Rocco v. SAP Am., Inc.

THOMAS ROCCO, Plaintiff and Appellant, v. SAP AMERICA, INC., et al., Defendants and Respondents.

G058937

California Court of Appeals, Fourth District, Third Division

September 8, 2021

NOT TO BE PUBLISHED

Appeal from a judgment of the Superior Court of Orange County, No 30-2018-01011837 Martha K. Gooding, Judge.

Kasowitz Benson Torres and Jason Takenouchi for Plaintiff and Appellant.

Duane Morris and Stephen H. Sutro for Defendants and Respondents SAP America, Inc., and SAP Public Services, Inc.

Hueston Hennigan, John C. Hueston, Joseph A. Reiter and Haoxiaohan Cai for Defendant and Respondent Deloitte Consulting LLP.

Rob Bonta, Attorney General, Matthew Rodriguez, Chief Assistant Attorney General, Martin Goyette, Assistant Attorney General Jacqueline Dale and Maria Ellinikos, Deputy Attorneys General as Amicus Curiae.

OPINION

THOMPSON, J.

This is an appeal from a sustained demurrer to qui tam plaintiff Thomas Rocco's fourth amended complaint alleging causes of action under the California False Claims Act (CFCA; Gov. Code, § 12650 et seq.).^[1] The City of San Diego (San Diego, or the City) initiated an overhaul of the systems it uses to track its physical assets, such as roads and sidewalks. It hired defendants SAP America, Inc., and SAP Public Services, Inc. (collectively, SAP), to design the architecture for such a system, to draft a request for proposal (RFP) to elicit bidders to implement the system, and to evaluate the bids as they came in. Defendant Deloitte Consulting, Inc. (Deloitte), was one of the bidders on the project. According to the complaint, SAP and Deloitte have extensive business dealings, with Deloitte being among SAP's top 14 customers worldwide. When a vice-president at SAP heard Deloitte was bidding, he sought to tip the scales in its favor in order to secure additional work on the San Diego project. Deloitte did not respond to SAP's overtures, but ultimately won the bid to implement the new system. Rocco contends SAP's conflicted advice in recommending Deloitte was a false claim under a theory of implied certification, i.e., SAP sought payment knowing it had not complied with a material term of the contract. We agree that Rocco has adequately pleaded his claim and thus reverse the judgment of the trial court.

As to Deloitte, Rocco contends it made a claim for payment on work that was actually performed by SAP pursuant to a separate contract with the City (i.e., not a subcontractor of Deloitte). We agree with Rocco that he adequately stated this claim as well, and thus reverse the judgment of the trial court.

Rocco raises several other contentions in his complaint that we deem inadequately pleaded. Accordingly, we affirm the remainder of the judgment.

ALLEGATIONS

Beginning in 2007, San Diego began utilizing software developed by SAP to run several primary business operations, including finances, budgeting, purchasing, and human resources management. From 2012 to April 2016, Rocco was the SAP “trusted City Client Partner” assigned to servicing the City with respect to all of its software consulting needs. As the city client partner, Rocco was responsible for SAP's day to day servicing of the City's operational needs.

In 2014, SAP was hired by San Diego to design the overall architecture of an enterprise asset management (EAM) system to manage the City's infrastructure assets, such as roads, sidewalks, parks, storm drains, buildings, facilities and wastewater assets. Because San Diego already relied on a suite of SAP applications, the EAM system was to be “SAP-centric” in order to integrate with San Diego's existing SAP applications. The eventual goal of the system was to manage the over $9.7 billion worth of infrastructure assets. Pursuant to the design engagement, SAP designed an integrated EAM system using the SAP suite of EAM tools. SAP was not tasked with actually implementing the system. This was solely a design phase. The selection of a systems integrator to oversee the implementation of the system would come later via a competitive bidding process. In fact, SAP was prohibited from bidding on the systems integrator contract. We refer to this contract as the EAM Design Contract.

