United States ex rel. Shemesh v. CA, Inc.

89 F.Supp.3d 36

United States of America ex rel. Dani Shemesh, Plaintiff

v.CA, Inc., Defendant.

Civil Action No. 09-1600 ESH

United States District Court, District of Columbia.

Signed March 31, 2015

Robert L. Vogel, Janet Lyn Goldstein, Vogel, Slade & Goldstein, LLP, Washington, DC, for Plaintiff

Dean W. Baxtresser, Anne Wylde Robinson, David Rex Hazelton, Kyle Robert Jefcoat, Roger Steven Goldman, Latham & Watkins LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, United States District Judge

Plaintiff-relator Dani Shemesh (“relator”) brings this qui tam action under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., on behalf of the United States against defendant CA, Inc. (“CA”). Defendant now moves to dismiss relator's second amended complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). (See Def.'s Mem. In Supp. of Mot. to Dismiss, Jun. 16, 2014 [ECF No. 56] (“Def.'s Mem.”).) For the following reasons, the motion to dismiss is granted in part and denied in part.

BACKGROUND

Relator worked for CA Software Israel Ltd., a wholly-owned subsidiary of CA, from May 2004 until December 2008. (See Sec. Am. Compl., Apr. 11, 2014 [ECF No. 44] (“SAC”) ¶ 8.) From September 2006 until his departure from the company, relator headed the sales division of CA Software Israel Ltd. (See id. ) CA, incorporated in Delaware, sells computer software licenses and maintenance to federal agencies in the District of Columbia pursuant to a “Multiple Award Schedule” (“MAS”) contract with the General Services Administration (“GSA”). (See id. ¶¶ 9, 11.) MAS contracts allow government agencies to purchase commercial items for a pre-negotiated price and to enter into blanket purchase agreements (“BPA”) with the vendor that incorporate the same terms as the MAS contract, but often include greater price discounts. (See id. ¶ 11.)

CA manufactures software for large mainframe computer systems and sells these software licenses either on a term or perpetual basis to government and non-government customers. Customers may also purchase maintenance for the software license for one or more years. (See id. ¶ 19.) CA's standard practice is to sell maintenance by calculating an associated maintenance rate for the specific software product as a percentage of the actual price paid for the software license. (See id. ¶ 21.) For example, if a customer purchases a software license for $200 and the maintenance rate is 20%, the customer would be able to purchase the maintenance for $40. Similarly, if the customer purchases the software license for 50% of the list price of $200 and the maintenance rate is still 20%, the customer would only need to pay $20 for the maintenance. Thus, if a customer receives a certain discount for a software license, a similar discount is applied to the maintenance fee.

CA and the GSA entered into a MAS contract, Contract No. GS–35F–0823M, on September 26, 2002. (See id. ¶ 22.) The MAS contract included terms for the sale of five types of products: 1) SIN 132–32, term software licenses; 2) SIN 132–33, perpetual software licenses; 3) SIN 132–34, maintenance; 4) SIN 132–50, training courses; and 5) SIN 132–51, information technology consulting services.¹ (See id. ¶ 23.) As required by law, CA submitted a Commercial Sales Practices Format (“CSP”) form as part of the MAS contract negotiations with the GSA on November 30, 2001. See 48 C.F.R. § 515.408 ; (see also SAC ¶ 24.) CSPs must be submitted for each SIN, but one CSP can contain more than one SIN if “the information is the same.” 48 C.F.R. § 515.408(b). The 2001 CSP attachment contained pricing information for the term software licenses, perpetual licenses, and maintenance. (See Def.'s Mem. Ex. B.) One of the CSP questions asks whether the discounts offered to the government are equal to or better than the best price offered to other customers for the same items.² If a seller answers “No,” it is required to provide detailed information about its discount policies and describe the circumstances under which other customers receive higher discounts than those offered to the government. See 48 C.F.R. § 515.408.

