7th Circuit Affirms Dismissal of False Claims Act Claims Against General Dynamics and Lockheed Martin
In United States ex rel. Yannacopoulos v. General Dynamics, et al., No. 09-3037, the 7th Circuit affirmed summary judgment dismissal of a case alleging that General Dynamics and Lockheed Martin submitted false claims to the United States for payment in connection with a contract to manufacture and sell F-16 fighter jets and related parts and services to the government of Greece.
The relator’s primary claims arose from General Dynamics’s submission of claims for payment relating to the Hellenic Business Development and Investment Company, a Greek company created by General Dynamics and in which the government of Greece was a minority shareholder. The fighter jet contract with Greece required General Dynamics to create this new company and capitalize it with $50 million dollars. The company’s stated purpose was to provide venture capital to companies in Greece. However, after fifteen years, the company was to be dissolved with all assets up to $50 million and 50% of assets in excess of that amount reverting to the government of Greece.
The relator alleged that General Dynamics violated the False Claims Act by billing the United States for the $50 million used to capitalize the new company. The relator argued that passing these costs on to the United States violated a provision of the contract requiring General Dynamics to “confirm that the material for which payment is requested are United States source end products”, among other provisions. In connection with the submission of requests for payment to the United States, General Dynamics certified its compliance with this and other provisions of the contract.
The lower court, however, rejected the relator’s argument and granted summary judgment dismissing the relator’s claims relating to the Hellenic Business Development and Investment Company. The 7th Circuit affirmed, holding that the source end product restriction applied only to “material” to be provided under the contract. The 7th Circuit held that “material”, as used in the contract, included only physical items or substances such as jet engines or spare parts. The relator’s arguments based on other terms of the contract requiring the U.S. origin of products or goods failed for similar reasons.
The relator alternatively argued that requests for payments relating to the Hellenic Business Development and Investment Company violated a provision of the contract preventing General Dynamics from using government funds to purchase services from non-U.S. contractors or individuals not resident in the U.S. The lower court rejected this claim as well. The 7th Circuit affirmed, reasoning that General Dynamics’s expenditure of funds on stock in the new company failed to qualify as the purchase of services.