United States ex rel. Foreman v. AECOM

19 F.4th 85

UNITED STATES of America EX REL. Hassan FOREMAN, Plaintiff-Appellant,

United States of America, Plaintiff,

v.AECOM, AECOM Government Services, Inc., AC FIRST, LLC, and AECOM/GSS Ltd. d/b/a Global Sourcing Solutions, Inc., Defendants-Appellees.

Docket No. 20-2756-cv

August Term, 2020

United States Court of Appeals, Second Circuit.

Argued: May 21, 2021

Decided: November 19, 2021

Daniel Olejko (Patrick J. Conroy, on the brief), Bragalone Conroy PC, Dallas, TX, for Plaintiff-Appellant;

Benjamin D. White (Jenna M. Dabbs, Michael Skocpol, on the brief), Kaplan Hecker & Fink LLP, New York, NY, for Defendants-Appellees.

Before: Jacobs, Sack, and Chin, Circuit Judges.

Sack, Circuit Judge:

This action involves a billion-dollar defense contract entered into between AECOM (a publicly held corporation), AECOM Government Services, Inc., AC FIRST, LLC, and AECOM/GSS Ltd. (collectively, "AECOM") and the United States government, under which AECOM was tasked with providing maintenance and management support services to the United States Army in Afghanistan. In order to ensure that AECOM effectively and efficiently provided such services, the contract imposed various obligations on AECOM to properly catalog data regarding labor hours and costs, so-called "man-hour utilization" rates, and acquisition and receipt of government property into various government tracking systems. AECOM allegedly failed to live up to these contractual obligations.

Plaintiff-appellant Hassan Foreman, on behalf of the United States and himself, therefore filed an action against AECOM in the Southern District of New York, asserting violations of several provisions of the False Claims Act ("FCA"). According to Foreman, AECOM submitted fraudulent claims for payment to the government, falsely certifying that it was in compliance with its obligations under the contract. In reality, AECOM allegedly overstated its man-hour utilization rate, improperly billed the government for labor not actually performed, and failed to properly track government property, resulting in significant financial costs to the government.

AECOM moved to dismiss Foreman's third amended complaint (the "Complaint"), and the district court (Louis L. Stanton, Judge ) granted the motion. The district court dismissed Foreman's claims under 31 U.S.C. § 3729(a)(1)(A)-(B), because it concluded that Foreman had failed to adequately plead materiality as required by Universal Health Services, Inc. v. United States. ex rel. Escobar ("Escobar "), 579 U.S. 176, 136 S. Ct. 1989, 195 L.Ed.2d 348 (2016). In reaching this conclusion, the district court considered multiple reports outside of the complaint on the basis that they were either incorporated by reference into, or integral to, the complaint. The district court also dismissed Foreman's FCA conversion claim brought under 31 U.S.C. § 3729(a)(1)(D) because it concluded that the Complaint failed to identify "any specific excess or recoverable item or other property that defendants possessed but failed to deliver to the government." United States ex rel. Foreman v. AECOM , 454 F. Supp. 3d 254, 268 (S.D.N.Y. 2020). The district court also dismissed Foreman's reverse false claim brought under 31 U.S.C. § 3729(a)(1)(G),¹ because it concluded that the allegations underlying these claims were identical to those underlying his direct false claims under § 3729(a)(1)(A)-(B). Such duplicative allegations, the district court concluded, could not state a viable reverse false claim.

Following the district court's dismissal of the Complaint, Foreman moved for reconsideration. The district court denied the motion and entered judgment in favor of AECOM. Foreman subsequently filed a motion to alter or amend the judgment and requested leave to file a fourth amended complaint. The district court denied the motion, concluding that the proposed fourth amended complaint would be futile.

Foreman now appeals, arguing that the district court erred in dismissing the Complaint and entering judgment for the defendants. Foreman argues in the alternative that the district court erred in denying his post-judgment motion to alter the judgment and file a fourth amended complaint.

For the reasons that follow, we conclude that the district court erred in dismissing the Complaint in its entirety and entering judgment for AECOM. In particular, the district court's materiality analysis of Foreman's § 3729(a)(1)(A)-(B) claims premised on the labor billing allegations was flawed because the court improperly relied on material extraneous to the complaint. The court therefore erred in dismissing these claims at the motion-to-dismiss stage. We also conclude that the district court properly dismissed Foreman's other claims and that the "public disclosure bar" does not apply. We therefore vacate the district court's judgment, reverse the dismissal of Foreman's § 3729(a)(1)(A)-(B) claims premised on the labor billing allegations, affirm the dismissal of Foreman's other claims, and remand for further proceedings consistent with this opinion.

