United States ex rel. Dyer v. Raytheon Co.

UNITED STATES OF AMERICA ex Tel., ROBERT J. DYER Plaintiffs,

v.RAYTHEON COMPANY, Defendant.

CIVIL ACTION NO. 08-10341-DPW

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

Dated: July 29, 2011

MEMORANDUM AND ORDER

Relator Robert J. Dyer brought this qui tam action on behalf of the United States of America (the "Government") against Defendant Raytheon Company ("Raytheon" or the "Company"), alleging that Raytheon knowingly and intentionally made false statements in violation of the False Claims Act (the "FCA"), 31 U.S.C. §§ 3729 et seq., and wrongfully terminated him in violation of the FCA anti-retaliation provision, 31 U.S.C. § 3730(h). Following the Government's election not to intervene, Raytheon moved to dismiss all of Dyer's claims. For the reasons discussed below, I will deny Raytheon's motion to dismiss as to the FCA claims but will grant that motion as to the retaliation claim.

I. BACKGROUND

A. Factual Background

The allegations contained in the Verified Amended Complaint are read in the light most favorable to Dyer, the non-moving party.

1. The Development of the Company's Working Capital Incentive Program

In February 2000, Dyer was hired by Frank Caine, Chief Financial Officer at Raytheon, as the Senior Manager of Financial Analysis in the Corporate Finance Group. (V. Am. Compl. ¶¶ 15-16.) In this capacity, Dyer was in charge of developing a special enterprise level working program known as Raytheon Working Capital Incentive Program (the "RWCIP"). (Id. ¶ 18.) The objective of the RWCIP was to provide an incentive for Raytheon's business executives and managers to make operational and process improvements in daily operations resulting in increased cash flow, reduction of debt, and interest expense. (Id.)

In March 2001, Frank Caine and Keith Peden, Vice President of Human Resources, presented the RWCIP to Raytheon's Board of Directors (the "Board"). (Id. ¶ 23.) During this presentation, Caine and Peden informed the Board that "only operational and process improvements which resulted in the actual production of cash value would be counted toward achievement of the RW[C]IPtargets." (Id.) They also stated that the RWCIP would be self-funded, meaning that any incentive bonuses would be funded exclusively by working capital savings. (Id.) Based on these representations, the Board approved the RWCIP for approximately 2,000 executives in relevant business units; with each unit being required to achieve a 0.6 turn improvement in working capital turnover. (Id. ¶ 21.)

Following the approval of the RWCIP by the Board, the Company prepared documentation to explain to its employees the purpose and the rules applicable to this program. In this connection, the 2001 Company's Working Capital Incentive Plan brochure stated:

We are targeting to remove approximately $470 Million in working capital and save approximately $33 Million in interest. This is where your payout comes from: as we improve our efficiency, a portion of the interest savings will be used to reward the participants who have achieved this goal.

(Id. ¶ 25; Ex. 34-3.) In addition, a presentation made by Dyer was distributed to the relevant business units explaining them that "[g]round rules establish that operational and process improvements count toward target achievement." (Id. ¶ 26; Ex. 34-4 at 10.)

In August 2001, Dyer and Gary McCauley, Raytheon's Vice President for Financial Analysis, met with Herb Homer, the Officer at the Defense Contract Audit Agency ("DCAA") in charge of Raytheon, to present an overview of the RWCIP. (Id. ¶ 27.)During this presentation, Dyer and McCauley explained that the RWCIP would not only benefit Raytheon but also the Government by maximizing efficiencies on the various contracts the Company had with the Government. (Id. ¶ 28.) The rules applicable to this program were, as explained to Homer, that "only real improvements resulting in working capital savings and cash production would be counted toward the RWCIP and that accounting reclassifications would not be considered for purposes of target achievement goals and incentive bonuses." (Id. ¶ 27.) Following this meeting, Raytheon obtained approval from Homer on behalf of the DCAA to charge the Government for the RWCIP compensation bonuses, which were to be charged as "Allowable Costs" for reimbursement as part of the "Overhead Charges" submitted to the Government. (Id.) Accordingly, the RWCIP was approved not only by the Board, but also by the Government. (Id. ¶ 29.)

2. The C3I Business Unit and Relevant Accounting Reclassifications

During the same time period, Frank Marchilena, President of Raytheon's Command Control Communication and Information Systems ("C3I") business unit, sent a letter to C3I participants explaining what Dyer characterizes as "ground rules" and parameters of the RWCIP as follows:

This program is targeted to select individuals who can dramatically impact our capital performance. Working capital is a measure of the amount of investment we have in our business. The more efficient we can be at running our business the lower our working capital and the more cash we can generate to pay down our debt.

