Opinion ID: 221854
Heading Depth: 1
Heading Rank: 5

Heading: The Spare Parts Claim

Text: Yannacopoulos next argues that General Dynamics falsely certified its compliance with the terms of the Certification Agreement in relation to the purchase of spare parts under Contract 5/86. Of the total price set out in Contract 5/86, $70 million was allocated for Initial Support Spares ordered by Greece. Article 8.5 went on to explain that the total price for ... Initial Support Spares, consists of a services element and a hardware element. While the services element was not subject to adjustment for quantity changes, the hardware element was a reference planning number ... based on [Greece's] forecast of this value to be used on an interim basis until that value could be adjusted to reflect the outcome of a spares selection conference in January 1987. After that conference, any adjustment to the spare parts price would be incorporated into the contract as may be appropriate prior to the [March 31, 1987] payment. Even then, however, that price remained a mere estimate. The final price of the hardware element was to be calculated by summing the prices of the individual items of hardware authorized by [Greece] during the life of the contract. Prior to the spares selection conference in January 1987, Greece decided to purchase a number of spare parts from suppliers other than General Dynamics. Despite this news, Greece and General Dynamics did not adjust the spare parts line item in Contract 5/86 before the March 31, 1987 payment. General Dynamics submitted a number of invoices to the DSAA for payment in relation to the spare parts line item. Those invoices represented that General Dynamics was in compliance with the Certification Agreement, under which General Dynamics had agreed to report to the DSAA any future changes to the terms of the Purchase Agreement ... upon effect. Yannacopoulos claims that General Dynamics falsely certified its compliance with the Certification Agreement by failing to inform the DSAA of what he calls the parties' understanding that they would not abide by the deadline in Article 8.5 when it submitted these invoices. Yannacopoulos has no evidence of any formal agreement (written or otherwise) between the parties. His claim is that the parties reached an implicit, informal agreement that they would disregard the violation of Article 8.5 that he says (and that we will assume, for the sake of argument) resulted when they failed to change the price of the spare parts line item after Greece decided to purchase spare parts from other suppliers. To succeed on this claim, Yannacopoulos must show that, when General Dynamics filed the invoices relating to spare parts, it knew that it had failed to comply with Article 8.5. See United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir.1999) (observing that it is impossible to meaningfully discuss falsity without implicating the [False Claims Act's] knowledge requirement). The False Claims Act does not penalize all factually inaccurate statements, but only those statements made with knowledge of their falsity. Innocent mistakes or negligence are not actionable under this section. Hindo v. University of Health Sciences/The Chicago Medical School, 65 F.3d 608, 613 (7th Cir.1995); see 31 U.S.C. § 3729(a)(2) (requiring that false statement be made knowingly). For General Dynamics to have known of its failure to comply with Article 8.5, however, it also had to know that Article 8.5 required an alteration to the spare parts line item prior to the March 31, 1987 payment. Article 8.5 required such an alteration only if the initial estimate regarding the price of the spares to be purchased was incorrect. If General Dynamics did not know that Greece's estimate regarding the price of the spare parts line item was no longer correct, then it could not have known that it had failed to comply with Article 8.5 and could not be held liable under the False Claims Act. See, e.g., Hindo, 65 F.3d at 613. To avoid summary judgment on this claim, Yannacopoulos needed to present evidence sufficient to allow a reasonable jury to conclude that, by March 1987, General Dynamics knew of facts conclusively establishing that the initial $70 million estimate was incorrect. By basing the initial spare parts line item on a flexible estimate rather than a firm price, General Dynamics and Greece admitted their uncertainty about what that line item's price should be. Faulty calculations are not actionable under the False Claims Act. Lamers, 168 F.3d at 1018. Yannacopoulos needed to offer evidence that General Dynamics knew by March 31, 1987 that Greece would never order $70 million in spare parts over the long life of Contract 5/86. See United States ex rel. Owens v. First Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 733-34 (4th Cir. 2010) (explaining that an estimate is fraudulent for purposes of the FCA if that estimate is made by an individual who knows of facts that preclude that estimate (emphasis added)); United States ex rel. Siewick v. Jamieson Science & Engineering, Inc., 214 F.3d 1372, 1378 (D.C.Cir.2000) (same); United States v. Foster Wheeler Corp., 447 F.2d 100, 101 (2d Cir.1971) (Inflated cost estimates are quite different from fraudulent estimates.); cf. Lamers, 168 F.3d at 1018 (noting that promises of future compliance are knowingly false only if the party making that promise never intended to comply). [14] Yannacopoulos' theory is that because General Dynamics knew that Greece had decided to purchase at least some spares from other suppliers, it also had to know that a reduction in the original spare parts estimate was necessary. This assumption, crucial to Yannacopoulos' claim, is simply not borne out by the record. Greece did not base its initial $70 million estimate on a set quantity of spares to be purchased, but merely provided that estimate without any explanation. Unaware of the basis for Greece's initial estimate, General Dynamics would have been hard pressed to know how that estimate was affected, if at all, by Greece's decision to purchase some spare parts from other suppliers. Only complicating matters is the early date  March 1987  by which Yannacopoulos claims General Dynamics must have known that the $70 million estimate was incorrect. So early in the parties' contractual relationship, General Dynamics could only speculate about any effect the events of the next decade would have on the total value of spare parts Greece would wish to purchase. [15] Further, it is hard to see how General Dynamics could have known that the initial estimate was incorrect after Greece said that it wanted to keep the price of the spares line item roughly at the same level it was initially, despite purchasing some spare parts from other suppliers. Given this evidence, no reasonable jury could have concluded that General Dynamics knew that Greece would never purchase $70 million of spare parts over the lifetime of Contract 5/86. We can assume that General Dynamics, upon learning that Greece intended to purchase spares from other suppliers, suspected that Greece might purchase fewer spare parts from General Dynamics than initially estimated. But especially where the initial estimate was so arbitrary, a suspicion is a far cry from actual knowledge that the initial arbitrary estimate was no longer reliable. To prove this claim, Yannacopoulos had to come forward with evidence that General Dynamics knew the estimate was incorrect before the March 31, 1987, payment, nearly a decade before the final price for the spare parts was decided. He has failed to do so. Summary judgment against Yannacopoulos on his spare parts claim was appropriate.