Opinion ID: 221854
Heading Depth: 1
Heading Rank: 3

Heading: The HBDIC Claim

Text: Yannacopoulos' primary claim on appeal concerns General Dynamics' involvement in establishing the Hellenic Business Development and Investment Company (HBDIC) as part of the F-16 sale to Greece. Under Article 35 of Contract 5/86, General Dynamics agreed to establish [HBDIC] in Greece ... for the purpose of developing and implementing Business Development projects. HBDIC was to be incorporated in Greece, with General Dynamics as the majority shareholder and the Greek government as a minority shareholder. Once incorporated, HBDIC was to act as a venture capital company, providing seed money and loans to new companies in Greece. General Dynamics agreed to capitalize HBDIC with a total of $50 million over the course of ten years after the signing of Contract 5/86. General Dynamics also agreed to provide three in-country management and coordination personnel for the initial ten years of HBDIC's existence. General Dynamics admits that it paid these amounts, at least in part, using profits it made under Contract 5/86. After five years of operation, half of HBDIC's profits were to be paid out as dividends to its shareholders. After fifteen years, HBDIC was to be dissolved (unless its funds ran out before that time and absent action to the contrary by General Dynamics and/or Greece), at which time all of its remaining assets up to $50 million, as well as half of any assets over that amount, were to revert to Greece. Before the United States DSAA would release funds to finance the Greek sale, it required General Dynamics to execute a Contractor's Certification Agreement with Defense Security Assistance Agency. General Dynamics executed two such agreements with the DSAA, one in February 1986 relating to the draft contract, and another in February 1987 relating to Contract 5/86 (collectively, the Certification Agreement). In the Certification Agreement, General Dynamics made a number of representations regarding the Greek sale. We discuss the relevant ones below. Between February 1987 and August 1990, General Dynamics submitted a number of invoices to the United States for payment. On each invoice, General Dynamics certified that, to the best of [its] knowledge and belief this invoice is in accordance with Contract 5/86 and the Certification Agreement. These certifications are significant because a mere breach of contract does not give rise to liability under the False Claims Act. See United States ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 378 (7th Cir.2003). If the breaching party falsely claims to be in compliance with the contract to obtain payment, however, there may an actionable false claim. United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1168 (10th Cir.2010) (describing such a statement as a legally false request for payment), citing United States ex rel. Conner v. Salina Regional Health Center, Inc., 543 F.3d 1211, 1217 (10th Cir.2008). Here, Yannacopoulos argues that General Dynamic's certifications were false because General Dynamics allegedly violated both (1) Contract 5/86 and (2) the Certification Agreement when it charged the HBDIC costs as part of the [Contract 5/86] price. We address each alleged violation in turn. [4]
Yannacopoulos first argues that General Dynamics' certifications of compliance with Contract 5/86 were false because General Dynamics breached that contract by passing on the costs of its HBDIC investment to the United States, as lender to Greece. In particular, he claims that General Dynamics breached Article 9.4 of the contract, under which General Dynamics confirm[ed] that the material for which payment is requested are United States source end products. Yannacopoulos interprets this provision to forbid General Dynamics from incorporating its expenditures on HBDIC stock and management personnel into the contract price because, he insists, those expenditures were not for United States source end products. [5] For the sake of argument, we will assume that Yannacopoulos is correct that the HBDIC costs were not United States source end products within the meaning of Article 9.4. That is not enough, however, to show that General Dynamics breached the terms of that article, under which General Dynamics confirmed only that the  material for which payment is requested was in fact United States source end products. In other words, General Dynamics could have falsely certified compliance with the contract only if the HBDIC costs constituted material within the meaning of Article 9.4. Article 9.4 did not have such a broad reach. That article required General Dynamics to confirm the U.S. origins of the material it provided only if Greece financed the purchase of the items to be delivered with United States government loans. Material is not a freestanding contractual term. It relates back to the items referenced in the preceding portion of Article 9.4. See, e.g., Delta Mining Corp. v. Big Rivers Elec. Corp., 18 F.3d 1398, 1403 (7th Cir.1994) (noting that a court interpreting a contractual term should take account of the context in which the word is used). This relationship between materials and items is reinforced by the ordinary meaning of the word material. See, e.g., Rain v. Rolls-Royce Corp., 626 F.3d 372, 379 (7th Cir.2010) (noting that courts should use the plain and ordinary meaning of a contractual term whenever possible). As commonly defined, a material is a substance or substances out of which a thing is or can be made or something... that is to be refined and made or incorporated into a finished effort. The American Heritage Dictionary of the English Language, 