BACKGROUND

Factual Background²

A. The Parties

Defendants-Appellees AECOM (a publicly held corporation), AECOM Government Services, Inc., AC First, LLC, and AECOM/GSS Ltd., d/b/a Global Sourcing Solutions, Inc., (collectively, "AECOM") are a defense contractor and related corporate entities that contracted with the United States Army to provide logistical support to the 401st Army Field Support Brigade in Afghanistan beginning in 2005.

Relator Hassan Foreman is a former employee of AECOM who worked in its finance department from approximately August 2013 to July 2015. He was hired by AECOM as a finance analyst in August 2013 and promoted to supervisor in May 2014. In July 2015, shortly after notifying AECOM of what he saw as compliance issues, he was terminated.

B. The MOSC-A Contract

In 2010, the Army awarded AECOM a billion-dollar, multi-year defense contract called the Maintenance & Operational Support Contract (the "MOSC-A Contract"). The MOSC-A Contract required the defendants to provide maintenance and management support services to the Army in Afghanistan. These services included maintaining vehicles and equipment, managing facilities, handling supplies and inventory, and providing transportation services at various locations throughout Afghanistan.

The contract had a "cost-plus-fixed-fee" structure, meaning that AECOM was reimbursed for the costs that it incurred on the Army's behalf and received an additional negotiated fee that was fixed at the inception of the contract. In this case, AECOM obtained a 5% fixed fee that "does not vary with actual cost, but may be adjusted as a result of changes in the work to be performed under the contract." A.324-25 ¶ 10.³ Foreman alleges that this cost-plus-fixed-fee structure incentivized AECOM to maintain and increase the level of costs to the government because it would increase the value of the 5% fixed fee.

When it was first awarded in 2010, the MOSC-A Contract was to be effective for one year; it was, however, extended several times between 2010 and 2018. The MOSC-A Contract required the government to consider AECOM's previous performance in determining whether to award AECOM additional option years under the contract. From 2010 through 2018, the Army repeatedly amended, modified, or extended the contract, with the vast majority of the amendments and modifications increasing the funding for the MOSC-A Contract.

The cost of the MOSC-A Contract, with its options to extend, was originally estimated to be $378 million total. But AECOM billed as much as $400 million annually under the contract, and a 2018 amendment to the contract listed a total dollar amount of at least $1.3 billion. By the time the United States military withdrew from Afghanistan at the end of August 2021, the total amount paid to AECOM pursuant to the MOSC-A Contract was approximately $1.9 billion.

C. Alleged Violations of the MOSC-A Contract

Foreman alleges that AECOM and its employees violated the MOSC-A Contract and various federal regulations that were incorporated into it. These alleged violations fall into three principal categories: (1) improper labor billing; (2) inflated reports of the man-hour utilization rate; and (3) improper purchasing, tracking, and returning of government property.⁴

To prevent fraud and ensure accountability, the MOSC-A Contract imposed specific obligations on AECOM with respect to documenting its work and labor costs. For example, the MOSC-A Contract required that AECOM use the "AWRDS/LMP/MWB" or "SAMS-E/SAMS-IE" system for labor reporting, update those systems daily, and provide weekly reports of labor hours worked and funds expended for parts. In addition, various applicable Federal Acquisition Regulations ("FAR")⁵ required AECOM to account for costs, maintain adequate records to demonstrate any costs that have been incurred, and meet specific criteria regarding costs.

The MOSC-A Contract also established a man-hour utilization ("MHU") rate of 85 percent with a goal of 90 percent. An MHU rate is the ratio of time that personnel spend actively engaged in maintenance projects (actual direct labor hours) relative to their overall time on duty. In other words, the MHU rate is calculated by dividing the actual direct labor hours by the direct labor hours available to perform maintenance projects.

AECOM was required to report the MHU rate on a monthly basis. Such reporting allows the Army to review and verify utilization data for tactical field maintenance services and determine whether reductions in contractor personnel should be made. In Performance Work Statements incorporated by reference into the MOSC-A Contract, the Army identified the MHU rate as a critical metric.

The MOSC-A Contract and FAR also imposed specific obligations on AECOM regarding the management and tracking of government property. AECOM was required to have a system in place to manage government property in its possession and to keep detailed...