In 2015, SAP entered into a separate contract with San Diego to create a request for proposal (RFP) to initiate the competitive bidding process to hire the system integrator. As part of the same contract, SAP agreed to evaluate the proposals received in response to the RFP, and act as a consultant to the City in choosing the winning bid. To that end, SAP retained the services of Sai Kiran, who served as SAP's formal evaluator to serve beside city officials. Pursuant to that appointment, Kiran signed a “Confidentiality Agreement” and agreed to “evaluate proposals submitted in response to [the EAM/SI] RFP fairly and impartially.” The agreement also specifies the obligation “[t]o notify the [Public Works Contracts] Deputy Director immediately: i. if any person who is not a member of the evaluation team... contacts... me about this procurement[;] ii. If a conflict of interest occurs.” (Italics omitted.) The agreement further specifies that “[a] conflict of interest occurs when a[n]…elected or appointed member of City government participates directly or indirectly in the procurement process pertaining to an RFP particularly if they: [¶] a. Have a financial interest or other personal interest which is incompatible with the proper discharge of his or her official duties in the public interest or would tend to impair his or her independence, judgment or action in the performance of official duties.” (Italics omitted.) We refer to this contract as the RFP Contract.

The RFP was posted in September 2015. Included in the RFP was the statement, “the City anticipates retaining, under separate contracts, the services of SAP Professional Services... to support the EAM project.” One of the bidders who responded to the RFP was defendant Deloitte.

SAP and Deloitte had extensive business dealings prior to the San Diego project. Deloitte was dubbed a “Value-Added Reseller operating at the ‘Platinum' partner level.” In 2015, Deloitte was amongst SAP's top 14 international customers. SAP did not disclose these dealings to San Diego.

The two finalists for the EAM systems integrator position were Deloitte and Labyrinth Systems, Inc. (Labyrinth). A director and vice-president at SAP, Scott Porter, had a particularly low opinion of Labyrinth, describing Labyrinth in an internal e-mail as “crooks and liars, ” and directing SAP personnel not to provide LSI any assistance on the San Diego project. Upon learning that Deloitte and Labyrinth were finalists, Porter wrote an internal e-mail asking, “Any way we can buddy to Deloitte?” In another e-mail he asked another department head, “do you guys work with Deloitte?” Porter later directed an employee to send the following e-mail to Deloitte's managing director: “Hey Bob... it was mentioned that Deloitte is in the running for a project in San Diego on Asset Management [EAM Systems Integrator RFP]. Our SAP Delivery and Sales Teams stand ready to support Deloitte in winning this opportunity and are happy to provide background information. SAP set up the bid process and created the RFP.” That employee then forwarded the e-mail to Porter, saying, “Scott, I tapped my west coast Deloitte contact. I did not mention the partnering which I believe is implicit and will be addressed by others on the SAP Team.”

These e-mails had been forwarded to Rocco, who confronted Porter about the legality of trying to partner with Deloitte. He reminded Porter that urging SAP colleagues to derogate (Labyrinth) and/or promote Deloitte (let alone share confidential City information about the RFP with Deloitte or anybody) constituted an unlawful conflict of interest and a serious breach of SAP's contractual obligations to the City. Porter disagreed. Indicating to Rocco that SAP needed to guide the City in the right direction, Porter contended it would be a mistake for the City to hire Labyrinth, and that SAP should be able to leverage pre-existing relationships with a key partner such as Deloitte in response to the RFP. Porter ended the call indicating to Rocco that this was a subject to be discussed in a future conversation, which never happened. Instead, Rocco was reassigned to a different department and instructed not to contact San Diego.

In April 2016, San Diego's City Council formally awarded the EAM systems integrator contract to Deloitte. To reach that decision, the City's infrastructure/public works interview panel reviewed proposals from both Deloitte and Labyrinth and interviewed both firms. Based on the interview panel's ranking and recommendation, the appointing authority selected Deloitte, which became a beneficiary at that time of a 3-year phase funded agreement for the EAM project, valued at approximately $20 million. We refer to this contract as the EAM/SI Contract.

After the contract was awarded, at Deloitte's urging, San Diego entered into a separate contract with SAP that required SAP to perform work that was redundant to the contract with Deloitte. In particular, Deloitte's contract required it recommend a geographic information system to integrate with a mapping technology from a company called ESRI for the purpose of geographically tracking San Diego's assets (this is referred to as the Geographic Information System, or GIS for short). The contract then required Deloitte to deploy the chosen technology. In January of 2017, the City entered into a contract with SAP to perform the exact deployment Deloitte was already contractually obligated to perform. We refer to this as the GIS Contract. Deloitte never performed the deployment services, but nevertheless billed San Diego $835,...