1109 (3d ed. 1992). The materials covered by Article 9.4 are the individual physical parts comprising or otherwise used in the production or provision of the items to be delivered under Contract 5/86  the engines used in the fighter jets, spare parts, construction materials, etc. Thus, even if HBDIC could be deemed an item to be delivered under Contract 5/86 (itself an unlikely and strained reading of the contract), HBDIC's stock or its management personnel were not materials as that term was used in Article 9.4. In other words, General Dynamics, by complying with its obligations regarding HBDIC, was not simultaneously violating its obligations to the United States government. Yannacopoulos' other arguments for a more expansive reading of Article 9.4 are misplaced. First, he makes much of General Dynamics executive Douglas Scheideman's statement that it would have been inconsistent with the spirit and intent of Contract 5/86 to pass HBDIC's costs on to Greece. [6] The language of Article 9.4 is clear on its face, however, in which case the intent of the parties is to be derived only from the express language of the contract. Bratton v. Roadway Package System, Inc., 77 F.3d 168, 173 (7th Cir. 1996) (citation omitted). Even if one or more of the parties subjectively intended to bar General Dynamics from spending United States funds on the HBDIC costs, the language of Contract 5/86 simply failed to make that intent manifest. Yannacopoulos also insists that Article 9.4 must forbid the use of the United States loan funds to capitalize HBDIC because a contrary construction would destroy the stated contractual consideration of Contract 5/86  General Dynamics' agreement to capitalize HBDIC  and would fatally undermine Article 35's stated purpose of providing near term and long term direct and substantial benefits to the Hellenic Industry, economy, and balance of payments. When General Dynamics secretly incorporated the HBDIC costs into the price of Contract 5/86, he insists, Greece ended up unknowingly pay[ing] for its own offset company. But if Greece intended to pay for the HBDIC costs itself, we understand him to ask, why did it not finance the company directly without going through General Dynamics? Contract 5/86 cannot be read, he argues, to permit what he characterizes as a nonsensical result. See FutureSource LLC v. Reuters Ltd., 312 F.3d 281, 284 (7th Cir. 2002). This argument is not persuasive. For one thing, it was not a secret that General Dynamics charged Greece for the expenses it incurred in capitalizing HBDIC. Article 35 of Contract 5/86 explicitly required General Dynamics and its two main subcontractors to capitalize HBDIC with $50,000,000 over a ten-year period as part of the Greek sale. Anyone who read that significant term of Contract 5/86 should have realized that the $50 million or more in HBDIC costs would be incorporated into the final amount charged to Greece. Unless the sale has an element of charity, the final amount charged for a particular good or service will depend at least in part on the seller's expenses. That is why, for example, a product purchased from an online retailer is often less expensive than the same product purchased from a brick-and-mortar store. The products are no different, but the physical store must pass on to its customers a number of expenses not incurred by the online retailer. There is no reason to believe that the Greek government or the United States government thought that General Dynamics would charitably invest millions of dollars in a Greek business for the benefit of the Greek government without somehow recouping that expense. General Dynamics' HBDIC-related charges were not secret and were required under the contract. [7] But if Greece knew of and was willing to pay for the HBDIC costs, Yannacopoulos asks, why didn't Greece just pay those costs itself? [8] The answer is simple. Greece could not have obtained a loan from the United States government specifically to capitalize HBDIC. But if General Dynamics capitalized HBDIC itself and rolled its costs for doing so into the price of Contract 5/86, Greece could obtain just such a loan from the United States as part of the larger deal to arm a NATO ally during the Cold War. General Dynamics' involvement effectively allowed Greece to invest in HBDIC millions of American dollars that would have otherwise been unavailable. And the financial benefits Greece hoped to realize from this investment are clear: under Article 35, HBDIC was required to begin paying dividends to the Greek government after five years of operation and, if HBDIC ever dissolved, to turn over to the Greek government all of its corporate assets up to $50 million, plus half of any assets exceeding that amount. These benefits are in addition to the economic benefits that Greece might have realized from any new economic opportunities HBDIC provided to Greece. Article 9.4 of Contract 5/86 simply did not prevent General Dynamics from capitalizing HBDIC with funds derived from the United States loans to Greece. Given the financial benefits that Greece would realize from such an arrangement, such indirect use of American funds to capitalize HBDIC was part of the consideration Greece bargained for in Contract 5/86, and the terms that the United States government approved. Because Article 9.4 permitted exactly what Yannacopoulos accuses General Dynamics of doing, General Dynamics did not breach Contract 5/86 by complying with the same contract and therefore did not falsely certify its compliance with that contract. To the extent Yannacopoulos' claim turns on that alleged breach, summary judgment for General Dynamics was appropriate.
