed to take action when it actually

learned of the supposed misrepresentation”); U.S. ex rel. Lus‐

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
14 No. 15‐1866

by v. Rolls‐Royce Corp., 570 F.3d 849, 855 (7th Cir. 2009) (“If

the military services knew what they were getting and de‐

cided to accept blades that [plaintiff] deems ‘inferior’ rather

than pay a higher price, then [defendant] will prevail on the

merits.”); Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732–

33 (7th Cir. 1999) (“[Plaintiff] has not offered any evidence

tending to show that the omission ... was material to the

United States’ buying decision; the Department of Justice has

conspicuously declined to adopt [plaintiff’s] position or to

prosecute this claim on its own behalf. As far as this record

reveals, the federal government is 100% satisfied with the

blood products ... .”).

Plaintiffs also challenge the reliability of the govern‐

ment’s investigation. Accordingly, plaintiffs argue that the

outcome of DySard’s investigation and the government’s

continued decision to pay for and use the sensor should not

be dispositive. They point to inadequacies in DySard’s inves‐

tigation, particularly that Tata falsely told DySard that

Woodward regularly inspected the Grade A joint by X‐ray.

However, DySard testified in his deposition that he was not

misled by Tata’s statement. He stated that he knew that

Woodward did not X‐ray the Grade A joint as part of its reg‐

ular inspection process. DySard also testified that Tata’s false

statement did not affect the outcome of his investigation. As

a result, plaintiffs’ attack on the government’s investigation

is unpersuasive. And even if the government was misled by

Tata’s false statement at the time, it has since been made

aware of Woodward’s actual practices yet continues to buy

and use the sensor. Hence, we agree with the district court

that Woodward’s allegedly false statements were not materi‐

al.

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
No. 15‐1866 15

B. Retaliation

Finally, plaintiffs bring claims for retaliatory discharge

under the FCA and Illinois state law. Plaintiffs allege that

they were terminated because they raised concerns with the

T2 sensor, which they argue is protected conduct under the

FCA and Illinois law. The district court held that plaintiffs

were terminated for insubordination and not for any pro‐

tected conduct.

To pursue a retaliation claim under the FCA, employees

must show that they were terminated because of their pro‐

tected conduct. 31 U.S.C. § 3730(h); Halasa v. ITT Educ. Servs.,

Inc., 690 F.3d 844, 847 (7th Cir. 2012). Similarly, under Illinois

law, Marshall and Thurman must demonstrate that they

were “(1) discharged; (2) in retaliation for [their] activities;

and (3) that the discharge violates a clear mandate of public

policy.” Darchak v. City of Chicago Bd. of Educ., 580 F.3d 622,

628 (7th Cir. 2009) (quoting Blount v. Stroud, 904 N.E.2d 1, 9

(Ill. 2009)). Although we have not squarely addressed this

issue, the parties agree that under both the FCA and Illinois

law plaintiffs must demonstrate “but for” causation. That is,

plaintiffs must show that they would not have been termi‐

nated but for their protected conduct.

Plaintiffs maintain that they were terminated by

Meichtry on April 18, an allegation we must accept on a mo‐

tion for summary judgment. They also point to the fact that

Marshall told Meichtry that she would disclose her concerns

to the DOD prior to their termination. Accordingly, plaintiffs

argue that Meichtry fired them in retaliation for Marshall’s

threat to disclose her concerns to the government.

Case: 15-1866 Document: 45 Filed: 12/11/2015 Pages: 16
16 No. 15‐1866

But even reviewing the record in the light most favorable

to plaintiffs, we agree with the district court that any reason‐

able jury would find that plaintiffs were terminated because

of their insubordination, not protected activity. First, we

agree with the district court that plaintiffs were in fact in‐

subordinate. Plaintiffs contend that they were following

their training to protect U.S. military personnel, and thus

were not insubordinate. But their training did not authorize

them to repeatedly refuse to resume working in the face of

direct commands from multiple supervisors and an investi‐

gation dismissing their concerns.

Second, we also agree with the district court that plain‐

tiffs’ insubordination was the but for cause of their termina‐

tion. Certainly, Woodward’s management was irritated by

plaintiffs’ allegations. But Woodward terminated Marshall

and Thurman only after investigating their concerns, inform‐

ing plaintiffs that their concerns were unfounded, and giv‐

ing plaintiffs multiple opportunities to resume their as‐

signed tasks. Instead, plaintiffs engaged in insubordination

by repeatedly refusing to work when faced with overwhelm‐

ing evidence contradicting their allegations. The BCOC in‐

vestigation, which determined that Woodward would be jus‐

tified in terminating plaintiffs because of their insubordina‐

tion, further bolsters the conclusion that plaintiffs were fired

because of insubordination, not protected activity. Therefore,

the district court correctly concluded that no reasonable jury

could find that plaintiffs were terminated because of pro‐

tected activity.

III. Conclusion

For the foregoing reasons, we AFFIRM the judgment of the

district court.

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