In response to this question, CA answered, “No.” (Def.'s Mem. Ex. B at 2.) CA also indicated that “[d]eviations from written policies or standard commercial sales practices disclosed ... result in better discounts (lower prices) or concessions than indicated.” (Id. ) CA provided information on the CSP attachment regarding its discount policies and pricing, including explanations of its standard licenses and payment options, a description of the GSA as a “Commercial End–User” (“CEU”) and proposed GSA discounts. (See id . at 1, 3, 6.) According to a chart CA provided to the government in conjunction with the 2001 CSP, CEUs made up approximately 80% of CA's sales. (See id. at 1.) CA noted that standard pricing for CEU customers was available in CA's Confidential Pricing guidelines, and discounts were subject to discretionary approval by various levels of managers depending on the size of the discount (see id . at 5), and large discounts must be approved by an Executive Vice President. (See SAC ¶ 33.) CA also described the pricing policies for its maintenance fees on the 2001 CSP attachment. CA stated that it “does not discount MFs [maintenance fees] ... to the commercial end-user class of customer,” but nonetheless offered the government a 2% reduction on its standard maintenance fee percentage. (Def.'s Mem. Ex. B at 6.) According to CA's statement on the 2001 CSP and a later September 20, 2002 letter to the GSA, “[t]he 2% reduction is a 10% (or greater) discount from the standard basis for establishing such fees.” (See id .; see also SAC ¶ 58.)

CA proposed to offer the GSA its standard license for the mainframe products at a 31% discount and the remaining products at a 20% discount. (Def.'s Mem. Ex. B at 5.) Further, CA proposed to guarantee the “price relationship” between the government and commercial customers by applying a “most favored price guarantee” based on an average discount for the same products and maintenance sold to other CEUs for orders less than $500,000. (Id .) Thus, if the average discount for the same products sold to similar customers exceeded that promised to the GSA, CA would retroactively apply the higher, average discount to the GSA orders. This was incorporated into the Price Reduction Monitoring Clause of the contract. (See, e.g., Def.'s Mem. Ex. C at 3.) CA disclosed to the GSA in a June 27, 2002 letter that it would exclude certain customers from the average discount calculation based on four specific exceptions to its standard discount and pricing policies: 1) client relations; 2) competitive replacements and bids; 3) contractual rates; and 4) business metric deals. (See Def.'s Mem. Ex. D at 1–2.) In a September 20, 2002 letter to the GSA, CA increased the discount offered to the government to 35% for the software licenses, but the maintenance fee offer remained the same. (See Def.'s Mem. Ex. C at 1–2.) The GSA accepted this offer, and the letter was incorporated into the contract.

The initial contract between the GSA and CA became effective on September 26, 2002. (See Gov. Am. Compl. in Intervention, June 13, 2014 [ECF No. 55] “Gov. Am. Compl.” ¶ 37.) This contract was operative for five years and was extended for one year in 2007. (Id . ¶ 41.) To facilitate the extension, CA submitted a new CSP on September 10, 2007, and offered the GSA an additional 15% discount on the software licenses for a total of 50% off the list price. (See id. ¶ 50.) The contract was extended again for another year in 2008, and CA certified in a September 4, 2008 letter that the total discount to the government for the software licenses would remain at 50%. (See id. ¶ 54.) In 2009, the parties extended the contract for three more years. (Id . at ¶ 55.)

On March 31, 2006, the Department of Agriculture signed a BPA with CA based on the GSA MAS contract. (See SAC ¶ 27.) This BPA incorporates many of the basic terms and conditions of the GSA MAS contract, but includes a most-favored customer provision that states “[n]o client is provided rates more favorable than those provided to the USDA under this BPA for the same licensed products under the same use terms, conditions, volumes or restrictions.” (Id. ¶ 27.) Between 2006 and 2008, CA submitted $22,649,399.32 in claims under the BPA to the Department of Agriculture, most of which were for maintenance. (See id . ¶ 60.)

Relator alleges that in the process of negotiating the GSA MAS contract, CA made false statements to the government (see id. ¶¶ 52–58), and as a result, all claims submitted by CA pursuant to the contract, or pursuant to any BPAs formed on the basis of the MAS contract, were false. (See id. ¶¶ 59–60.) Further, relator alleges that CA's failure to disclose this information to the government pursuant to the Price Reduction Monitoring Clause resulted in additional false statements made throughout the contract. (See id. ¶ 51.) CA was required to disclose “current, accurate, and complete” pricing policies and practices to the GSA (see 48 C.F.R. § 515.408, Figure 515.4 (Instructions for the Commercial Sales Practices Format)), but defendant failed to mention that sales to non-government customers often diverged from the pricelist. (See SAC ¶ 29.) In his second amended complaint, relator provides a series of examples to illustrate that, contrary to its statements to the government during contract negotiations, CA's pricing practices differed significantly from its pricelist. Senior CA official Jose Carvalho emailed Patrick Stark, Corporate Senior Vice President of Regional Sales for Europe, Middle East, and Africa, on November 30, 2006, that “customers do not know CA's price list not even for the product they licensed. In many case (sic), the prices list is ‘obscene’ and we end up doing discounts around 90% without ever telling customer this.” (Id. (quoting Carvalho Nov. 30, 2006...