Yannacopoulos argues that General Dynamics also falsely certified its compliance with the Certification Agreement, which he interprets to forbid General Dynamics from capitalizing HBDIC. In Paragraphs 4 and 6 of that agreement, General Dynamics made three certifications relevant to this appeal: (1) that the material or components to be provided under the Purchase Agreement are predominantly of U.S. manufacture; (2) that all non-U.S. origin or non-U.S. manufactured items and components, and non-U.S. services procured or to be procured specifically for this Purchase Agreement are identified in a document attached thereto; and (3) that, aside from commissions and contingent fees, any funds General Dynamics received from the United States government would not be used to purchase services ... utilized in the execution of the Purchase Agreement from non-U.S. contractors or individuals that are not resident in the United States of America, unless the financing of such services is expressly authorized by the DSAA. Each certification, Yannacopoulos argues, forbade General Dynamics from using United States funds to pay for the HBDIC costs without the DSAA's prior authorization. Because each certification concerns a distinct subject matter, we address each in turn. The first certification, referring to material or components, did not bar General Dynamics from spending FMF funds on the HBDIC costs. Neither stock nor management personnel can be considered material or components, as the first certification used those terms. As we observed in our discussion of Article 9.4, the word material typically refers to a substance or part from which something is made. The term component also does not reach the HBDIC aspects of the contract. See The American Heritage Dictionary of the English Language, 387 (defining a component as a constituent element, as of a system or a part of a mechanical or electrical or electrical complex). The first certification is limited to material and components capable of being manufacture[d], a description clearly inapplicable to stock and management personnel. [9] Yannacopoulos contends the second certification was false because General Dynamics failed to identify the HBDIC costs among the non-U.S. origin or non-U.S. manufactured items and components and non-U.S. services procured or to be procured specifically for Contract 5/86. Turning to the second certification, we see that General Dynamics did in fact indicate that it had identified all such items, components, and services in a document attached to the Certification Agreement. General Dynamics did so by checking a box in the second certification; a box in that certification informing the DSAA that such items, components, and services could be found in Contract 5/86 was left unchecked. The document attached to the Certification Agreement made no mention of the HBDIC costs. In arguing the falsity of the second certification, Yannacopoulos overlooks the undisputed fact that the DSAA had already been notified of General Dynamics' payment of the HBDIC costs when it received Contract 5/86 for review. In light of that undisputed disclosure, no reasonable jury could think General Dynamics' failure to check the proper box in the Certification Agreement was a material false statement, as required for liability under the False Claims Act. See United States ex rel. Longhi v. United States, 575 F.3d 458, 467 (5th Cir.2009) (requiring that false statement on which FCA claim is based be material); United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir.2008) (same); United States ex rel. A+ Homecare, Inc. v. Medshares Management Group, Inc., 400 F.3d 428, 443 (6th Cir.2005) (same); see Allison Engine Co., Inc. v. United States ex rel. Sanders, 553 U.S. 662, 665, 128 S.Ct. 2123, 170 L.Ed.2d 1030 (2008) (requiring that defendant have intended that false statement be material to the Government's decision to pay or approve the false claim); cf. United States v. Rogan, 517 F.3d 449, 452 (7th Cir.2008). The Certification Agreement relating to Contract 5/86 was signed by General Dynamics in late February 1987, weeks after Contract 5/86 was submitted to the DSAA for review. That contract required General Dynamics to pay the HBDIC costs and to provide management personnel in Greece. The best that Yannacopoulos can claim is that General Dynamics, by neglecting to refer explicitly to Contract 5/86 in the second certification, failed to remind the DSAA of what was already clear from the contract itself: that General Dynamics was paying a number of costs associated with the establishment of a foreign business development corporation. General Dynamics' failure to remind the DSAA of information set forth in some detail in the contract it had just recently received for review could not reasonably be deemed material to the DSAA's decision. See Rogan, 517 F.3d at 452. Yannacopoulos also argues that the third certification, in which General Dynamics certified that the funds it received from the United States government would not be used to purchase services ... utilized in the execution of the Purchase Agreement from non-U.S. contractors or individuals that are not resident in the United States, was false. This language says nothing about whether General Dynamics could expend any funds on HBDIC stock. Corporate stock is clearly not a service of any kind. Nor can this certification be read to say that General Dynamics would not expend any funds on the HBDIC management personnel. The third certification restricted General Dynamics' use of government funds only to pay for services utilized in the execution of the Purchase Agreement (emphasis added). Such services might include, for example, the manufacture of individual components installed in the F-16s sold to Greece, or the assembly of F-16s from components manufactured in the United States or elsewhere; in other words, services General Dynamics obtained for the purpose of fulfilling the obligations it undertook under Contract 5/86. This language simply cannot reasonably be read to pertain to any services that may have been provided by the HBDIC management personnel. General Dynamics was required to certify that it was in compliance with Contract 5/86, which required it to fund and support HBDIC. The third certification cannot be interpreted to have required General Dynamics to violate Contract 5/86 itself. For all of these reasons, the district court correctly granted summary judgment for General Dynamics on all of Yannacopoulos' claims related to HBDIC.