Opinion ID: 221854
Heading Depth: 1
Heading Rank: 7

Heading: The Modifications Five and Six Claims

Text: In March 1993, defendant Lockheed acquired General Dynamics' Fort Worth Division and assumed all of General Dynamics' rights and obligations under Contract 5/86. Following its assumption of those responsibilities, Lockheed and Greece executed two modifications to Contract 5/86, both of which Yannacopoulos now contends were reverse false claims.
Yannacopoulos' first claim against Lockheed concerns Amendment H0005 to Contract 5/86 (Modification Five), executed on March 17, 1993. In February 1987, Greece had exercised its option under Article 35 of Contract 5/86 to participate in a co-production program with General Dynamics. Under that program, General Dynamics was to provide technical support and materials to Hellenic Aerospace Industry. The price of the co-production program was based on a projection regarding the amount of support work the Hellenic Aerospace Industry would require over the course of the program. Each year after the first four years of that program, Greece and General Dynamics were to review the level of coproduction support to be provided to the Hellenic Aerospace Industry. The contract provided that, if Hellenic Aerospace Industry's actual performance was such that the level of [General Dynamics'] support [could] be reduced, the support will be reduced and the coproduction price ... will be reduced accordingly. The parties agreed to work out the details for the implementation of [this article] during the fourth year after the signature of [the] Contract. The agreed price for the co-production program was $53,693,555. Because Hellenic Aerospace Industry produced fewer F-16 components than originally anticipated, however, less support was required to produce those components than was initially anticipated. By late September or October 1990, General Dynamics had collected $47,693,487 for its co-production work, though Greece had authorized only about $24 million worth of co-production work by that time. In March 1993, Greece and Lockheed executed Modification Five to Contract 5/86, which maintained the price of the coproduction program line item at $53,693,555. Lockheed made no refund to the United States until 1996, when it made a refund of $7,042,940 related to the coproduction charges. Under the False Claims Act, a reverse false claim is a false statement used not to obtain payments from the government, but to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(7) (2006); see United States ex rel. Bahrani v. Conagra, Inc., 465 F.3d 1189, 1194-95 (10th Cir.2006). [16] Yannacopoulos contends that Modification Five was a reverse false claim because it concealed and avoided [Lockheed's] contractual obligation to make a coproduction-related refund by maintaining the price of the coproduction line item unchanged at $53,693,555. In trying to prove this, Yannacopoulos argues that, because General Dynamics had been overpaid for its work on the co-production line item, it had an obligation to pay the amount of that overpayment to the United States government, an obligation he says Lockheed concealed when it submitted Modification Five to the government without mentioning that overpayment. Assuming that such an obligation existed, however, and assuming that Modification Five concealed that obligation, Yannacopoulos' claim can succeed only if Modification Five was false. See, e.g., Gross, 415 F.3d at 604; 31 U.S.C. § 3729(a)(7) (2006). Despite this, Yannacopoulos failed to argue the falsity of Modification Five in his opening brief. Only after Lockheed pointed out this omission in its response brief did Yannacopoulos offer an explanation as to how a mere contract modification  an agreement between two parties altering their contractual obligations to one another  could be false. First, he claims that Modification Five's $53,693,555 price tag for the co-production line item was false and inflated. Second, he argues that Modification Five was false because the U.S. Government recoupment line item in that Modification was priced at $29,047,706, when nearly $23 million of that amount had already been repaid to the United States. We address in turn these alleged falsehoods, neither of which is sufficient to give rise to liability under the False Claims Act. [17]
Showing the objective falsity of the price contained in Modification Five's co-production program line item, however, is not as simple a task as establishing the falsity of a statement of historical fact. A statement may be deemed false for purposes of the False Claims Act only if the statement represents an objective falsehood. Wilson, 525 F.3d at 376, citing Lamers, 168 F.3d at 1018. Although a breached contractual term may be considered a falsehood in a looser sense  a false promise  a mere breach of a contractual duty does not satisfy this standard. See United States ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 378 (7th Cir. 2003) (observing that a mere fail[ure] to keep one's promise is just breach of contract, not fraud); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 789 (4th Cir.1999) (affirming dismissal where allegations showed only poor and inefficient management of contractual duties). Nor do