(Id. ¶ 31; Ex. 34-7.) Further to this communication, Dyer sent an email to the chief financial officers of all relevant business units on November 30, 2001 to inquire about accounting reclassifications related to the RWCIP for the Plan Year 2001. (V. Am. Compl. ¶ 32.) In that email, Dyer mentioned that all accounting reclassifications were to be excluded from the measurement of working capital turnover for RWCIP purposes:

You will remember back to the inception of the working capital incentive program a set of ground rules that stated only process improvements would count toward goal achievement. As a housekeeping item related to calculating the actual 2001 working capital turnover performance will be to identify and exclude any reclassifications made between working capital accounts and other balance sheet accounts during 2001.

(Id. ; Ex. 34-8 (emphasis added).)

Duncan Noyes, Manager of Budget and Planning of the C31 business unit, responded to Dyer's request on December 17, 2001 by reporting two minor accounting reclassifications and one allegedly "worth a few Million $." (V. Am. Compl. ¶ 34; Ex. 34-9.) Shortly thereafter, Judy Durkin, Corporate Director of Financial Planning and Analysis at Raytheon, met with Dyer to discuss Noyes' December 17 email. (Id. ¶ 35.) During this meeting, Durkin told Dyer that the significant accounting reclassification mentioned in that email had not been made in accordance with the RWCIP and therefore needed to be removed from the C3I business unit working capital turnover measurement. (Id. ¶ 36.)

Consistent with the position adopted by Durkin, Dyer sent an email to Noyes on December 19, 2001 reaffirming that the "ground rules" prohibited the inclusion of any accounting reclassifications for RWCIP purposes. (Id. ¶ 37; Ex. 34-10.) Noyes and David Farnsworth, Chief Financial Officer of the C3I business unit, sent further details on December 21, 2001 to Dyer regarding the two previously disclosed minor accounting reclassifications but failed to mention the more significant reclassification referenced in Noyes' December 17 response. (V. Am. Compl. ¶ 39.) At that time, Dyer decided to forward the December 21 response to McCauley, his manager, along with a note explaining that the Controller's group had informed him of "another significant ($20+ million) reclassification entry that should be adjusted for." (Id. ¶ 40; Ex. 34-13.) Dyer then asked Farnsworth to confirm the absence of any entries other than the two referenced minor reclassifications which would impact the measurement of C3I working capital turnover. (V. Am. Compl. ¶ 41; Ex. 34-14.) Farnsworth expressly "confirmed" on the same day that none existed. (V. Am. Compl. ¶ 42; Ex. 34-15.)

The Corporate Accounting Department at Raytheon reported on January 3, 2002 that a $23.7¹ million reclassification inrelation to its Space Imaging Joint Venture Project (the "Space Imaging reclassification") had been made in January 2001 by the C3I business unit. (Id. ¶ 43; Ex. 34-16.) In essence, the C3I business unit had moved the Space Imaging reclassification from a short term to a long-term receivable position. (Id. ¶ 45.) Upon learning this information, Dyer attempted to contact McCauley on numerous occasions to express concern. (Id. ¶ 47.) Dyer managed to speak with McCauley on January 4, 2002 and inform him that the Space Imaging reclassification was fraudulent. (Id. ¶ 48.) Because McCauley took no action, Dyer decided to relay his concerns to Ed Pliner, Corporate Controller at Raytheon, who responded that there was no intention "to hide the ball." (Id. ¶ 49.) Dyer received a call from McCauley shortly thereafter, instructing him that "the issue was done." (Id. ¶ 50.) Dyer understood McCauley's instruction to mean that, if he continued to investigate the matter, he would be terminated. (Id.)

A few days later, McCauley contacted Dyer to ask him whether he was aware of any standard practice for making adjustments for the minor reclassifications that the C3I business unit had disclosed. (Id. ¶ 51.) Dyer replied that no such practice was in place but nevertheless explained how to make the adjustment. (Id.) Dyer also seized the occasion to remind McCauley that the same treatment should be applied to the Space Imagingreclassification. (Id.) McCauley responded "[l]et's focus on demos and upstream [the two minor reclassifications] and get agreement on their impact. [Space Imaging] is in a different category." (Id.; Ex. 34-22; Ex. 34-23.) McCauley subsequently informed Dyer that the Space Imaging reclassification would be allowed to count as a real improvement for RWCIP purposes. (V. Am. Compl. ¶ 52.)

During the week that followed, Dyer prepared a "Final 2001 Performance Appraisal" for the C3I business unit, which initially included the following language:

The reported results included here have

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