mere differences in interpretation growing out of a disputed legal question involving the terms of a contract. See Lamers, 168 F.3d at 1018. To establish the objective falsity of the coproduction line item price in Modification Five, Yannacopoulos needed to present evidence showing that Greece did not in fact agree to pay [that amount] for the items and services to be delivered under the coproduction line item. [18] None of the evidence on which Yannacopoulos relies is sufficient to show either the falsity of the coproduction line item price in Modification Five or Lockheed's knowledge of that falsity. Much of that evidence shows, at best, that General Dynamics and Greece reached other agreements regarding the co-production program before Modification Five was executed. But nothing about those agreements prevented Lockheed and Greece from reaching a new agreement when they negotiated the final terms of Modification Five. The parties to the original agreement were not bound to follow that agreement even after both agreed that it was not in their best interests to do so. Yannacopoulos also claims that General Dynamics collected millions of dollars for work on the co-production program that was not yet completed at the time Modification Five was signed, but we fail to see how this goes to show that Greece did not actually agree to pay the price set forth in that modification. The remainder of the evidence on which he relies  the decrease in demand for F-16 parts and General Dynamics' decision to no longer submit invoices in relation to the co-production program  suffer from that same failing. None of it could enable a reasonable jury to conclude that the price of the co-production program line item in Modification Five was objectively false, in the sense that Greece did not actually agree to pay the price set forth in that line item.
In his reply brief, Yannacopoulos takes issue with the fact that a $29,047,706 line item for U.S. Government recoupment was included in the total contract price set forth in Modification Five. [19] This was false, he says, because a later amendment to Contract 5/86 states that most of this money had already been repaid to the United States. Moreover, he claims that Article 8.7 of Contract 5/86 prohibits this line item  accurate or not  from being included in the contract price in the first place. By placing an inaccurate price for the government recoupment line item into the total price of Contract 5/86, Yannacopoulos says, Lockheed inflat[ed] the contract's total price and conceal[ed] the fact that [it had retained] millions of dollars of [loan] funds that defendants had been paid for the value of work they never performed. Yannacopoulos waived this argument for purposes of this appeal. Unlike his argument regarding the coproduction program line item  the falsity of which Yannacopoulos also argued only in his reply brief  Yannacopoulos failed to present any facts or argument regarding the government recoupment line item anywhere in his opening brief's discussion of Modification Five. The argument was waived. E.g., United States v. Diaz, 533 F.3d 574, 577 (7th Cir.2008). [20]
Yannacopoulos' final claim on appeal is that Amendment H0006 to Contract 5/86 (Modification Six), executed on February 26, 1996, was also a reverse false claim. In Modification Six, Lockheed agreed to refund to Greece $29,926,515. Of that amount, $22,883,575 related directly to the aircraft sale and $7,042,940 related to the co-production program  an amount that Lockheed later paid to the United States to be credited to the Greek trust fund account. On appeal, Yannacopoulos contends that Modification Six constituted a reverse false claim designed to conceal Lockheed's purported obligation to refund tens of millions of ... unearned [loan] funds to the United States government, among other things. To establish a reverse false claim, Yannacopoulos must first show that Modification Six was objectively false in some way. See Wilson, 525 F.3d at 376. He asserts that Modification Six was false in two separate respects. First, he claims that Annex AK to Modification Six was false because it states that [the] defendants paid to the Government ... $29,047,706 GD collected from Greece for recoupment, despite the fact that $1,891,146 in additional facilities rental recoupment charges included in that amount was allegedly unpaid by that time. Second, he argues that Annex AG to Modification Six was false because it did not ... truthfully reconcile the payments received by [the] defendants with the value of the work they performed. Rather, it set forth new payment schedules ... to collect additional [loan] funds for the remaining contract work as if [the defendants'] had retained no advance payments. We address each of these claims in turn, finding neither sufficient to defeat summary judgment. [21]
In Article 8.3 of Modification Six, Lockheed and Greece agreed that line item 14, entitled U.S. Government Recoupments, would be in the amount of $6,097,706. (A. 408). As explained in Article 8.7 of Modification Six, this line item represented the amount of recoupment that the U.S. Government has directed to be collected by Lockheed from Greece. This amount was to be collected by [Lockheed] and paid to the U.S. Government and is not included in the Contract Price nor ... in the Payment Schedule. Article 8.7 went on to say that the method of payment, the frequency of payment[,] and other payment terms and information are included in ANNEX AK  U.S. GOVERNMENT RECOUPMENTS. Turning to Annex AK of Modification Six, one finds, as of September 30, 1991, a total recoupment amount of $29,047,706. This amount was comprised of two discrete components: (1) $1,891,146 for what Annex AK calls Additional Facility Rental Recoupment; and (2) $27,156,560 for Item Delivery Recoupment. At issue here is the amount for Additional Facility Rental Recoupment, which was a charge owed to the United States government for use of the United States' Fort Worth facility to produce F-16 aircraft for Greece. Yannacopoulos argues that, because Article 8.7 discussed Annex AK in terms of payment rather than collection, we must read that Annex as a representation that the defendants had paid the entire $29,047,706 recoupment amount to the United States Government by the time the parties executed Modification Six. But see Lamers, 168 F.3d at 1018 (noting that imprecise statements are not actionable false statements). Because General Dynamics allegedly never paid the $1,891,146 amount for Additional Facilities Rental Recoupment, Yannacopoulos insists that Annex AK was false. Yannacopoulos misreads the language of Modification Six. While Annex AK says that, between March 31, 1989 and September 30, 1991, General Dynamics had collected from Greece $29,047,706 in funds designated for recoupment, it cannot be read to say that this entire amount had already been repaid to the United States government. Footnote 4 to that Annex states that, out of that amount, $22,950,000 [was] refunded to the Greece commercial sales account of the [FMF] trust fund on [May 17, 1991]. That amount related solely to Item Delivery Recoupment, though, and not the Additional Facility Rental amount that Yannacopoulos says was never paid. Footnote 5 to Annex AK went on to explain that the remaining $6,097,706 recoupment amount  $1,891,146 for Additional Facility Rental and $4,206,560 for Item Delivery Recoupment  has been paid and moved below the line under [line item] 14. Footnote 5  the crucial provision of Modification Six  cannot reasonably be understood to say, falsely or otherwise, that the $6,097,706 in line item 14 had already been repaid to the United States government by the time Modification Six was executed. Line item 14 was the amount designated by the United States for collection from Greece. By saying that this amount has been paid, footnote 5 indicates that this designated amount has already been paid by Greece, not by Lockheed. [22] Because Modification Six never says that the $1,891,146 for facility rental had already been paid to the United States, it is irrelevant whether such a statement would have been false if it had actually been made.
Finally, Yannacopoulos argues that Annex AG of Modification Six implicitly represented that an agreed-upon refund of $29,926,515 to the United States government was the totality of [the loan] funds that [the] defendants had been paid for the value of ... work that they never performed. [23] This implicit representation, he says, was false because Lockheed secretly retained over $21 million in advance payments for the value of work it never performed. As noted above, a claim under the False Claims Act requires proof of an objective falsehood. See Wilson, 525 F.3d at 376. In the context of a contractual agreement such as Modification Six, an objective falsehood requires proof that the parties did not actually reach the agreement set forth therein. Yannacopoulos does not claim that Lockheed and Greece did not actually agree to the refunds set forth in Modification Six, however. Instead, he says only that they implicitly represented that the refunds provided for in that modification were the only funds that Lockheed had been paid for work it had not completed. But see Lamers, 168 F.3d at 1018 (noting that imprecise statements are not actionable false statements). Yannacopoulos provides no evidentiary support for such a strained reading between the lines of Modification Six, apparently believing that a bald assertion about that modification's meaning should suffice. It does not. See, e.g., Drake v. Minn. Min. & Mfg. Co., 134 F.3d 878, 887 (7th Cir.1998) (Rule 56 demands something more than the bald assertion of the general truth of a particular matter, rather it requires ... specific concrete facts establishing the existence of the truth of the matter asserted.) (quotation omitted). At its core, Yannacopoulos' complaint is that Lockheed and Greece reached an agreement that allowed Lockheed to collect additional [loan] funds for the remaining contract work as if it had retained no advance payments. But this is nothing more than an argument that the parties should have agreed in Modification Six to refund more than a mere $29,926,515. Even if that may be true as a matter of contract law and sound public policy, that would not make Modification Six false. And absent evidence of a knowing falsehood, Yannacopoulos' final claim stumbles right out of the gate. [24] The judgment of the district court is AFFIRMED.